UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 For the month of August 2014 Commission File Number 001-35505 BROOKFIELD PROPERTY PARTNERS L.P. (Exact name of registrant as specified in its charter) 73 Front Street, Hamilton, HM 12 Bermuda (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F X Form 40-F _____ Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Transcript
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2014
Commission File Number 001-35505
BROOKFIELD PROPERTY PARTNERS L.P. (Exact name of registrant as specified in its charter)
73 Front Street, Hamilton, HM 12 Bermuda
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F _____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
DOCUMENTS FILED AS PART OF THIS FORM 6-K
See the Exhibit List to this Form 6-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 15, 2014 BROOKFIELD PROPERTY PARTNERS L.P.,
by its general partner Brookfield Property Partners
Limited
By: /s/ “Jane Sheere”
Name: Jane Sheere
Title: Secretary
EXHIBIT LIST
Exhibit
Description
99.1
99.2
Unaudited condensed consolidated financial statements of Brookfield Property
Partners L.P. as at June 30, 2014 and December 31, 2013 and for the three and
six month periods ended June 30, 2014 and 2013
Management’s Discussion and Analysis of Financial Results of Brookfield
Property Partners L.P. as at June 30, 2014 and December 31, 2013 and for the
three and six month periods ended June 30, 2014 and 2013
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ............................................................................................ 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
PART I – OBJECTIVES AND FINANCIAL HIGHLIGHTS................................................................................................................... 32
PART II – FINANCIAL STATEMENT ANALYSIS.............................................................................................................................. 35
PART III – RISKS AND UNCERTAINTIES ....................................................................................................................................... 55
PART IV – ADDITIONAL INFORMATION ..................................................................................................................................... 60
CORPORATE INFORMATION ............................................................................................................................................................. 61
Redeemable/exchangeable and special limited partnership units(1) 16,17 11,979 11,092Limited partnership units of Brookfield Office Properties Exchange LP(1) 16,17 724 ―Interests of others in operating subsidiaries and properties 17 6,376 11,366
Total equity 24,698 24,990Total liabilities and equity $ 55,121 $ 52,446(1) The partnership’s equity interests include general partnership units (“GP Units”), publicly traded limited partnership units (“LP Units”), redeemable/exchangeable partnership units
(“Redeemable/Exchangeable Partnership Units”) and special limited partnership units (“Special LP Units”) of the operating partnership and limited partnership units of BrookfieldOffice Properties Exchange LP (“Exchange LP Units”). Holders of the GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and Exchange LP Units arecollectively referred to as the “unitholders”.
See accompanying notes to the condensed consolidated financial statements.
Brookfield Property Partners L.P.Condensed Consolidated Statements of Income
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Unaudited Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions, except per unit information) Note 2014 2013 2014 2013Commercial property revenue 18 $ 742 $ 711 $ 1,465 $ 1,459Hospitality revenue 264 331 539 660Investment and other revenue 19 209 44 266 99Total revenue 1,215 1,086 2,270 2,218Direct commercial property expense 20 331 293 645 598Direct hospitality expense 21 202 262 415 514Interest expense 307 276 595 543Depreciation and amortization 22 37 54 76 87Administration and other expense 23 95 65 179 111Total expenses 972 950 1,910 1,853Fair value gains, net 24 1,014 376 1,582 590Share of net earnings from equity accounted investments 6 301 162 529 394Income before income taxes 1,558 674 2,471 1,349Income tax expense 14 269 196 689 295Net income 1,289 478 1,782 1,054
Net income attributable to:Limited partners(1) $ 270 $ 44 $ 347 $ 44General partner(1) ― ― ― ―Brookfield Asset Management Inc.(2) ― (97) ― 232Non-controlling interests attributable to:
Redeemable/exchangeable and special limited partnership units(1) 574 206 866 206Limited partnership units of Brookfield Office Properties Exchange LP 48 ― 51 ―Interests of others in operating subsidiaries and properties 397 325 518 572
1,289 478 1,782 1,054Net income per LP Unit:Basic(3) 16 $ 1.29 $ 0.54 $ 2.16 $ 0.54Diluted(3) 16 $ 1.25 $ 0.54 $ 2.12 $ 0.54(1) For periods subsequent to April 15, 2013.(2) For the periods prior to April 15, 2013.(3) Net income per LP Unit have been presented effective for the period from the date of the Spin-off on April 15, 2013, as this is the date of legal entitlement of earnings to the LP Unit
holders.
See accompanying notes to the condensed consolidated financial statements.
Brookfield Property Partners L.P.Condensed Consolidated Statements of Comprehensive Income
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Unaudited(US$ Millions)
Three months ended Jun. 30, Six months ended Jun. 30,Note 2014 2013 2014 2013
Net income $ 1,289 $ 478 $ 1,782 $ 1,054Other comprehensive income (loss): 26
Total other comprehensive income (loss) 112 (581) 101 (664)Total comprehensive income (loss) 1,401 (103) 1,883 390
Comprehensive income attributable to:Limited partners(1)
Net income 270 44 347 44Other comprehensive income (loss) 18 (55) 15 (55)
288 (11) 362 (11)General partner(1)
Net income ― ― ― ―Other comprehensive income (loss) ― ― ― ―
― ― ― ―Brookfield Asset Management Inc.(2)
Net income ― (97) ― 232Other comprehensive income (loss) ― 36 ― (25)
― (61) ― 207Non-controlling interests
Redeemable/exchangeable and special limited partnership units (1)
Net income 574 206 866 206Other comprehensive income (loss) 38 (265) 28 (265)
612 (59) 894 (59)Limited partnership units of Brookfield Office Properties Exchange LP (1)
Net income 48 ― 51 ―Other comprehensive income (loss) 3 ― 3 ―
51 ― 54 ―Interests of others in operating subsidiaries and properties (1)
Net income 397 325 518 572Other comprehensive income (loss) 53 (297) 55 (319)
450 28 573 253Total comprehensive income (loss) $ 1,401 $ (103) $ 1,883 $ 390(1) For periods subsequent to April 15, 2013.(2) For the periods prior to April 15, 2013.
See accompanying notes to the condensed consolidated financial statements.
Brookfield Property Partners L.P.Condensed Consolidated Statements of Changes in Equity
Net income $ 1,782 $ 1,054Share of equity accounted earnings, net of distributions (130) (394)Fair value (gains) losses, net 24 (1,582) (590)Deferred income tax expense 14 649 318Depreciation and amortization 22 76 87Working capital and other (370) (308)
425 167Financing activities
Debt obligations, issuance 5,949 3,518Debt obligations, repayments (4,232) (2,201)Capital securities redeemed ― (201)Non-controlling interests, issued 711 90Non-controlling interests, purchased (1,538) ―Distributions to non-controlling interests in operating subsidiaries (807) (224)Contributions from Brookfield Asset Management Inc. ― 19Distributions to Brookfield Asset Management Inc. (218) (206)Distributions to unitholders of the operating partnership (80) (60)Distributions to holders of Exchange LP units (9) ―Distributions to general partnership unitholders ― (1)
(224) 734Investing activities
Investment properties, proceeds of dispositions 629 221Investment properties, investments (1,050) (805)Investment in equity accounted investments ― (144)Proceeds from sale of investments ― 114Investments in associates, dispositions 111 ―Investments in associates, additions (33) ―Financial assets, dispositions 1,182 131Financial assets, acquisitions (1,035) ―Other property, plant and equipment, dispositions 140 ―Other property, plant and equipment, investments (20) ―Foreign currency hedges of net investments ― (21)Loans and notes receivable, collected ― 164Loans and notes receivable, advanced ― (119)Restricted cash and deposits ― (18)Acquisitions of subsidiaries, net of disposition (1) 54Capital expenditures – development and redevelopment ― (128)Capital expenditures – commercial properties ― (167)
(77) (718)Cash and cash equivalents
Net change in cash and cash equivalents during the period 124 183Effect of exchange rate fluctuations on cash and cash equivalents held in foreign currencies 12 (26)Balance, beginning of period 1,368 894Balance, end of period $ 1,504 $ 1,051
Supplemental cash flow informationCash paid for:
Income taxes $ 70 $ 57Interest (excluding dividends on capital securities) $ 570 $ 425
See accompanying notes to the condensed consolidated financial statements.
Brookfield Property Partners L.P.Notes to the Condensed Consolidated Financial Statements
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NOTE 1. ORGANIZATION AND NATURE OF THE BUSINESSBrookfield Property Partners L.P. (“BPY” or the “partnership”) was formed as a limited partnership established under the laws of Bermuda,pursuant to a limited partnership agreement dated January 3, 2013, as amended and restated on August 8, 2013. BPY is a subsidiary ofBrookfield Asset Management Inc. (“Brookfield Asset Management” or the “parent company”) and is the primary entity through which theparent company and its affiliates own, operate, and invest in commercial and other income producing property on a global basis.
The partnership’s sole material asset is a 34% managing general partnership unit interest in Brookfield Property L.P. (the “operatingpartnership”), which holds the partnership’s interest in commercial and other income producing property operations. Prior to August 8, 2013,the partnership’s interest in the operating partnership was comprised solely of a limited partnership interest in class A limited partnershipunits (the “Class A LP Units”) of the operating partnership. Effective August 8, 2013, the Class A LP Units were renamed managing generalpartner units. The managing general partner units provide the partnership with the power to direct the relevant activities of the operatingpartnership.
The partnership’s limited partnership units are listed and publicly traded on the New York Stock Exchange (“NYSE”) and the Toronto StockExchange (“TSX”) under the symbols ‘‘BPY’’ and ‘‘BPY.UN’’, respectively. The registered head office of the partnership is 73 Front Street,5th Floor, Hamilton HM 12, Bermuda.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa) Statement of complianceThe interim condensed consolidated financial statements of the partnership and its subsidiaries have been prepared in accordance withInternational Accounting Standard (“IAS”) 34, Interim Financial Reporting (“IAS 34”), as issued by the International Accounting StandardsBoard (“IASB”). Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements preparedin accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB, have been omitted or condensed.
These condensed consolidated financial statements as of and for the three and six months ended June 30, 2014 were approved andauthorized for issue by the Board of Directors of the partnership on August 6, 2014.
b) Basis of presentationThe interim condensed consolidated financial statements are prepared using the same accounting policies and methods as those used in theconsolidated financial statements for the year ended December 31, 2013, except for the impact of adoption of the accounting standarddescribed below. Consequently, the information included in these interim condensed consolidated financial statements should be read inconjunction with the consolidated financial statements and accompanying notes included in the partnership’s annual report on Form 20-F forthe year ended December 31, 2013.
The interim condensed consolidated financial statements are unaudited and reflect all adjustments (consisting of normal recurringadjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented inaccordance with IFRS. The results reported in these interim condensed consolidated financial statements should not necessarily be regardedas indicative of results that may be expected for the entire year.
The interim condensed consolidated financial statements are prepared on a going concern basis and have been presented in U.S. dollarsrounded to the nearest million unless otherwise indicated.
c) Change in operating segmentsIn April 2014, the partnership realigned its operating segments as a result of changes to the organizational and governance structure of thepartnership’s businesses to align the structures more closely with the nature of the partnership’s investments, such as the acquisition ofadditional interests in Brookfield Office Properties Inc. (“Brookfield Office Properties” or “BPO”). Such realignment gave rise to changes in howthe partnership presents information for financial reporting and management decision-making purposes. Consequently, the partnership’soperating segments now consist of i) Office, ii) Retail, iii) Industrial, and iv) Multi-family and Hotels. All prior period segment disclosures havebeen recast to reflect changes in the partnership’s operating segments. Certain other prior year amounts have been reclassified to conform tothe current year presentation. See Note 31, Segmented Information, for further discussion.
d) EstimatesThe preparation of the partnership’s interim condensed consolidated financial statements in accordance with IAS 34 requires the use ofcertain critical accounting estimates and assumptions. It also requires management to exercise judgment in applying the partnership’saccounting policies. The accounting policies and critical estimates and assumptions have been set out in Note 2, Significant AccountingPolicies, to the partnership’s consolidated financial statements for the year ended December 31, 2013 and have been consistently applied inthe preparation of the interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2014.
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e) Adoption of Accounting StandardIn May 2013, the IASB issued IFRIC Interpretation 21, Levies (“IFRIC 21”), which was developed by the IFRS Interpretations Committee. Thepartnership adopted IFRIC 21 effective January 1, 2014. IFRIC 21 addresses when an entity should recognize a liability to pay a governmentlevy other than income taxes. IFRIC 21 is an interpretation of IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”). IAS 37sets out criteria for the recognition of a liability, one of which requires an entity to have a present obligation as a result of a past event. IFRIC21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers thepayment of the levy. The adoption of this guidance did not have any significant impact on the partnership’s interim condensed consolidatedfinancial statements.
f) Continuity of interestsOn April 15, 2013, Brookfield Asset Management completed a spin-off of its commercial property operations (the “Business”) to thepartnership (the “Spin-off”), which was effected by way of a special dividend of units of the partnership to holders of Brookfield AssetManagement’s Class A and B limited voting shares as of March 26, 2013. Brookfield Asset Management directly and indirectly controlled theBusiness prior to the Spin-off and continues to control the partnership subsequent to the Spin-off through its interests in the partnership. As aresult of this continuing common control, there is insufficient substance to justify a change in the measurement of the Business. Accordingly,the partnership has reflected the Business in its financial position and results of operations using Brookfield Asset Management’s carryingvalues prior to the Spin-off.
To reflect the continuity of interests, the interim condensed consolidated financial statements provide comparative information of theBusiness for the periods prior to the Spin-off, as previously reported by Brookfield Asset Management. The economic and accounting impactof contractual relationships created or modified in conjunction with the Spin-off have been reflected prospectively from the date of the Spin-off and have not been reflected in the results of operations or financial position of the partnership prior to April 15, 2013 as such items were infact not created or modified prior thereto. Accordingly, the financial information for the periods prior to April 15, 2013 is presented based onthe historical financial information for the contributed operations as previously reported by Brookfield Asset Management. For the periodsafter the Spin-off, the results are based on the actual results of the partnership, including the adjustments associated with the Spin-off and theexecution of several new and amended agreements including management service and relationship agreements (see Note 29, Related Parties,for further discussion). Certain of these new or amended agreements resulted in differences in the basis of accounting as recorded byBrookfield Asset Management and as recorded by the partnership.
NOTE 3. ACQUISITION OF BROOKFIELD OFFICE PROPERTIES INC.As of December 31, 2013, the partnership’s interest in Brookfield Office Properties consisted of 49% of its outstanding common shares and97% of its outstanding voting preferred shares. On February 12, 2014, the partnership and its indirect subsidiaries Brookfield Office PropertiesExchange LP (“Exchange LP”) and Brookfield Property Split Corp. (“BOP Split”, and collectively with BPY and Exchange LP, the “Purchasers”),announced the commencement of the tender offer to acquire any or all of the common shares of Brookfield Office Properties that they didnot already own (the “Offer”). Under the Offer, Brookfield Office Properties shareholders were able to elect to receive one BPY limitedpartnership unit or $20.34 in cash for each BPO common share rendered, subject in each case to pro-ration based on a maximum number ofBPY limited partnership units and maximum cash consideration equating to approximately 67% and 33%, respectively, of the total number ofBPO common shares subject to the Offer. BOP Split was incorporated as a wholly-owned subsidiary of Brookfield BPY Holdings Inc., a primaryholding subsidiary of the partnership, to acquire common stock of BPO under the Offer and was established as a preferred share issuer.
Immediately after completion of the Offer, the Purchasers owned 92% of the outstanding BPO common shares. In June 2014, the Purchaserscompleted a subsequent acquisition of all the remaining BPO common shares by way of a plan of arrangement (the “Arrangement”) underCanadian corporate law. Pursuant to shareholder elections under the Arrangement, holders of BPO securities received the followingconsideration:
a) Common SharesPursuant to the terms of the Arrangement, BPO shareholders were able to receive either one limited partnership unit of BPY or $20.34 in cashfor each BPO common share held, subject to pro-ration. Shareholders electing to receive BPY limited partnership units, or exchangeablelimited partnership units of Exchange LP (the “Exchange LP Units”), received one limited partnership unit for each BPO common sharetendered (or deemed tendered). Canadian BPO shareholders were given the option to receive, in lieu of BPY Units, Exchange LP units.Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, for BPY Units, subject to certain terms andapplicable law. An Exchange LP Unit provides a holder thereof with economic terms which are substantially equivalent to those of a BPY Unit.
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b) Preferred SharesHolders of outstanding BPO Convertible Preference Shares series, which consist of the Class AAA Preference Shares, Series G, Series H, Series J,and Series K of BPO, were given the option to elect either:
i. to exchange their BPO Convertible Preference Shares for BOP Split senior preferred shares (“BOP Split Senior PreferredShares”), subject to minimum listing requirements and a maximum of 1,000,000 BOP Split Senior Preferred Shares issued perseries, pro-rated, or
ii. to continue holding their BPO Convertible Preference Shares, the conditions of which were modified in order to provide for theBPO Convertible Preference Shares to be exchangeable into BPY limited partnership units rather than convertible into BPOcommon shares.
c) Class A Voting Preferred SharesAll Class A Series A and B voting preferred shares owned by BPO, other than those held by the Purchasers or their subsidiaries, were redeemedby BPO for cash.
Under IFRS 10, Consolidated Financial Statements, the buy-out of a non-controlling interest by a parent is accounted for as an equitytransaction. As a result of the Offer and Arrangement, BPY owns 100% of the issued and outstanding common shares of BPO. Prior to theArrangement, BPO was consolidated by BPY. Subsequent to the Arrangement, BPY will continue to consolidate BPO. In addition, and inaccordance with IAS 32, Financial Instruments: Presentation (“IAS 32”), transaction costs associated with such a transaction are accounted foras a deduction of equity in the consolidated financial statements. As a result, the partnership deducted approximately $25 million from equityfor the six months ended June 30, 2014.
NOTE 4. BUSINESS ACQUISITIONS AND COMBINATIONSThe partnership accounts for business combinations using the acquisition method of accounting under IFRS 3, Business Combinations (“IFRS3”), pursuant to which the cost of acquiring a business is allocated to its identifiable tangible and intangible assets and liabilities on the basis ofthe estimated fair values at the date of acquisition. The partnership completed the following acquisitions during the six months ended June30, 2014. Financial results of each transaction are included within the partnership’s condensed consolidated statements of income from thedates of each acquisition.
In June 2014, the partnership acquired an additional 50% interest in KPMG Tower in Sydney for a net purchase price of approximately $130million bringing its ownership in the property to 100%. The acquisition of the additional interest in KPMG Tower is accounted for as a businesscombination in accordance with IFRS 3 and KPMG Tower has been consolidated by the partnership since the acquisition date. Prior to theacquisition date, KPMG Tower was accounted for as an investment in joint operations.
In January 2014, the partnership purchased an additional 23.6% interest in Five Manhattan West (previously known as 450 West 33rd Street)for a net purchase price of $57 million, which includes cash consideration of $50 million and the settlement of a $7 million loan receivable. Asa result, the partnership’s ownership in Five Manhattan West increased to 98.6%. The partnership has consolidated Five Manhattan West as aresult of the business combination in accordance with IFRS 3 since the acquisition date, prior to which it was accounted for as an investment injoint venture under the equity method of accounting.
The following table summarizes the impact of significant acquisitions during the six months ended June 30, 2014 that resulted inconsolidation:
(US$ Millions)Five Manhattan
West(2)KPMGTower
Other BusinessCombinations Total
Cash and cash equivalents $ 54 $ ― $ ― $ 54Accounts receivable and other 3 ― 1 4Investment properties 653 130 158 941Total assets 710 130 159 999Less:
Accounts payable and other liabilities (2) ― (1) (3)Debt obligations (462) ― ― (462)Non-controlling interests(1) (4) ― ― (4)
Net assets acquired $ 242 $ 130 $ 158 $ 530
Consideration $ 57 $ 130 $ 158 $ 345(1) Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition.(2) Consideration for the acquisition of Five Manhattan West is before considering the existing investment in joint venture accounted for under the equity method of accounting.
In the period from the acquisition date to June 30, 2014, the partnership recorded revenue and net income in connection with theseacquisitions of approximately $26 million and $3 million, respectively. If the acquisitions had occurred on January 1, 2014, the partnership’stotal revenue and net income would have been $2,312 million and $1,789 million, respectively, for the six months ended June 30, 2014.
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Acquisition-related costs, which primarily relates to legal and consulting fees, are expensed as incurred in accordance with IFRS 3 and areincluded in administration and other expense on the condensed consolidated statements of income.
NOTE 5. INVESTMENT PROPERTIESThe following table is a roll forward of investment property balances for the six months ended June 30, 2014 and the year ended December31, 2013:
Six months ended Jun. 30, 2014 Year ended Dec. 31, 2013Commercial
propertiesCommercial
developments TotalCommercial
propertiesCommercial
developments Total(US$ Millions)Balance, beginning of period $ 31,679 $ 2,474 $ 34,153 $ 30,211 $ 1,485 $ 31,696Additions:
Property dispositions(1) (1,182) (48) (1,230) (1,340) (193) (1,533)Fair value gains (losses), net 1,145 151 1,296 805 143 948Change in presentation on Spin-off(2) ― ― ― (1,421) ― (1,421)Change in basis of presentation(3) ― ― ― (175) (36) (211)Foreign currency translation 344 41 385 (1,264) (66) (1,330)Other 148 53 201 125 14 139Balance, end of period $ 33,441 $ 3,070 $ 36,511 $ 31,679 $ 2,474 $ 34,153(1) Property dispositions represent the carrying value on date of sale.(2) Certain investment properties have been reclassified to equity accounted investments and participating loan notes to reflect the accounting impact of contractual relationships
created or modified in conjunction with the Spin-off.(3) Due to the reorganization of ownership interests between the partnership and Brookfield Asset Management in 2013, certain operating and development assets have been
reclassified to/from equity accounted investments, as they were held through entities that the partnership previously consolidated and are now equity accounted investments.
The partnership’s investment properties balance consists of both commercial properties and commercial developments. The partnershipdetermines the fair value of each commercial property based upon, among other things, rental income from current leases and assumptionsabout rental income from future leases reflecting market conditions at the applicable balance sheet dates, less future cash outflows (includingrental payments and other outflows) in respect of such leases. Where available, the partnership determines the fair value of commercialproperties based on recent sales of similar property in the same location and condition and subject to a similar leasing profile. Wherecomparable current sales in an active market do not exist, the partnership considers information from a variety of sources, including: i)discounted cash flows based on reliable estimates of future cash flows, supported by the terms of existing lease and other contracts, andevidence such as current market rents for similar properties in the same location and condition, using discount rates to reflect uncertainty inthe amount and timing of the cash flows; ii) recent prices of similar properties in less active markets, with adjustments to reflect any change ineconomic conditions since the date of the observed transactions that occurred at those prices, including market rents and discount orcapitalization rates; and iii) current prices in an active market for properties of a different nature, condition or location, including differences inleasing and other contracts.
In certain cases, these sources will suggest different conclusions about the fair value of an investment property. In such cases, the partnershipconsiders the reasons for any such differences in validating the most reliable estimate of fair value. Investment property valuations arecompleted by undertaking one of two accepted income approach methods, which include either: i) discounting the expected future cashflows, generally over a term of 10 years including a terminal value based on the application of a capitalization rate to estimated year 11 cashflows; or ii) undertaking a direct capitalization approach whereby a capitalization rate is applied to estimated current year cash flows. Fairvalues are primarily determined by discounting the expected future cash flows as opposed to the direct capitalization approach. Indetermining the appropriateness of the methodology applied, the partnership considers the relative uncertainty of the timing and amount ofexpected cash flows and the impact such uncertainty would have in arriving at a reliable estimate of fair value. In circumstances where there islow uncertainty as to the timing and amount of expected cash flows, which is primarily due to the lease profile, maturity and the market inwhich the property is located, a discounted cash flow approach is applied.
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Commercial developments are also measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date.Development sites in the planning phases are measured using comparable market values for similar assets.
In accordance with its policy, the partnership measures and records its commercial properties and developments using valuations prepared bymanagement. The partnership does not measure or record its properties based on valuations prepared by external valuation professionals.
Values are most sensitive to changes in discount rates and timing or variability of cash flows. The key valuation metrics for the partnership’sconsolidated commercial properties and equity accounted investments are set forth in the following tables below on a weighted-averagebasis:
Industrial Discounted cash flow 8.2% 7.6% 10 8.9% 7.7% 10Multi-family(1) Direct capitalization 5.8% n/a n/a 6.0% n/a n/a(1) The valuation method used to value multi-family properties is the direct capitalization method. The rates presented as the discount rate relate to the overall implied capitalization
rate. The terminal capitalization rate and investment horizon are not applicable.
Industrial Discounted cash flow 7.4% 6.7% 10 7.8% 7.0% 10Multi-family(2) Direct capitalization 5.6% n/a n/a 5.6% n/a n/a(1) See Note 6 for further discussion on the partnership’s equity accounted investments.(2) The valuation method used to value multi-family investments is the direct capitalization method. The rates presented as the discount rate relates to the overall implied
capitalization rate. The terminal capitalization rate and investment horizon are not applicable.
NOTE 6. EQUITY ACCOUNTED INVESTMENTSThe partnership has investments in joint arrangements that are joint ventures, and also has investments in associates. Joint ventures holdindividual commercial properties and developments that the partnership owns together with co-owners where decisions relating to therelevant activities of the joint venture require the unanimous consent of the co-owners.
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Details of the partnership’s investments in joint ventures and associates, which have been accounted for following the equity method, are asfollows:
Proportion ofOwnership Interests/Voting Rights Held by
the Partnership Carrying value
(US$ Millions) Principal ActivityPrincipal Placeof Business
Jun. 30,2014
Dec. 31,2013
Jun. 30,2014
Dec. 31,2013
Joint Ventures245 Park Avenue, New York Property holding company United States 51% 51% $ 680 $ 653Grace Building, New York Property holding company United States 50% 50% 513 695Five Manhattan West, New York (1) Property holding company United States n/a 75% ― 191E&Y Complex, Sydney Property holding company Australia 50% 50% 247 236Republic Plaza(2) Property holding company United States 50% n/a 99 ―Other Various Various 12%-83% 13%-83% 866 906
2,405 2,681Associates
General Growth Properties, Inc. (“GGP”) Real Estate Investment Trust United States 29% 28% 6,307 6,044Rouse Properties, Inc. (“Rouse”) Real Estate Investment Trust United States 34% 39% 415 399Other Various Various 24%-42% 24%-42% 172 157
6,894 6,600Total equity accounted investments $ 9,299 $ 9,281(1) See Note 4 for further discussion.(2) At December 31, 2013, Republic Plaza was consolidated and presented at fair value within investment properties on the condensed consolidated balance sheet as the partnership’s
ownership of the property, through BPO, was 100%. See below for further discussion.
In April 2014, BPO sold 50% of its interest in Republic Plaza, which is located in Denver, Colorado, through the establishment of a 50/50 jointventure partnership for approximately $98 million. Republic Plaza was previously consolidated within investment properties on the condensedconsolidated balance sheet. BPO continues to retain joint control of the resulting joint venture in accordance with IFRS 11, JointArrangements, and as of the sale date, recorded and presented Republic Plaza as an equity accounted investment on the condensedconsolidated balance sheet at $98 million. BPO has retained management and leasing responsibilities at Republic Plaza.
The fair value of the common shares of GGP held by the partnership based on the trading price of GGP common stock as of June 30, 2014 is $6billion (December 31, 2013 - $5 billion). The fair value of the common shares of Rouse held by the partnership based on the trading price ofRouse common stock as of June 30, 2014 is $332 million (December 31, 2013 - $430 million). There are no quoted market prices for thepartnership’s other equity accounted investments.
Summarized financial information in respect of the partnership’s equity accounted investments is provided below:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Revenue $ 1,000 $ 1,074 $ 2,013 $ 2,283Expense 393 795 945 1,589Income before fair value gains, net 607 279 1,068 694Fair value gains, net 349 92 618 556Net income 956 371 1,686 1,250Partnership’s share of net earnings $ 301 $ 162 $ 529 $ 394
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NOTE 7. PARTICIPATING LOAN INTERESTSParticipating loan interests represent interests in certain properties in Australia that do not provide the partnership with control over theentity that owns the underlying property and are accounted for as loans and receivables and held at amortized cost on the condensedconsolidated balance sheets. The instruments, which are receivable from a wholly-owned subsidiary of Brookfield Asset Management, havecontractual maturity dates of September 26, 2020 and February 1, 2023, subject to the partnership’s prior right to convert into directownership interests in the underlying commercial properties, and have contractual interest rates that vary with the results of operations ofthose properties.
The outstanding principal of the participating loan interests relates to the following properties:
Darling Park Complex, Sydney 30% Sep. 26, 2020 $ 175 $ 161IAG House, Sydney 50% Sep. 26, 2020 117 110NAB House, Sydney(1) ― Sep. 26, 2020 ― 105Bourke Place Trust, Melbourne 43% Sep. 26, 2020 194 174Jessie Street, Sydney 100% Feb. 1, 2023 150 130Fujitsu Centre, Sydney(2) ― Feb. 1, 2023 ― 30Infrastructure House, Canberra 100% Feb. 1, 2023 40 37Total participating loan interests $ 676 $ 747(1) During the first quarter of 2014, BPO sold its 25% participating interest in NAB House in Sydney for approximately $105 million in net proceeds.(2) During the second quarter of 2014, the partnership sold its economic interest in Fujitsu Centre for approximately $33 million in net proceeds.
Included in the balance of participating loan interests is an embedded derivative representing the partnership’s right to participate in thechanges in the fair value of the referenced properties. The embedded derivative is measured at fair value with changes in fair value reportedthrough earnings in fair value gains, net on the condensed consolidated statements of income. The carrying value of the embedded derivativeas at June 30, 2014 is $47 million (December 31, 2013 - $56 million).
For the three and six month periods ended June 30, 2014, the partnership recognized interest income on the participating loan interests of$13 million (2013 – $13 million) and $27 million (2013 – $13 million), respectively, and fair value gains of $19 million (2013 – $22 million) and$15 million (2013 – $22 million), respectively.
Summarized financial information in respect of the properties underlying the partnership’s investment in participating loan interests is set outbelow:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Revenues $ 52 $ 62 $ 104 $ 62Expenses 23 28 49 28Earnings before fair value gains, net 29 34 55 34Fair value gains, net 24 44 20 44Net earnings $ 53 $ 78 $ 75 $ 78
NOTE 8. HOTEL ASSETSHotel assets primarily consist of the partnership’s hotel properties received as part of the acquisitions of Paradise Island Holdings Limited(“Atlantis”) and BREF HR, LLC (“Hard Rock”). Hotel assets are presented on a cost basis, net of accumulated fair value changes andaccumulated depreciation. Accumulated fair value changes include unrealized revaluations of hotel assets using the revaluation method,which are recorded in revaluation surplus as a component of equity, as well as unrealized impairment losses recorded in net income. Thepartnership determines the fair value of these assets on an annual basis as of December 31 by discounting the expected future cash flowsusing internal valuations.
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The following table presents the change to the components of the partnership’s hotel assets from the beginning of the year:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Cost
Balance, beginning of the period $ 2,569 $ 3,129Net additions (dispositions) (133) 133Foreign exchange translation ― (85)Change in basis of presentation(1) ― (608)
2,436 2,569Accumulated fair value changes
Balance, beginning of the period 129 1Increase from revaluation ― 138Provision for impairment ― (7)Disposals ― (3)
129 129Accumulated depreciation
Balance, beginning of the period (266) (160)Depreciation (56) (125)Change in basis of presentation(1) ― 19
(322) (266)Total hotel assets $ 2,243 $ 2,432(1) Certain hotel assets in Australia, which are held through an entity which was previously consolidated by the partnership through September 29, 2013, have been reclassified to
equity accounted investments as of September 30, 2013.
NOTE 9. OTHER NON-CURRENT ASSETSThe components of other non-current assets are as follows:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Securities designated as fair value through profit or loss (“FVTPL”) $ 1,799 $ 1,068Derivative assets 1,104 868Securities designated as available-for-sale (“AFS”) 151 124Goodwill 128 120Other 407 622Total other non-current assets $ 3,589 $ 2,802
a) Securities designated as FVTPLSecurities designated as FVTPL are financial assets that are stated at fair value on the consolidated balance sheets, with any gains or lossesarising on remeasurement recognized in fair value gains, net on the consolidated statements of income.
Securities designated as FVTPL primarily includes the partnership’s 22% common equity interest in Canary Wharf Group plc (“Canary Wharf”),a privately held commercial property investment and development company in the United Kingdom, and a $500 million investment inpreferred equity of China Xintiandi (“CXTD”), an entity whose common equity is wholly-owned by Hong Kong listed developer Shui On Land.CXTD owns Shui On Land’s portfolio of retail and office properties in Shanghai.
The partnership has determined that it does not exercise significant influence over these aforementioned entities.
b) Derivative assetsDerivative assets include the carrying amount of warrants to purchase shares of common stock of GGP with a carrying amount of $1,074million (December 31, 2013 - $868 million). The fair value of the GGP warrants as of June 30, 2014 was determined using a Black-Scholesoption pricing model, assuming a 3.4 year term (December 31, 2013 - 3.9 year term), 51% volatility (December 31, 2013 - 51% volatility), and arisk free interest rate of 1.00% (December 31, 2013 - 1.49%).
c) Securities designated as AFSSecurities designated as AFS are financial assets that are stated at fair value on the condensed consolidated balance sheets, with any fair valuegains or losses recognized in other comprehensive income and reclassified to net income upon sale or impairment.
At June 30, 2014 securities designated as AFS includes $106 million (December 31, 2013 – $105 million) which represents the partnership’s10% common equity interest and $92 million preferred equity interest in 1625 Eye Street in Washington, D.C. The preferred equity securities,bearing a fixed dividend of 6.50%, are redeemable by the issuer at par in 2016 and are pledged as security for a loan payable to the issuer inthe amount of $92 million (December 31, 2013 – $92 million) recognized in other non-current financial liabilities.
Securities designated as AFS also includes $30 million as of June 30, 2014 which represents the partnership’s 10% common equity interest inHeritage Plaza in Houston that resulted from the disposition of a 41% interest, net of a 49% non-controlling interest, in the property during thefirst quarter of 2014. The 49% non-controlling interest previously consolidated was also disposed of.
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d) GoodwillGoodwill represents a portfolio premium recognized in connection with the historical purchase of the partnership’s Brazilian retail assets. Thepartnership performs an annual goodwill impairment test during the fourth quarter of the fiscal year using carrying amounts as of December31. Should certain events or indicators of impairment occur between annual impairment tests, the partnership will perform the impairmenttest as those events or indicators occur. The partnership assesses goodwill impairment at the cash generating unit level.
e) OtherOther primarily includes the partnership’s finite-lived intangible assets which are presented on a cost basis, net of accumulated amortizationand accumulated impairment losses on the condensed consolidated balance sheets. These intangible assets primarily represent the trademarkand licensing assets acquired as part of the acquisitions of Atlantis and Hard Rock. Intangible assets with indefinite useful lives and intangibleassets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may beimpaired. As of June 30, 2014, the amount of accumulated amortization related to the finite-lived intangible assets was approximately $55million (December 31, 2013 - $43 million).
NOTE 10. LOANS AND NOTES RECEIVABLELoans and notes receivable are financial assets that are carried at amortized cost on the consolidated balance sheets with interest incomerecognized following the effective interest method on the consolidated statements of income. Notes receivables purchased at a discount arealso carried at amortized cost with discounts amortized over the remaining expected life of the loan following the effective interest method. Aloan is considered impaired when, based upon current information and events, it is probable that the partnership will be unable to collect allamounts due for both principal and interest according to the contractual terms of the loan agreement. Loans are evaluated individually forimpairment given the unique nature and size of each loan. On a quarterly basis, the partnership’s subsidiaries perform a quarterly review of allcollateral properties underlying the loans receivable for each collateralized loan. There is no impairment of loans and notes receivable for thethree and six month periods ended June 30, 2014.
Loans and notes receivable are generally secured by commercial and other income producing property.
4% (50%); Bank Rate + 2.0%On demand / completion of
construction92 607
Non-interest bearing 95 ―$ 194 $ 628
Current $ 87 $ 608Non-current 107 20Total loans and notes receivable $ 194 $ 628
In the second quarter of 2014, notes receivable denominated in Euros and carried at amortized cost were repaid to the partnership for cash atpar value plus accrued interest.
NOTE 11. ACCOUNTS RECEIVABLE AND OTHERThe components of accounts receivable and other are as follows:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Accounts receivable(1) $ 530 $ 386Restricted cash and deposits 337 337Other current assets 238 312Total accounts receivable and other $ 1,105 $ 1,035(1) See Note 29, Related Parties, for further discussion.
Restricted cash and deposits are considered restricted when they are subject to contingent rights of third parties that prevent the assets’ usefor current purposes.
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NOTE 12. DEBT OBLIGATIONSThe partnership’s debt obligations include the following:
Debt obligations include foreign currency denominated debt in the functional currencies of the borrowing subsidiaries. Debt obligations bycurrency are as follows:
Capital Securities – Fund Subsidiaries(2) – – 572 491Total capital securities $ 2,447 $ 2,369
Current $ 187 $ 188Non-current 2,260 2,181Total capital securities $ 2,447 $ 2,369(1) Subsequent to the privatization of BPO on June 9, 2014, Brookfield Property Split Corp. owns 1,000,000 shares of each Series G, Series H, Series J and Series K capital securities, which
has been reflected as a reduction in outstanding shares of each series of the BPO Class AAA Preferred Shares.(2) The Capital Securities - Fund Subsidiaries represent the equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by co-investors in the fund which have been classified as a
liability, rather than as non-controlling interest, as holders of these interests can cause DTLA to redeem their interests in the fund for cash equivalent to the fair value of the interestson October 15, 2023, and on every fifth anniversary thereafter. Capital securities – fund subsidiaries are measured at redemption amount.
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The terms of BPO’s Class AAA Preferred Shares, Series G, H, J and K, have been amended such that these shares are exchangeable into BPYunits and no longer convertible into BPO common stock. As discussed previously, in connection with the Arrangement, holders of suchsecurities were given the option, subject to an overall limit of 1,000,000 shares per series and certain other conditions, to exchange their BPOConvertible Preference Shares for BPO Split Senior Preferred Shares. Subsequent to the Arrangement, 1,000,000 such shares of each serieswere issued in exchange for the same number of BPO Convertible Preference Shares, which are now held by BOP Split.
Capital securities includes $516 million (December 31, 2013 – $518 million) repayable in Canadian dollars of C$550 million (December 31, 2013– C$550 million).
Cumulative preferred dividends on the capital securities are payable quarterly, as and when declared by the Board of Directors of BrookfieldBPY Holdings Inc. and BPO. On April 24, 2014 the Board of Directors of BPO declared quarterly dividends payable for the Class AAA Series G, H,J and K preferred shares.
As stated in Note 3, holders of outstanding BPO Convertible Preference Shares series were given the option to elect to exchange their BPOConvertible Preference shares for BOP Split Senior Preferred Shares. In accordance with IAS 32 and IAS 1, Presentation of FinancialStatements, the BOP Split Senior Preferred Shares are presented as current liabilities within capital securities on the condensed consolidatedbalance sheets as there is a contractual obligation to deliver cash as well as a retraction provision that permits holders of each series of sharesto retract the BOP Split Senior Preferred Shares at any time.
The holders of each series of the BOP Split Senior Preferred Shares are each entitled to receive fixed cumulative preferential cash dividends, if,as and when declared by the Board of Directors of BOP Split. Dividends on each series of the BOP Split Senior Preferred Shares accrue dailyfrom the date of issue (less any tax required to be deducted and withheld by BOP Split) and are payable quarterly on the last day of March,June, September and December in each year. The first dividend paid on the BOP Split Senior Preferred Shares will be for the full quarter endedSeptember 30, 2014. The first dividend on the BOP Split Senior Preferred Shares issued pursuant to the Arrangement will be calculated as ifthe BOP Split Senior Preferred Shares were issued on July 1, 2014, regardless of the date that such shares were actually issued.
NOTE 14. INCOME TAXESThe partnership is a flow-through entity for tax purposes and as such is not subject to Bermudian taxation. However, income taxes arerecognized for the amount of taxes payable by the primary holding subsidiaries of the partnership (“Holding Entities”), any direct or indirectcorporate subsidiaries of the Holding Entities, and for the impact of deferred tax assets and liabilities related to such entities.
The major components of income tax expense include the following:
The increase in income tax expense relates primarily to increased revenue, deferred taxes due to a change in legislation, which affects the rateat which some of the partnership’s temporary differences will be taxed and an increase in deferred taxes relating to the purchase of additionalinterest in BPO.
NOTE 15. ACCOUNTS PAYABLE AND OTHER LIABILITIESThe components of accounts payable and other liabilities are as follows:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Accounts payable and accrued liabilities $ 1,642 $ 1,541Other liabilities 194 124Total accounts payable and other liabilities $ 1,836 $ 1,665
Included in accounts payable and other liabilities are derivative liabilities with a carrying amount of $191 million at June 30, 2014 (December31, 2013 – $128 million).
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NOTE 16. EQUITYThe partnership’s capital structure is comprised of five classes of partnership units: general partnership units (“GP Units”) and limitedpartnership units (“LP Units”), redeemable/exchangeable partnership units of the operating partnership (“Redeemable/ExchangeablePartnership Units”), special limited partnership units of the operating partnership (“Special LP Units”), and limited partnership units ofExchange LP (“Exchange LP Units”). Prior to the Spin-off, equity otherwise not attributable to interests of others in operating subsidiaries andproperties had been allocated to Brookfield Asset Management.
a) General and limited partnership equityGP units entitle the holder the right to govern the financial and operating policies of the partnership. The GP units are entitled to a 1% generalpartnership interest, equity enhancement distributions and incentive distributions from the operating partnership. The managing generalpartner of BPY is Brookfield Property Partners Limited, a wholly-owned subsidiary of Brookfield Asset Management.
LP Units entitle the holder to their proportionate share of distributions and are listed and publicly traded on the NYSE and the TSX. Each LPUnit entitles the holder thereof to one vote for the purposes of any approval at a meeting of limited partners, provided that holders of theRedeemable/Exchangeable Partnership Units that are exchanged for LP Units will only be entitled to a maximum number of votes in respect ofthe Redeemable/Exchangeable Partnership Units equal to 49% of the total voting power of all outstanding units.
GP units and LP Units outstanding are as follows:
General partnership units Limited partnership units Total(Thousands of units) Jun. 30, 2014 Dec. 31,2013 Jun. 30, 2014 Dec. 31,2013 Jun. 30, 2014 Dec. 31,2013Outstanding, beginning of period 139 – 102,522 – 102,661 –Issued on Spin-off – 139 – 80,091 – 80,230Issued on November 1, 2013 for theacquisition of incremental interest in GGP
– – – 22,431 – 22,431
Issued on March 20, April 1, and June 9 2014for the acquisition of incremental BPO shares
– – 124,871 – 124,871 –
Exchange LP Units exchanged – – 15,906 – 15,906 –Distribution Reinvestment Program – – 43 – 43 –Outstanding, end of period 139 139 243,342 102,522 243,481 102,661
b) Units of the operating partnership held by Brookfield Asset Management
Redeemable/Exchangeable Partnership UnitsThe Redeemable/Exchangeable Partnership Units are non-voting limited partnership interests in the operating partnership and have the sameeconomic attributes in all respects with the partnership’s LP Units. Beginning on April 15, 2015, the Redeemable/Exchangeable PartnershipUnits may, at the request of the holder, be redeemed in whole or in part, for cash in an amount equal to the market value of one of thepartnership’s LP Units multiplied by the number of units to be redeemed (subject to certain adjustments). This right is subject to thepartnership’s right, at its sole discretion, to elect to acquire any unit presented for redemption in exchange for one LP unit (subject to certaincustomary adjustments). If the partnership elects not to exchange the Redeemable/Exchangeable Partnership Units for LP Units, theRedeemable/Exchangeable Partnership Units are required to be redeemed for cash. The Redeemable/Exchangeable Partnership Units providethe holder the direct economic benefits and exposures to the underlying performance of the partnership and accordingly to the variability ofthe distributions of the operating partnership, whereas the partnership’s unitholders have indirect access to the economic benefits andexposures of the operating partnership through direct ownership interest in the partnership which owns a direct interest in the managinggeneral partner units of the operating partnership.
Redeemable/Exchangeable Partnership Units outstanding are as follows:
Redeemable/ExchangeablePartnership Units
(Thousands of units) Jun. 30, 2014 Dec. 31, 2013Outstanding, beginning of period 432,649 –Issued on Spin-off – 381,329Issued on November 15, 2013 for the acquisition of incremental interest in GGP – 51,320Outstanding, end of period 432,649 432,649
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Special limited partnership unitsPrior to August 8, 2013, Property Special LP held 1% of the GP units of the partnership and as part of the reorganization effected on August 8,2013, these units were transferred to be 1% Special LP Units. This reorganization was made in order to simplify the partnership’s governancestructure and to more clearly delineate the partnership’s governance rights in respect of the operating partnership.
There were 4,759,997 Special LP Units outstanding at June 30, 2014 and December 31, 2013, respectively.
c) Limited partnership units of Brookfield Office Properties Exchange LPExchange LP Units were issued in March and June 2014 to certain Canadian holders of common shares of BPO who elected to receive suchunits for each BPO common share tendered in the Offer or the Arrangement by such shareholder. The Exchange LP Units are exchangeable atany time on a one-for-one basis, at the option of the holder, subject to their terms and applicable law, for LP Units. An Exchange LP Unitprovides a holder thereof with economic terms that are substantially equivalent to those of a LP Unit of the partnership. Subject to certainconditions and applicable law, Exchange LP will have the right, commencing on the seventh anniversary of the completion of the Arrangementto redeem all of the then outstanding Exchange LP Units.
Exchange LP Units are outstanding as follows:
Limited Partnership Units ofBrookfield Office Properties
Exchange LP(Thousands of units) Jun. 30, 2014 Dec. 31, 2013Outstanding, beginning of period – –Issued on March 20, April 1, and June 9 2014 for the acquisition of incremental BPO shares 48,126 –Exchange LP Units exchanged (1) (15,906) –Outstanding, end of period 32,220 –(1) Approximately 15.9 million Exchange LP Units issued for the acquisition of incremental BPO shares are held by an indirect subsidiary of the partnership.
d) DistributionsDistributions made to each class of partnership units are as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions, except per unit information) 2014 2013(1) 2014 2013(1)
Redeemable/exchangeable partnership units 108 50 216 50Special limited partnership units 1 – 2 –Limited partnership units of Exchange LP 9 – 9 –
Total distributions 172 60 307 60Per unit(2) $ 0.25 $ 0.13 $ 0.50 $ 0.13(1) For the period from April 15, 2013, the date of the Spin-off, to June 30, 2013.(2) Per unit outstanding on the record date for each.
e) Earnings per unitThe partnership’s net income per LP Unit and weighted average units outstanding are calculated as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income attributable to limited partners – basic $ 270 $ 44 $ 347 $ 44Dilutive effect of conversion of BPO Convertible Preferred Shares 1 – 1 –Net income attributable to limited partners – diluted 271 44 348 44
Weighted average units outstanding – basic 209.9 80.2 160.4 80.2Dilutive effect of conversion of BPO Convertible Preferred Shares(1) 6.3 – 3.2 –Weighted average units outstanding - diluted 216.2 80.2 163.6 80.2(1)
The calculation of diluted earnings per unit of the partnership also includes the dilutive impact of the BPO Convertible Preferred Shares as such shares, subsequent to theArrangement, are convertible into BPY Units.
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NOTE 17. NON-CONTROLLING INTERESTSNon-controlling interests consists of the following:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Redeemable/Exchangeable and special limited partnership units $ 11,979 $ 11,092Limited partnership units of Exchange L.P. 724 –Interest of others in operating subsidiaries and properties:
Preferred shares held by Brookfield Asset Management Inc. 25 25Preferred equity of subsidiaries 1,659 1,614Non-controlling interests in subsidiaries and properties 4,692 9,727
Total interests of others in operating subsidiaries and properties 6,376 11,366Total non-controlling interests $ 19,079 $ 22,458
Non-controlling interests in subsidiaries and properties consist of the following:
Proportion of economicinterests held by
non-controlling interests(US$ Millions) Principal Place of Business Jun. 30, 2014 Dec. 31, 2013 Jun. 30, 2014 Dec. 31, 2013Brookfield Office Properties Inc.(1) U.S., Canada, Australia, U.K – 51% $ 1,178 $ 6,723Brookfield Brazil Retail Fundo deInvestimento em Participacões
Brazil 65% 65% 992 936
IDI Realty, LLC U.S. 72% 72% 819 801Gazeley Limited U.K., Germany, France, Italy, Spain 72% 72% 329 254BREF ONE, LLC U.S., Bahamas 67% 67% 363 369Other Various 18%-88% 18%-88% 1,011 644Total non-controlling interests in subsidiaries and properties $ 4,692 $ 9,727(1) Includes non-controlling interests in BPO subsidiaries which vary from 0.6%-50.0%.
In the first quarter of 2014, the partnership acquired 220.0 million common shares of BPO pursuant to its Offer to acquire any or all of thecommon shares of BPO not beneficially owned by the partnership. Consequently, the partnership increased its ownership interest in thecommon shares of BPO from approximately 49% at December 31, 2013 to 92% at March 31, 2014, resulting in a corresponding reduction inthe proportion of the economic interests in Brookfield Office Properties held by non-controlling interests from 51% to 8%. In the secondquarter of 2014, the Purchasers acquired the remaining BPO common shares pursuant to the Arrangement, representing approximately 8% ofthe BPO common shares. As of June 9, 2014, BPY owns 100% of the issued and outstanding common shares of BPO resulting in acorresponding reduction in the proportion of the economic interests in BPO’s common shares held by non-controlling interests from 8% atMarch 31, 2014 to nil.
Other non-controlling interests in subsidiaries and properties consist of earnings attributable to interests not owned by BPO at 100% in otherassets and funds and preferred shares issued by BPO.
NOTE 18. COMMERCIAL PROPERTY REVENUEThe components of commercial property revenue are as follows:
NOTE 21. DIRECT HOSPITALITY EXPENSEThe components of direct hospitality expense are as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Employee compensation and benefits $ 69 $ 95 $ 145 $ 191Marketing and advertising 9 12 23 26Cost of food, beverage, and retail goods sold 18 22 36 42Maintenance and utilities 25 27 47 50Other 81 106 164 205Total direct hospitality expense $ 202 $ 262 $ 415 $ 514
NOTE 22. DEPRECIATION AND AMORTIZATIONThe components of depreciation and amortization expense are as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Depreciation and amortization of real estate assets $ 27 $ 43 $ 56 $ 65Depreciation and amortization of non-real estate assets 10 11 20 22Total depreciation and amortization $ 37 $ 54 $ 76 $ 87
NOTE 23. ADMINISTRATION AND OTHER EXPENSEThe components of administration and other expense are as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Employee compensation and benefits $ 37 $ 32 $ 63 $ 60Management fees 25 11 43 11Other 33 22 73 40Total administration and other expense $ 95 $ 65 $ 179 $ 111
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NOTE 24. FAIR VALUE GAINS, NETThe components of fair value gains, net, are as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Investment properties $ 926 $ 394 $ 1,296 $ 608Financial instruments 149 – 397 46Other fair value gains (losses) (61) (18) (111) (64)Total fair value gains, net $ 1,014 $ 376 $ 1,582 $ 590
NOTE 25. SHARE- BASED COMPENSATIONImmediately following the plan of arrangement through which the outstanding common shares of BPO were acquired by BPY, options andother share-based compensation awards outstanding at BPO as of the acquisition date were redeemed for cash and/or exchanged for newshare-based compensation plans linked to interests in the partnership. The following is a summary of the partnership’s shared basedcompensation plans:
a) BPY Unit Option PlanAwards under the BPY Unit Option Plan (“BPY Awards”) generally vest 20% per year over a period of five years and expire 10 years after thegrant date, with the exercise price set at the time such options were granted and generally equal to the market price of an LP Unit on the NYSEon the last trading day preceding the grant date. Upon exercise of a vested BPY Award, the participant is entitled to receive a cash paymentequal to the amount by which the fair market value of an LP Unit at the date of exercise exceeds the exercise price of the BPY Award. Subjectto a separate adjustment arising from forfeitures, the estimated expense is revalued every reporting period using the Black-Scholes model as aresult of the cash settlement provisions of the plan. In terms of measuring expected life of the BPY Awards with various term lengths andvesting periods, BPY will segregate each set of similar BPY Awards and, if different, exercise price, into subgroups and apply a weightedaverage within each group.
As of June 30, 2014, the total number of BPY Awards granted was 22,246,624 with a weighted average price of $19.73.
Consequences for BPO option holders:i. For holders of vested in-the-money BPO options: Each participant’s vested in-the-money BPO options were redeemed for a cash
payment equal to the in-the-money amount on the transaction closing date of June 9, 2014 (the “Closing Date”);ii. For holders of unvested in-the-money BPO options: Each participant was granted BPY Awards equivalent in number to the
outstanding BPO options held prior to the Closing Date. The grant price was equal to the closing price of a BPY Unit on the NYSE onthe last trading day prior to the Closing Date less the in-the-money amount of the exchanged BPO Options on the Closing Date.These BPY Awards have expiry dates and vesting terms consistent with the unvested BPO options exchanged;
iii. For holders of out-of-the money BPO options: Each participant was granted BPY Awards equivalent in number to the outstandingout-of-the money BPO options (vested and unvested) held prior to the Closing Date. The exercise price was equal the closing priceof a BPY Unit on the NYSE on the last trading day prior to the Closing Date. These BPY Awards have a 10-year term and a 5-yearvesting period;
iv. For participants receiving 2013 compensation: New share-based compensation awards were granted on the Closing Date related to2013 performance to participants. These BPY Awards have an exercise price equal to the closing price of a BPY share on the NYSE onthe last trading day prior to the Closing Date and a 10-year term and 5-year vesting period. Participants were given the option toreceive a portion of their 2013 compensation in restricted LP Units (as discussed below).
The partnership estimated the fair value of the BPY Awards granted during the year using the Black-Scholes valuation model. The followingassumptions were utilized:
Jun. 30, 2014Weighted average unit price US$ 19.73Weighted average fair value per option US$ 2.72Average term to exercise In Years 6.93Unit price volatility % 30Liquidity discount % 25Weighted average annual dividend yield % 4Risk-free rate % 2.26%
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b) Restricted BPY LP Unit PlanThe Restricted BPY LP Unit Plan provides for awards to participants of LP Units purchased on the NYSE (“Restricted Units”). Under theRestricted BPY LP Unit Plan, units awarded generally vest over a period of five years, except as otherwise determined or for Restricted Unitsawarded in lieu of a cash bonus as elected by the participant, which may vest immediately. The estimated total compensation cost measuredat grant date is evenly recognized over the vesting period of five years.
As of June 30, 2014, the total number of Restricted Units granted was 320,544 with a weighted average price of US$20.79.
c) Restricted BPY LP Unit Plan (Canada)The Restricted BPY LP Unit Plan (Canada) is substantially similar to the Restricted BPY LP Unit Plan described above, except that the plan is forCanadian employees, there is a five year hold period, and purchases of units are made on the TSX instead of the NYSE.
As of June 30, 2014, the total number of Canadian Restricted Units granted was 19,410 with a weighted average price of C$22.14.
NOTE 26. OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income (loss) consists of the following:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Items that may be reclassified to net income:Foreign currency translation
Net unrealized foreign currency translation gains (losses) in respect of foreignOperations, net of income taxes
$ 206 $ (649) $ 264 $ (818)
Gains (losses) on hedges of net investments in foreign operations, net ofincome taxes for the three and six months ended June 30, 2014 of $18 millionand $31, respectively (2013 – nil and nil) (1)
(105) 34 (128) 69
101 (615) 136 (749)Cash flow hedges
Gains (losses) on derivatives designated as cash flow hedges, netof income taxes for the three and six months ended June 30,2014 of $16 million and $31 million, respectively (2013 - $25million and $31 million)
(46) 69 (91) 111
Reclassification of gains on derivatives designated as cashflow hedges, net of income taxes
– 3 – 6
(46) 72 (91) 117Available-for-sale securities
Change in unrealized gains on available-for-sale securities, net of income taxes 4 – 3 64 – 3 6
Equity accounted investmentsShare of unrealized foreign currency translations gains (losses) inrespect of foreign operations, net of income taxes
53 (38) 53 (38)
53 (38) 53 (38)Total other comprehensive income (loss) $ 112 $ (581) $ 101 $ (664)(1) Unrealized gains (losses) on hedges of net investments in foreign operations are with a related party.
NOTE 27. OBLIGATIONS GUARANTEES, CONTINGENCIES AND OTHERIn the normal course of operations, the partnership and its consolidated entities execute agreements that provide for indemnification andguarantees to third parties in transactions such as business dispositions, business acquisitions, sales of assets and sales of services.
The partnership’s operating subsidiaries have also agreed to indemnify its directors and certain of its officers and employees. The nature ofsubstantially all of the indemnification undertakings prevent the partnership from making a reasonable estimate of the maximum potentialamount that it could be required to pay third parties as the agreements do not specify a maximum amount and the amounts are dependentupon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, neither thepartnership nor its consolidated subsidiaries have made significant payments under such indemnification agreements.
The partnership and its operating subsidiaries may be contingently liable with respect to litigation and claims that arise from time to time inthe normal course of business or otherwise. A specific litigation, with a judgment amount of $59 million (A$63 million), is being pursuedagainst one of the partnership’s subsidiaries related to security on a defaulted loan. Management has determined that the most probable cashoutflow related to the litigation being pursued against the company is $25 million (A$27 million), which has been fully provided for in thepartnership’s financial statements. The partnership settled this specific litigation subsequent to June 30, 2014. See Note 32, SubsequentEvents, for further information.
The partnership, through its 50% interest in London Wall Place LP, has a £125 million commitment at June 30, 2014 in respect of obligationsunder a pre-let agreement relating to 1 London Wall Place, which allows the joint venture partners, including the partnership, to commenceformal construction of the development as soon as demolition work has been completed.
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At June 30, 2014, the partnership has commitments totaling approximately C$260 million for the development of Bay Adelaide East in Torontoand Brookfield Place East Tower in Calgary and approximately A$228 million for the development of Brookfield Place Perth Tower 2.
The partnership maintains insurance on its properties in amounts and with deductibles that it believes are in line with what owners of similarproperties carry. The partnership maintains all risk property insurance and rental value coverage (including coverage for the perils of flood,earthquake and named windstorm). The partnership does not conduct its operations, other than those of equity accounted investments,through entities that are not fully or proportionately consolidated in these financial statements, and has not guaranteed or otherwisecontractually committed to support any material financial obligations not reflected in these financial statements.
During 2013, Brookfield Asset Management announced the final close on the $4.4 billion Brookfield Strategic Real Estate Partners fund, aglobal private fund focused on making opportunistic investments in commercial property. The partnership, as lead investor, committedapproximately $1.3 billion to the fund.
NOTE 28. FINANCIAL INSTRUMENTSa) Derivatives and hedging activitiesThe partnership and its operating entities use derivative and non-derivative instruments to manage financial risks, including interest rate,commodity, equity price and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies andapproved limits. The partnership does not use derivatives for speculative purposes. The partnership and its operating entities use thefollowing derivative instruments to manage these risks:
• foreign currency forward contracts to hedge exposures to Canadian Dollar, Australian Dollar, British Pound, and Eurodenominated net investments in foreign subsidiaries and foreign currency denominated financial assets;
• interest rate swaps to manage interest rate risk associated with planned refinancings and existing variable rate debt;• interest rate caps to hedge interest rate risk on certain variable rate debt; and• total return swaps on BPO’s shares to economically hedge exposure to variability in its share price under its deferred share
unit plan.
The partnership also designates Canadian Dollar financial liabilities of certain of its operating entities as hedges of its net investments in itsCanadian operations.
Interest Rate HedgingThe following table provides the partnership’s outstanding derivatives that are designated as cash flow hedges of variability in interest ratesassociated with forecasted fixed rate financings and existing variable rate debt as of June 30, 2014 and December 31, 2013:
Interest rate swaps of fixed C$ debt 47 2.8% Dec. 2024 –Interest rate swaps of US$ LIBOR debt 483 0.6% - 2.2% Dec. 2015 to Nov. 2020 (5)Interest rate caps of US$ LIBOR debt 1,725 3.0% - 5.8% Sep. 2014 to Oct. 2018 –Interest rate swaps of £ LIBOR debt 229 1.1% Sep. 2017 3Interest rate swaps of A$ BBSW/BBSY debt 632 3.5% - 5.9% Jan. 2016 to Jul. 2017 (34)
Dec. 31, 2013 Interest rate swaps of fixed US$ debt $ 1,505 2.3% and 4.7% Jun. 2024 to Jun. 2026 $ (32)Interest rate swaps of fixed C$ debt 47 2.8% Dec. 2024 3Interest rate swaps of US$ LIBOR debt 784 0.6% - 2.2% May 2014 to Nov. 2020 (1)Interest rate caps of US$ LIBOR debt 2,246 3.0% - 5.8% Jan. 2014 to Oct. 2018 2Interest rate swaps of £ LIBOR debt 222 1.1% Sep. 2017 3Interest rate swaps of A$ BBSW/BBSY debt 936 3.5% - 5.9% Jan. 2014 to Jul. 2017 (37)
For the three and six months ended June 30, 2014 and 2013, the amount of hedge ineffectiveness recorded in interest expense in connectionwith the partnership’s interest rate hedging activities was not significant.
Foreign Currency HedgingThe partnership has derivatives designated as net investment hedges of its investments in foreign subsidiaries. As of June 30, 2014, thepartnership had hedged a notional amount of £981 million (December 31, 2013 - £770 million) at rates between £0.60/US$ and £0.63/US$using foreign currency forward contracts maturing between July 2014 and June 2015. In addition, as of June 30, 2014, the partnership hadhedged a notional amount of €288 million (December 31, 2013 - €550 million) at rates between €0.72/US$ and €0.74/US$ using foreigncurrency forward contracts maturing in August 2014. The partnership had also hedged, as of June 30, 2014, a notional amount of A$1,369million (December 31, 2013 – A$535 million) at rates between A$1.06/US$ and A$1.14/US$ using foreign currency forward contracts maturingbetween July 2014 and March 2015.
The fair value of the partnership’s outstanding foreign currency forwards as of June 30, 2014 is a loss of $118 million (December 31, 2013 –loss of $27 million).
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In addition, as of June 30, 2014, the partnership had designated C$1,413 million (December 31, 2013 – C$900 million) of Canadian dollarfinancial liabilities as hedges against the partnership’s net investment in Canadian operations.
Other DerivativesThe following table provides details of the partnership’s other derivatives that have been entered into to manage financial risks as of June 30,2014 and December 31, 2013:
(US$ millions) Derivative typeFair
Value(2)Maturity
dates RatesFair value(gain)/loss Classification of gain/loss
Jun. 30, 2014 Total return swap(1) $ – – – $ (3) General and administrative expenseInterest rate caps 400 Mar. 2016 3.65% – General and administrative expenseInterest rate caps 350 Jul. 2017 3.25% – General and administrative expenseInterest rate caps 2,175 Sep. 2014 4.50% – General and administrative expense
Dec. 31, 2013 Total return swap(1) $ 1 – – $ (5) General and administrative expenseInterest rate caps 400 Mar. 2016 3.65% – General and administrative expenseInterest rate caps 882 Apr. 2014 2.50% – General and administrative expenseInterest rate caps 2,270 Apr. 2014 4.50% – General and administrative expense
(1) Relates to the total return swap on BPO’s shares in connection with its deferred share unit plans which was settled for C$1 million during the second quarter of 2014.(2) Interest rate caps are presented at their notional amount.
The other derivatives have not been designated as hedges for accounting purposes.
b) Measurement and classification of financial instruments
Classification and MeasurementThe following table outlines the classification and measurement basis, and related fair value for disclosures, of the financial assets andliabilities in the interim condensed consolidated financial statements:
Other non-current financialliabilities Other liabilities Amortized cost(1) 424 424 250 250Accounts payable and otherliabilities Other liabilities Amortized cost(2) 1,836 1,836 1,665 1,665
Total financial liabilities $ 28,302 $ 29,457 $ 25,924 $ 26,298(1) Includes derivative liabilities measured at fair value of approximately $80 million and nil as of June 30, 2014 and December 31, 2013, respectively.
(2) Includes derivative liabilities measured at fair value of approximately $191 million and $128 million as of June 30, 2014 and December 31, 2013, respectively.
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Fair Value HierarchyFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date (i.e., an exit price). Fair value measurement establishes a hierarchy of valuation techniques based onwhether the inputs to those valuation techniques are observable or unobservable. Quoted market prices (unadjusted) in active marketsrepresent a Level 1 valuation. When quoted market prices in active markets are not available, the partnership maximizes the use of observableinputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require thesignificant use of unobservable inputs are considered Level 3, which reflect the partnership’s market assumptions and are noted below. Thishierarchy requires the use of observable market data when available.
The following table outlines financial assets and liabilities measured at fair value in the financial statements and the level of the inputs used todetermine those fair values in the context of the hierarchy as defined above:
There were no transfers between levels during the three and six month periods ended June 30, 2014.
A reconciliation of fair value measurements in Level 3 is presented below:
Jun. 30, 2014 Dec. 31, 2013
(US$ Millions)Financial
AssetsFinancial
LiabilitiesFinancial
AssetsFinancialLiabilities
Balance, beginning of period $ 2,116 $ – $ 1,709 $ 54Acquisitions 527 – 353 –Dispositions (5) – (85) (54)Fair value gains (losses), net and OCI 426 – 149 –Other – – (10) –Balance, end of period $ 3,064 $ – $ 2,116 $ –
NOTE 29. RELATED PARTIESIn the normal course of operations, the partnership enters into the transactions with related parties on market terms. These transactions havebeen measured at exchange value and are recognized in the interim condensed consolidated financial statements.
The immediate parent of the partnership is the general partner. The ultimate parent of the partnership is Brookfield Asset Management.Other related parties of the partnership include the partnership’s and Brookfield Asset Management’s subsidiaries and operating entities.
Since the Spin-off, the partnership has a management agreement with its service providers, wholly-owned subsidiaries of Brookfield AssetManagement. Pursuant to a Master Services Agreement, on a quarterly basis, the partnership pays a base management fee (“basemanagement fee”), to the service provider equal to $12.5 million per quarter ($50 million annually). The base management fee for the threeand six months ended June 30, 2014 was $12.5 million and $25 million, respectively. The base management fee for the period from Spin-off toJune 30, 2013 was $10.5 million.
Additionally, the partnership pays a quarterly equity enhancement distribution to Special L.P., a wholly-owned subsidiary of Brookfield AssetManagement, of 0.3125% of the amount by which the operating partnership’s total capitalization value at the end of each quarter exceeds itstotal capitalization value immediately following the Spin-off, subject to certain adjustments. For purposes of calculating the equityenhancement distribution at each quarter end, the capitalization of the partnership is equal to the volume weighted average of the closingprices of the partnership’s units on the NYSE (or other exchange or market where the partnership’s units are principally traded) for each of thelast five trading days of the applicable quarter multiplied by the number of issued and outstanding units of the partnership on the last of thosedays (assuming full conversion of Brookfield Asset Management’s interest in the partnership into units of the partnership), plus the amount ofthird-party debt, net of cash, with recourse to the partnership and the operating partnership and certain holding entities held directly by the
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operating partnership. The equity enhancement distribution for the three and six month periods ended June 30, 2014 was $12.4 million and$18.3 million, respectively. The equity enhancement distribution for the period from Spin-off to June 30, 2013 was nil.
The following table summarizes transactions with related parties:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue(1) $ 6 $ 2 $ 7 $ 4Interest and other income 15 17 29 19Interest expense on debt obligations 1 5 6 7Interest on capital securities paid to Brookfield Asset Management 20 – 40 –Administration expense (2) 10 31 20 55Management fees paid 23 27 62 41
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Participating loan interests $ 676 $ 747Loans and notes receivable(3) 191 293Receivables and other assets 99 11Debt obligations 260 341Other liabilities 123 98Capital securities owned by Brookfield Asset Management 1,250 1,250(1) Amounts received from Brookfield Asset Management and its subsidiaries for the rental of office premises.(2) Amounts paid to Brookfield Asset Management and its subsidiaries for administrative services.(3) Includes $95 million receivable from Brookfield Asset Management upon the earlier of the partnership's exercise of its option to convert its participating loan interests into direct
ownership of the Australian portfolio or the maturity of the participating loan notes.
NOTE 30. SUBSIDIARY PUBLIC ISSUERSBOP Split was incorporated for the purpose of being an issuer of preferred shares and owning the Purchasers’ additional investment in BPOCommon Shares. Pursuant to the terms of the arrangement, holders of outstanding BPO Convertible Preference Shares Series G, H, J and K,which were convertible into BPO common shares, were able to exchange their shares for BOP Split Senior Preferred Shares, subject to certainconditions. The BOP Split Senior Preferred shares are listed on the TSX and began trading on June 11, 2014. All shares issued by BOP Split areretractable by the holders at any time for cash.
The following table provides consolidated summary financial information for the partnership, BOP Split, and the Holding Entities:
(US$ Millions)For the three months ended Jun. 30, 2014
For the three months ended Jun. 30, 2013Revenue $ – $ – $ 46 $ 1,086 $ (46) $ 1,086Net income attributable to unitholders(1) 22 – 153 107 (129) 153
For the six months ended Jun. 30, 2014Revenue $ – $ – $ 147 $ 2,270 $ (147) $ 2,270Net income attributable to unitholders(1) 373 282 1,264 835 (1,490) 1,264
For the six months ended Jun. 30, 2013Revenue $ – $ – $ 46 $ 2,218 $ (46) $ 2,218Net income attributable to unitholders(1) 22 – 484 436 (460) 482(1) Includes net income attributable to limited partners, general partner, non-controlling interest - Redeemable/Exchangeable and special limited partnership units and non-controllinginterest - Limited partnership units of Exchange LP.(2) Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.(3) Includes Brookfield Property L.P., Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited and BPY Bermuda Holdings II Limited.
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(US$ Millions)As of Jun. 30, 2014
BrookfieldPropertyPartners
L.P.
BrookfieldProperty
Split Corp.HoldingEntities
OtherSubsidiaries
ConsolidatingAdjustments
BrookfieldProperty
Partners L.P.consolidated
Current assets $ – $ – $ 142 $ 2,554 $ – $ 2,696Non- current assets 8,584 5,392 20,746 52,425 (34,722) 52,425Current liabilities – – 215 5,230 – 5,445Non-current liabilities – 3,258 2,346 19,374 – 24,978Equity attributable to non-controllinginterests of others in operatingsubsidiaries and properties
– – 5 6,371 – 6,376
Equity attributable to unitholders(1) 8,584 2,134 18,322 24,004 (34,722) 18,322
As of Dec. 31, 2013Current assets $ – $ – $ 6 $ 3,005 $ – $ 3,011Non- current assets 2,590 – 15,330 49,435 (17,920) 49,435Current liabilities – – 109 6,864 – 6,973Non-current liabilities – – 1,598 18,885 – 20,483Equity attributable to non-controllinginterests of others in operatingsubsidiaries and properties
– – 5 11,361 – 11,366
Equity attributable to unitholders(1) 2,590 – 13,624 15,330 (17,920) 13,624(1) Includes net income attributable to limited partners, general partner, non-controlling interest - Redeemable/Exchangeable and special limited partnership units and non-controllinginterest - Limited partnership units of Exchange LP.
NOTE 31. SEGMENT INFORMATIONa) Operating segmentsIFRS 8, Operating Segments, requires operating segments to be determined based on internal reports that are regularly reviewed by the chiefoperating decision maker (“CODM”) for the purpose of allocating resources to the segment and to assessing its performance. Prior to April 1,2014, the partnership managed the business in three operating segments: i) Office, ii) Retail, and iii) Multi-family, Industrial, and Hotels. Asdiscussed in Note 2(c), the partnership realigned its operating segments as a result of changes to the organizational structure of its businesses,following the acquisition of additional interests in BPO. Beginning April 1, 2014, the partnership has four operating segments that include i)Office, ii) Retail, iii) Industrial, and iv) Multi-family and Hotels that are independently and regularly reviewed and managed by the CODM.Certain amounts are allocated to the partnership’s corporate operations based on the determination that those activities should not be usedto evaluate a segment’s operating performance.
b) Basis of measurementThe CODM measures and evaluates the performance of the partnership’s operating segments based on net operating income (“NOI”) andfunds from operations (“FFO”). Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore maydiffer from similar metrics used by other companies and organizations. The partnership defines these measures as follows:
i. NOI - revenues from properties in our commercial and hospitality operations less direct property expenses.ii. FFO - net income, prior to realized gains (losses) on the sale of investment properties, fair value changes, depreciation and
amortization of real estate assets, and income taxes less non-controlling interests of others in operating subsidiaries andproperties share of these items. When determining FFO, the partnership includes the proportionate share of the FFO of equityaccounted investments.
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c) Reportable segment measuresThe following summary presents certain financial information regarding our operating segments for the three and six month periods endedJune 30, 2014 and 2013.
The following summary presents information about certain balance sheet items of the partnership, on a segmented basis, as of June 30, 2014and December 31, 2013:
Total assets Total liabilitiesTotal equity attributable
The following table provides a reconciliation of NOI and FFO to net income attributable to unitholders for the three and six months ended June30, 2014 and 2013:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue $ 742 $ 711 $ 1,465 $ 1,459Hospitality revenue 264 331 539 660Direct commercial property expense (331) (293) (645) (598)Direct hospitality expense (202) (262) (415) (514)NOI 473 487 944 1,007Investment and other revenue 209 44 266 99Share of equity accounted income excluding fair value gains 131 95 273 199Interest expense (307) (276) (595) (543)Administration and other expense (95) (65) (179) (111)Depreciation and amortization of non-real estate assets (10) (11) (20) (22)Non-controlling interests of others in operating subsidiaries and properties in FFO (193) (141) (317) (313)FFO (1) 208 133 372 316Depreciation and amortization of real estate assets (27) (43) (56) (65)Fair value gains, net 1,014 376 1,582 590Share of equity accounted fair value gains 170 67 256 195Income tax expense (269) (196) (689) (295)Non-controlling interests of others in operating subsidiaries and properties in non-FFO (204) (184) (201) (259)Net income attributable to unitholders(1) 892 153 1,264 482Net income attributable to non-controlling interests of others in operating subsidiariesand properties
397 325 518 572
Net income $ 1,289 $ 478 $ 1,782 $ 1,054(1) Represents interests attributable to LP Units and Exchange LP and REU’s (defined as Redeemable/Exchangeable and special limited partnership units). The interests attributable to
limited partner units of Exchange LP and REU’s are presented as non-controlling interests in the condensed consolidated statements of income.
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NOTE 32. SUBSEQUENT EVENTSOn July 18, 2014, the partnership settled a specific litigation that was being pursued against the partnership for A$27 million. See Note 27 forfurther information.
Management’s Discussion And Analysis Of Financial Results
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INTRODUCTIONThis management’s discussion and analysis (“MD&A”) of Brookfield Property Partners L.P. (“BPY” or the “partnership”) covers the financialposition as of June 30, 2014 and December 31, 2013 and results of operations for the three and six month periods ended June 30, 2014 and2013. For the period prior to the spin-off of the partnership on April 15, 2013, the financial results reflect Brookfield Asset Management Inc.’s(“Brookfield Asset Management”) commercial property operations on a continuity of interest basis. Thereafter, the results reflect ourpartnership’s actual results. The information included within this MD&A should be read in conjunction with the unaudited condensedconsolidated financial statements (the “Financial Statements”) and related notes as of June 30, 2014 and December 31, 2013 and for the threeand six month periods ended June 30, 2014 and 2013, included elsewhere in this report.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND USE OF NON-IFRS MEASURESThis MD&A of Financial Results to unitholders, particularly “Part IV – Additional Information - Trend Information”, contains “forward-lookinginformation” within the meaning of Canadian provincial securities laws and applicable regulations and “forward-looking statements” withinthe meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statementsinclude statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding ouroperations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoingobjectives, strategies and outlook, as well as the outlook for North American and international economies for the current fiscal year andsubsequent periods, and include words such as “expects”, “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “targets”,“projects”, “forecasts”, “likely”, or negative versions thereof and other similar expressions, or future or conditional verbs such as “may”, “will”,“should”, “would” and “could”.
Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-lookingstatements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance onforward-looking statements and information because they involve known and unknown risks, uncertainties and other factors, many of whichare beyond our control, which may cause our actual results, performance or achievements to differ materially from anticipated future results,performance or achievement expressed or implied by such forward-looking statements and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but arenot limited to: risks incidental to the ownership and operation of real estate properties including local real estate conditions; the impact orunanticipated impact of general economic, political and market factors in the countries in which we do business; the ability to enter into newleases or renew leases on favorable terms; business competition; dependence on tenants’ financial condition; the use of debt to finance ourbusiness; the behavior of financial markets, including fluctuations in interest and foreign exchanges rates; uncertainties of real estatedevelopment or redevelopment; global equity and capital markets and the availability of equity and debt financing and refinancing withinthese markets; risks relating to our insurance coverage; the possible impact of international conflicts and other developments includingterrorist acts; potential environmental liabilities; changes in tax laws and other tax related risks; dependence on management personnel;illiquidity of investments; the ability to complete and effectively integrate acquisitions into existing operations and the ability to attainexpected benefits therefrom; operational and reputational risks; catastrophic events, such as earthquakes and hurricanes; and other risks andfactors detailed from time to time in our documents filed with the securities regulators in Canada and the United States, as applicable.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-lookingstatements or information, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements or information, whetherwritten or oral, that may be as a result of new information, future events or otherwise.
We disclose a number of financial measures in this MD&A that are calculated and presented using methodologies other than in accordancewith International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). We utilize thesemeasures in managing our business, including performance measurement, capital allocation and valuation purposes and believe thatproviding these performance measures on a supplemental basis to our IFRS results is helpful to investors in assessing our overall performance.These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with IFRS. Wecaution readers that these non-IFRS financial measures may differ from the calculations disclosed by other businesses, and as a result, may notbe comparable to similar measures presented by others. Reconciliations of these non-IFRS financial measures to the most directly comparablefinancial measures calculated and presented in accordance with IFRS, where applicable, are included within this MD&A.
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PART I – OBJECTIVES AND FINANCIAL HIGHLIGHTS
BASIS OF PRESENTATIONOur sole material asset is our 34% interest in Brookfield Property L.P. (the “Operating Partnership”). As we have the ability to direct itsactivities pursuant to our rights as owners of the general partner units, we consolidate the Operating Partnership. Accordingly, our FinancialStatements reflect 100% of its assets, liabilities, revenues, expenses and cash flows, including non-controlling interests therein, which capturethe ownership interests of other third parties. We also discuss the results of operations on a segment basis, consistent with how we manageour business. Our four operating segments include i) Office, ii) Retail, iii) Industrial, and iv) Multi-family and Hotels and are independently andregularly reviewed and managed by the Chief Executive Offer, who is also known as the Chief Operating Decision Maker.
The partnership’s equity interests include general partnership units (“GP Units”), publicly traded limited partnership units (“LP Units”),redeemable/exchangeable partnership units of the Operating Partnership (“Redeemable/Exchangeable Partnership Units”), special limitedpartnership units of the Operating Partnership (“Special LP Units”) and limited partnership units of Brookfield Office Properties Exchange LP(“Exchange LP Units”). Holders of the GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, and Exchange LP Unitswill be collectively referred to throughout this report as “unitholders”. The GP Units, LP Units, Redeemable/Exchangeable Partnership Units,Special LP Units and Exchange LP Units have the same economic attributes in all respects, except that the Redeemable/ExchangeablePartnership Units provide Brookfield Asset Management the right to request that its units be redeemed for cash consideration starting in April2015. In the event that Brookfield Asset Management exercises this right, the partnership has the right, at its sole discretion, to satisfy theredemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, Brookfield Asset Management, as holder ofRedeemable/Exchangeable Partnership Units, participates in earnings and distributions on a per unit basis equivalent to the per unitparticipation of the LP Units of the partnership. However, given the redeemable feature referenced above, we present theRedeemable/Exchangeable Partnership Units as a component of non-controlling interests. The Exchange LP Units are exchangeable at anytime on a one-for-one basis, at the option of the holder, for LP Units. As a result of this redemption feature, we present the Exchange LP Unitsas a component of non-controlling interests.
Financial data included in this MD&A for the three and six months ended June 30, 2014, include material information up to August 6, 2014.Financial data have been prepared using accounting policies in accordance with IFRS as issued by the IASB. Non-IFRS measures used in thisMD&A are reconciled to or calculated from such financial information. Unless otherwise specified, all operating and other statisticalinformation is presented as if we own 100% of each property in our portfolio, regardless of whether we own all of the interests in eachproperty, excluding information relating to our interest in Canary Wharf Group plc (“Canary Wharf”) and China Xintiandi (“CXTD”), as these areaccounted for as financial investments. We believe this is the most appropriate basis on which to evaluate the performance of properties inthe portfolio relative to each other and others in the market. All dollar references, unless otherwise stated, are in millions of U.S. Dollars.Canadian Dollars (C$), Australian Dollars (A$), British Pounds (£), Euros (€), and Brazilian Reais (R$) are identified where applicable.
Additional information is available on our website at www.brookfieldpropertypartners.com, or on www.sedar.com or www.sec.gov.
CONTINUITY OF INTERESTOur partnership was established on January 3, 2013 by Brookfield Asset Management. On April 15, 2013, Brookfield Asset Managementcompleted the spin-off of its real estate business (the “business”) to our partnership. Brookfield Asset Management directly and indirectlycontrolled the business prior to the spin-off and continues to control our partnership subsequent to the spin-off through its interests in ourpartnership. As a result of this continuity of interests, there is insufficient substance to justify a change in the measurement of the business.Accordingly, our partnership has reflected its business in its financial position and results of operations using Brookfield Asset Management’scarrying values prior to the spin-off, excluding certain interests in Brookfield Asset Management’s Australian assets and a 2% investment inThe Howard Hughes Corporation, which were not contributed to the partnership as part of the spin-off (the “non-contributed operations”).
To reflect this continuity of interests, this interim report presents Brookfield Asset Management’s real estate business, as previously reportedin its financial statements, exclusive of the non-contributed operations, for all periods prior to the spin-off. For such periods, the FinancialStatements utilize the accounting policies that were used to prepare the partnership’s first consolidated financial statements subsequent tothe spin-off, as if our partnership was a legal entity for the periods presented. The economic and accounting impact of contractualrelationships created or modified in conjunction with the spin-off are reflected prospectively from the date of the spin-off. Thesearrangements have not been reflected in the results of operations or financial position of our partnership for periods prior to the spin-off, assuch items were in fact not created or modified prior thereto.
OVERVIEW OF OUR BUSINESSThe partnership is Brookfield Asset Management’s primary public entity to make investments in the real estate industry. We are a globally-diversified owner and operator of high-quality properties that typically generate stable and sustainable cash flows over the long term. Withapproximately 15,000 employees involved in our real estate businesses around the globe, we have built operating platforms in the Office,Retail, Industrial, Multi-family and Hotel sectors. We leverage these operating platforms to enhance the cash flow and value of our assets,including through active asset management and by executing development and redevelopment projects.
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Our portfolio is comprised of high-quality properties, including interests in:
197 office properties totaling 98 million square feet in the world’s leading commercial markets such as New York, London, LosAngeles, Washington, D.C., Sydney, Toronto, Houston, Calgary and Perth;
164 retail properties containing approximately 154 million square feet in the United States, Brazil and Australia; a substantial portionof our retail properties are held through our 29% interest in General Growth Properties, Inc. (“GGP”) (33% on a fully diluted basis,assuming all outstanding warrants are exercised) and our 34% interest in Rouse Properties, Inc. (“Rouse”);
Approximately 47 million square feet of industrial space, primarily consisting of modern logistics assets in North America andEurope; and
Over 22,000 multi-family units as well as seven hotel assets with approximately 7,200 rooms.
In addition, we have a 19 million square foot office development pipeline, a $600 million retail mall redevelopment pipeline (on aproportionate basis) and a land portfolio with the potential to build 63 million square feet of industrial properties.
Our strategy is to be the leading globally-diversified owner and operator of commercial properties. Due to the cyclical nature of the real estateindustry, we believe that a real estate portfolio diversified by property type and geography will perform consistently over time. Furthermore,since property valuations fluctuate considerably based on market sentiment and other factors, we believe that the flexibility to shift capital tosectors and geographies that are out of favor will enable us to earn premium returns on the capital that we invest. As we grow our business,we will seek to acquire high-quality assets on a value basis, utilize our operating platforms to add value through pro-active management andrecycle capital for re-investment in new opportunities.
Our diversified portfolio of high-quality assets has a stable cash flow profile with growth potential. As a result of the mark-to-market of rentsupon lease expiry, escalation provisions in leases and increases in occupancy, our existing assets should generate strong same-property netoperating income (“NOI”) growth without significant capital investment. Furthermore, we expect to earn between 8% and 11% unlevered,pre-tax returns on construction costs for our development and redevelopment projects. With this cash flow profile, our goal is to pay anattractive annual distribution to our unitholders and to grow our distribution by 3% to 5% per annum.
Overall, we seek to earn leveraged after-tax returns of 12% to 15% on our invested capital. These returns will be comprised of current cashflow that is generated by our assets and capital appreciation. Some of the capital appreciation will be reflected in the fair value gains that flowthrough our income statement as a result of our revaluation of investment properties in accordance with IFRS. The remainder of the capitalappreciation will be realized in future periods to the extent we are able to successfully execute development and redevelopment projects aswell as other value creation strategies. From time to time, we will convert some or all of these unrealized gains to cash through asset sales,joint ventures or refinancings.
PERFORMANCE MEASURESWe expect to generate returns to unitholders from a combination of cash flow earned from our operations and capital appreciation.Furthermore, if we are successful in increasing cash flow earned from our operations we will be able to increase distributions to unitholders toprovide them with an attractive current yield on their investment.
To measure our performance against these targets, we focus on NOI, funds from operations (“FFO”), fair value changes, and net income andequity attributable to unitholders. Some of these performance metrics do not have standardized meanings prescribed by IFRS and thereforemay differ from similar metrics used by other companies. We define each of these measures as follows:
NOI: revenues from properties in our commercial and hospitality operations less direct property expenses. FFO: net income, prior to realized gains (losses) on the sale of investment properties, fair value changes, depreciation and
amortization of real estate assets, and income taxes less non-controlling interests of others in operating subsidiaries and propertiesshare of these items. When determining FFO, we include our proportionate share of the FFO of equity accounted investments.
Fair value changes: Increase or decrease in the value of properties that is reflected in the statement of profit and loss. Net income attributable to unitholders: net income attributable to GP Units, LP units, Redeemable/Exchangeable Partnership Units,
Special LP Units and Exchange LP Units, which collectively comprise the unitholders of the partnership. For the period prior to thespin-off of the partnership on April 15, 2013, net income attributable to unitholders represented net income attributable toBrookfield Asset Management.
Equity attributable to unitholders: equity attributable to GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LPUnits and Exchange LP Units, which collectively comprise the unitholders of the partnership.
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NOI is a key indicator of our ability to increase cash flow from our operations. We seek to grow NOI through pro-active management andleasing of our properties. In evaluating our performance, we also look at a subset of NOI from our existing properties, excluding NOI that isearned from assets recently acquired, disposed of, developed, or not of a recurring nature, which we refer to as “same-property NOI.” Same-property NOI allows us to segregate the performance of leasing and operating initiatives on the portfolio from the impact to performance ofinvesting activities and “one-time items”, which for the historical periods presented consists primarily of lease termination income.
We also consider FFO an important measure of our operating performance. FFO is a widely recognized measure that is frequently used bysecurities analysts, investors and other interested parties in the evaluation of real estate entities, particularly those that own and operateincome producing properties. Our definition of FFO includes all of the adjustments that are outlined in the National Association of Real EstateInvestment Trusts (“NAREIT”) definition of FFO, including the exclusion of gains (or losses) from the sale of investment properties, the addback of any depreciation and amortization related to real estate assets and the adjustment for unconsolidated partnerships and jointventures. In addition to the adjustments prescribed by NAREIT, we also make adjustments to exclude any unrealized fair value gains (or losses)that arise as a result of reporting under IFRS and income taxes that arise as certain of our subsidiaries are structured as corporations asopposed to real estate investment trusts (“REITs”). These additional adjustments result in an FFO measure that is similar to that which wouldresult if our partnership was organized as a REIT that determined net income in accordance with generally accepted accounting principles inthe United States (“U.S. GAAP”), which is the type of organization on which the NAREIT definition is premised. Our FFO measure will differfrom other organizations applying the NAREIT definition to the extent of certain differences between the IFRS and U.S. GAAP reportingframeworks, principally related to the recognition of lease termination income. Because FFO excludes fair value gains (losses), including equityaccounted fair value gains (losses), realized gains (losses) on the sale of investment properties, depreciation and amortization of real estateassets and income taxes, it provides a performance measure that, when compared year-over-year, reflects the impact on operations fromtrends in occupancy rates, rental rates, operating costs and interest costs, providing perspective not immediately apparent from net income.We reconcile FFO to net income rather than cash flow from operating activities as we believe net income is the most comparable measure.
In addition to reviewing earnings performance, we also review initiatives and market conditions that contribute to changes in the fair value ofour properties. These value changes, combined with earnings, represent a total return on the equity attributable to unitholders and form animportant component in measuring how we have performed relative to our targets.
We also consider the following items to be important drivers of our current and anticipated financial performance:
Increases in occupancies by leasing vacant space; Increases in rental rates through maintaining or enhancing the quality of our assets and as market conditions permit; and Reductions in operating costs through achieving economies of scale and diligently managing contracts.
We also believe that the key external performance drivers include the availability of:
Debt capital at a cost and on terms conducive to our goals; Equity capital at a reasonable cost; New property acquisitions that fit into our strategic plan; and Investors for dispositions of peak value or non-core assets.
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PART II – FINANCIAL STATEMENT ANALYSIS
REVIEW OF CONSOLIDATED FINANCIAL RESULTSIn this section, we review our consolidated performance for the three and six month periods ended June 30, 2014 and 2013 and our financialposition as of June 30, 2014 and December 31, 2013. Further details on our results from operations and our financial positions are containedwithin the “Segment Performance” section on page 41.
Summary Statement of Operating Results and Key Metrics
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue $ 742 $ 711 $ 1,465 $ 1,459Hospitality revenue 264 331 539 660Investment and other revenue 209 44 266 99Total revenue 1,215 1,086 2,270 2,218Direct commercial property expense 331 293 645 598Direct hospitality expense 202 262 415 514Interest expense 307 276 595 543Depreciation and amortization 37 54 76 87Administration and other expense 95 65 179 111Total expenses 972 950 1,910 1,853Fair value gains, net 1,014 376 1,582 590Share of net earnings from equity accounted investments 301 162 529 394Income before taxes 1,558 674 2,471 1,349Income tax expense 269 196 689 295Net income 1,289 478 1,782 1,054Net income attributable to non-controlling interests of others in operatingsubsidiaries and properties
397 325 518 572
Net income attributable to the unitholders $ 892 $ 153 $ 1,264 $ 482
Our net income per unit and weighted average units outstanding are calculated as follows:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions, except per units information) 2014 2013 2014 2013Net income attributable to unitholders $ 892 $ 153 $ 1,264 $ 482Dilutive effect of conversion of capital securities – corporate 2 - 2 -Net income attributable to unitholders – diluted 894 153 1,266 482
Weighted average units outstanding – basic 681.1 466.3 618.6 466.3Conversion of capital securities – corporate 6.3 - 3.1 -Weighted average units outstanding – diluted 687.4 466.3 621.7 466.3Net income per unit attributable to unitholders – basic $ 1.31 $ 0.33 $ 2.04 $ 1.03Net income per unit attributable to unitholders – diluted $ 1.30 $ 0.33 $ 2.03 $ 1.03
FFO per unit attributable to unitholders $ 0.30 $ 0.28 $ 0.60 $ 0.68
For the three months ended June 30, 2014, we reported net income of $1,289 million, of which $892 million is attributable to unitholders. Thiscompares to net income of $478 million, of which $153 million is attributable to unitholders, for the same period in the prior year. Net incomeattributable to unitholders increased mainly due to our additional ownership in Brookfield Office Properties Inc. (“BPO”) common shares,which after completing the second stage transaction in June 2014 by way of a plan of arrangement under Canadian corporate law, increasedto 94% on a weighted average basis from 49% during the same period in the prior year. In addition, we recorded fair value gains in our officesegment as a result of strong leasing activity and improved market conditions, which contributed to value appreciation.
For the six months ended June 30, 2014, we reported net income of $1,782 million, of which $1,264 million is attributable to unitholders. Thiscompares to net income of $1,054 million, of which $482 million is attributable to unitholders for the same period in the prior year. Netincome increased mainly due to our increased ownership in BPO and valuation gains in our office segment as mentioned above.
Commercial property revenue was $742 million for the three months ended June 30, 2014 compared to $711 million during the same periodin the prior year. The increase is primarily attributable to revenue from acquisitions in our office and industrial segments which was partiallyoffset by a significant lease expiry in downtown New York City in October 2013.
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Hospitality revenue was $264 million for the three months ended June 30, 2014 compared to $331 million during the same period in the prioryear. The decrease was related to the deconsolidation of certain hotel assets in Australia as part of a re-organization. Before considering theimpact of the deconsolidation, hospitality revenue decreased by $23 million which was primarily a result of the sale of the One and OnlyOcean Club in the Bahamas in the second quarter of 2014.
Commercial property revenue remained fairly constant for the six months ended June 30, 2014 at $1,465 million compared to $1,459 millionduring the same period in the prior year as increases from acquisitions during the period were offset by the lease expiry mentioned above andasset dispositions. Hospitality revenue was $539 million for the six months ended June 30, 2014 compared to $660 million during the sameperiod in the prior year. The decrease from the prior year was also related to the deconsolidation of certain hotel assets in Australia and thesale of the One and Only Ocean Club as mentioned above.
Direct commercial property expense increased by $38 million for the three months ended June 30, 2014 over the same period in the prior yeardue to acquisition activity in our office and industrial segments. Direct hospitality expense decreased by $60 million, primarily as a result of thedeconsolidation of certain hotel assets and the sale of the One and Only Ocean Club as described above.
Direct commercial property expense increased by $47 million for the six months ended June 30, 2014 over the same period in the prior yearalso due to acquisition activity as described above. Direct hospitality expense decreased by $99 million as a result of the deconsolidation ofcertain hotel assets and the sale of the One and Only Ocean Club as described above.
Investment and other revenue increased by $165 million and $167 million for the three and six months ended June 30, 2014 respectively ascompared to the same period in the prior year. The increase is largely driven by a $140 million gain realized on the repayment of a debtinvestment in Inmobiliaria Colonial (“Colonial”), a Spanish office company. Additionally, we received a development fee from the completionof an industrial development of $16 million and income from our interest in preferred securities convertible into CXTD ordinary shares of $17million in the current quarter.
Interest expense increased by $31 million and $52 million for the three and six months ended June 30, 2014 respectively as compared to thesame period in the prior year. These increases were primarily driven by additional property-level debt as a result of acquisition activity and theinterest associated with the $1.5 billion acquisition facility used to acquire common shares of BPO.
Administration and other expense increased by $30 million and $68 million for the three and six months ended June 30, 2014, respectively,compared to the respective prior year periods. The increase in both periods was primarily the result of $10 million of transaction expensesincurred in connection with the privatization of BPO. In addition, we recorded equity enhancement distributions of $12 million and $18 millionfor the three and six months ended June 30, 2014, respectively. The remaining increase in both periods is related to other public entitycorporate costs that were incurred following the spin-off of the partnership in April 2013.
Fair value gains of $1,014 million were recognized in the current quarter as compared to $376 million in the same period in the prior year asdetailed in the table below. Commercial properties and developments increased in value by $926 million due primarily to positive adjustmentsto discount rates and terminal capitalization rates, specifically in downtown New York City as the market continues to strengthen, as well aschanges in projected property level cash flows due to leasing and timing. Fair value gains on our financial instruments increased by $149million which reflects the appreciation in our investment in GGP warrants and CXTD preferred shares and warrants, which was partially offsetby valuation gains from our investment in Canary Wharf realized in the prior year.
Fair value gains of $1,582 million were recognized in the current six month period as compared to $590 million in the same period in the prioryear as detailed in the table below. Commercial properties and developments increased in value by $1,296 million for reasons discussedabove. Fair value gains on our financial instruments increased by $397 million to reflect appreciation in our investment in GGP warrants andCXTD preferred shares and warrants. In addition, our investment in Canary Wharf recorded valuation gains of $141 million in the currentperiod compared to $46 million in the prior year. Additional information on key valuation parameters is included in the “SegmentPerformance” section starting on page 41.
The table below provides further information of the fair value gains recorded during the three and six months ended June 30, 2014 and 2013:
Our share of net earnings from equity accounted investments was $301 million for the three months ended June 30, 2014, which representsan increase of $139 million compared to the same period in the prior year. We earned $171 million from associates, a $97 million increasecompared with the prior year primarily driven by an increased ownership in GGP from 22% to 29% (24% to 33% on a fully diluted basis), whichwas partially offset by significant valuation gains in the prior year. Our joint ventures earned $130 million during the current quarter, whichrepresents an increase of $42 million compared to the same period in the prior year. This increase is primarily attributable to the consolidationof Five Manhattan West in New York and the Victor Building in Washington, D.C., following the acquisition of additional interests in theseassets. The decrease was partially offset by the deconsolidation of Republic Plaza in Denver following the sale of a 50% interest in the secondquarter of 2014.
Our share of net earnings from equity accounted investments was $529 million for the six months ended June 30, 2014, which represents anincrease of $135 million compared to the same period in the prior year. We earned $354 million from associates, a $101 million increasecompared with the prior year primarily driven by an increased ownership in GGP, which was partially offset by significant valuation gains in theprior year. Our joint ventures earned $175 million during the current six months, which represents an increase of $34 million compared to thesame period in the prior year. This increase is primarily attributable to the contribution from an asset, an interest in which was sold during thecurrent period and which is now equity accounted. This increase was partially offset by the consolidation of several assets following theacquisition of additional interests therein.
Components of earnings from equity accounted investments are as follows:
Income tax expense increased by $73 million and $394 million for the three and six months ended June 30, 2014, respectively, compared tothe same prior year periods. This increase period over period is mostly attributable to a change in state tax legislation which was substantivelyenacted during the period, and resulted in an increase in our effective tax rate applicable to earnings from certain subsidiaries in the impactedjurisdictions. This increase was partially offset by a one-time deferred income tax expense as a result of the spin-off.
Net income attributable to non-controlling interests declined as a result of our acquisition of the remaining common shares of BPO which wedid not previously own. This acquisition reduced the weighted average non-controlling interest share of net income from BPO to 6% from 51%for the three months ended, and to 26% from 51% for the six months ended June 30, 2014. This decrease was offset by higher net income forboth periods compared to the prior year as discussed above.
NON-IFRS MEASURESAs described in the Performance Measures section on page 33, the partnership uses non-IFRS measures to assess the performance of itsoperations. An analysis of the measures and reconciliation to IFRS measures is included below.
Commercial property NOI decreased to $411 million in the second quarter compared with $418 million during the second quarter in the prioryear. The decrease was primarily the result of an anticipated lease expiry at Brookfield Place New York and dispositions of mature, non-coreassets, which was largely offset by acquisitions in our office and industrial segments. Hospitality NOI decreased to $62 million in the quartercompared with $69 million during the same period in the prior year following the deconsolidation of hotel assets in Australia and the sale ofthe One and Only Ocean Club, as noted above. Hospitality margins increased to 23% in the current quarter from 21% during the same periodin the prior year.
Commercial property NOI decreased to $820 million in the six months ending June 30, 2014 from $861 million during the same period in theprior year. The decrease of $41 million is largely due to a large expiry at Brookfield Place New York offset by acquisitions activity. HospitalityNOI decreased to $124 million during the period compared with $146 million during the same period in the prior year following thedeconsolidation of hotel assets in Australia and the sale of the One and Only Ocean Club, as mentioned above. Hospitality margins increasedto 23% for the six months ended June 30, 2014 from 22% during the same period in the prior year.
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The following table reconciles NOI to net income for the three and six months ended June 30, 2014 and 2013:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue $ 742 $ 711 $ 1,465 $ 1,459Direct commercial property expense (331) (293) (645) (598)Commercial property NOI 411 418 820 861Hospitality revenue 264 331 539 660Direct hospitality expense (202) (262) (415) (514)Hospitality NOI 62 69 124 146Total NOI 473 487 944 1,007Investment and other revenue 209 44 266 99Interest expense (307) (276) (595) (543)Depreciation and amortization (37) (54) (76) (87)Administration and other expenses (95) (65) (179) (111)Fair value gains, net 1,014 376 1,582 590Share of net earnings from equity accounted investments 301 162 529 394Income before taxes 1,558 674 2,471 1,349Income tax expense (269) (196) (689) (295)Net income 1,289 478 1,782 1,054Net income attributable to non-controlling interests of others in operatingsubsidiaries and properties
(397) (325) (518) (572)
Net income attributable to unitholders $ 892 $ 153 $ 1,264 $ 482
FFO increased to $208 million in the quarter compared with $133 million for the same period in the prior year. The increase was driven byadditional earnings from our increased investment in BPO following the acquisition of shares not previously owned by the partnership and inGGP following the $1.4 billion investment in GGP common shares and warrants in November 2013, as well as a $43 million gain realized from adebt investment in Colonial. This increase was partially offset by the impact of a large lease expiry at Brookfield Place New York.
FFO increased to $372 million in the six months ended June 30, 2014 compared with $316 million for the same period in the prior year. Theincrease was driven by our increased of ownership in BPO and GGP, a gain realized from a debt investment in Colonial in the second quarter aswell as a gain on extinguishment of debt in our retail portfolio and a fee recognized in connection with the disposition of Heritage Plaza bothrecorded in the first quarter of 2014. This increase was partially offset by the impact of a large lease expiry at Brookfield Place New York.
The following table reconciles net income to FFO for the three and six months ended June 30, 2014 and 2013:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income $ 1,289 $ 478 $ 1,782 $ $1,054Add (deduct):
Fair value gains, net (1,014) (376) (1,582) (590)Share of equity accounted fair value gains, net (170) (67) (256) (195)Depreciation and amortization of real-estate assets 27 43 56 65Income tax expense 269 196 689 295Non-controlling interests in above items (193) (141) (317) (313)
FFO $ 208 $ 133 $ 372 $ 316
Summary Statement of Financial Position and Key Metrics
As of(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Investment properties:
Equity accounted investments 9,299 9,281Cash and cash equivalents 1,504 1,368Total assets 55,121 52,446Debt obligations 23,595 21,640Total equity 24,698 24,990Equity attributable to unitholders 18,322 13,624Equity per unit $ 25.69 $ 25.23
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As of June 30, 2014, we had $55,121 million in assets, compared to $52,446 million at the end of 2013. This $2,675 million increase is primarilydue to an increase of $1,762 million in commercial properties which was primarily attributable to the acquisition of additional interests in FiveManhattan West in Midtown Manhattan and KPMG Tower in Sydney, the recognition of valuation gains and capital spent on our assets, offsetby the dispositions of Heritage Plaza in Houston and Republic Plaza in Denver.
The following table provides a roll-forward of commercial properties from December 31, 2013 to June 30, 2014:
(US$ Millions) Jun. 30, 2014Commercial properties, beginning of period $ 31,679Acquisitions 1,284Capital expenditures 23Dispositions (1,182)Fair value gains (losses) 1,145Foreign currency translation 344Reclassification from development and other 148Commercial properties, end of period $ 33,441
Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value ofdevelopment land and infrastructure was $3,070 million at June 30, 2014, an increase of $596 million from the balance at December 31, 2013.The increase is primarily attributable to capital spending and the recognition of valuation gains primarily at our Manhattan West developmentas well as acquisitions of industrial developments in 2014 offset by the impact of foreign exchange.
Other non-current assets, which includes our investments in Canary Wharf, GGP warrants and CXTD increased by $787 million from thebalance at December 31, 2013 as a result of the acquisition of preferred shares and options in CXTD of $500 million in the first quarter of2014, and fair value gains associated with these investments totaling $397 million.
Equity accounted investments, which includes our investments in GGP, Rouse and other income producing property, increased by $18 millionsince December 31, 2013 as a result of our share of net income from such investments and the inclusion of Republic Plaza which wasdeconsolidated as a result of a sale of a 50% interest in the property and is now accounted for under the equity method. These increases wereoffset in part by dividends received from GGP and Rouse during the period and the consolidation of Five Manhattan West following theacquisition of additional interests. Subsequent to the acquisition of additional interests in Five Manhattan West, the property is no longerincluded accounted for as an investment in joint venture under the equity method of accounting. Changes in equity accounted investmentsare presented in the following table:
(1) Reflects certain equity accounted investments that were classified to participating loan notes to reflect the spin-off (see Note 6 in the accompanyingconsolidated financial statements). In addition, reflects changes in the ownership interests in GGP and Rouse as a result of changes to the ownership structurewhich previously included the interests of certain fund investors controlled and consolidated by the partnership.
To fund the increase in total assets, our debt obligations increased to $23,595 million as at June 30, 2014. Contributing to this increase was anew $1.5 billion acquisition facility and a $1 billion credit facility put in place in March 2014 to fund the acquisition of remaining BPO commonshares that were previously not owned by the partnership. These facilities, collectively, replaced our existing bilateral credit facilities. At June30, 2014, the balance drawn on these facilities was $2,430 million compared with $496 million at December 31, 2013.
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Equity accounted investment, beginning of period $ 9,281 $ 8,038Additions, net of disposals (159) 1,386Acquisitions through business combinations - 346Share of net income, including fair value gains 529 1,084Distributions received (395) (236)Foreign exchange 26 (29)Change in the basis of presentation(1) - (1,025)Impairment of goodwill - (249)Other 17 (34)Equity accounted investment, end of period $ 9,299 $ 9,281
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The following table provides additional information on the partnership’s debt obligations:
The components used to calculate equity per unit are summarized below:
As of(US$ Millions, except unit information) Jun. 30, 2014 Dec. 31, 2013Total equity $ 24,698 $ 24,990Less:
Non-controlling interests 6,376 11,366Equity attributable to unitholders $ 18,322 $ 13,624Partnership units 713,110,362 540,070,228Equity per unit $ 25.69 $ 25.23
Equity attributable to unitholders was $18,322 million at June 30, 2014, an increase of $4,698 million from the balance at December 31, 2013.The increase was primarily a result of the issuance of partnership units to acquire additional interests in BPO. At June 30, 2014, we had a totalof 713,110,362 units issued and outstanding compared to 540,070,228 units at December 31, 2013.
Equity per unit was $25.69 at June 30, 2014, an increase of $0.46 from December 31, 2013. The increase was primarily the result of additionalinvestments made and fair value gains recognized since year-end. The increase was partially offset by of the issuance of partnership unitsbelow carrying value to acquire additional interests in BPO.
Non-controlling interests was $6,376 million at June 30, 2014, a decrease of $4,990 million from the balance at December 31, 2013. Thedecrease was primarily a result of the acquisition of additional interests in BPO, in which our voting interest increased from 51% to 100%.
SUMMARY OF QUARTERLY RESULTS
2014 2013 2012(US$ Millions, except per unit information) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3Revenue $1,215 $1,055 $1,021 $1,048 $1,086 $1,132 $1,014 $1,031Direct operating costs 533 527 525 524 555 557 529 519Net income 1,289 493 326 383 478 576 585 833Net income attributable to unitholders 892 372 190 235 153 329 411 409Net income per unit attributable tounitholders – basic $1.31 $0.67 $0.37 $0.50 $0.54 - - -
Net income per unit attributable tounitholders – diluted $1.30 $0.67 $0.37 $0.50 $0.54 - - -
Revenue varies from quarter to quarter due to acquisitions and dispositions of commercial and other income producing assets, changes inoccupancy levels, as well as new leases and renewals at market net rents. In addition, revenue also fluctuates as a result of changes in foreignexchange rates and seasonality. Seasonality primarily affects our retail assets, wherein the fourth quarter exhibits stronger performance inconjunction with the holiday season. Our hotel assets generally have stronger performance in the spring and summer months compared toour fall and winter months. Net income fluctuates largely due to fair value gains and losses in each given period.
The economic and accounting impact of contractual relationships created or modified in conjunction with the spin-off are reflectedprospectively from the date of the spin-off on April 15, 2013 and accordingly have not been reflected in the results of operations of ourpartnership, as such items were in fact not created or modified prior thereto. As a result, results from periods prior the spin-off are notcomparable to results after the spin-off.
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SEGMENT PERFORMANCE
Our operations are organized into four operating platforms in addition to our corporate activities. We measure performance primarily usingFFO generated by each operating segment and the amount of equity attributable to unitholders in each segment.
The following table presents FFO on a year-over-year basis by segment for comparison purposes:
FFO increased by $75 million and $56 million for the three and six months ended June 30, 2014 compared with the same periods in the prioryear. The increase in FFO is largely due to our additional interests in BPO and GGP in 2014 compared to the prior year, as well as a one-timegain from the settlement of the Colonial debt offset by corporate costs following the formation of the partnership in April 2013 and interestexpenses associated with the acquisition facility used to acquire shares in BPO.
The following table presents equity attributable to unitholders by segment as of June 30, 2014 and December 31, 2013:
The overall increase is primarily a result of the issuance of partnership units in connection with the privatization of BPO. At June 30, 2014, wehad a total of 713,110,362 units issued and outstanding compared to 540,070,228 at December 31, 2013. This transaction increased equity inour office sector by $7,203 million and reduced the equity attributable to corporate, as an acquisition facility was used to acquire a portion ofthe BPO shares.
OfficeOur office segment consists of interests in 197 properties totaling 98 million square feet in major global city centers including New York,London, Los Angeles, Washington D.C., Sydney, Toronto, Houston, Calgary and Perth.
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013FFO $ 170 $ 91 $ 265 $ 200Net income attributable to unitholders 795 285 996 484
FFO from our office sector was $170 million for the three months ended June 30, 2014 as compared to $91 million in the same period in theprior year. The increase of $79 million is primarily driven by the additional ownership in BPO which was 94% on a weighted average basis forthe current quarter compared to 49% in the prior period as well as a $43 million net gain from realized on the investment in Colonial.Offsetting this increase was a decrease in NOI following a lease expiry at Brookfield Place New York in October 2013.
FFO from our office sector was $265 million for the six months ended June 30, 2014 as compared to $200 million in the same period in theprior year. In addition to the items mentioned above, the increase in FFO was also attributable to a fee recognized in connection with thedisposition of Heritage Plaza in Houston during the first quarter of 2014 offset by a gain on a debt modification earned in the first quarter of2013.
Net income attributable to unitholders increased by $510 million to $795 million in the current quarter as compared to $285 million in theprior year period. In addition to the increase in FFO described above, net income increased due to valuation gains resulting from positivechanges to discount rates and terminal capitalization rates reflecting strengthening market conditions and asset profiles, as well as changes inprojected property level cash flows due to leasing and timing. These increases were offset by an increase in taxes of $75 million due to fairvalue gains in the current period and a change in state tax legislation that resulted in an increase in our effective tax rate applicable to futureearnings from certain subsidiaries in the impacted jurisdictions.
Net income attributable to unitholders was $996 million for the six months ended June 30, 2014, which is an increase of $512 millioncompared to the prior year period. In addition to the increase in FFO described above, we realized an increase of $1,189 million of fair value
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gains as a result of improved valuation metrics particularly in our U.S. portfolio and gains on our investment in Canary Wharf as a result ofcontinued recovery in the London office market. This increase was offset partially by higher taxes of $340 million due to fair value gains and anincrease in deferred tax liability as a result of a change in state tax legislation that resulted in an increase in our effective tax rate applicable tofuture earnings from certain subsidiaries in the impacted jurisdictions.
The following table presents key operating metrics for our office portfolio as at June 30, 2014 and 2013 and for the three months ended June30, 2014 and 2013:
As at Jun. 30 and for the three months ended Jun. 30, Consolidated Unconsolidated(US$ Millions, except where noted) 2014 2013 2014 2013Total portfolio:
(1) NOI for unconsolidated properties is presented on a proportionate basis, representing the unitholders’ interest in the property.
For our consolidated properties, NOI for the second quarter decreased from $359 million to $351 million from the same period in the prioryear due mainly to a reduction in same-property NOI. Offsetting this reduction was an $81 million increase in NOI from acquisitions of interestin properties in Los Angeles, London and New York offset by dispositions in Houston, Washington, D.C. and Sydney.
For the current quarter our consolidated occupancy was 88.3% which was 2.7% lower than the same period in the prior year due to the leaseexpiry at Brookfield Place New York as previously discussed. In-place net rents increased to $28.32 from $28.31 during the same period in theprior year as a result of our ability to execute leases at rents higher as highlighted in the table below, which was partially offset by the leaseexpiry and opportunistic acquisitions of under-leased properties.
NOI earned from our unconsolidated properties increased by $11 million to $43 million in the quarter compared with $32 million in the prioryear due to a 2.0% increase in occupancy to 89.7%. This increase was partially offset by the disposition of several properties in Australia.
Same-property NOI for our consolidated properties for the three months ended June 30, 2014 compared with the same period on the prioryear decreased by $31 million to $257 million. This decrease was primarily the result of a large anticipated lease expiry at Brookfield PlaceNew York in October 2013 which impacted NOI by $42 million for the quarter. This space remains vacant, however, significant progress hasbeen made on advancing leasing discussions with a number of large leases executed in the quarter and we expect by 2016 to have this spaceleased and contributing to earnings. This vacancy was partially offset by higher same-property NOI at our other U.S. and European propertiesdue to increased occupancy.
For the current quarter our consolidated same-property occupancy was 91.1% which was 0.7% lower than the same period in the prior yeardue to the lease expiry at Brookfield Place New York as previously discussed. In-place net rents increased to $28.72 from $28.58 during thesame period in the prior year as a result of our ability to execute leases at rents higher as highlighted in the table below.
Total Portfolio Year-to-date(US$) Jun. 30, 2014 Jun. 30, 2013Leasing activity (thousands of square feet)
New leases 2,897 1,762Renewal leases 1,288 1,759
Total leasing activity 4,185 3,521Average term in years 7.4 7.0Year-one leasing net rents per square foot $ 29.62 $ 27.18Average leasing net rents per square foot 32.77 28.88Expiring net rents per square foot 30.22 26.02Tenant improvement and leasing costs per square foot 64.30 33.50
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For the six months ended June 30, 2014, we leased approximately 4.2 million square feet at average in-place net rents approximately 8%higher than expiring net rents. 69% of our leasing activity represented new leases which offset the impact to occupancy from the lease expiryat Brookfield Place New York. Our overall office portfolio’s in-place net rents are currently 19% below market net rents, which gives usconfidence that we will be able to increase our NOI in the coming years, as we sign new leases. Additionally, for the first half of 2014, tenantimprovements and leasing costs related to leasing activity was $64.30 per square foot, compared to $33.50 per square foot for the sameperiod in the prior year. This increase was due to a high percentage of leasing activity representing new leases and concentrated in New Yorkwhere leasing costs tend to be higher.
We calculate net rent as the annualized amount of cash rent receivable from leases on a per square foot basis including tenant expensereimbursements, less operating expenses being incurred for that space, excluding the impact of straight-lining rent escalations or amortizationof free rent periods. This measure represents the amount of cash, on a per square foot basis, generated from leases in a given period.
The following table summarizes the contributions to fair value gains from consolidated and unconsolidated investments:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Consolidated investments $ 738 $ 369 $ 1,189 $ 597Unconsolidated investments(1) 85 50 88 64Total fair value gains $ 823 $ 419 $ 1,277 $ 661(1) Fair value gains for unconsolidated investments are presented on a proportionate basis, representing the unitholders’ interest in the investments.
We earned total fair value gains of $823 million in the second quarter compared with fair value gains of $419 million for the same period inthe prior year. Increased fair value gains were due primarily to positive adjustments to discount rates and terminal capitalization rates,specifically in downtown New York City as the market continues to strengthen, as well as changes in projected property level cash flows due toleasing and timing.
We earned total fair values gains of $1,277 million in the six months ended June 30, 2014 compared with fair value gains of $661 million forthe same period in the prior year. Increased fair value gains were due primarily to changes in projected property level cash flows due toleasing and timing, and to a lesser extent some positive adjustments to discount rates and terminal capitalization rates. In addition, webenefited from fair value gains of $141 million on our investment in Canary Wharf as a result of the continued recovery in the London officemarket.
The key valuation metrics for commercial properties are as follows:
Equity accounted investments 1,959 2,135Participating loan interests 676 747Investment in Canary Wharf 1,207 1,027Accounts receivable and other 991 1,426Cash and cash equivalents 952 782Total assets 36,383 34,725Debt obligations 14,783 14,733Accounts payable and other liabilities 3,303 2,776Non-controlling interests of others in operating subsidiaries and properties 3,184 9,306Equity attributable to unitholders $ 15,113 $ 7,910
Equity attributable to unitholders in our office segment increased from $7,910 million at December 31, 2013 to $15,113 million at June 30,2014. The increase was primarily a result of the successful acquisition of the BPO common shares not previously owned by the partnership.
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The acquisition of this interest amounted to $4,568 million and was paid for through a combination of the issuance of approximately 160million partnership and Exchange LP Units for $3,030 million and cash consideration of $1,538 million and resulted in a reduction in non-controlling interests. In addition, certain Canadian BPO shareholders redeemed their shares directly to BPO. BPO acquired 22.5 millioncommon shares for consideration of $195 million in cash and 12.9 million Exchange LP Units valued at $263 million. These shares weresubsequently cancelled.
Commercial properties totaled $28,256 million at June 30, 2014 as compared to $26,767 million at December 31, 2013. The increase is largelyattributable to valuation gains recognized within our U.S. office portfolio, particularly in New York and Los Angeles. Commercial developmentstotaled $2,342 million at June 30, 2014 as compared to $1,841 million at December 31, 2013. The increase is largely a result of investmentsinto our current active developments and an increase in land market value at our Manhattan West development.
The following table summarizes the scope and progress of the active developments:
(1) Net of NOI earned during stabilization.(2) Represents the platform upon which the five million square foot Manhattan West development will be constructed.
Equity accounted investments totaled $1,959 million at June 30, 2014 as compared to $2,135 million at December 31, 2013. The decrease islargely a result of the consolidation of Five Manhattan West in the first quarter of 2014 as additional interest in the properties was acquired.This was partially offset by the disposition of a 50% stake in Republic Plaza in the current quarter which is now equity accounted.
The following table provides a roll-forward of the partnership’s equity accounted investments from December 31, 2013 to June 30, 2014:
Debt obligations increased by $50 million year-to-date, primarily as a result of the additional interest acquired in Five Manhattan West duringthe current year, offset by the disposition of Heritage Plaza and Republic Plaza.
Reconciliation of Non-IFRS Measures – OfficeComponents of NOI:
(US$ Millions) Jun. 30, 2014Equity accounted investments, beginning of period $ 2,135Additions, net of disposals (61)Share of net income, including fair value gains 137Distributions received (273)Foreign exchange 18Other 3Equity accounted investments, end of period $ 1,959
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NOI to net income:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Same-property NOI $ 257 $ 288 $ 516 $ 583Currency variance - 10 - 14NOI related to acquisitions and dispositions 81 49 160 112NOI from opportunistic portfolio 13 12 20 25Total NOI 351 359 696 734Investment and other revenue 168 39 214 83Interest expense (183) (168) (355) (339)Depreciation and amortization (4) (5) (9) (10)Operating expense (43) (47) (76) (81)Fair value gains, net 738 369 1,189 597Share of net earnings from equity accounted investments 110 76 137 123Income before taxes 1,137 623 1,796 1,107Income tax expense (108) (34) (437) (97)Net income $ 1,029 $ 589 $ 1,359 $ 1,010Net income attributable to non-controlling interests of others in operatingsubsidiaries and properties
(234) (304) (363) (526)
Net income attributable to unitholders $ 795 $ 285 $ 996 $ 484
Net income to FFO:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income $ 1,029 $ 589 $ 1,359 $ 1,010Add (deduct):
Fair value gains, net (738) (369) (1,189) (597)Share of equity accounted fair value gains, net (85) (50) (88) (64)Depreciation and amortization - - - -Income tax expense 109 34 437 97Non-controlling interests in above items (145) (113) (254) (246)
FFO $ 170 $ 91 $ 265 $ 200
RetailOur retail segment consists of 164 retail properties containing approximately 154 million square feet in the United States, Brazil and Australia;a substantial portion of our retail properties are held through our 29% interest in GGP (33% on a fully diluted basis, assuming all outstandingwarrants are exercised) and our 34% interest in Rouse.
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013FFO $ 103 $ 65 $ 218 $ 135Net income attributable to unitholders 285 71 588 201
FFO earned in our retail platform was $103 million for the three months ended June 30, 2014 as compared to $65 million in same period in theprior year. The increase of $38 million was a result of an increase in our ownership in GGP to 29% on a weighted average basis for the quartercompared to 22% in the prior period, an increase in same store sales and income from our investment in CXTD in the current quarter. FFOearned in our retail platform was $218 million for the six months ended June 30, 2014 as compared to $135 million in for the same period inthe prior year. The increase of $83 million was a result of additional ownership in GGP, an increase in same store sales and significantly lowerinterest expense.
Net income attributable to unitholders increased by $214 million to $285 million for the three months ended June 30, 2014 compared to thesame period in the prior year. This increase was a result of an additional $38 million of FFO in the current quarter as described above and anincrease of $195 million of valuation gains which were related to gains on our U.S. retail portfolio as well as our investment in GGP warrants.Net income attributable to unitholders increased by $387 million to $588 million for six months ended June 30, 2014 compared to the sameperiod in the prior year. This increase was a result of an additional $83 million of FFO in the current quarter as described above, an increase of$281 million of fair values gain net of non-controlling interest, and a decrease in income tax expense of $30 million following thereorganization of the partnership.
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The following table provides an overview of key operating metrics for our retail portfolio:
For the three months ended Jun. 30, and as at Jun. 30, Consolidated Unconsolidated(US$ Millions, except where noted) 2014 2013 2014 2013
(1) NOI for unconsolidated properties is presented on a proportionate basis, representing the unitholders’ interest in the property.
NOI on consolidated properties for the three months ended June 30, 2014 decreased from $27 million to $25 million compared to the sameperiod in the prior due to property dispositions in Australia and the impact of foreign exchange in Brazil. NOI on unconsolidated propertiesincreased to $181 million over the period year due to an increase of proportionate interest from 22% in the prior year to 29%. Same-propertyNOI on unconsolidated properties increased by $8 million due to improved occupancy and favorable lease spreads in the United States.
The results of operations are primarily driven by changes in occupancy and in-place rental rates. The following table summarizes new andrenewal leases that were scheduled to commence in 2014 and 2015 compared to expiring leases for the prior tenant in the same suite, forleases where the downtime between new and previous tenant was less than 24 months.
(1) Represents initial rent over the term consisting of base minimum rent and common area costs.(2) Represents expiring rent at end of lease consisting of base minimum rent and common area costs.
For the three months ended June 30, 2014, on a suite-to-suite basis we leased approximately 5 million square feet at initial rentsapproximately 14% higher than expiring net rents on a suite-to-suite basis. Additionally for the quarter, tenant allowances and leasing costsrelated to leasing activity was $70 million compared to $81 million for the same period in the prior year.
Our retail portfolio occupancy rate at June 30, 2014 was 95.2%, up from 94.7% at June 30, 2013. In our retail segment, we use in-place rents asa measure of leasing performance. In-place rents are calculated on a cash basis and consist of base minimum rent, plus reimbursements ofcommon area costs, and real estate taxes. In-place rents increased to $54.69 at June 30, 2014 from $52.51 at June 30, 2013, primarily as aresult of strong leasing activity across our U.S. and Brazilian mall portfolios. At GGP, the same-property leased percentage increased 60 basispoints compared to the prior year to 96.5% and suite-to-suite lease spreads increased by 14.4% at June 30, 2014.
The following table summarizes the contributions to fair value gains from consolidated and unconsolidated investments:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Consolidated investments $ 151 $ 22 $ 277 $ 22Unconsolidated investments(1) 70 4 137 111Total fair value gains $ 221 $ 26 $ 414 $ 133(1) Fair value gains for unconsolidated properties are presented on a proportionate basis, representing the unitholders’ interest in the property.
We reported fair values gains of $221 million in the quarter compared with fair value gains of $26 million for the same period in the prior year.The increase in consolidated fair value gains was due primarily to fair market gains related to our warrants in GGP as a result of a highertrading price of GGP shares and our investment in CXTD following an increase in the underlying net asset value. The increase in unconsolidatedfair value gains was primarily due to changes in projected property level cash flows due to leasing and timing.
Total Portfolio(US$ Millions, except where noted) Jun. 30, 2014 Jun. 30, 2013Number of leases 1,680 1,558Leasing activity in thousands of square feet 5,020 4,983Average term in years 6.1 5.5Initial rent per square foot(1) $ 59.70 $ 58.28Expiring rent per square foot(2) 52.29 52.79Initial rent spread 7.41 5.49% Change 14.2% 10.4%Tenant allowances and leasing costs $ 70 $ 81
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We reported fair values gains of $414 million in the six months ended June 30, 2014 compared with fair value gains of $133 million for thesame period in the prior year. The increase in consolidated fair value gains was primarily due to gains related to our investments in GGPwarrants and CXTD, as described above. The increase in unconsolidated fair value gains was largely attributable to an increase in the valuationof the Ala Moana Center in Hawaii which is undergoing a significant redevelopment as well as changes in projected property level cash flowsas mentioned above.
The key valuation metrics of these properties are presented in the following table. The valuations are most sensitive to changes in thediscount rate and timing or variability of cash flows.
UnconsolidatedUnited States 7.6% 5.8% 10 7.6% 5.8% 10
Equity attributable to unitholders in the retail segment increased by $694 million to $8,398 million at June 30, 2014 from December 31, 2013.The increase was a result of net income as discussed above and a $157 million investment in CXTD, comprised of preferred securitiesconvertible into CXTD ordinary shares and warrants to subscribe to ordinary shares of Shui On Land, the parent of CXTD. This was offset bydividends received from GGP and Rouse during the period.
The following table provides an overview of the financial position of our retail segment as at June 30, 2014 and December 31, 2013:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Investment properties $ 2,042 $ 1,903Equity accounted investments 6,722 6,443GGP warrants 1,074 868Accounts receivable and other 782 204Cash and cash equivalents 72 74Total assets $ 10,692 $ 9,492Debt obligations 714 694Accounts payable and other liabilities 201 154Non-controlling interests 1,379 940Equity attributable to unitholders $ 8,398 $ 7,704
Investment properties totaled $2,042 million at June 30, 2014 as compared to $1,903 million at December 31, 2013. The increase is largelyattributable to the positive impact of the foreign exchange rate of the Brazilian Real in the current year which was partially offset by the saleof an asset in Australia.
Equity accounted investments totaled $6,722 million at June 30, 2014 as compared to $6,443 million at December 31, 2013. The increase islargely a result of net income from GGP and Rouse offset by dividends paid during the period. Accounts receivable and other include our $500million investment in CXTD that was made during the period.
The following table provides a roll-forward of the partnership’s equity accounted investments from December 31, 2013 to June 30, 2014:
(US$ Millions) Jun. 30, 2014Equity accounted investments, beginning of period $ 6,443Share of net income, including fair value gains 343Distributions received (81)Other 17Equity accounted investments, end of period $ 6,722
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Reconciliation of Non-IFRS Measures - RetailComponents of NOI:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Total NOI 25 27 51 54Investment and other revenue 18 1 20 4Interest expense (19) (17) (37) (35)Operating expense - - (6) -Fair value gains, net 151 22 277 22Share of net earnings from equity accounted investments 164 73 343 250Income before taxes 339 106 648 295Income tax expense - (8) (13) (43)Net income $ 339 $ 98 $ 635 $ 252Net income attributable to non-controlling interests (54) (27) (47) (51)Net income attributable to unitholders $ 285 $ 71 $ 588 $ 201
Net income to FFO:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income $ 339 $ 98 $ 635 $ 252Add (deduct):
Fair value gains, net (151) (22) (277) (22)Share of equity accounted fair value gains, net (70) (4) (137) (111)Income tax expense - 8 13 43Non-controlling interests in above items (15) (15) (16) (27)
FFO $ 103 $ 65 $ 218 $ 135
IndustrialOur industrial segment comprises of 47 million square feet of operating space, primarily consisting of modern logistics assets in North Americaand Europe
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013NOI $ 15 $ 8 $ 30 $ 20FFO 3 (1) 5 -Net income attributable to unitholders 35 14 40 25
For the three and six months ended June 30, 2014, FFO compared with the same period in the prior year increased by $4 million and $5million, respectively, which was primarily due to increased FFO from the acquisitions of Gazeley Limited (“Gazeley”) and IDI Realty, LLC (“IDI”)in the second and fourth quarters of 2013, respectively.
NOI for our industrial segment increased by $7 million and $10 million for the three and six months ended June 30, 2014, respectively,compared to the same periods in the prior year, as a result of the acquisitions of Gazeley and IDI as mentioned above.
We reported fair values gains of $117 million in the quarter compared with fair value gains of $37 million for the same period in the prior yearas a result of compressed discount rates and terminal capitalization rates across the portfolio.
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The following table summarizes the contributions to fair value gains from consolidated and unconsolidated investments:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Consolidated investments $ 111 $ 30 $ 115 $ 46Unconsolidated investments(1) 6 7 18 16Total fair value gains $ 117 $ 37 $ 133 $ 62(1) Fair value gains for unconsolidated investments are presented on a proportionate basis, representing the unitholders’ interest in the investments.
The key valuation metrics of these properties are presented in the following table. The valuations are most sensitive to changes in thediscount rate and timing or variability of cash flows.
Jun. 30, 2014 Dec. 31, 2013
Discount rate
Terminalcapitalization
rateInvestment
horizon Discount rate
Terminalcapitalization
rateInvestment
horizonConsolidated properties
North America 8.3% 7.6% 10 8.5% 7.6% 10Europe 8.0% 7.6% 10 9.9% 8.2% 10
Unconsolidated propertiesNorth America 7.4% 6.7% 10 7.8% 7.0% 10
The following table presents equity attributable to unitholders in our industrial segment level:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Investment properties $ 2,300 $ 2,088Equity accounted investments 379 459Accounts receivable and other 117 148Cash and cash equivalents 138 64Total assets $ 2,934 $ 2,759Debt obligations 1,165 1,103Accounts payable and other liabilities 152 138Non-controlling interests 1,183 1,055Equity attributable to unitholders $ 434 $ 463
Equity attributable to unitholders in our industrial portfolio decreased by $29 million to $434 million at June 30, 2014 from December 31,2013. The decrease was a result of the disposition of an equity-accounted industrial portfolio investment in the current year. This was partiallyoffset by fair value gains as a result of strengthening markets specifically in the U.S., U.K. and Germany.
Investment properties of $2,300 million include $1,606 million of industrial assets in North America and $694 million of assets in Europe.
Reconciliation of Non-IFRS Measures - Industrial
NOI to net income:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue $ 32 $ 21 $ 67 $ 41Direct commercial property expense (17) (13) (37) (21)Total NOI 15 8 30 20Investment and other revenue 16 - 22 -Interest expense (9) (15) (18) (21)Operating expense (16) 2 (24) 2Depreciation and amortization (1) (1) (2) (1)Fair value gains, net 111 30 115 46Share of net earnings from equity accounted investments 13 7 29 16Income before taxes 129 31 152 62Income tax expense (9) - (9) (1)Net income $ 120 $ 31 $ 143 $ 61Net income attributable to non-controlling interests of others in operatingsubsidiaries and properties
(85) (17) (103) (36)
Net income attributable to unitholders $ 35 $ 14 $ 40 $ 25
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Net income to FFO:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income $ 120 $ 31 $ 143 $ 61Add (deduct):
Fair value gains, net (111) (30) (115) (46)Share of equity accounted fair value gains, net (6) (7) (18) (16)Income tax expense 9 - 9 1Non-controlling interests in above items (9) 5 (14) -
FFO $ 3 $ (1) $ 5 $ -
Multi-family and Hotels
Our multi-family and hotels segment consists of over 22,000 multi-family units across North America and seven hotel assets with 7,200 rooms.
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013NOI $ 82 $ 93 $ 167 $ 199FFO 18 14 32 30Net income attributable to unitholders 15 (8) 18 (7)
For the three months ended June 30, 2014, FFO compared with the same period in the prior year increased by $4 million, which was primarilydue the acquisition of multi-family assets, partially offset by the sale of non-core multi-family assets.
NOI for the multi-family and hotels assets decreased by $11 million and $32 million for the three and six months ended June 30, 2014 whencompared to the prior year period, respectively. The decrease was primarily due to the sale of the One and Only Ocean Club in the Bahamas inthe second quarter, as well as the reclassification of certain hotel assets in Australia, from consolidated to equity accounted as part ofreorganization.
We reported fair values gains of $23 million and $14 million for the three and six months ended June 30, 2014 compared with fair value lossesof $20 million and $52 million for the same periods in the prior year. The increase in fair value gains were primarily due to valuation gainswithin our multi-family portfolio as we progress our renovation program of newly acquired assets and compression of capitalization rates dueto the strengthening of market conditions.
The following table summarizes the contributions to fair value gains from consolidated and unconsolidated investments:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Consolidated investments $ 14 $ (26) $ 1 $ (56)Unconsolidated investments(1) 9 6 13 4Total fair value gains (losses) $ 23 $ (20) $ 14 $ (52)(1) Fair value gains (losses) for unconsolidated investments are presented on a proportionate basis, representing the unitholders’ interest in the investment.
The key valuation metrics of these properties are presented in the following table. The valuations are most sensitive to changes in thediscount rate and timing or variability of cash flows.
The (1) The valuation method used is the direct capitalization method. The amounts presented as the discount rate relates to the overall implied capitalization rate.The terminal capitalization rate and investment horizon are not applicable.
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The following table presents equity attributable to unitholders at the multi-family and hotels segment level:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Investment properties $ 1,571 $ 1,554Hotel operating assets 2,243 2,432Equity accounted investments 208 210Loans and note receivable 89 85Accounts receivable and other 628 679Cash and cash equivalents 249 415Total assets $ 4,988 $ 5,375Debt obligations 3,503 3,953Accounts payable and other liabilities 308 282Non-controlling interests 599 678Equity attributable to unitholders $ 578 $ 462
Equity attributable to unitholders in our multi-family and hotels portfolio increased by $116 million to $578 million at June 30, 2014 fromDecember 31, 2013. The increase was a due to a multi-family acquisition during the period and fair values gains and was partially offset by thesale of non-core assets.
Hotel operating assets of $2,243 million include our investment in the Atlantis hotel in the Bahamas and the Hard Rock Hotel and Casino in LasVegas. The decrease of $189 million from December 31, 2013 primarily reflects the sale of the One & Only Ocean Club. The proceeds from thesale were used to repay a portion of the maturing debt on Atlantis that was refinanced in the quarter.
Debt obligations decreased from $3,953 million at December 31, 2013 to $3,503 million which was the result of the refinancing of $1,750million of debt at the Atlantis replacing approximately $2,150 million of debt.
Reconciliation of Non-IFRS Measures - Multi-family and Hotels
NOI to net income:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue $ 42 $ 49 $ 85 $ 114Hospitality revenue 264 331 539 660Direct commercial property expense (22) (25) (42) (61)Direct hospitality expense (202) (262) (415) (514)Total NOI 82 93 167 199Investment and other revenue 7 4 10 6Interest expense (42) (47) (84) (96)Administration and other expense (2) (4) (4) (7)Depreciation and amortization (32) (48) (65) (76)Fair value gains, net 14 (26) 1 (56)Share of net earnings from equity accounted investments 12 5 17 4Income before taxes 39 (23) 42 (26)Income tax expense - (1) - (1)Net income $ 39 $ (24) $ 42 $ (27)Net income attributable to non-controlling interests of others in operatingsubsidiaries and properties
(24) 16 (24) 20
Net income attributable to unitholders $ 15 $ (8) $ 18 $ (7)
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Net income to FFO:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income $ 39 $ (24) $ 42 $ (27)Add (deduct):
Fair value gains, net (14) 26 (1) 56Share of equity accounted fair value gains, net (9) (6) (13) (4)Depreciation and amortization of real estate assets 27 43 56 65Income tax expense - 1 - 1Non-controlling interests in above items (25) (26) (52) (61)
FFO $ 18 $ 14 $ 32 $ 30
CorporateCertain amounts are allocated to our corporate segment in our management reports as those activities should not be used to evaluate oursegment’s operating performance. FFO was a loss of $86 million for the three months ended June 30, 2014 compared to a loss of $36 millionin same period in the prior year. Interest expense for the three months ended June 30, 2014 was $54 million, which is comprised of $28million of interest expense paid on capital securities and $26 million of interest expense on our credit facilities. Administration and otherexpense was $34 million which is comprised of $18 million of asset management fees, a $12 million of equity enhancement fee and $4 millionof other corporate costs.
The following table presents equity attributable to unitholders at the corporate level:
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Accounts receivable and other $ 31 $ 62Cash and cash equivalents 93 33Total assets $ 124 $ 95Debt obligations 3,430 1,157Capital securities 1,875 1,878Accounts payable and other liabilities 989 588Non-controlling interests 31 (613)Equity attributable to unitholders $ (6,201) $ (2,915)
The corporate balance sheet includes corporate debt and capital securities from the partnership and BPO. The increase in corporate debtobligations is primarily a result of the debt drawn to fund the cash portion of the tender offer and subsequent plan of arrangement to acquireBPO common shares. Accounts payable and other liabilities consist of deferred tax liabilities, which have increased as a result of a change instate tax legislation that resulted in an increase in our effective tax rate applicable to future earnings from certain subsidiaries in the impactedjurisdictions.
As at June 30, 2014, we had $1.25 billion of Class B and C capital securities outstanding, which were issued by one of the partnership’s holdingentities.
The change in non-controlling interest is a result of our increased ownership in BPO’s corporate debt and capital securities to 100% from 49%at December 31, 2013.
In addition, in connection with the BPO acquisition, BOP Split, an indirect subsidiary of the partnership, issued capital securities to certainshareholders of convertible BPO capital securities.
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The following table provides additional information on the capital securities:
(US$ Millions, except where noted) Shares Outstanding Cumulative Dividend Rate Jun. 30, 2014 Dec. 31, 2013Class B Junior Preferred Shares 30,000,000 5.75% $ 750 $ 750Class C Junior Preferred Shares 20,000,000 6.75% 500 500BPO Class AAA Preferred Shares:
Current $ 187 $ 188Non-current 1,688 1,690Total capital securities $ 1,875 $ 1,878(1) Subsequent to the privatization of BPO on June 9, 2014, Brookfield Property Split Corp. owns 1,000,000 shares of each Series G, Series H, Series J and Series K capital securities, which
has been reflected as a reduction in outstanding shares of each series of the BPO Class AAA Preferred Shares.
In addition, as at June 30, 2014, we had $25 million of preferred shares with a cumulative dividend rate of 5% outstanding. The preferredshares were issued by various holding entities of the partnership.
Reconciliation of Non-IFRS Measures - CorporateNet income to FFO:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Net income $ (238) $ (216) $ (397) $ (242)Add (deduct):
Fair value gains, net - 19 - 19Income tax expense 152 153 230 153Non-controlling interests in above items - 8 19 21
FFO $ (86) $ (36) $ (148) $ (49)
LIQUIDITY AND CAPITAL RESOURCESThe capital of our business consists of debt obligations, capital securities, preferred stock and equity. Our objective when managing this capitalis to maintain an appropriate balance between holding a sufficient amount of capital to support our operations and reducing our weightedaverage cost of capital to improve our return on equity. As at June 30, 2014, capital totaled $51 billion compared with $49 billion at December31, 2013.
We attempt to maintain a level of liquidity to ensure we are able to participate in investment opportunities as they arise and to betterwithstand sudden adverse changes in economic circumstances. Our primary sources of liquidity include cash, undrawn committed creditfacilities, construction facilities, cash flow from operating activities and access to public and private capital markets. In addition, we structureour affairs to facilitate monetization of longer-duration assets through financings and co-investor participations.
We seek to increase income from our existing properties by maintaining quality standards for our properties that promote high occupancyrates and support increases in rental rates while reducing tenant turnover and related costs, and by controlling operating expenses.Consequently, we believe our revenue, along with proceeds from financing activities and divestitures, will continue to provide the necessaryfunds to cover our short-term liquidity needs. However, material changes in the factors described above may adversely affect our net cashflows.
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Our principal liquidity needs for the current year and for periods beyond include:
Recurring expenses; Debt service requirements; Distributions to unitholders; Capital expenditures deemed mandatory, including tenant improvements; Development costs not covered under construction loans; Investing activities which could include:
o Discretionary capital expenditures;o Property acquisitions;o Future developments; ando Repurchase of our units
We plan to meet these liquidity needs with accessing our group-wide liquidity of $4,123 million at June 30, 2014 as highlighted in the tablebelow. In addition, we have the ability to supplement this liquidity through cash generated from operating activities, asset sales, co-investorinterests and financing opportunities.
We finance our assets principally at the operating company level with asset-specific debt that generally has long maturities, few restrictivecovenants and with recourse only to the asset. We endeavor to maintain prudent levels of debt and strive to ladder our principal repaymentsover a number of years.
Secured debt maturities at June 30, 2014 for the next five years and thereafter are as follows:
(US$ Millions, except where noted) Jun. 30, 2014Remainder of 2014 $ 1,4052015 1,5082016 3,6052017 3,7552018 2,692Thereafter 7,222Deferred financing costs (152)Secured debt obligations $ 20,035Loan to value (%) 54.9%
We generally believe that we will be able to either extend the maturity date, repay, or refinance the debt that is scheduled to mature in 2014.
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PART III – RISKS AND UNCERTAINTIESThe financial results of our business are impacted by the performance of our properties and various external factors influencing the specificsectors and geographic locations in which we operate, including: macro-economic factors such as economic growth, changes in currency,inflation and interest rates; regulatory requirements and initiatives; and litigation and claims that arise in the normal course of business.
Our property investments are generally subject to varying degrees of risk depending on the nature of the property. These risks includechanges in general economic conditions (including the availability and costs of mortgage funds), local conditions (including an oversupply ofspace or a reduction in demand for real estate in the markets in which we operate), the attractiveness of the properties to tenants,competition from other landlords with competitive space and our ability to provide adequate maintenance at an economical cost.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges, mustbe made regardless of whether a property is producing sufficient income to service these expenses. Certain properties are subject tomortgages which require substantial debt service payments. If we become unable or unwilling to meet mortgage payments on any property,losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure or of sale. We believe the stability and long-termnature of our contractual revenues effectively mitigates these risks.
We are affected by local, regional, national and international economic conditions and other events and occurrences that affect the markets inwhich we own assets. A protracted decline in economic conditions will cause downward pressure on our operating margins and asset values asa result of lower demand for space.
Substantially all of our properties are located in North America, Australia, Brazil and Europe. A prolonged downturn in the economies of theseregions would result in reduced demand for space and number of prospective tenants and will affect the ability of our properties to generatesignificant revenue. If there is an increase in operating costs resulting from inflation and other factors, we may not be able to offset suchincreases by increasing rents.
We are subject to risks that affect the retail environment, including unemployment, weak income growth, lack of available consumer credit,industry slowdowns and plant closures, consumer confidence, increased consumer debt, poor housing market conditions, adverse weatherconditions, natural disasters and the need to pay down existing obligations. All of these factors could negatively affect consumer spending,and adversely affect the sales of our retail tenants. This could have an unfavorable effect on our operations and our ability to attract new retailtenants.
The strategy of our mezzanine and loan investments depends, in part, upon our ability to syndicate or sell participations in senior interests inour investments, either through capital markets collateralized debt obligation transactions or otherwise. If we cannot do so on terms that arefavorable to us, we may not make the returns we anticipate.
For a more detailed description of the risk factors facing our business, please refer to the section entitled “Item 3.D. Key Information - RiskFactors” in our December 31, 2013 annual report on Form 20-F.
CREDIT RISKCredit risk arises from the possibility that tenants may be unable to fulfill their lease commitments. We mitigate this risk by ensuring that ourtenant mix is diversified and by limiting our exposure to any one tenant. We also maintain a portfolio that is diversified by property type sothat exposure to a business sector is lessened. Government and government agencies comprise 8.5% of our office segment tenant base and,as at June 30, 2014, no one tenant comprises more than this.
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The following list shows the largest tenants by leasable area in our office portfolio and their respective credit ratings and exposure as at June30, 2014:
Tenant Primary LocationCredit
Rating(1)Exposure
(%)(2)
Government and Government Agencies Various AAA/AA+ 8.5%CIBC World Markets(3) Calgary/Houston/Midtown NY/Toronto A+ 2.0%Suncor Energy Inc. Calgary BBB+ 1.8%Morgan Stanley Denver/Downtown NY/Toronto A- 1.7%Bank of Montreal Calgary/Toronto A+ 1.6%Bank of America/Merrill Lynch Denver/Downtown NY/Los Angeles/Toronto/Washington, D.C. A- 1.5%Royal Bank of Canada Boston/Calgary/Downtown
NY/LA/Toronto/Vancouver/Washington, D.C.AA- 1.4%
JPMorgan Chase & Co. Denver/Downtown NY/Houston/Los Angeles/Midtown NY A 1.2%PricewaterhouseCoopers LLP Calgary/Houston/Los Angeles/Perth/Sydney Not Rated 1.2%KPMG Los Angeles/Perth/Sydney/Toronto Not Rated 1.2%Total 22.1%
(1) From Standard & Poor’s Rating Services, Moody’s Investment Services, Inc. or DBRS Limited.(2) Exposure is a percentage of total leasable square feet.(3) CIBC World Markets leases 1.1 million square feet at 300 Madison Avenue in New York, of which they sublease 925,000 square feet to PricewaterhouseCoopers LLP and
approximately 100,000 square feet to Sumitomo Corporation of America.
The following list reflects the largest tenants in our retail portfolio as at June 30, 2014. The largest tenant in our portfolio accounted forapproximately 3.3% of minimum rents, tenant recoveries and other.
Tenant Primary DBAExposure
(%)(1)
L Brands Inc. Victoria's Secret, Bath & Body Works, PINK 3.3%The Gap, Inc. Gap, Banana Republic, Old Navy 2.6%Foot Locker, Inc. Footlocker, Champs Sports, Footaction USA 2.2%Forever 21, Inc. Forever 21 2.1%Abercrombie & Fitch Stores, Inc. Abercrombie, Abercrombie & Fitch, Hollister, Gilly Hicks 1.9%Genesco Inc. Journeys, Lids, Underground Station, Johnston & Murphy 1.4%Luxottica Group S.p.A. Lenscrafters, Sunglass Hut, Pearle Vision 1.4%American Eagle Outfitters, Inc. American Eagle, Aerie 1.4%Express, Inc. Express, Express Men 1.2%LVMH Louis Vuitton, Sephora 1.1%Total 18.6%
(1) Exposure is a percentage of minimum rents and tenant recoveries.
LEASE ROLL-OVER RISKLease roll-over risk arises from the possibility that we may experience difficulty renewing leases as they expire or in re-leasing space vacatedby tenants upon early lease expiry. We attempt to stagger the lease expiry profile so that we are not faced with disproportionate amounts ofspace expiring in any one year. Approximately six percent of our leases mature annually up to 2018. Our portfolio has a weighted averageremaining lease life of eight years. We further mitigate this risk by maintaining a diversified portfolio mix by geographic location and byproactively leasing space in advance of its contractual expiry.
The following table sets out lease expiries, by square footage, for our office, retail and industrial portfolios at June 30, 2014, including ourequity accounted investments:
TAX RISKWe are subject to income taxes in various jurisdictions, and our tax liabilities are dependent upon the distribution of income among thesedifferent jurisdictions. Our effective income tax rate is influenced by a number of factors, including changes in tax law, tax treaties,interpretation of existing laws, and our ability to sustain our reporting positions on examination. Changes in any of those factors could changeour effective tax rate, which could adversely affect our profitability and results of operations.
ENVIRONMENTAL RISKSAs an owner of real property, we are subject to various federal, provincial, state and municipal laws relating to environmental matters. Suchlaws provide that we could be liable for the costs of removing certain hazardous substances and remediating certain hazardous locations. Thefailure to remove or remediate such substances or locations, if any, could adversely affect our ability to sell such real estate or to borrow usingsuch real estate as collateral and could potentially result in claims against us. We are not aware of any material noncompliance withenvironmental laws at any of our properties nor are we aware of any pending or threatened investigations or actions by environmentalregulatory authorities in connection with any of our properties or any pending or threatened claims relating to environmental conditions atour properties.
We will continue to make the necessary capital and operating expenditures to ensure that we are compliant with environmental laws andregulations. Although there can be no assurances, we do not believe that costs relating to environmental matters will have a materiallyadverse effect on our business, financial condition or results of operations. However, environmental laws and regulations can change and wemay become subject to more stringent environmental laws and regulations in the future, which could have an adverse effect on our business,financial condition or results of operations.
ECONOMIC RISKReal estate is relatively illiquid. Such illiquidity may limit our ability to vary our portfolio promptly in response to changing economic orinvestment conditions. Also, financial difficulties of other property owners resulting in distressed sales could depress real estate values in themarkets in which we operate.
Our commercial properties generate a relatively stable source of income from contractual tenant rent payments. Continued growth of rentalincome is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies.Taking into account the current state of the economy, 2014-2015 may not provide the same level of increases in rental rates on renewal ascompared to prior years. We are, however, substantially protected against short-term market conditions, as most of our leases are long-termin nature with an average term of seven years.
INSURANCE RISKWe maintain insurance on our properties in amounts and with deductibles that we believe are in line with what owners of similar propertiescarry. We maintain all risk property insurance and rental value coverage (including coverage for the perils of flood, earthquake and namedwindstorm).
INTEREST RATE AND FINANCING RISKWe attempt to stagger the maturities of our mortgage portfolio. We have an on-going need to access debt markets to refinance maturing debtas it comes due. There is a risk that lenders will not refinance such maturing debt on terms and conditions acceptable to us or on any terms atall. Our strategy to stagger the maturities of our mortgage portfolio attempts to mitigate our exposure to excessive amounts of debt maturingin any one year.
Approximately 53% of our outstanding debt obligations at June 30, 2014 are floating rate debt compared to 52% at December 31, 2013. Thisdebt is subject to fluctuations in interest rates. A 100 basis point increase in interest rates relating to our corporate and commercial floatingrate debt obligations would result in an increase in annual interest expense of approximately $126 million. A 100 basis point increase ininterest rates relating to fixed rate debt obligations due within one year would result in an increase in an annual interest expense ofapproximately $5 million upon refinancing. In addition, we have exposure to interest rates within our equity accounted investments. We havemitigated, to some extent, the exposure to interest rate fluctuations through interest rate derivative contracts. See “Derivative FinancialInstruments” below in this MD&A.
At June 30, 2014, our consolidated debt to capitalization was 46% (December 31, 2013 – 46%). It is our view this level of indebtedness isconservative given the cash flow characteristics of our properties and the fair value of our assets. Based on this, we believe that all debts willbe financed or repaid as they come due in the foreseeable future.
FOREIGN EXCHANGE RISKAs at and for the three months ended June 30, 2014, approximately 33% of our assets and 33% of our revenues originated outside the UnitedStates and consequently are subject to foreign currency risk due to potential fluctuations in exchange rates between these currencies and theU.S. Dollar. To mitigate this risk, we attempt to maintain a natural hedged position with respect to the carrying value of assets through debtagreements denominated in local currencies and, from time to time, supplemented through the use of derivative contracts as discussed under“Derivative Financial Instruments”.
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DERIVATIVE FINANCIAL INSTRUMENTSWe and our operating entities use derivative and non-derivative instruments to manage financial risks, including interest rate, commodity,equity price and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approvedlimits. We do not use derivatives for speculative purposes. We and our operating entities use the following derivative instruments to managethese risks:
Foreign currency forward contracts to hedge exposures to Canadian Dollar, Australian Dollar, British Pound, and Euro denominatedinvestments in foreign subsidiaries and foreign currency denominated financial assets;
Interest rate swaps to manage interest rate risk associated with planned refinancings and existing variable rate debt; Interest rate caps to hedge interest rate risk on certain variable rate debt; and Total return swaps on Brookfield Office Properties’ shares to economically hedge exposure to variability in its share price under its
deferred share unit plan.
We also designate Canadian Dollar financial liabilities of certain of our operating entities as hedges of our net investments in our Canadianoperations.
Interest Rate HedgingThe following table provides the partnership’s outstanding derivatives that are designated as cash flow hedges of variability in interest ratesassociated with forecasted fixed rate financings and existing variable rate debt as of June 30, 2014 and December 31, 2013:
Interest rate swaps of fixed C$ debt 47 2.8% Dec. 2024 –Interest rate swaps of US$ LIBOR debt 483 0.6% - 2.2% Dec. 2015 to Nov. 2020 (5)Interest rate caps of US$ LIBOR debt 1,725 3.0% - 5.8% Sep. 2014 to Oct. 2018 –Interest rate swaps of £ LIBOR debt 229 1.1% Sep. 2017 3Interest rate swaps of A$ BBSW/BBSY debt 632 3.5% - 5.9% Jan. 2016 to Jul. 2017 (34)
Dec. 31, 2013 Interest rate swaps of fixed US$ debt $ 1,505 2.3% and 4.7% Jun. 2024 to Jun. 2026 $ (32)Interest rate swaps of fixed C$ debt 47 2.8% Dec. 2024 3Interest rate swaps of US$ LIBOR debt 784 0.6% - 2.2% May 2014 to Nov. 2020 (1)Interest rate caps of US$ LIBOR debt 2,246 3.0% - 5.8% Jan. 2014 to Oct. 2018 2Interest rate swaps of £ LIBOR debt 222 1.1% Sep. 2017 3Interest rate swaps of A$ BBSW/BBSY debt 936 3.5% - 5.9% Jan. 2014 to Jul. 2017 (37)
For the three and six months ended June 30, 2014 and 2013, the amount of hedge ineffectiveness recorded in interest expense in connectionwith the partnership’s interest rate hedging activities was not significant.
Foreign Currency HedgingThe partnership has derivatives designated as net investment hedges of its investments in foreign subsidiaries. As of June 30, 2014, thepartnership had hedged a notional amount of £981 million (December 31, 2013 - £770 million) at rates between £0.60/US$ and £0.63/US$using foreign currency forward contracts maturing between July 2014 and June 2015. In addition, as of June 30, 2014, the partnership hadhedged a notional amount of €288 million (December 31, 2013 - €550 million) at rates between €0.72/US$ and €0.74/US$ using foreigncurrency forward contracts maturing in August 2014. The partnership had also hedged, as of June 30, 2014, a notional amount of A$1,369million (December 31, 2013 – A$535 million) at rates between A$1.06/US$ and A$1.14/US$ using foreign currency forward contracts maturingbetween July 2014 and March 2015.
The fair value of the partnership’s outstanding foreign currency forwards as of June 30, 2014 is a loss of $118 million (December 31, 2013 –loss of $27 million). In addition, as of June 30, 2014, the partnership had designated C$1,413 million (December 31, 2013 – C$900 million) ofCanadian dollar financial liabilities as hedges against the partnership’s net investment in Canadian operations.
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Other DerivativesThe following table provides details of the partnership’s other derivatives that have been entered into to manage financial risks as of June 30,2014 and December 31, 2013:
(US$ Millions) Derivative typeFair
Value(2)Maturity
dates RatesFair value(gain)/loss Classification of gain/loss
Jun. 30, 2014 Total return swap(1) $ – – – $ (3) General and administrative expenseInterest rate caps 400 Mar. 2016 3.65% – General and administrative expenseInterest rate caps 350 Jul. 2017 3.25% – General and administrative expenseInterest rate caps 2,175 Sep. 2014 4.50% – General and administrative expense
Dec. 31, 2013 Total return swap(1) $ 1 – – $ (5) General and administrative expenseInterest rate caps 400 Mar. 2016 3.65% – General and administrative expenseInterest rate caps 882 Apr. 2014 2.50% – General and administrative expenseInterest rate caps 2,270 Apr. 2014 4.50% – General and administrative expense
(1) Relates to the total return swap on BPO’s shares in connection with its deferred share unit plans which was settled for C$1 million during the second quarter of 2014.(2) Interest rate caps are presented at their notional amount.
The other derivatives have not been designated as hedges for accounting purposes.
RELATED PARTIESIn the normal course of operations, the partnership entered into the transactions below with related parties on market terms. Thesetransactions have been measured at exchange value and are recognized in our interim condensed consolidated financial statements.
The immediate parent of the partnership is the general partner of our partnership. The ultimate parent of our partnership is Brookfield AssetManagement. Other related parties of the partnership include the partnership’s and Brookfield Asset Management’s subsidiaries andoperating entities. The following table summarizes transactions with related parties:
The following table summarizes transactions with related parties:
Three months ended Jun. 30, Six months ended Jun. 30,(US$ Millions) 2014 2013 2014 2013Commercial property revenue(1) $ 6 $ 2 $ 7 $ 4Interest and other income 15 17 29 19Interest expense on debt obligations 1 5 6 7Interest on capital securities paid to Brookfield Asset Management 20 – 40 –Administration expense (2) 10 31 20 55Management fees paid 23 27 62 41
(US$ Millions) Jun. 30, 2014 Dec. 31, 2013Participating loan interests $ 676 $ 747Loans and notes receivable(3) 191 293Receivables and other assets 99 11Debt obligations 260 341Other liabilities 123 98Capital securities owned by Brookfield Asset Management 1,250 1,250(1) Amounts received from Brookfield Asset Management and its subsidiaries for the rental of office premises.(2) Amounts paid to Brookfield Asset Management and its subsidiaries for administrative services.(3) Includes $95 million receivable from Brookfield Asset Management upon the earlier of the partnership's exercise of its option to convert its participating loan interests into direct
ownership of the Australian portfolio or the maturity of the participating loan notes.
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PART IV – ADDITIONAL INFORMATION
CRITICAL ACCOUNTING POLICIES AND CRITICAL JUDGEMENTS AND ESTIMATESUSE OF ESTIMATESThe preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the reportedamounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Our estimates are based on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances. The result of our ongoing evaluation of these estimates forms thebasis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are notreadily apparent from other sources. Actual results may differ from these estimates under different assumptions.
For further reference on accounting policies and critical judgments and estimates, see our significant accounting policies contained in Note 2to the December 31, 2013 consolidated financial statements.
ADOPTION OF ACCOUNTING STANDARDSThe partnership adopted IFRIC 21, Levies (“IFRIC 21”) effective January 1, 2014. IFRIC 21 addresses when an entity should recognize a liabilityto pay a government levy other than income taxes. IFRIC 21 is an interpretation of IAS 37, Provisions, Contingent Liabilities and ContingentAssets (“IAS 37”). IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a presentobligation as a result of a past event. IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activitydescribed in the relevant legislation that triggers the payment of the levy. The adoption of this guidance did not have an impact on thepartnership’s June 30, 2014 condensed consolidated financial statements.
TREND INFORMATIONWe will seek to increase the cash flows from our office and retail property activities through continued leasing activity as described below. Inparticular, we are operating below our historical office occupancy level in the United States, which provides the opportunity to expand cashflows through higher occupancy. In addition, we believe that most of our markets have favorable outlooks, which we believe also provides anopportunity for strong growth in lease rates. We do, however, still face a meaningful amount of office lease rollover in 2014/2015, which mayrestrain FFO growth from this part of our portfolio in the near future. Our beliefs as to the opportunities for our partnership to increase itsoccupancy levels, lease rates and cash flows are based on assumptions about our business and markets that management believes arereasonable in the circumstances. There can be no assurance as to growth in occupancy levels, lease rates or cash flows. See “StatementRegarding Forward-looking Statements And Use Of Non-IFRS Measures”.
Transaction activity is picking up across our global real estate markets and we are considering a number of different opportunities to acquiresingle assets, development sites and portfolios at attractive returns. In our continued effort to enhance returns through capital reallocation,we are also looking to divest all of, or a partial interest in, a number of mature assets to capitalize on existing market conditions.
Given the small amount of new office and retail development that occurred over the last decade and the near total development halt duringthe global financial crisis, we see an opportunity to advance our development inventory in the near term in response to demand we are seeingin our major markets. In addition, we continue to reposition and redevelop existing retail properties, in particular, a number of the highestperforming shopping centers in the United States.
OFF-BALANCE SHEET ARRANGEMENTSWe do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on ourfinancial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capitalresources that is material to investors.
CONTROLS AND PROCEDURESINTERNAL CONTROL OVER FINANCIAL REPORTINGThere have been no changes made in the partnership’s internal controls over financial reporting that have occurred during the quarter endedJune 30, 2014, that have materially affected, or are reasonably likely to materially affect, the partnership’s internal control over financialreporting.
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Corporate InformationCORPORATE PROFILEBrookfield Property Partners is a leading owner, operator, and investor in best-in-class commercial real estate around the globe. Ourdiversified portfolio includes interests in over 300 office and retail properties encompassing 250 million square feet, 22,000 multifamily units,47 million square feet of industrial space, and a 100 million square foot development pipeline. Our assets are largely located in North America,Europe, and Australia but also include a growing presence in China, Brazil and India.
BROOKFIELD PROPERTY PARTNERS73 Front StreetHamilton, HM 12BermudaTel: (441) 294-3309www.brookfieldpropertypartners.com
UNITHOLDER INQUIRIESBrookfield Property Partners welcomes inquiries from unitholders, analysts, media representatives and other interested parties. Questionsrelating to investor relations or media inquiries can be directed to Matt Cherry, Vice President, Investor Relations and Communications at(212) 417-7488 or via e-mail at [email protected]. Inquiries regarding financial results can be directed to John Stinebaugh,Chief Financial Officer at (212) 417-7293 or via e-mail at [email protected].
Unitholder questions relating to distributions, address changes and unit certificates should be directed to the partnership’s Transfer Agent,CST Trust Company, as listed below.
COMMUNICATIONSWe strive to keep our unitholders updated on our progress through a comprehensive annual report, quarterly interim reports and periodicpress releases.
Brookfield Property Partners maintains a website, www.brookfieldpropertypartners.com, which provides access to our published reports,press releases, statutory filings, supplementary information and unit and distribution information as well as summary information on thepartnership.
We maintain an investor relations program and respond to inquiries in a timely manner. Management meets on a regular basis withinvestment analysts and unitholders to ensure that accurate information is available to investors. We strive to disseminate materialinformation about the partnership’s activities to the media in a timely, factual and accurate manner.
