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Brookfield Property Partners (BPYPP)

Filed: 28 Feb 20, 4:38pm





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 20-F
 
(Mark One)
¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2019
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-35505
 
Brookfield Property Partners L.P.
 
(Exact name of Registrant as specified in its charter)
 
N/A
 
(Translation of Registrant’s name into English)
 
Bermuda
 
(Jurisdiction of incorporation or organization)
 
73 Front Street, 5th Floor, Hamilton, HM 12 Bermuda
 
(Address of principal executive office)
 
Bryan K. Davis
Brookfield Property Partners L.P.
73 Front Street, 5th Floor
Hamilton, HM 12, Bermuda
Tel: +441-294-3309 
 
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
 






Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Trading Symbol(s) Name of each exchange on which registered
Limited Partnership Units

 
BPY

 
Nasdaq Stock Market

Limited Partnership Units BPY.UN Toronto Stock Exchange
Preferred Units, Series 1 BPYPP Nasdaq Stock Market
Preferred Units, Series 2 BPYPO Nasdaq Stock Market
Preferred Units, Series 3 BPYPN Nasdaq Stock Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 439,801,308 Limited Partnership Units as of December 31, 2019.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x
No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ¨
No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x
No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Emerging growth company ¨
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Boardx
Other ¨
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨
Item 18 ¨
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
No x






Table of Contents
 

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INTRODUCTION AND USE OF CERTAIN TERMS
 
We have prepared this Form 20-F using a number of conventions, which you should consider when reading the information contained herein. Unless otherwise indicated or the context otherwise requires, in this Form 20-F:
 
all operating and other statistical information is presented as if we own 100% of each property in our portfolio, regardless of whether we own all of the interests in each property; and

all information on financial results is presented in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, or IASB, other than certain non-IFRS financial measures which are defined under “Use of Non-IFRS Measures” below.

In this Form 20-F, unless the context suggests otherwise, references to “we”, “us” and “our” are to Brookfield Property Partners L.P., the BPR Group, the Property Partnership, the Holding Entities and the operating entities, each as defined below, taken together on a consolidated basis. Unless the context suggests otherwise, in this Form 20-F references to:

“AO LTIP Units” are to the BPY AO LTIP Units of the Property Partnership;

“assets under management” are to assets managed by us or by Brookfield on behalf of our third-party investors, as well as our own assets, and also include capital commitments that have not yet been drawn. Our calculation of assets under management may differ from that employed by other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers;

“BPR” are to Brookfield Property REIT Inc.;

“BPR Group” are to BPR, BPR OP, L.P. and any of their direct or indirect subsidiaries;

“BPR Master Services Agreement” means the master services agreement among BPR, the service providers named therein, and certain other subsidiaries of BPR and Brookfield Asset Management who are parties thereto;

“BPR Units” are to the shares of Class A Stock of BPR, par value $0.01 per share, which are intended to be economic equivalent to the LP Units of our partnership;

“BPY General Partner” are to the general partner of our company, which is Brookfield Property Partners Limited, an indirect wholly-owned subsidiary of Brookfield Asset Management;

“Brookfield Asset Management” are to Brookfield Asset Management Inc.;

“Brookfield” are to Brookfield Asset Management and any subsidiary of Brookfield Asset Management, other than us;

“Class A Preferred Unitholder” are to the third-party holder of the Class A Preferred Units;

“Class A Preferred Units” are to the Class A preferred limited partnership units of the Property Partnership, Series 1, 2 and 3, that are exchangeable for LP Units of our company pursuant to the Preferred Unit Exchange Mechanism;

“commercial property” or “commercial properties” are to commercial and other real property that generates or has the potential to generate income, including office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing, but does not include, among other things, residential land development, home building, construction, real estate advisory and other similar operations or services;

“fully-exchanged basis” assume the exchange of certain issued and outstanding securities that are exchangeable into LP Units, including the exchange of the issued and outstanding Redemption-Exchange Units in accordance with the Redemption-Exchange Mechanism, the exchange of the issued and outstanding Class A Preferred Units in accordance with the Preferred Unit Exchange Mechanism and the exchange of the issued and outstanding exchangeable limited partnership units of Brookfield Office Properties Exchange LP not held by us;

“FV LTIP Units” are to the FV LTIP Units of the Property Partnership;

“GGP” are to GGP Inc.;

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“Holding Entities” are to the primary holding subsidiaries of the Property Partnership, from time to time, through which it indirectly holds all of our interests in our operating entities;

“LP Units” are to the non-voting limited partnership units of our company, other than Preferred Units;

“Master Services Agreement” are to the amended and restated master services agreement among the Service Recipients, the Service Providers, and certain other subsidiaries of Brookfield Asset Management who are parties thereto;

“operating entities” are to the entities in which the Holding Entities hold interests and that directly or indirectly hold our real estate assets or that perform real estate management services for our real estate assets other than entities in which the Holding Entities hold interests for investment purposes only of less than 5% of the equity securities;

“our business” are to our business of owning, operating and investing in commercial property, both directly and through our operating entities;

“our company”, “BPY” or “our partnership” are to Brookfield Property Partners L.P., a Bermuda exempted limited partnership;

“our limited partnership agreement” are to the second amended and restated limited partnership agreement of our company;

“our portfolio” are to the commercial property assets in our Core Office, Core Retail and LP Investments segments, as applicable;

“our units” and “units of our company” are to the non-voting limited partnership units in our company, including LP Units and Preferred Units, and references to “our unitholders” are to the holders of our units. References to “Unitholders” are to holders of general partnership units of our partnership (“GP Units”), LP Units, Redemption-Exchange Units, special limited partnership units of the Property Partnership (“Special LP Units”), AO LTIP Units, FV LTIP Units, exchangeable limited partnership units of Brookfield Office Properties Exchange L.P. (“Exchange LP Units”) and BPR Units;

“Preferred Units” or “Preferred Equity Units” are to the preferred limited partnership units in the capital of BPY, currently consisting of the Class A Cumulative Redeemable Perpetual Units, Series 1 (“Preferred Units, Series 1”), the Class A Cumulative Redeemable Perpetual Units, Series 2 (“Preferred Units, Series 2”), and the Class A Cumulative Redeemable Perpetual Units, Series 3 (“Preferred Units, Series 3”);

“Preferred Unit Exchange Mechanism” are to the mechanism by which the Class A Preferred Unitholder may exchange the Class A Preferred Units for LP Units of our company, as more fully described in Item 10.B. “Additional Information - Memorandum and Articles of Association - Description of the Property Partnership Limited Partnership Agreement - Preferred Unit-Exchange Mechanism”;

“Property Partnership” or the “Operating Partnership” are to Brookfield Property L.P., a Bermuda exempted limited partnership;

“Property Partnership Preferred Units” are to the preferred limited partnership units of the Property Partnership, currently consisting of the Class A Preferred Units and the Class A Cumulative Redeemable Perpetual Units, Series 5, 6 and 7;

“Property Special LP” are to Brookfield Property Special L.P., an indirect wholly-owned subsidiary of Brookfield Asset Management, which is the sole special limited partner of the Property Partnership;

“Redemption-Exchange Mechanism” are to the mechanism by which Brookfield may request redemption of its Redemption-Exchange Units in whole or in part in exchange for cash, subject to the right of our company to acquire such interests (in lieu of such redemption) in exchange for LP Units of our company, as more fully described in Item 10.B. “Additional Information - Memorandum and Articles of Association - Description of the Property Partnership Limited Partnership Agreement - Redemption-Exchange Mechanism”;

“Redemption-Exchange Units” or “Redeemable/Exchangeable Partnership Units” are to the non-voting limited partnership interests in the Property Partnership that are redeemable for cash, subject to the right of our company to acquire such interests (in lieu of such redemption) in exchange for LP Units of our company, pursuant to the Redemption-Exchange Mechanism;


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“Service Providers” are to the subsidiaries of Brookfield Asset Management that provide services to us pursuant to our Master Services Agreement, and unless the context otherwise requires, any other affiliate of Brookfield that is appointed from time to time to act as a service provider pursuant to our Master Services Agreement or to whom any service provider has subcontracted for the provision of such services;

“Service Recipients” are to our company, the Property Partnership, the Holding Entities and, at the option of the Holding Entities, any wholly-owned subsidiary of a Holding Entity excluding any operating entity; and

“Spin-off” are to the special dividend of LP Units by Brookfield Asset Management on April 15, 2013 as described under Item 4.A. “Information on the Company - History and Development of the Company”.

Historical Performance and Market Data
 
This Form 20-F contains information relating to our business as well as historical performance and market data for Brookfield Asset Management and certain of its business groups. When considering this data, you should bear in mind that historical results and market data may not be indicative of the future results that you should expect from us.
 
Financial Information
 
The financial information contained in this Form 20-F is presented in U.S. Dollars and, unless otherwise indicated, has been prepared in accordance with IFRS. Amounts in “$” are to U.S. Dollars and amounts in Canadian Dollars (“C$”), Australian Dollars (“A$”), British Pounds (“£”), Euros (“€”), Brazilian Reais (“R$”), Indian Rupees (“₨”), Chinese Yuan (“C¥”), South Korean Won (“₩”) and United Arab Emirates Dirham (“AED”) are identified where applicable.
 
Use of Non-IFRS Measures

To measure our performance, we focus on Net Operating Income (“NOI”), same-property NOI, funds from operations (“FFO”), Company FFO, net income attributable to Unitholders and equity attributable to Unitholders. Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies. We define each of these measures as follows:

NOI: revenues from our commercial properties operations less direct commercial property expenses (“Commercial property NOI”) and revenues from our hospitality operations less direct hospitality expenses (“Hospitality NOI”).

Same-property NOI: a subset of NOI, which excludes NOI that is earned from assets acquired, disposed of or developed during the periods presented, not of a recurring nature, or from LP Investments assets.

FFO: net income, prior to fair value gains, net, depreciation and amortization of real estate assets, and income taxes less non-controlling interests of others in operating subsidiaries and properties therein. When determining FFO, we include our proportionate share of the FFO of unconsolidated partnerships and joint ventures and associates, as well as gains (or losses) related to properties developed for sale.

Company FFO: FFO before the impact of depreciation and amortization of non-real estate assets, transaction costs, gains (losses) associated with non-investment properties, imputed interest on equity accounted investments and the partnership’s share of Brookfield Strategic Real Estate Partners III (“BSREP III”) FFO. The partnership accounts for its investment in BSREP III as a financial asset and the income (loss) of the fund is not presented in our partnership’s results. Distributions from BSREP III, recorded as dividend income under IFRS, are removed from investment and other income for Company FFO presentation.

Net Income Attributable to Unitholders: net income attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPR Units.

Equity Attributable to Unitholders: equity attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPR Units.

NOI is a key indicator of our ability to impact the operating performance of our properties. We seek to grow NOI through pro-active management and leasing of our properties. Same-property NOI in our Core Office and Core Retail segments allows us to segregate the impact of leasing and operating initiatives on the portfolio from the impact of investing activities and “one-time items”, which for the historical periods presented consist primarily of lease termination income.

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We also consider FFO an important measure of our operating performance. FFO is a widely recognized measure that is frequently used by securities analysts, investors and other interested parties in the evaluation of real estate entities, particularly those that own and operate income producing properties. Our definition of FFO includes all of the adjustments that are outlined in the National Association of Real Estate Investment Trusts (“NAREIT”), definition of FFO, including the exclusion of gains (or losses) from the sale of investment properties, the add back of any depreciation and amortization related to real estate assets and the adjustment for unconsolidated partnerships and joint ventures. 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 as opposed to real estate investment trusts (“REITs”). These additional adjustments result in an FFO measure that is similar to that which would result if our partnership was organized as a REIT that determined net income in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) which is the type of organization on which the NAREIT definition is premised. Our FFO measure will differ from other organizations applying the NAREIT definition to the extent of certain differences between the IFRS and U.S. GAAP reporting frameworks, principally related to the timing of revenue recognition from lease terminations and sale of properties. Because FFO excludes fair value gains (losses), including equity accounted fair value gains (losses), realized gains (losses) on the sale of investment properties, depreciation and amortization of real estate assets and income taxes, it provides a performance measure that, when compared year-over-year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and interest costs, providing perspective not immediately apparent from net income.
    
In addition, we consider Company FFO a useful measure for securities analysts, investors and other interested parties in the evaluation of our partnership’s performance. Company FFO, similar to FFO discussed above, provides a performance measure that reflects the impact on operations of trends in occupancy rates, rental rates, operating costs and interest costs. In addition, the adjustments to Company FFO relative to FFO allow the partnership insight into these trends for the real estate operations, by adjusting for non-real estate components.

Net income attributable to Unitholders and Equity attributable to Unitholders are used by the partnership to evaluate the performance of the partnership as a whole as each of the Unitholders participates in the economics of the partnership equally.
 
Under Item 5.A. “Operating and Financial Review and Prospects - Operating Results - Financial Statements Analysis - Review of Consolidated Results - Reconciliation of Non-IFRS Measures”, we provide a reconciliation to net income (loss) for the periods presented. We urge you to review the IFRS financial measures in this Form 20-F, including the financial statements, the notes thereto and the other financial information contained herein, and not to rely on any single financial measure to evaluate our company.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Form 20-F contains “forward-looking information” within the meaning of applicable securities laws and regulations. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding our operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook, as well as the outlook for North American and international economies for the current fiscal year and subsequent 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-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors, many of which are 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 are not limited to: risks incidental to the ownership and operation of real estate properties including local real estate conditions; the impact or unanticipated impact of general economic, political and market factors in the countries in which we do business; the ability to enter into new leases or renew leases on favorable terms; business competition; dependence on tenants’ financial condition; the use of debt to finance our business; the behavior of financial markets, including fluctuations in interest and foreign exchanges rates; uncertainties of real estate development or redevelopment; global equity and capital markets and the availability of equity and debt financing and refinancing within these markets; risks relating to our insurance coverage; the possible impact of international conflicts and other developments including terrorist 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 attain expected benefits therefrom; operational and reputational risks; catastrophic events, such as earthquakes and hurricanes; and other risks and factors 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-looking statements 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, whether written or oral, that may be as a result of new information, future events or otherwise.

 

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PART I
 
ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS
 
Not applicable.
 
ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.    KEY INFORMATION
 
3.A. SELECTED FINANCIAL DATA
 
The following tables present selected financial data for our company as of and for the periods indicated:
 
 Years ended Dec. 31,
(US$ Millions, except per unit information)2019
2018
2017
2016
2015
Total revenue$8,203
$7,239
$6,135
$5,352
$4,853
Net income3,157
3,654
2,468
2,717
3,766
Net income attributable to LP Units884
764
136
660
1,064
Net income attributable to GP Units



1
Net income per LP Unit1.89
2.28
0.48
2.30
3.72
Distributions per LP Unit1.32
1.26
1.18
1.12
1.06
FFO(1)
1,147
866
873
895
710
  
(1) 
FFO is a non-IFRS measure. See “Introduction and Use of Certain Terms - Use of Non-IFRS Measures” and Item 5.A, “Operating and Financial Review and Prospects - Operating Results- Financial Statements Analysis - Review of Consolidated Financial Results”.

(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Investment properties$75,511
$80,196
$51,357
$48,784
$41,599
Equity accounted investments20,764
22,698
19,761
16,844
17,638
Total assets111,643
122,520
84,347
78,127
71,866
Debt obligations55,390
63,811
36,884
33,519
30,526
Capital securities3,075
3,385
4,165
4,171
4,031
Total equity44,935
46,740
35,124
34,161
30,933
Equity attributable to Unitholders(1)
28,530
28,284
22,186
22,358
21,958
(1) 
As at December 31, 2019, 2018, 2017, 2016 and 2015, refers to holders of LP Units, GP Units, Redemption-Exchange Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPR Units, as applicable.

3.B. CAPITALIZATION AND INDEBTEDNESS
 
Not applicable.
 
3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not applicable.
 

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3.D. RISK FACTORS
 
You should carefully consider the following factors in addition to the other information set forth in this Form 20-F. If any of the following risks actually occur, our business, financial condition and results of operations and the value of our units would likely suffer.
 
Risks Relating to Our Business
 
Our economic performance and the value of our assets are subject to the risks incidental to the ownership and operation of real estate assets.
 
Our economic performance, the value of our assets and, therefore, the value of our units are subject to the risks normally associated with the ownership and operation of real estate assets, including but not limited to:
 
downturns and trends in the national, regional and local economic conditions where our properties and other assets are located;

the cyclical nature of the real estate industry;

local real estate market conditions, such as an oversupply of commercial properties, including space available by sublease, or a reduction in demand for such properties;

changes in interest rates and the availability of financing;

competition from other properties;

changes in market rental rates and our ability to rent space on favorable terms;

the bankruptcy, insolvency, credit deterioration or other default of our tenants;

the need to periodically renovate, repair and re-lease space and the costs thereof;

increases in maintenance, insurance and operating costs;

civil disturbances, earthquakes and other natural disasters, pandemics or terrorist acts or acts of war which may result in uninsured or underinsured losses;

the decrease in the attractiveness of our properties to tenants;

the decrease in the underlying value of our properties; and

certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges that must be made regardless of whether a property is producing sufficient income to service these expenses.

We are dependent upon the economic conditions of the markets where our assets are located.
 
We are affected by local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own assets. A protracted decline in economic conditions will cause downward pressure on our operating margins and asset values as a result of lower demand for space.
 
Our properties are largely located in North America, Europe and Australia but also include a growing presence in Brazil and Asia. A prolonged downturn in one or more of these economies or the economy of any other country where we own property would result in reduced demand for space and number of prospective tenants and will affect the ability of our properties to generate significant revenue. If there is an increase in operating costs resulting from inflation and other factors, we may not be able to offset such increases by increasing rents.

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We are subject to foreign currency risk and our risk management activities may adversely affect the performance of our operations.

Some of our assets and operations are in countries where the U.S. Dollar is not the functional currency. These operations pay distributions in currencies other than the U.S. Dollar which we must convert to U.S. Dollars prior to making distributions on our units. A significant depreciation in the value of such foreign currencies may have a material adverse effect on our business, financial condition and results of operations.

When managing our exposure to such market risks, we may use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative instruments. The success of any hedging or other derivative transactions that we enter into generally will depend on our ability to structure contracts that appropriately offset our risk position. As a result, while we may enter into such transactions in order to reduce our exposure to market risks, unanticipated market changes may result in poorer overall investment performance than if the transaction had not been executed. Such transactions may also limit the opportunity for gain if the value of a hedged position increases.

We are subject to interest rate risk and a rise in interest rates may adversely affect us and the value of an investment in our units.

A number of our assets are interest rate sensitive: increases in long-term interest rates will, absent all else, decrease the value of these assets by reducing the present value of the cash flows expected to be produced by the asset. If interest rates were to rise, it may affect the market perceived or actual value of our assets and/or distributions and consequently the market price of our units may decline in value. Additionally, an increase in interest rates could decrease the amount buyers may be willing to pay for our properties, thereby reducing the market value of our properties and limiting our ability to sell properties or to obtain mortgage financing secured by our properties. Further, increased interest rates may effectively increase the cost of properties we acquire to the extent we utilize leverage for those acquisitions and may result in a reduction in our acquisitions to the extent we reduce the amount we offer to pay for properties, due to the effect of increased interest rates, to a price that sellers may not accept.

We face risks associated with the use of debt to finance our business, including refinancing risk.
 
We incur debt in the ordinary course of our business and therefore are subject to the risks associated with debt financing. The risks associated with our debt financing, including the following, may adversely affect our financial condition and results of operations:
 
cash flows may be insufficient to meet required payments of principal and interest;

payments of principal and interest on borrowings may leave insufficient cash resources to pay operating expenses;

we may not be able to refinance indebtedness on our properties at maturity due to business and market factors, including: disruptions in the capital and credit markets; the estimated cash flows of our properties and other assets; the value of our properties and other assets; and financial, competitive, business and other factors, including factors beyond our control; and

if refinanced, the terms of a refinancing may not be as favorable as the original terms of the related indebtedness.
 
Our operating entities have a significant degree of leverage on their assets. Highly leveraged assets are inherently more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. A leveraged company’s income and net assets also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed. As a result, the risk of loss associated with a leveraged company, all other things being equal, is generally greater than for companies with comparatively less debt. Leverage may also result in a requirement for liquidity, which may force the sale of assets at times of low demand and/or prices for such assets.

We rely on our operating entities to provide our company with the funds necessary to make distributions on our units and meet our financial obligations. The leverage on our assets may affect the funds available to our company if the terms of the debt impose restrictions on the ability of our operating entities to make distributions to our company. In addition, our operating entities generally have to service their debt obligations before making distributions to our company or their parent entity. The Property Partnership is also required to make distributions to preferred unitholders before making distributions to us.

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We have substantial indebtedness, and we may incur substantially more indebtedness in the future, and are subject to certain refinancing risks.
 
In addition to our $2.8 billion of corporate credit facilities, we may also incur indebtedness under future credit facilities or other debt-like instruments, in addition to any asset-level indebtedness. We may also issue debt or debt-like instruments in the market, which may or may not be rated. Should such debt or debt-like instruments be rated, a credit downgrade will have an adverse impact on the cost of such debt.
 
If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to dispose of one or more of our properties or other assets upon disadvantageous terms. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest expense, and if we mortgage property to secure payment of indebtedness and are unable to make mortgage payments, the mortgagee could foreclose upon such property or appoint a receiver to receive an assignment of our rents and leases. This may adversely affect our ability to make distributions or payments to our unitholders and lenders.

Changes in our credit ratings may have an adverse effect on our financial position and ability to raise capital.
We cannot assure you that any credit rating assigned to our partnership, any of our subsidiaries or any of our subsidiaries’ securities will remain in effect for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering or withdrawal of such ratings may have an adverse effect on our financial position and ability to raise capital.
Restrictive covenants in our indebtedness may limit management’s discretion with respect to certain business matters.
 
Instruments governing any of our indebtedness or indebtedness of our operating entities or their subsidiaries may contain restrictive covenants limiting our discretion with respect to certain business matters. These covenants could place significant restrictions on, among other things, our ability to create liens or other encumbrances, to make distributions to our unitholders or make certain other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. These covenants could also require us to meet certain financial ratios and financial condition tests. A failure to comply with any such covenants could result in a default which, if not cured or waived, could permit acceleration of the relevant indebtedness.
 
If we are unable to manage our interest rate risk effectively, our cash flows and operating results may suffer.
 
Advances under credit facilities and certain property-level mortgage debt bear interest at a variable rate. We may incur further indebtedness in the future that also bears interest at a variable rate or we may be required to refinance our debt at higher rates. In addition, though we attempt to manage interest rate risk, there can be no assurance that we will hedge such exposure effectively or at all in the future. Accordingly, increases in interest rates above that which we anticipate based upon historical trends would adversely affect our cash flows.

The Financial Conduct Authority in the United Kingdom has announced that it will cease to compel banks to participate in LIBOR after 2021. This change to the administration of LIBOR, and any other reforms to benchmark interest rates, could create significant risks and challenges for us. The discontinuance of, or changes to, benchmark interest rates may require adjustments to agreements to which we and other market participants are parties, as well as to related systems and processes.
 
We face potential adverse effects from tenant defaults, bankruptcies or insolvencies.
 
A commercial tenant may experience a downturn in its business, which could cause the loss of that tenant as a tenant or weaken its financial condition and result in its inability to make rental payments when due or, for retail tenants, a reduction in percentage rent payable. If a tenant defaults, we may experience delays and incur costs in enforcing our rights as landlord and protecting our investments.
 
We cannot evict a tenant solely because of its bankruptcy. In addition, in certain jurisdictions where we own properties, a court may authorize a tenant to reject and terminate its lease. In such a case, our claim against the tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. In any event, it is unlikely that a bankrupt or insolvent tenant will pay the full amount it owes under a lease. The loss of rental payments from tenants and costs of re-leasing would adversely affect our cash flows and results of operations. In the case of our retail properties, the bankruptcy or insolvency of an anchor tenant or tenant with stores at many of our properties would cause us to suffer lower revenues and operational difficulties, including difficulties leasing the remainder of the property. Significant expenses associated with each property, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when

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circumstances cause a reduction in income from the property. In the event of a significant number of lease defaults and/or tenant bankruptcies, our cash flows may not be sufficient to pay cash distributions to our unitholders and repay maturing debt or other obligations.
 
Reliance on significant tenants could adversely affect our results of operations.
 
Many of our properties are occupied by one or more significant tenants and, therefore, our revenues from those properties are materially dependent on our relationships with and the creditworthiness and financial stability of those tenants. Our business would be adversely affected if any of those tenants failed to perform or renew certain of their significant leases for any reason, or otherwise became insolvent, declared bankruptcy or otherwise refused to pay rent in a timely fashion or at all. In the event of a default by one or more significant tenants, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing the property. If a lease of a significant tenant is terminated, it may be difficult, costly and time consuming to attract new tenants and lease the property for the rent previously received. In addition, the loss of a significant tenant (particularly if related to one of our signature projects, or if otherwise widely publicized) could cause harm to our reputation.
 
Our inability to enter into renewal or new leases with tenants on favorable terms or at all for all or a substantial portion of space that is subject to expiring leases would adversely affect our cash flows and operating results.
 
Our properties generate revenue through rental payments made by tenants of the properties. Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. The terms of any renewal or replacement lease may be less favorable to us than the existing lease. We would be adversely affected, in particular, if any major tenant ceases to be a tenant and cannot be replaced on similar or better terms or at all. Additionally, we may not be able to lease our properties to an appropriate mix of tenants. Retail tenants may negotiate leases containing exclusive rights to sell particular types of merchandise or services within a particular retail property. These provisions may limit the number and types of prospective tenants for the vacant space in such properties.
 
Our competitors may adversely affect our ability to lease our properties which may cause our cash flows and operating results to suffer.
 
Each segment of the real estate industry is competitive. Numerous other developers, managers and owners of commercial properties compete with us in seeking tenants and, in the case of our multifamily properties, there are numerous housing alternatives which compete with our properties in attracting residents. Some of the properties of our competitors may be newer, better located or better capitalized. These competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to make space available at lower prices than the space in our properties, particularly if there is an oversupply of space available in the market. Competition for tenants could have an adverse effect on our ability to lease our properties and on the rents that we may charge or concessions that we must grant, which may cause our cash flows and operating results to suffer.
 
Our ability to realize our strategies and capitalize on our competitive strengths are dependent on the ability of our operating entities to effectively operate our large group of commercial properties, maintain good relationships with tenants, and remain well-capitalized, and our failure to do any of the foregoing would affect our ability to compete effectively in the markets in which we do business.

Our insurance may not cover some potential losses or may not be obtainable at commercially reasonable rates, which could adversely affect our financial condition and results of operations.
 
We maintain insurance on our properties in amounts and with deductibles that we believe are in line with what owners of similar properties carry; however, our insurance may not cover some potential losses or may not be obtainable at commercially reasonable rates in the future.
 
There also are certain types of risks (such as war, environmental contamination such as toxic mold, and lease and other contract claims) that are either uninsurable or not economically insurable. Should any uninsured or underinsured loss occur, we could lose our investment in, and anticipated profits and cash flows from, one or more properties, and we would continue to be obligated to repay any recourse mortgage indebtedness on such properties.
 

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Possible terrorist activity could adversely affect our financial condition and results of operations and our insurance may not cover some losses due to terrorism or may not be obtainable at commercially reasonable rates.
 
Possible terrorist attacks in the markets where our properties are located may result in declining economic activity, which could reduce the demand for space at our properties, reduce the value of our properties and harm the demand for goods and services offered by our tenants.
 
Additionally, terrorist activities could directly affect the value of our properties through damage, destruction or loss. Our Core Office portfolio is concentrated in large metropolitan areas, some of which have been or may be perceived to be subject to terrorist attacks. Many of our office properties consist of high-rise buildings, which may also be subject to this actual or perceived threat. Our insurance may not cover some losses due to terrorism or may not be obtainable at commercially reasonable rates.

We are subject to risks relating to development and redevelopment projects.
 
On a strategic and selective basis, we may develop and redevelop properties. The real estate development and redevelopment business involves significant risks that could adversely affect our business, financial condition and results of operations, including the following:
 
we may not be able to complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties;

we may not have sufficient capital to proceed with planned redevelopment or expansion activities;

we may abandon redevelopment or expansion activities already under way, which may result in additional cost recognition;

we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;

we may not be able to lease properties at all or on favorable terms, or occupancy rates and rents at a completed project might not meet projections and, therefore, the project might not be profitable;

construction costs, total investment amounts and our share of remaining funding may exceed our estimates and projects may not be completed and delivered as planned; and

upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we have financed through construction loans.

We are subject to risks that affect the retail environment.
 
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, low consumer confidence, increased consumer debt, poor housing market conditions, adverse weather conditions, natural disasters and the need to pay down existing obligations. Any 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 retail tenants.
 
In addition, our retail tenants face competition from retailers at other regional malls, outlet malls and other discount shopping centers, discount shopping clubs, catalogue companies, and through internet sales and telemarketing. Competition of these types could reduce the percentage rent payable by certain retail tenants and adversely affect our revenues and cash flows. Additionally, our retail tenants are dependent on perceptions by retailers and shoppers of the safety, convenience and attractiveness of our retail properties. If retailers and shoppers perceive competing properties and other retailing options such as the internet to be more convenient or of a higher quality, our revenues may be adversely affected.
 
Some of our retail lease agreements include a co-tenancy provision which allows the mall tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels at the mall. In addition, certain of our tenants have the ability to terminate their leases prior to the lease expiration date if their sales do not meet agreed upon thresholds. Therefore, if occupancy, tenancy or sales fall below certain thresholds, rents we are entitled to receive from our retail tenants would be reduced and our ability to attract new tenants may be limited.
 

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The computation of cost reimbursements from our retail tenants for common area maintenance, insurance and real estate taxes is complex and involves numerous judgments including interpretation of lease terms and other tenant lease provisions. Most tenants make monthly fixed payments of common area maintenance, insurance, real estate taxes and other cost reimbursements and, after the end of the calendar year, we compute each tenant’s final cost reimbursements and issue a bill or credit for the full amount, after considering amounts paid by the tenant during the year. The billed amounts could be disputed by the tenant or become the subject of a tenant audit or even litigation. There can be no assurance that we will collect all or any portion of these amounts.

A shift in retail shopping from brick and mortar stores to online shopping may have an adverse impact on our cash flow, financial condition and results of operations.

Many retailers operating brick and mortar stores have made online sales a vital piece of their business. The shift to online shopping may cause declines in brick and mortar sales generated by certain of our tenants and may cause certain of our tenants to reduce the size or number of their retail locations in the future. As a result, our cash flow, financial condition, and results of operations could be adversely affected.

We are subject to risks associated with the multifamily residential industry.
 
We are subject to risks associated with the multifamily residential industry, including the level of mortgage interest rates which may encourage tenants to purchase rather than lease and housing and governmental programs that provide assistance and rent subsidies to tenants. If the demand for multifamily properties is reduced, income generated from our multifamily residential properties and the underlying value of such properties may be adversely affected.
 
In addition, certain jurisdictions regulate the relationship of an owner and its residential tenants. Commonly, these laws require a written lease, good cause for eviction, disclosure of fees, and notification to residents of changed land use, while prohibiting unreasonable rules, retaliatory evictions, and restrictions on a resident’s choice of landlords. Apartment building owners have been the subject of lawsuits under various “Landlord and Tenant Acts” and other general consumer protection statutes for coercive, abusive or unconscionable leasing and sales practices. If we become subject to litigation, the outcome of any such proceedings may materially adversely affect us for long periods of time. A few jurisdictions may offer more significant protection to residential tenants. In addition to state or provincial regulation of the landlord-tenant relationship, numerous towns and municipalities impose rent control on apartment buildings. The imposition of rent control on our multifamily residential units could have a materially adverse effect on our results of operations.

We may be adversely affected by trends in the office real estate industry.

Some businesses increasingly permit employee telecommuting, flexible work schedules, open workplaces and teleconferencing. There is also an increasing trend of businesses utilizing shared office and co-working spaces. These practices enable businesses to reduce their space requirements. These trends could over time erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations. A reduced demand for office space could have an adverse impact on our business, cash flow, financial condition and results of operations.

We are subject to risks associated with the hospitality industry.

We are subject to risks associated with the hospitality industry, including: the relative attractiveness of our hotel properties and the level of services provided to guests; dependence on business and leisure travel and tourism; the seasonality of the hotel industry, which may cause our results of operations to vary on a quarterly basis; perceptions regarding the safety and conditions at our hospitality properties; and the appeal to travelers of the local markets in which our hotels are located which could have an adverse effect on our financial condition and results of operations.
 
A business disruption may adversely affect our financial condition and results of operations.
 
Our business is vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, pandemics, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. For example, major health issues and pandemics, such as the coronavirus that has impacted China's population, commerce and travel and has spread to other countries, may adversely affect trade and global and local economies. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the coronavirus outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus or its impact, among others. If we are unable to recover from a business disruption on a timely basis, our financial condition and results of operations would be adversely affected. We

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may also incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations.

Our failure to maintain effective internal controls could have a material adverse effect on our business.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management has delivered a report that assesses the effectiveness of our internal controls over financial reporting (in which they concluded that these internal controls are effective) and our independent registered public accounting firm has delivered an attestation report on our management’s assessment of, and the operating effectiveness of, our internal controls over financial reporting in conjunction with their opinion on our audited consolidated financial statements. Any failure to maintain adequate internal controls over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to report material weaknesses in our internal controls over financial reporting and could result in errors or misstatements in our consolidated financial statements that could be material. If we were to conclude that our internal controls over financial reporting were not effective, investors could lose confidence in our reported financial information and the price of our units could decline. Our failure to achieve and maintain effective internal controls could have a material adverse effect on our business in the future, our access to the capital markets and investors’ perception of us. In addition, material weaknesses in our internal controls could require significant expense and management time to remediate.

The failure of our information technology systems, or an act of deliberate cyber terrorism, could adversely impact our reputation and financial performance.

We operate in businesses that are dependent on information systems and technology. Our information systems and technology may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current level, either of which could have a material adverse effect on us.

We rely on third-party service providers to manage certain aspects of our business, including for certain information systems and technology, data processing systems, and the secure processing, storage and transmission of information. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of our operations and could adversely affect our business and reputation.

We rely on certain information technology systems which may be subject to cyber terrorism intended to obtain unauthorized access to our proprietary information, destroy data or disable, degrade or sabotage our systems, through the introduction of computer viruses, cyber-attacks and other means, and could originate from a variety of sources including our own employees or unknown third parties. Any such breach or compromise could also go undetected for an extended period. There can be no assurance that measures implemented to protect the integrity of our systems will provide adequate protection or enable us to detect and remedy any such breaches or compromises in a timely manner or at all. If our information systems are compromised, we could suffer a disruption in one or more of our businesses. This could have a negative impact on our financial condition and results of operations or result in reputational damage.

Because certain of our assets are illiquid, we may not be able to sell these assets when appropriate or when desired.
 
Large commercial properties like the ones that we own can be hard to sell, especially if local market conditions are poor. Such illiquidity could limit our ability to diversify our assets promptly in response to changing economic or investment conditions.
 
Additionally, financial difficulties of other property owners resulting in distressed sales could depress real estate values in the markets in which we operate in times of illiquidity. These restrictions reduce our ability to respond to changes in the performance of our assets and could adversely affect our financial condition and results of operations.
 
We face risks associated with property acquisitions.
 
Competition from other well-capitalized real estate investors, including both publicly traded real estate investment trusts and institutional investment funds, may significantly increase the purchase price of, or prevent us from acquiring, a desired property. Acquisition agreements will typically contain conditions to closing, including completion of due diligence to our satisfaction or other conditions that are not within our control, which may not be satisfied. Acquired properties may be located in new markets where we may have limited knowledge and understanding of the local economy, an absence of business relationships in the area or unfamiliarity with local government and applicable laws and regulations. We may be unable to finance acquisitions on favorable terms or newly acquired properties may fail to perform as expected. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position or we may be unable to quickly and efficiently integrate new acquisitions into our existing operations. We may also acquire properties subject to liabilities and without any recourse, or with

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only limited recourse, with respect to unknown liabilities. Each of these factors could have an adverse effect on our results of operations and financial condition.
 
We do not control certain businesses that our LP Investments are invested in, and therefore we may not be able to realize some or all of the benefits that we expect to realize from those entities.
 
We do not have control of certain businesses our LP Investments are invested in. Our interests in those entities subject us to the operating and financial risks of their businesses, the risk that the relevant company may make business, financial or management decisions that we do not agree with, and the risk that we may have differing objectives than the entities in which we have interests. Because we do not have the ability to exercise control over those entities, we may not be able to realize some or all of the benefits that we expect to realize from those entities. For example, we may not be able to cause such operating entities to make distributions to us in the amount or at the time that we need or want such distributions. In addition, we rely on the internal controls and financial reporting controls of the companies in which we invest and the failure of such companies to maintain effective controls or comply with applicable standards may adversely affect us.

We do not have sole control over the properties that we own with co-venturers, partners, fund investors or co-tenants or over the revenues and certain decisions associated with those properties, which may limit our flexibility with respect to these investments.
 
We participate in joint ventures, partnerships, funds and co-tenancies affecting many of our properties. Such investments involve risks not present were a third party not involved, including the possibility that our co-venturers, partners, fund investors or co-tenants might become bankrupt or otherwise fail to fund their share of required capital contributions. The bankruptcy of one of our co-venturers, partners, fund investors or co-tenants could materially and adversely affect the relevant property or properties. Pursuant to bankruptcy laws, we could be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture or other investment entity has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.
 
Additionally, our co-venturers, partners, fund investors or co-tenants might at any time have economic or other business interests or goals that are inconsistent with those of our company, and we could become engaged in a dispute with any of them that might affect our ability to develop or operate a property. In addition, we do not have sole control of certain major decisions relating to these properties, including decisions relating to: the sale of the properties; refinancing; timing and amount of distributions of cash from such properties; and capital improvements. For example, when we invest in Brookfield-sponsored real estate funds, there is often a finite term to the fund’s investments which could lead to certain investments being sold prior to the date we would otherwise choose.
 
In some instances, where we are the property manager for a joint venture, the joint venture retains joint approval rights over various material matters such as the budget for the property, specific leases and our leasing plan. Moreover, in certain property management arrangements the other venturer can terminate the property management agreement in limited circumstances relating to enforcement of the property manager’s obligations. In addition, the sale or transfer of interests in some of our joint ventures and partnerships is subject to rights of first refusal or first offer and some joint venture and partnership agreements provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not want to sell but we may be forced to do so because we may not have the financial resources at that time to purchase the other party’s interest. Such rights may also inhibit our ability to sell an interest in a property or a joint venture or partnership within our desired time frame or on any other desired basis.

We have significant interests in Brookfield-sponsored real estate funds, and poor investment returns in these funds could have a negative impact on our financial condition and results of operations.

We have, and expect to continue to have in the future, significant interests in Brookfield-sponsored real estate funds, and poor investment returns in these funds, due to either market conditions or underperformance (relative to their competitors or to benchmarks), could negatively affect our financial condition and results of operations. In addition, interests in such funds are subject to the risks inherent in the ownership and operation of real estate and real estate-related businesses and assets generally.

We are subject to risks associated with commercial property loans.
 
We have, and expect to continue to have in the future, significant interests in Brookfield-sponsored real estate finance funds which have interests in loans or participations in loans, or securities whose underlying performance depends on loans made

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with respect to a variety of commercial real estate. Such interests are subject to normal credit risks as well as those generally not associated with traditional debt securities. The ability of the borrowers to repay the loans will typically depend upon the successful operation of the related real estate project and the availability of financing. Any factors that affect the ability of the project to generate sufficient cash flow could have a material effect on the value of these interests. Security underlying such interests will generally be in a junior or subordinate position to senior financing. These investments will not always benefit from the same or similar financial and other covenants as those enjoyed by the debt ranking ahead of these investments or benefit from cross-default provisions. Moreover, it is likely that these funds will be restricted in the exercise of their rights in respect of their investments by the terms of subordination agreements with the debt ranking ahead of the mezzanine capital. Accordingly, we may not be able to take the steps necessary to protect our investments in a timely manner or at all and there can be no assurance that the rate of return objectives of any particular investment will be achieved. To protect our original investment and to gain greater control over the underlying assets, these funds may elect to purchase the interest of a senior creditor or take an equity interest in the underlying assets, which may require additional investment requiring us to expend additional capital.

Our ownership of underperforming real estate properties involves significant risks and potential additional liabilities.
 
Our LP Investments segment holds interests in certain real estate properties with weak financial conditions, poor operating results, substantial financial needs, negative net worth or special competitive problems, or that are over-leveraged. Our ownership of underperforming real estate properties involves significant risks and potential additional liabilities. Our exposure to such underperforming properties may be substantial in relation to the market for those interests and distressed assets may be illiquid and difficult to sell or transfer. As a result, it may take a number of years for the fair value of such interests to ultimately reflect their intrinsic value as perceived by us.
 
We face risks relating to the jurisdictions of our operations.
 
Our operations are subject to significant political, economic and financial risks, which vary by jurisdiction, and may include:
 
changes in government policies or personnel;

restrictions on currency transfer or convertibility;

changes in labor relations;

less developed or efficient financial markets than in North America;

fluctuations in foreign exchange rates;

the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements;

less government supervision and regulation;

a less developed legal or regulatory environment;

heightened exposure to corruption risk;

political hostility to investments by foreign investors; and

difficulty in enforcing contractual obligations and expropriation or confiscation of assets.

Political instability and unfamiliar cultural factors could adversely impact the value of our investments.

We are subject to geopolitical uncertainties in all jurisdictions in which we operate, including North America. We also make investments in businesses that are based outside of North America and we may pursue investments in unfamiliar markets, which may expose us to additional risks not typically associated with investing in North America. We may not properly adjust to the local culture and business practices in such markets, and there is the prospect that we may hire personnel or partner with local persons who might not comply with our culture and ethical business practices; either scenario could result in the failure of our initiatives in new markets and lead to financial losses for us and our operating entities. There are risks of political instability in several of our major markets and in other parts of the world in which we conduct business, including, for example, the Korean Peninsula, from factors such as political conflict, income inequality, refugee migration, terrorism, the potential break-up of political or economic unions (or the departure of a union member) and political corruption; the materialization of one or more of these risks

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could negatively affect our financial performance. For example, it is unclear how the withdrawal of the United Kingdom from the European Union (“Brexit”) may impact the economies of the United Kingdom, the European Union countries and other nations where we are invested. Brexit could significantly disrupt the free movement of goods, services, and people between the United Kingdom and the European Union and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe.  Any of these effects of Brexit, among others, could adversely affect our financial position, results of operations or cash flows.  

Unforeseen political events in markets where we own and operate assets and may look to for further growth of our businesses, such as the United States, Brazil, European and Asian markets, may create economic uncertainty that has a negative impact on our financial performance. Such uncertainty could cause disruptions to our businesses, including affecting the business of and/or our relationships with our customers and suppliers, as well as altering the relationship among tariffs and currencies, including the value of the British pound and the Euro relative to the U.S. dollar. Disruptions and uncertainties could adversely affect our financial condition, operating results and cash flows. In addition, political outcomes in the markets in which we operate may also result in legal uncertainty and potentially divergent national laws and regulations, which can contribute to general economic uncertainty. Economic uncertainty impacting us and our managed entities could be exacerbated by near-term political events, including those in the United States, Brazil, Europe, Asia and elsewhere.

Our operations in China subject us to increased risks, including risks related to evolving economic, political and social conditions.

Our business is subject to risks inherent in doing business internationally. In particular, we face risks relating to our business in China. For the year ended December 31, 2019, less than 1% of our assets were in China. In recent years, the Chinese government has been reforming its economic and political systems, and we expect this to continue. Although we believe that these reforms have had a positive effect on our ability to do business in China, we cannot assure you that these reforms will continue or that the Chinese government will not take actions that impair our business in China. In addition, recent international unrest involving mounting trade tension between China and the United States presents additional risks and uncertainties. If our ability to do business in China is adversely impacted, our business, results of operation and financial condition could be materially adversely affected.

We are subject to possible health and safety and environmental liabilities and other possible liabilities.
 
As an owner of real property, we are subject to various laws relating to environmental matters. We could be liable under these laws for the costs of removal and remediation of certain hazardous substances or wastes present in our buildings, released or deposited on or in our properties or disposed of at other locations. These costs could be significant and reduce the cash available for our business which could have an adverse effect on our business, financial condition and results of operations. The failure to remove or remediate such substances could adversely affect our ability to sell our properties or our ability to borrow using real estate as collateral and could potentially result in claims or other proceedings against us, which could have an adverse effect on our business, financial condition and results of operations. Environmental laws and regulations can change rapidly and we may become subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have an adverse effect on our business, financial condition or results of operations.
 
The ownership and operation of our assets carry varying degrees of inherent risk or liability related to worker and tenant health and safety and the environment, including the risk of government imposed orders to remedy unsafe conditions and potential civil liability. Compliance with health, safety and environmental standards and the requirements set out in our licenses, permits and other approvals are important to our business. We have incurred and will continue to incur significant capital and operating expenditures to comply with health, safety and environmental standards and to obtain and comply with licenses, permits and other approvals and to assess and manage potential liability exposure. Nevertheless, we may be unsuccessful in obtaining or maintaining an important license, permit or other approval or become subject to government orders, investigations, inquiries or other proceedings (including civil claims) relating to health, safety and environmental matters. The occurrence of any of these events or any changes, additions to, or more rigorous enforcement of, health, safety and environmental standards, licenses, permits or other approvals could have a significant impact on our operations and/or result in material expenditures. As a consequence, no assurance can be given that additional environmental and health and safety issues relating to presently known or unknown matters will not require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) material to our business and operations.
 
Negative publicity could damage our reputation and business.
 
Our ability to attract and retain tenants, investors and employees is impacted by our reputation. Also, negative publicity can expose us to litigation and regulatory action could damage our reputation, adversely affect our ability to attract and retain

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tenants and employees, and divert management’s attention from day-to-day operations. The loss of significant tenants could also negatively impact our reputation. Significant harm to our reputation can also arise from employee misconduct, unethical behavior, environmental matters, litigation or regulatory outcomes, failing to deliver minimum or required standards of safety, service and quality, compliance failures, unintended disclosure of confidential information and the activities of our tenants and counterparties, including vendors.
 
We may be exposed to actual or alleged fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems or from external events which could lead to significant losses and harm to our reputation.
 
We may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events, such as security threats affecting our ability to operate. We operate in different markets and rely on our employees and certain third-parties to follow our policies and processes as well as applicable laws with respect to their activities. Risk of illegal acts or failed systems is managed through our infrastructure, controls, systems, policies and people, complemented by central groups focusing on enterprise-wide management of specific operational risks such as fraud, trading, outsourcing, and business disruption, as well as personnel and systems risks. Failure to adequately manage these risks could result in direct or indirect financial loss, reputational impact, regulatory censure or failure in the management of other risks such as credit or market risk.
 
There is an increasing global focus on the implementation and enforcement of anti-bribery and corruption legislation, and this focus has heightened the risks that we face in this area, particularly as we expand our operations globally. We are subject to a number of laws and regulations governing payments and contributions to public officials or other third parties, including restrictions imposed by the U.S. Foreign Corrupt Practices Act and similar laws in non-U.S. jurisdictions, such as the U.K. Bribery Act and the Canadian Corruption of Foreign Public Officials Act. This increased global focus on anti-bribery and corruption enforcement may also lead to more investigations, both formal and informal, in this area, the results of which cannot be predicted.

Different laws that are applicable to us may contain conflicting provisions, making our compliance more difficult. The policies and procedures we have implemented to protect against non-compliance with anti-bribery and corruption legislation may be inadequate. If we fail to comply with these laws and regulations, we could be exposed to claims for damages, financial penalties, reputational harm, incarceration of our employees, restrictions on our operations and other liabilities, which could negatively affect our operating results and financial condition. In addition, we may be subject to successor liability for violations under these laws or other acts of bribery committed by companies in which we or our funds invest.
 
Instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt practices can be difficult to detect, and fraud and other deceptive practices can be widespread in certain jurisdictions. We invest in emerging market countries that may not have established stringent anti-bribery and corruption laws and regulations, or where existing laws and regulations may not be consistently enforced or that are perceived to have materially higher levels of corruptions according to international rating standards. For example, we invest in jurisdictions that are perceived to have materially higher levels of corruption according to international rating standards, such as China, India and Brazil. Due diligence on investment opportunities in these jurisdictions is frequently more challenging because consistent and uniform commercial practices in such locations may not have developed or do not meet international standards. Bribery, fraud, accounting irregularities and corrupt practices can be especially difficult to detect in such locations.
 
We face risks associated with our tenants and contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control.

Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned. OFAC regulations and other laws prohibit conducting business or engaging in transactions with prohibited persons. Certain of our loan and other agreements require us to comply with OFAC requirements. Our leases and other agreements, in general, require the other party to comply with OFAC requirements. If a tenant or other party with whom we contract is placed on the OFAC list, we may be required to terminate the lease or other agreement. Any such termination could result in a loss of revenue or a damage claim by the other party that the termination was wrongful.

We may be subject to litigation.
 
In the ordinary course of our business, we may be subject to litigation from time to time. The outcome of any such proceedings may materially adversely affect us and may continue without resolution for long periods of time. Any litigation may consume substantial amounts of our management’s time and attention, and that time and the devotion of these resources to litigation may, at times, be disproportionate to the amounts at stake in the litigation.

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The acquisition, ownership and disposition of real property expose us to certain litigation risks which could result in losses, some of which may be material. Litigation may be commenced with respect to a property we have acquired in relation to activities that took place prior to our acquisition of such property. In addition, at the time of disposition of an individual property, a potential buyer may claim that it should have been afforded the opportunity to purchase the asset or alternatively that such buyer should be awarded due diligence expenses incurred or statutory damages for misrepresentation relating to disclosures made, if such buyer is passed over in favor of another as part of our efforts to maximize sale proceeds. Similarly, successful buyers may later sue us under various damage theories, including those sounding in tort, for losses associated with latent defects or other problems. We may also be exposed to litigation resulting from the activities of our tenants or their customers.
 
Climate change may adversely impact our operations and markets.
 
There is growing concern from members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases and other human activities have or will cause significant changes in weather patterns and increase the frequency and severity of climate stress events. Climate change, including the impact of global warming, creates physical and financial risk. Physical risks from climate change include an increase in sea level and changes in weather conditions, such as an increase in intense precipitation and extreme heat events, as well as tropical and non-tropical storms.
 
We own buildings in coastal locations that may be particularly susceptible to climate stress events or adverse localized effects of climate change, such as sea-level rise and increased storm frequency or intensity. The occurrence of one or more natural disasters, such as hurricanes, fires, floods, and earthquakes (whether or not caused by climate change), could cause considerable damage to our properties, disrupt our operations and negatively impact our financial performance. To the extent these events result in significant damage to or closure of one or more of our buildings, our operations and financial performance could be adversely affected through lost tenants and an inability to lease or re-lease the space. In addition, these events could result in significant expenses to restore or remediate a property, increases in fuel (or other energy) prices or a fuel shortage and increases in the costs of insurance if they result in significant loss of property or other insurable damage.
 
Risks Relating to Us and Our Structure

Our company relies on the Property Partnership and, indirectly, the Holding Entities and our operating entities to provide us with the funds necessary to pay distributions and meet our financial obligations.

Our company’s sole direct investments are its managing general partnership interest in the Property Partnership, which owns almost all of the common shares or equity interests, as applicable, of the Holding Entities, through which we hold our interests in the operating entities and an interest in BP US REIT LLC, which holds the partnership’s interest in certain commercial and other income producing property operations. Our company has no independent means of generating revenue. As a result, we depend on distributions and other payments from the Property Partnership and, indirectly, the Holding Entities and our operating entities to provide us with the funds necessary to pay distributions on our units and to meet our financial obligations. The Property Partnership, the Holding Entities and our operating entities are legally distinct from our company and they are generally required to service their debt obligations before making distributions to us or their parent entity, as applicable, thereby reducing the amount of our cash flow available to pay distributions on our units, fund working capital and satisfy other needs. In addition, the Property Partnership is required to make distributions to its preferred unitholders before making distributions to us. Any other entities through which we may conduct operations in the future will also be legally distinct from our company and may be restricted in their ability to pay dividends and distributions or otherwise make funds available to our company under certain conditions.

We anticipate that the only distributions our company will receive in respect of our managing general partnership interests in the Property Partnership will consist of amounts that are intended to assist our company in making distributions to our unitholders in accordance with our company’s distribution policy and to allow our company to pay expenses as they become due.

We may not be able to continue paying comparable or growing cash distributions to our unitholders in the future.

Our company intends to make quarterly cash distributions of approximately $1.33 per LP Unit on an annualized basis. However, despite our projections, there can be no assurance that we will be able to make such distributions or meet our target growth rate range of 5% to 8% annually.

Although we may use distributions from our operating entities, the proceeds of sales of certain of our direct investments and/or borrowings to fund any shortfall in distributions, we may not be able to do so on a consistent and sustainable basis. Our ability to make distributions will depend on several other factors, some of which are out of our control, including, among other things, general economic conditions, our results of operations and financial condition, the amount of cash that is generated by our

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operations and investments, restrictions imposed by the terms of any indebtedness that is incurred to finance our operations and investments or to fund liquidity needs, levels of operating and other expenses, and contingent liabilities, any or all of which could prevent us from meeting our anticipated distribution levels. Finally, the BPY General Partner has sole authority to determine when and if our distributions will be made in respect of our units, and there can be no assurance that the BPY General Partner will declare and pay the distributions on our units as intended or at all.

Our company is not, and does not intend to become, regulated as an investment company under the U.S. Investment Company Act of 1940 (the “Investment Company Act”) (and similar legislation in other jurisdictions) and if our company were deemed an “investment company” under the Investment Company Act applicable restrictions would make it impractical for us to operate as contemplated.

The Investment Company Act and the rules thereunder (and similar legislation in other jurisdictions) provide certain protections to investors and impose certain restrictions on companies that are registered as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. Our company has not been and does not intend to become regulated as an investment company and our company intends to conduct its activities so it will not be deemed to be an investment company under the Investment Company Act (and similar legislation in other jurisdictions). In order to ensure that our company is not deemed to be an investment company, we may be required to materially restrict or limit the scope of our operations or plans, we will be limited in the types of acquisitions that we may make and we may need to modify our organizational structure or dispose of assets that we would not otherwise dispose of. Moreover, if anything were to happen that would potentially cause our company to be deemed an investment company under the Investment Company Act, it would be impractical for us to operate as intended, agreements and arrangements between and among us and Brookfield would be impaired and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be required to take extraordinary steps to address the situation, such as the amendment or termination of our Master Services Agreement, the restructuring of our company and the Holding Entities, the amendment of our limited partnership agreement or the termination of our company, any of which would materially adversely affect the value of our units. In addition, if our company were deemed to be an investment company under the Investment Company Act, it would be taxable as a corporation for U.S. federal income tax purposes, and such treatment would materially adversely affect the value of our units. See Item 10.E. “Additional Information - Taxation - U.S. Tax Considerations - Partnership Status of Our Company and the Property Partnership”.

Our company is a “foreign private issuer” under U.S. securities laws and as a result is subject to disclosure obligations different from requirements applicable to U.S. domestic registrants listed on the Nasdaq Stock Market (the “Nasdaq”).

Although our company is subject to the periodic reporting requirement of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), the periodic disclosure required of foreign private issuers under the Exchange Act is different from periodic disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about us than is regularly published by or about other public companies in the United States and our company is exempt from certain other sections of the Exchange Act that U.S. domestic registrants would otherwise be subject to, including the requirement to provide our unitholders with information statements or proxy statements that comply with the Exchange Act. In addition, insiders and large unitholders of our company are not obligated to file reports under Section 16 of the Exchange Act and certain of the governance rules imposed by the Nasdaq are inapplicable to our company.

Our company is a “SEC foreign issuer” under Canadian securities regulations and is exempt from certain requirements of Canadian securities laws.

Although our company is a reporting issuer in Canada, we are a “SEC foreign issuer” and exempt from certain Canadian securities laws relating to continuous disclosure obligations and proxy solicitation as long as we comply with certain reporting requirements applicable in the United States, provided that the relevant documents filed with the U.S. Securities and Exchange Commission (the “SEC”), are filed in Canada and sent to our unitholders in Canada to the extent and in the manner and within the time required by applicable U.S. requirements. Therefore, there may be less publicly available information in Canada about us than is regularly published by or about other reporting issuers in Canada.

We may be subject to the risks commonly associated with a separation of economic interest from control or the incurrence of debt at multiple levels within an organizational structure.

Our ownership and organizational structure is similar to structures whereby one company controls another company which in turn holds controlling interests in other companies; thereby, the company at the top of the chain may control the company at the bottom of the chain even if its effective equity position in the bottom company is less than a controlling interest. Brookfield is the sole shareholder of the BPY General Partner and, as a result of such ownership of the BPY General Partner, Brookfield

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controls the appointment and removal of the BPY General Partner’s directors and, accordingly, exercises substantial influence over us. In turn, we often have a majority controlling interest or a significant influence in our investments. In addition, Brookfield has an effective economic interest in our business of approximately 51% as of the date of this Form 20-F and over time may reduce this economic interest while still maintaining its controlling interest. Therefore, Brookfield may use its control rights in a manner that conflicts with the economic interests of our other unitholders. For example, despite the fact that our company has a conflicts policy in place which addresses the requirement for independent approval and other requirements for transactions in which there is greater potential for a conflict of interest to arise, including transactions with affiliates of Brookfield, because Brookfield exerts substantial influence over us, and, in turn, over our investments, there is a greater risk of transfer of assets of our investments at non-arm’s length values to Brookfield and its affiliates. In addition, debt incurred at multiple levels within the chain of control could exacerbate the separation of economic interest from controlling interest at such levels, thereby creating an incentive to leverage our company and our investments. Any such increase in debt would also make us more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. The servicing of any such debt would also reduce the amount of funds available to pay distributions to our company and ultimately to our unitholders.

Risks Relating to Our Relationship with Brookfield
 
Brookfield exercises substantial influence over us and we are highly dependent on the Service Providers.
 
Brookfield is the sole shareholder of the BPY General Partner. As a result of its ownership of the BPY General Partner, Brookfield is able to control the appointment and removal of the BPY General Partner’s directors and, accordingly, exercises substantial influence over our company and over Property Partnership for which our company is the managing general partner. In addition, the Service Providers, wholly-owned subsidiaries of Brookfield, provide management and administration services to us pursuant to our Master Services Agreement. Our company and the Property Partnership depend on the management and administration services provided by the Service Providers. Brookfield personnel that provide services to us are not required to have as their primary responsibility the management and administration of our company or the Property Partnership or to act exclusively for either of us. Any failure to effectively manage our business operations or to implement our strategy could have a material adverse effect on our business, financial condition and results of operations.
 
Brookfield has no obligation to source acquisition opportunities for us and we may not have access to all acquisitions of commercial properties that Brookfield identifies.
 
Our ability to grow depends in part on Brookfield’s ability to identify and present us with acquisition opportunities. Brookfield established our company to be its flagship public commercial property entity and the primary entity through which it invests in real estate on a global basis. However, Brookfield has no obligation to source acquisition opportunities for us. In addition, Brookfield has not agreed to commit to us any minimum level of dedicated resources for the pursuit of acquisitions. There are a number of factors that could materially and adversely impact the extent to which suitable acquisition opportunities are made available to us by Brookfield.

For example:
 
it is an integral part of Brookfield’s (and our) strategy to pursue acquisitions through consortium arrangements with institutional investors, strategic partners and/or financial sponsors and to form partnerships (including private funds, joint ventures and similar arrangements) to pursue such acquisitions on a specialized or global basis. Although Brookfield has agreed with us that it will not enter any such arrangements that are suitable for us without giving us opportunity to participate in them, there is no minimum level of participation to which we will be entitled;

the same professionals within Brookfield’s organization that are involved in sourcing acquisitions that are suitable for us are responsible for sourcing opportunities for the vehicles, consortiums and partnerships referred to above, as well as having other responsibilities within Brookfield’s broader asset management business. Limits on the availability of such individuals could result in a limitation on the number of acquisition opportunities sourced for us;

Brookfield will only recommend acquisition opportunities that it believes to be suitable and appropriate. Our focus is on investing in, owning, operating, developing and recycling a portfolio of high quality assets, not investments such as infrastructure-related, renewable power-related, or other operations-oriented enterprises that are not deemed suitable and/or appropriate for us. Legal, regulatory, tax and other commercial considerations will likewise be an important consideration in determining whether an opportunity is suitable and/or appropriate for us and will limit our ability to participate in certain acquisitions; and


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in addition to structural limitations, the question of whether a particular acquisition is suitable and/or appropriate for us is highly subjective and is dependent on a number of portfolio construction and management factors including our liquidity position at the relevant time, the expected risk-return profile of the opportunity, its fit with the balance of our investments and related operations, other opportunities that we may be pursuing or otherwise considering at the relevant time, our interest in preserving capital in order to secure other opportunities and/or to meet other obligations, and other factors. If Brookfield determines that an opportunity is not suitable or appropriate for us, it may still pursue such opportunity on its own behalf or on behalf of a Brookfield-sponsored vehicle, partnership or consortium such as Brookfield Infrastructure Partners L.P., Brookfield Renewable Partners L.P., Brookfield Business Partners L.P., and one or more Brookfield-sponsored private funds or other investment vehicles or programs.

In making these determinations, Brookfield may be influenced by factors that result in a misalignment or conflict of
interest. See Item 7.B., “Major Shareholders and Related Party Transactions - Related Party Transactions - Relationship with
Brookfield - Conflicts of Interest.”

The departure of some or all of Brookfield’s professionals could prevent us from achieving our objectives.
 
We depend on the diligence, skill and business contacts of Brookfield’s professionals and the information and opportunities they generate during the normal course of their activities. Our future success will depend on the continued service of these individuals, who are not obligated to remain employed with Brookfield. Brookfield has experienced departures of key professionals in the past and may do so in the future, and we cannot predict the impact that any such departures will have on our ability to achieve our objectives. The departure of a significant number of Brookfield’s professionals for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on our ability to achieve our objectives. Our limited partnership agreement and our Master Services Agreement do not require Brookfield to maintain the employment of any of its professionals or to cause any particular professionals to provide services to us or on our behalf.
 
Control of our company may be transferred directly or indirectly to a third party without unitholder consent.
 
The BPY General Partner may transfer its general partnership interest to a third party, including in a merger or consolidation or in a transfer of all or substantially all of its assets. Furthermore, at any time, the shareholder of the BPY General Partner may sell or transfer all or part of its shares in the BPY General Partner. Unitholder consent will not be sought in either case. If a new owner were to acquire ownership of the BPY General Partner and to appoint new directors or officers of its own choosing, it would be able to exercise substantial influence over our policies and procedures and exercise substantial influence over our management, our distributions and the types of acquisitions that we make. Such changes could result in our capital being used to make acquisitions in which Brookfield has no involvement or in making acquisitions that are substantially different from our targeted acquisitions. Additionally, we cannot predict with any certainty the effect that any transfer in the control of our company the BPY General Partner would have on the trading price of our units or our ability to raise capital or make investments in the future, because such matters would depend to a large extent on the identity of the new owner and the new owner’s intentions. As a result, our future would be uncertain and our business, financial condition and results of operations may suffer.

Brookfield may increase its ownership of our company and the Property Partnership relative to other unitholders.
 
Brookfield currently holds a significant portion of the issued and outstanding interests in the Property Partnership through Special LP Units and Redemption-Exchange Units. The Redemption-Exchange Units are redeemable for cash or exchangeable for LP Units in accordance with the Redemption-Exchange Mechanism, which could result in Brookfield eventually owning a larger portion of our issued and outstanding LP Units (including other issued and outstanding LP Units that Brookfield currently owns).

Brookfield may also reinvest incentive distributions in exchange for Redemption-Exchange Units or LP Units. Additional units of the Property Partnership acquired, directly or indirectly, by Brookfield are redeemable for cash or exchangeable for LP Units in accordance with the Redemption-Exchange Mechanism. See Item 10.B., “Additional Information - Memorandum and Articles of Association - Description of the Property Partnership Limited Partnership Agreement - Redemption-Exchange Mechanism”. Brookfield may also purchase additional LP Units of our company in the market. Any of these events may result in Brookfield increasing its ownership of our company.
 
Our organizational and ownership structure, as well as our contractual arrangements with Brookfield, may create significant conflicts of interest that may be resolved in a manner that is not in our best interests or the best interests of our unitholders.
 
Our organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest between us and our unitholders, on the one hand, and Brookfield, on the other hand. In certain instances, the interests of Brookfield

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may differ from the interests of our company and our unitholders, including with respect to the types of acquisitions made, the timing and amount of our distributions, the redeployment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers, including as a result of the reasons described under Item 7.B. “Major Shareholders and Related Party Transactions - Related Party Transactions - Relationship with Brookfield - Conflicts of Interest”.
 
In addition, the Service Providers, affiliates of Brookfield, provide management services to us pursuant to our Master Services Agreement. Pursuant to our Master Services Agreement, we pay a base management fee to the Service Providers equal to 0.5% of the total capitalization of our partnership, subject to an annual minimum of $50 million (plus the amount of any annual escalation by the specified inflation factor) and taking into account any management fees payable under the BPR Master Services Agreement. Additionally, the Property Partnership pays a quarterly equity enhancement distribution to Property Special LP of 0.3125% of the amount by which the company’s total capitalization value at the end of each quarter exceeds its total capitalization value determined immediately following the Spin-off, subject to certain adjustments. Property Special LP also receives incentive distributions based on an amount by which quarterly distributions on the limited partnership units of the Property Partnership exceed specified target levels as set forth in the Property Partnership’s limited partnership agreement. For a further explanation of the equity enhancement and incentive distributions, together with examples of how such amounts are calculated, see Item 10.B. “Additional Information - Memorandum and Articles of Association - Description of the Property Partnership Limited Partnership Agreement - Distributions”. This relationship may give rise to conflicts of interest between us and our unitholders, on the one hand, and Brookfield, on the other, as Brookfield’s interests may differ from our interests and those of our unitholders.
 
The BPY General Partner, the sole shareholder of which is Brookfield, has sole authority to determine whether our company will make distributions and the amount and timing of these distributions. The arrangements we have with Brookfield may create an incentive for Brookfield to take actions that would have the effect of increasing distributions and fees payable to it, which may be to the detriment of our company and our unitholders. For example, because the base management fee and the equity enhancement distribution are calculated based on our market value, it may create an incentive for Brookfield to increase or maintain our company’s total capitalization over the near-term when other actions may be more favorable to us or our unitholders. Similarly, Brookfield may take actions to increase our distributions in order to ensure it is paid incentive distributions in the near-term when other investments or actions may be more favorable to us or our unitholders. Likewise, Brookfield may take actions to decrease distributions on LP Units or defer acquisitions in order to increase our market value in the near-term when making such distributions or acquisitions may be more favorable to us or our unitholders.
 
Our arrangements with Brookfield set in the context of an affiliated relationship and may contain terms that are less favorable than those which otherwise might have been obtained from unrelated parties.
 
The terms of our arrangements with Brookfield were effectively determined by Brookfield in the context of the Spin-off. While the BPY General Partner’s independent directors are aware of the terms of these arrangements and approved the arrangements on our behalf at the time of the Spin-off, they did not negotiate the terms. These terms, including terms relating to compensation, contractual duties, conflicts of interest and Brookfield’s ability to engage in outside activities, including activities that compete with us, our activities and limitations on liability and indemnification, may be less favorable than otherwise might have resulted if the negotiations had involved unrelated parties. The transfer agreements under which our assets and operations were acquired from Brookfield do not contain representations and warranties or indemnities relating to the underlying assets and operations.
 
Brookfield and Oaktree operate their respective investment businesses largely independently, and do not expect to coordinate or consult on investment decisions, which may give rise to conflicts of interest and make it more difficult to mitigate certain conflicts of interest.

Brookfield and Oaktree Capital Group, LLC together with its affiliates (“Oaktree”) operate their respective investment businesses largely independently pursuant to an information barrier, and Brookfield does not expect to coordinate or consult with Oaktree with respect to investment activities and/or decisions. In addition, neither Brookfield nor Oaktree is expected to be subject to any internal approvals over its investment activities and decisions by any person who would have knowledge and/or decision-making control of the investment decisions of the other. As a result, it is expected that our company and our portfolio companies, as well as Brookfield, Brookfield-sponsored vehicles, consortiums and/or partnerships (including private funds, joint ventures and similar arrangements) (collectively, “Brookfield Accounts”) that we are invested in and their portfolio companies, will engage in activities and have business relationships that give rise to conflicts (and potential conflicts) of interests between them, on the one hand, and Oaktree, Oaktree-managed funds and accounts (collectively, “Oaktree Accounts”) and their portfolio companies, on the other hand. These conflicts (and potential conflicts) of interests may include: (i) competing from time to time for the same investment opportunities, (ii) the pursuit by Oaktree Accounts of investment opportunities suitable for our company and Brookfield Accounts that we are invested in, without making such opportunities available to us or those Brookfield Accounts, and (iii) the formation or establishment of new Oaktree Accounts that could compete or otherwise conduct their affairs without regard as to whether or

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not they adversely impact our company and/or Brookfield Accounts that we are invested in. Investment teams managing the activities of our company and/or Brookfield Accounts that we are invested in are not expected to be aware of, and will not have the ability to manage, such conflicts.

Our company and/or Brookfield Accounts that we are invested in could be adversely impacted by Oaktree’s activities. Competition from Oaktree Accounts for investment opportunities could also, under certain circumstances, adversely impact the purchase price of our (direct and/or indirect) investments. As a result of different investment objectives, views and/or interests in investments, Oaktree will manage certain Oaktree Accounts in a way that is different than from the interests of our company and/or Brookfield Accounts that we are invested in, which could adversely impact our (direct and/or direct) investments. For more information, see Item 7.B., “Related Party Transactions - Conflicts of Interest and Fiduciary Duties - Oaktree”.

Brookfield and Oaktree are likely to be deemed to be affiliates for purposes of certain laws and regulations, which may result in, among other things, earlier public disclosure of investments by our company and/or Brookfield Accounts that we are invested in.

Brookfield and Oaktree are likely to be deemed to be affiliates for purposes of certain laws and regulations, notwithstanding their operational independence and/or information barrier, and it is anticipated that, from time to time, our company and/or Brookfield Accounts that we are invested in and Oaktree Accounts may each have significant positions in one or more of the same issuers. As such, Brookfield and Oaktree will likely need to aggregate certain investment holdings, including holdings of our company, Brookfield Accounts that we are invested in and Oaktree Accounts for certain securities law purposes and other regulatory purposes. Consequently, Oaktree’s activities could result in earlier public disclosure of investments by our company and/or Brookfield Accounts that we are invested in, restrictions on transactions by our company and/or Brookfield Accounts that we are invested in (including the ability to make or dispose of certain investments at certain times), adverse effects on the prices of investments made by our company and/or Brookfield Accounts that we are invested in, potential short-swing profit disgorgement, penalties and/or regulatory remedies, among others. For more information, see Item 7.B., “Related Party Transactions - Conflicts of Interest and Fiduciary Duties - Oaktree”.

Breaches of the information barrier and related internal controls by Brookfield and/or Oaktree could result in significant adverse consequences to Brookfield and Oaktree and/or Brookfield Accounts that we are invested in, amongst others.

Although information barriers were implemented to address the potential conflicts of interests and regulatory, legal and contractual requirements of our company, Brookfield and Oaktree may decide, at any time and without notice to our company or our unitholders, to remove or modify the information barrier between Brookfield and Oaktree. In addition, there may be breaches (including inadvertent breaches) of the information barriers and related internal controls by Brookfield and/or Oaktree.

To the extent that the information barrier is removed or is otherwise ineffective and Brookfield has the ability to access analysis, model and/or information developed by Oaktree and its personnel, Brookfield will not be under any obligation or other duty to access such information or effect transactions for our company and/or Brookfield Accounts that we are invested in in accordance with such analysis and models, and in fact may be restricted by securities laws from doing so. In such circumstances, Brookfield may make investment decisions for our company and/or Brookfield Accounts that we are invested in that differ from those it would have made if Brookfield had pursued such information, which may be disadvantageous to our company and/or Brookfield Accounts that we are invested in.

The breach or failure of our information barriers could result in our company obtaining material non-public information, which may restrict our company from acquiring or disposing investments and ultimately impact the returns generated for our business. In addition, any such breach or failure could also result in potential regulatory investigations and claims for securities laws violations in connection with our direct and/or indirect investment activities. Any inadvertent trading on material non-public information, or perception of trading on material non-public information, could have a significant adverse effect on Brookfield’s reputation, result in the imposition of regulatory or financial sanctions, and negatively impact Brookfield’s ability to provide investment management services to its clients, all of which could result in negative financial impact to the investment activities of our company and/or Brookfield Accounts that we are invested in. For more information, see Item 7.B., “Related Party Transactions - Conflicts of Interest and Fiduciary Duties - Oaktree”.

The BPY General Partner may be unable or unwilling to terminate our Master Services Agreement.
 
Our Master Services Agreement provides that the Service Recipients may terminate the agreement only if: (i) the Service Providers default in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to the Service Recipients and the default continues unremedied for a period of 60 days after written notice of the breach is given to the Service Providers; (ii) the Service Providers engage in any act of fraud, misappropriation

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of funds or embezzlement against any Service Recipient that results in material harm to the Service Recipients; (iii) the Service Providers are grossly negligent in the performance of their duties under the agreement and such negligence results in material harm to the Service Recipients; or (iv) upon the happening of certain events relating to the bankruptcy or insolvency of the Service Providers. In addition, because the BPY General Partner is an affiliate of Brookfield, it likely will be unwilling to terminate our Master Services Agreement, even in the case of a default. If the Service Providers’ performance does not meet the expectations of investors, and the BPY General Partner is unable or unwilling to terminate our Master Services Agreement, the market price of our units could suffer. Furthermore, the termination of our Master Services Agreement would terminate our company’s rights under the Relationship Agreement. See Item 7.B. “Major Shareholders and Related Party Transactions - Related Party Transactions - Relationship with Brookfield - Relationship Agreement”.
 
The liability of the Service Providers is limited under our arrangements with them and we have agreed to indemnify the Service Providers against claims that they may face in connection with such arrangements, which may lead them to assume greater risks when making decisions relating to us than they otherwise would if acting solely for their own account.
 
Under our Master Services Agreement, the Service Providers have not assumed any responsibility other than to provide or arrange for the provision of the services described in our Master Services Agreement in good faith and will not be responsible for any action that the BPY General Partner takes in following or declining to follow its advice or recommendations. In addition, under our limited partnership agreement, the liability of the BPY General Partner and its affiliates, including the Service Providers, is limited to the fullest extent permitted by law to conduct involving bad faith, fraud, gross negligence or willful misconduct or, in the case of a criminal matter, action that was known to have been unlawful. The liability of the Service Providers under our Master Services Agreement is similarly limited. In addition, we have agreed to indemnify the Service Providers to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred them or threatened in connection with our business, investments and activities or in respect of or arising from our Master Services Agreement or the services provided by the Service Providers, except to the extent that such claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in the Service Providers tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use and the extent of leverage in connection with acquisitions. The indemnification arrangements to which the Service Providers are a party may also give rise to legal claims for indemnification that are adverse to us and our unitholders.
 
Risks Relating to Our Units
 
The price of our units may fluctuate significantly and you could lose all or part of the value of your units.
 
The market price of our units may fluctuate significantly and you could lose all or part of the value of your units. Factors that may cause the price of our units to vary include:
 
changes in our financial performance and prospects, or in the financial performance and prospects of companies engaged in businesses that are similar to us;

public announcements about our business, including our development projects, pending investments and significant transactions, our significant tenants and properties or any negative publicity;

changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to us;

sales of our units by our unitholders, including by Brookfield and/or other significant holders of our units;

general economic trends and other external factors, including those resulting from actual or threatened acts of war, incidents of terrorism or responses to such events;

speculation in the press or investment community regarding us or factors or events that may directly or indirectly affect us;

our access to capital or other funding sources and our ability to raise capital on favorable terms;

a loss of any major funding source; and

volatility in the market price of the BPR Units, which may be impacted by: (i) public announcements made by BPR; (ii) changes in stock market analyst recommendations or earnings estimates regarding BPR; (iii) actual or anticipated

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fluctuations in BPR’s operating results or future prospects; and (iv) future issuances or sales of BPR Units by BPR and/or its significant stockholders.
 
Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies or partnerships. Any broad market fluctuations may adversely affect the trading price of our units.

The exchange of BPR Units for newly issued LP Units could negatively affect the market price of our LP Units, and additional
issuances of BPR Units would be dilutive.
 
Each BPR Unit is redeemable by the holder thereof into the cash equivalent of one (1) LP Unit; however, we may elect, in our sole discretion, to satisfy such redemption request by acquiring such BPR Units in exchange for the issuance of a new LP Unit. If we elect to issue LP Units in satisfaction of any such redemption request, a significant amount of additional LP Units may be issued from time to time which could have a negative impact on the market price for LP Units. In addition, BPR may in the future sell additional BPR Units in connection with raising capital as well as for acquisitions. Such additional BPR Units issued in the future will also be exchangeable into LP Units as described above, and, accordingly, if so exchanged, would dilute the percentage interest of existing unitholders and may reduce the market price of our LP Units.

In addition, pursuant to a Rights Agreement, Brookfield Asset Management has agreed that in the event that neither BPR nor BPY satisfies its obligations to deliver cash and/or LP Units in connection with BPR Units tendered for redemption, then Brookfield Asset Management will satisfy, or cause to be satisfied, such obligations by delivering cash and/or LP Units to the tendering holders. The delivery by Brookfield Asset Management of LP Units it owns could negatively affect the market price of our LP Units.
 
Our company may issue additional units in the future in lieu of incurring indebtedness which may dilute existing holders of our units or our company may issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to holders of our units.
 
Our company may issue additional securities, including units and options, rights, warrants and appreciation rights relating to partnership securities for any purpose and for such consideration and on such terms and conditions as the BPY General Partner may determine. The BPY General Partner’s board of directors will be able to determine the class, designations, preferences, rights, powers and duties of any additional partnership securities, including any rights to share in our company’s profits, losses and distributions, any rights to receive partnership assets upon a dissolution or liquidation of our company and any redemption, conversion and exchange rights. The BPY General Partner may use such authority to issue additional units or additional securities exchangeable for our LP Units which would dilute existing holders of our units, or to issue securities with rights and privileges that are more favorable than those of our units. You will not have any right to consent to or otherwise approve the issuance of any such securities or the terms on which any such securities may be issued.
 
Future sales or issuances of our units in the public markets, or the perception of such sales, could depress the market price of our units.
 
The sale or issuance of a substantial number of our units or other equity-related securities (including BPR Units) in the public markets, or the perception that such sales could occur, could depress the market price of our units and impair our ability to raise capital through the sale of additional equity securities. Although Brookfield intends to maintain a significant interest in our company, Brookfield expects its interests in the Property Partnership to be reduced over time through mergers, treasury issuances or secondary sales which could also depress the market price of our units. We cannot predict the effect that future sales or issuances of units, other equity-related securities (including BPR Units), or the limited partnership units of the Property Partnership would have on the market price of our units.
 
Our unitholders do not have a right to vote on partnership matters or to take part in the management of our company.
 
Under our limited partnership agreement, our unitholders are not entitled to vote on matters relating to our company, such as acquisitions, dispositions or financings, or to participate in the management or control of our company. In particular, our unitholders do not have the right to remove the BPY General Partner, to cause the BPY General Partner to withdraw from our company, to cause a new general partner to be admitted to our partnership, to appoint new directors to the BPY General Partner’s board of directors, to remove existing directors from the BPY General Partner’s board of directors or to prevent a change of control of the BPY General Partner. In addition, except as prescribed by applicable laws, our unitholders’ consent rights apply only with respect to certain amendments to our limited partnership agreement. As a result, unlike holders of common stock of a corporation, our unitholders are not able to influence the direction of our company, including its policies and procedures, or to cause a change

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in its management, even if they are dissatisfied with our performance. Consequently, our unitholders may be deprived of an opportunity to receive a premium for their units in the future through a sale of our company and the trading price of our units may be adversely affected by the absence or a reduction of a takeover premium in the trading price.
 
Our company is a Bermuda exempted limited partnership and it may not be possible for our investors to serve process on or enforce U.S. or Canadian judgments against us.
 
Our company is a Bermuda exempted limited partnership and a substantial portion of our assets are located outside the United States and Canada. In addition, certain of the directors of the BPY General Partner and certain members of the senior management team of the Service Providers who are principally responsible for providing us with management services reside outside of the United States and Canada. As a result, it may be difficult or impossible for U.S. or Canadian investors to effect service of process within the United States or Canada upon us or our directors and management of the Service Providers, or to enforce, against us or these persons, judgments obtained in the U.S. or Canadian courts predicated upon the civil liability provisions of U.S. federal securities laws or Canadian securities laws. We believe that there is doubt as to the enforceability in Bermuda, in original actions or in actions to enforce judgments of U.S. or Canadian courts, of claims predicated solely upon U.S. federal securities laws or Canadian securities laws. See Item 10.B. “Additional Information - Memorandum and Articles of Association - Description of Our LP Units, Preferred Units and Our Limited Partnership Agreement - Our Units”.

Risks Relating to Taxation
 
General
 
We participate in transactions and make tax calculations for which the ultimate tax determination may be uncertain.
 
We participate in many transactions and make tax calculations during the course of our business for which the ultimate tax determination is uncertain. While we believe we maintain provisions for uncertain tax positions that appropriately reflect our risk, these provisions are made using estimates of the amounts expected to be paid based on a qualitative assessment of several factors. It is possible that liabilities associated with one or more transactions may exceed our provisions due to audits by, or litigation with, relevant taxing authorities which may materially affect our financial condition and results of operations.
 
Changes in tax law and practice may have a material adverse effect on the operations of our company, the Holding Entities, and our operating entities and, as a consequence, the value of our assets and the net amount of distributions payable to our unitholders.
 
Our structure, including the structure of the Holding Entities and our operating entities, is based on prevailing taxation law and practice in the local jurisdictions in which we operate. Any change in tax legislation (including in relation to taxation rates) and practice in these jurisdictions could adversely affect these entities, as well as the net amount of distributions payable to our unitholders. Taxes and other constraints that would apply to our operating entities in such jurisdictions may not apply to local institutions or other parties, and such parties may therefore have a significantly lower effective cost of capital and a corresponding competitive advantage in pursuing such acquisitions.
 
Our company’s ability to make distributions depends on it receiving sufficient cash distributions from its underlying operations, and we cannot assure our unitholders that we will be able to make cash distributions to them in amounts that are sufficient to fund their tax liabilities.
 
Our Holding Entities and operating entities may be subject to local taxes in each of the relevant territories and jurisdictions in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, our company’s cash available for distribution is indirectly reduced by such taxes, and the post-tax return to our unitholders is similarly reduced by such taxes. We intend for future acquisitions to be assessed on a case-by-case basis and, where possible and commercially viable, structured so as to minimize any adverse tax consequences to our unitholders as a result of making such acquisitions.
 
In general, a unitholder that is subject to income tax in Canada or the United States must include in income its allocable share of our company’s items of income, gain, loss, and deduction (including, so long as it is treated as a partnership for tax purposes, our company’s allocable share of those items of the Property Partnership) for each of our company’s fiscal years ending with or within such unitholder’s tax year. See Item 10.E. “Additional Information - Taxation - U.S. Tax Considerations - Partnership Status of Our Company and the Property Partnership”. However, the cash distributed to a unitholder may not be sufficient to pay the full amount of such unitholder’s tax liability in respect of its investment in our company, because each unitholder’s tax liability depends on such unitholder’s particular tax situation and the tax treatment of the underlying activities or assets of our company.

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If our company is unable to distribute cash in amounts that are sufficient to fund our unitholders’ tax liabilities, each of our unitholders will still be required to pay income taxes on its share of our company’s taxable income.

Our unitholders may be subject to non-U.S., state and local taxes and return filing requirements as a result of owning our units.
 
Based on our method of operation and the ownership of our operating entities indirectly through corporate Holding Entities, we do not expect any unitholder, solely as a result of owning our units, to be subject to any additional income taxes imposed on a net basis or additional tax return filing requirements in any jurisdiction in which we conduct activities or own property. However, our method of operation and current structure may change, and there can be no assurance that our unitholders, solely as a result of owning our units, will not be subject to certain taxes, including non-U.S., state and local income taxes, unincorporated business taxes and estate, inheritance or intangible taxes imposed by the various jurisdictions in which we do business or own property now or in the future, even if our unitholders do not reside in any of these jurisdictions. Consequently, our unitholders may also be required to file non-U.S., state and local income tax returns in some or all of these jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with these requirements. It is the responsibility of each unitholder to file all U.S. federal, non-U.S., state and local tax returns that may be required of such unitholder.

Our unitholders may be exposed to transfer pricing risks.
 
To the extent that our company, the Property Partnership, the Holding Entities or our operating entities enter into transactions or arrangements with parties with whom they do not deal at arm’s length, including Brookfield, the relevant tax authorities may seek to adjust the quantum or nature of the amounts received or paid by such entities if they consider that the terms and conditions of such transactions or arrangements differ from those that would have been made between persons dealing at arm’s length. This could result in more tax (and penalties and interest) being paid by such entities, and therefore the return to investors could be reduced. For Canadian tax purposes, a transfer pricing adjustment may in certain circumstances result in additional income being allocated to a unitholder with no corresponding cash distribution or in a dividend being deemed to be paid by a Canadian-resident to a non-arm’s length non-resident, which deemed dividend is subject to Canadian withholding tax.
 
The BPY General Partner believes that the base management fee and any other amount that is paid to the Service Providers is commensurate with the value of the services being provided by the Service Providers and comparable to the fees or other amounts that would be agreed to in an arm’s length arrangement. However, no assurance can be given in this regard.
 
If the relevant tax authority were to assert that an adjustment should be made under the transfer pricing rules to an amount that is relevant to the computation of the income of the Property Partnership or our company, such assertion could result in adjustments to amounts of income (or loss) allocated to our unitholders by our company for tax purposes. In addition, we might also be liable for transfer pricing penalties in respect of transfer pricing adjustments unless reasonable efforts were made to determine, and use, arm’s length transfer prices. Generally, reasonable efforts in this regard are only considered to be made if contemporaneous documentation has been prepared in respect of such transactions or arrangements that support the transfer pricing methodology.
 
The U.S. Internal Revenue Service (the “IRS”) or Canada Revenue Agency (the “CRA”) may not agree with certain assumptions and conventions that we use to comply with applicable U.S. and Canadian federal income tax laws or to report income, gain, loss, deduction, and credit to our unitholders.

We apply certain assumptions and conventions to comply with applicable tax laws and to report income, gain, deduction, loss, and credit to a unitholder in a manner that reflects such unitholder’s beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of the applicable tax requirements. A successful IRS or CRA challenge to such assumptions or conventions could adversely affect the amount of tax benefits available to our unitholders and could require that items of income, gain, deduction, loss, or credit, including interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affects our unitholders. See Item 10.E. “Additional Information - Taxation”.

United States
 
If our company or the Property Partnership were to be treated as a corporation for U.S. federal income tax purposes, the value of our units might be adversely affected.
 
The value of our units to our unitholders depends in part on the treatment of our company and the Property Partnership as partnerships for U.S. federal income tax purposes. However, in order for our company to be treated as a partnership for U.S.

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federal income tax purposes, under present law, 90% or more of our company’s gross income for every taxable year must consist of qualifying income, as defined in Section 7704 of the U.S. Internal Revenue Code of 1986, as amended (the “U.S. Internal Revenue Code”) and our company must not be required to register, if it were a U.S. corporation, as an investment company under the Investment Company Act and related rules. Although the BPY General Partner intends to manage our affairs so that our company will not need to be registered as an investment company if it were a U.S. corporation and so that it will meet the 90% test described above in each taxable year, our company may not meet these requirements, or current law may change so as to cause, in either event, our company to be treated as a corporation for U.S. federal income tax purposes. If our company (or the Property Partnership) were treated as a corporation for U.S. federal income tax purposes, adverse U.S. federal income tax consequences could result for our unitholders and our company (or the Property Partnership, as applicable), as described in greater detail in Item 10.E. “Additional Information - Taxation - U.S. Tax Considerations - Partnership Status of Our Company and the Property Partnership”.
 
The failure of certain of our operating entities (or certain of their subsidiaries) to qualify as REITs under U.S. federal income tax rules generally would have adverse tax consequences which could result in a material reduction in cash flow and after-tax return for our unitholders and thus could result in a reduction of the value of our units.
 
Certain of our operating entities (and certain of their subsidiaries), including operating entities in which we do not have a controlling interest, intend to qualify for taxation as REITs for U.S. federal income tax purposes. However, no assurance can be provided that any such entity will qualify as a REIT. An entity’s ability to qualify as a REIT depends on its satisfaction of certain asset, income, organizational, distribution, shareholder ownership, and other requirements on a continuing basis. No assurance can be provided that the actual results of operations for any particular entity in a given taxable year will satisfy such requirements. If any such entity were to fail to qualify as a REIT in any taxable year, it would be subject to U.S. federal income tax on its net taxable income at regular corporate rates, and distributions would not be deductible by it in computing its taxable income. Any such corporate tax liability could be substantial and could materially reduce the amount of cash available for distribution to our company, which in turn would materially reduce the amount of cash available for distribution to our unitholders or investment in our business and could have an adverse impact on the value of our units. Unless entitled to relief under certain U.S. federal income tax rules, any entity which so failed to qualify as a REIT would also be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT.
 
We may be subject to U.S. “backup” withholding tax or other U.S. withholding taxes if any unitholder fails to comply with U.S. tax reporting rules or if the IRS or other applicable state or local taxing authority does not accept our withholding methodology, and such excess withholding tax cost will be an expense borne by our company and, therefore, by all of our unitholders on a pro rata basis.
 
We may become subject to U.S. backup withholding tax or other U.S. withholding taxes with respect to any unitholder who fails to timely provide our company (or the applicable clearing agent or other intermediary) with an IRS Form W-9 or IRS Form W-8, as the case may be, or if the withholding methodology we use is not accepted by the IRS or other applicable state or local taxing authority. See Item 10.E. “Additional Information - Taxation - U.S. Tax Considerations - Administrative Matters - Withholding and Backup Withholding”. To the extent that any unitholder fails to timely provide the applicable form (or such form is not properly completed), or should the IRS or other applicable state or local taxing authority not accept our withholding methodology, our company might treat such U.S. backup withholding taxes or other U.S. withholding taxes as an expense, which would be borne indirectly by all of our unitholders on a pro rata basis. As a result, our unitholders that fully comply with their U.S. tax reporting obligations may bear a share of such burden created by other unitholders that do not comply with the U.S. tax reporting rules.
 
Tax-exempt organizations may face certain adverse U.S. tax consequences from owning our units.
 
The BPY General Partner intends to use commercially reasonable efforts to structure our activities to avoid generating income connected with the conduct of a trade or business (which income generally would constitute “unrelated business taxable income” (“UBTI”) to the extent allocated to a tax-exempt organization). However, no assurance can be provided that we will not generate UBTI in the future. In particular, UBTI includes income attributable to debt-financed property, and we are not prohibited from financing the acquisition of property with debt. In addition, a tax-exempt organization might be allocated UBTI if our company’s indirect investment in a REIT were to give rise to “excess inclusion income”. The potential for income to be characterized as UBTI could make our units an unsuitable investment for a tax-exempt organization, as addressed in greater detail in Item 10.E. “Additional Information - Taxation - U.S. Tax Considerations - Consequences to U.S. Holders - U.S. Taxation of Tax-Exempt U.S. Holders of Our Units”.

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If our company were engaged in a U.S. trade or business, non-U.S. persons would face certain adverse U.S. tax consequences from owning our units.
 
Based on our organizational structure, as well as our expected income and assets, the BPY General Partner currently believes that our company is unlikely to earn income treated as effectively connected with a U.S. trade or business, including effectively connected income attributable to the sale of a “United States real property interest”, as defined in the U.S. Internal Revenue Code. If our company were deemed to be engaged in a U.S. trade or business, or to realize gain from the sale or other disposition of a U.S. real property interest, Non-U.S. Holders (as defined in Item 10.E. Additional Information - Taxation - U.S. Tax Considerations”) generally would be required to file U.S. federal income tax returns and could be subject to U.S. federal withholding tax at the highest marginal U.S. federal income tax rates applicable to ordinary income. If, contrary to expectation, our company were engaged in a U.S. trade or business, then gain or loss from the sale of our units by a Non-U.S. Holder would be treated as effectively connected with such trade or business to the extent that such Non-U.S. Holder would have had effectively connected gain or loss had our company sold all of its assets at their fair market value as of the date of such sale. In such case, any such effectively connected gain generally would be taxable at the regular graduated U.S. federal income tax rates, and the amount realized from such sale generally would be subject to a 10% U.S. federal withholding tax. See Item 10.E. Additional Information - Taxation - U.S. Tax Considerations - Consequences to Non-U.S. Holders”.
 
To meet U.S. federal income tax and other objectives, our company and the Property Partnership may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax.
 
To meet U.S. federal income tax and other objectives, our company and the Property Partnership may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax. Consequently, items of income, gain, loss, deduction, or credit realized in the first instance by our operating entities will not flow, for U.S. federal income tax purposes, directly to the Property Partnership, our company, or our unitholders, and any such income or gain may be subject to a corporate income tax, in the United States or other jurisdictions, at the level of the Holding Entity. Any such additional taxes may adversely affect our company’s ability to maximize its cash flow.
 
Our unitholders taxable in the United States may be viewed as holding an indirect interest in an entity classified as a “passive foreign investment company” or “controlled foreign corporation” for U.S. federal income tax purposes.
 
U.S. Holders may face adverse U.S. tax consequences arising from the ownership of an indirect interest in a “passive foreign investment company” (“PFIC”)_or in a “controlled foreign corporation” (“CFC”). These investments may produce taxable income prior to the receipt of cash relating to such income, and U.S. Holders will be required to take such income into account in determining their gross income subject to tax. In addition, all or a portion of any gain realized upon the sale of a CFC may be taxable at ordinary income rates. Further, with respect to gain realized upon the sale of and excess distributions from a PFIC for which an election for current inclusions is not made, such income would be taxable at ordinary income rates and subject to an additional tax equivalent to an interest charge on the deferral of income inclusions from the PFIC. See Item 10.E. “Additional Information - Taxation - U.S. Tax Considerations - Consequences to U.S. Holders - Passive Foreign Investment Companies” and “Taxation - U.S. Tax Considerations - Consequences to U.S. Holders - Controlled Foreign Corporations”. Each U.S. Holder should consult its own tax adviser regarding the implications of the PFIC and CFC rules for an investment in our units.

Tax gain or loss from the disposition of our units could be more or less than expected.
 
Upon the sale of our units, a U.S. Holder will generally recognize gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and such holder’s adjusted tax basis in such units. Prior distributions to a U.S. Holder in excess of the total net taxable income allocated to such holder will have decreased such unitholder’s tax basis in our units. Therefore, such excess distributions will increase a U.S. Holder’s taxable gain or decrease such holder’s taxable loss when our units are sold, and may result in a taxable gain even if the sale price is less than the original cost. A portion of the amount realized, whether or not representing gain, could be ordinary income to such U.S. Holder.
 
Our partnership structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. The tax characterization of our partnership structure is also subject to potential legislative, judicial, or administrative change and differing interpretations, possibly on a retroactive basis.

The U.S. federal income tax treatment of our unitholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our unitholders should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under review by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS, the U.S.

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Treasury Department and the courts, frequently resulting in changes which could adversely affect the value of our units or cause our company to change the way it conducts its activities. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible for our company to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, change the character or treatment of portions of our company’s income, reduce the net amount of distributions available to our unitholders, or otherwise affect the tax considerations of owning our units. In addition, our company’s organizational documents and agreements permit the BPY General Partner to modify our limited partnership agreement, without the consent of our unitholders, to address such changes. These modifications could have a material adverse impact on our unitholders. See Item 10.E. Additional Information - Taxation - U.S. Tax Considerations - Administrative Matters - New Legislation or Administrative or Judicial Action”.
 
Our company’s delivery of required tax information for a taxable year may be subject to delay, which could require a unitholder who is a U.S. taxpayer to request an extension of the due date for such unitholder’s income tax return.
 
Our company has agreed to use commercially reasonable efforts to provide U.S. tax information (including IRS Schedule K-1 information needed to determine a unitholder’s allocable share of our company’s income, gain, losses, and deductions) no later than 90 days after the close of each calendar year. However, providing this U.S. tax information to our unitholders will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is therefore possible that, in any taxable year, a unitholder will need to apply for an extension of time to file such unitholder’s tax returns. See Item 10.E. Additional Information - Taxation - U.S. Tax Considerations - Administrative Matters - Information Returns and Audit Procedures”.
 
If the IRS makes an audit adjustment to our income tax returns, it may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment directly from us, in which case cash available for distribution to our unitholders might be substantially reduced.

For taxable years beginning after December 31, 2017, if the IRS makes an audit adjustment to our income tax returns, it may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment directly from our company instead of unitholders (as under prior law). We may be permitted to elect to have the BPY General Partner and our unitholders take such audit adjustment into account in accordance with their interests in us during the taxable year under audit. However, there can be no assurance that we will choose to make such election or that it will be available in all circumstances. If we do not make the election, and we pay taxes, penalties, or interest as a result of an audit adjustment, then cash available for distribution to our unitholders might be substantially reduced. As a result, our current unitholders might bear some or all of the cost of the tax liability resulting from such audit adjustment, even if our current unitholders did not own our units during the taxable year under audit. The foregoing considerations also apply with respect to our company’s interest in the Property Partnership.

Under the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010 (“FATCA”) certain payments made or received by our company may be subject to a 30% federal withholding tax, unless certain requirements are met.
 
Under FATCA, a 30% withholding tax may apply to certain payments of U.S.-source income made to our company, the Property Partnership, the Holding Entities, or the operating entities, or by our company to a unitholder, unless certain requirements are met, as described in greater detail in Item 10.E “Additional Information - Taxation - U.S. Tax Considerations - Administrative Matters - Foreign Account Tax Compliance”. To ensure compliance with FATCA, information regarding certain unitholders’ ownership of our units may be reported to the IRS or to a non-U.S. governmental authority. Our unitholders should consult their own tax advisers regarding the consequences under FATCA of an investment in our units.

Canada

If the subsidiaries that are corporations, or non-resident subsidiaries, and that are not resident or deemed to be resident in Canada for purposes of the Income Tax Act (Canada), or, together with the regulations thereunder, the Tax Act, and that are “controlled foreign affiliates” (“CFAs”) as defined in the Tax Act, in which the Property Partnership directly holds an equity interest earn income that is “foreign accrual property income” (“FAPI”) as defined in the Tax Act, our unitholders may be required to include amounts allocated from our company in computing their income for Canadian federal income tax purposes even though there may be no corresponding cash distribution.

Any of the non-resident subsidiaries in which the Property Partnership directly holds an equity interest are expected to be CFAs of the Property Partnership. If any CFA of the Property Partnership or any direct or indirect subsidiary thereof that is itself a CFA of the Property Partnership (an “Indirect CFA”) earns income that is characterized as FAPI in a particular taxation year of the CFA or Indirect CFA, the FAPI allocable to the Property Partnership must be included in computing the income of the

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Property Partnership for Canadian federal income tax purposes for the fiscal period of the Property Partnership in which the taxation year of that CFA or Indirect CFA ends, whether or not the Property Partnership actually receives a distribution of that FAPI. Our company will include its share of such FAPI of the Property Partnership in computing its income for Canadian federal income tax purposes and our unitholders will be required to include their proportionate share of such FAPI allocated from our company in computing their income for Canadian federal income tax purposes. As a result, our unitholders may be required to include amounts in their income for Canadian federal income tax purposes even though they have not and may not receive an actual cash distribution of such amounts. The Tax Act contains anti-avoidance rules to address certain foreign tax credit generator transactions, or the Foreign Tax Credit Generator Rules. Under the Foreign Tax Credit Generator Rules, the “foreign accrual tax”, as defined in the Tax Act, applicable to a particular amount of FAPI included in the Property Partnership’s income in respect of a particular “foreign affiliate”, as defined in the Tax Act, of the Property Partnership may be limited in certain specified circumstances. See Item 10.E. “Additional Information - Taxation - Certain Material Canadian Federal Income Tax Considerations”.
 
Our unitholders may be required to include imputed amounts in their income for Canadian federal income tax purposes in accordance with section 94.1 of the Tax Act.
 
Section 94.1 of the Tax Act contains rules relating to interests in entities that are not resident or deemed to be resident in Canada for purposes of the Tax Act or not situated in Canada (and certain exempt foreign trusts as defined in subsection 94(1) of the Tax Act), other than a CFA of the taxpayer, or Non-Resident Entities, that could in certain circumstances cause income to be imputed to our unitholders for Canadian federal income tax purposes, either directly or by way of allocation of such income imputed to our company or to the Property Partnership. See Item 10.E. “Additional Information - Taxation - Certain Material Canadian Federal Income Tax Considerations”.
 
Our unitholders’ foreign tax credits for Canadian federal income tax purposes will be limited if the Foreign Tax Credit Generator Rules apply in respect of the foreign “business income tax” or “non-business income tax”, each as defined in the Tax Act, paid by our company or the Property Partnership to a foreign country.
 
Under the Foreign Tax Credit Generator Rules, the foreign “business-income tax” or “non-business-income tax” for Canadian federal income tax purposes for any taxation year may be limited in certain circumstances. If the Foreign Tax Credit Generator Rules apply, the allocation to a unitholder of foreign “business income tax” or “non-business income tax” paid by our company or the Property Partnership, and therefore, such unitholder’s foreign tax credits for Canadian federal income tax purposes, will be limited. See Item 10.E. “Additional Information - Taxation - Certain Material Canadian Federal Income Tax Considerations”.
 
Our unitholders who are not and are not deemed to be resident in Canada for purposes of the Tax Act and who do not use or hold, and are not deemed to use or hold, their units of our company in connection with a business carried on in Canada, or non-resident limited partners, may be subject to Canadian federal income tax with respect to any Canadian source business income earned by our company or the Property Partnership if our company or the Property Partnership were considered to carry on business in Canada.
 
If our company or the Property Partnership were considered to carry on business in Canada for purposes of the Tax Act, non-resident limited partners would be subject to Canadian federal income tax on their proportionate share of any Canadian source business income earned or considered to be earned by our company, subject to the potential application of the safe harbour rule in section 115.2 of the Tax Act and any relief that may be provided by any relevant income tax treaty or convention.
 
The BPY General Partner intends to manage the affairs of our company and the Property Partnership, to the extent possible, so that they do not carry on business in Canada and are not considered or deemed to carry on business in Canada for purposes of the Tax Act. Nevertheless, because the determination of whether our company or the Property Partnership is carrying on business and, if so, whether that business is carried on in Canada, is a question of fact that is dependent upon the surrounding circumstances, the CRA, might contend successfully that either or both of our company and the Property Partnership carries on business in Canada for purposes of the Tax Act.
 
If our company or the Property Partnership is considered to carry on business in Canada or is deemed to carry on business in Canada for the purposes of the Tax Act, non-resident limited partners that are corporations would be required to file a Canadian federal income tax return for each taxation year in which they are a non-resident limited partner regardless of whether relief from Canadian taxation is available under an applicable income tax treaty or convention. Non-resident limited partners who are individuals would only be required to file a Canadian federal income tax return for any taxation year in which they are allocated income from our company from carrying on business in Canada that is not exempt from Canadian taxation under the terms of an applicable income tax treaty or convention.
 

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Non-resident limited partners may be subject to Canadian federal income tax on capital gains realized by our company or the Property Partnership on dispositions of “taxable Canadian property” as defined in the Tax Act.

A non-resident limited partner will be subject to Canadian federal income tax on its proportionate share of capital gains realized by our company or the Property Partnership on the disposition of “taxable Canadian property” other than “treaty protected property”, as defined in the Tax Act. “Taxable Canadian property” includes, but is not limited to, property that is used or held in a business carried on in Canada and shares of corporations that are not listed on a “designated stock exchange”, as defined in the Tax Act, if more than 50% of the fair market value of the shares is derived from certain Canadian properties during the 60-month period immediately preceding the particular time. Property of our company and the Property Partnership generally will be “treaty-protected property” to a non-resident limited partner if the gain from the disposition of the property would, because of an applicable income tax treaty or convention, be exempt from tax under the Tax Act. Our company and the Property Partnership are not expected to realize capital gains or losses from dispositions of “taxable Canadian property”. However, no assurance can be given in this regard. Non-resident limited partners will be required to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” by our company or the Property Partnership unless the disposition is an “excluded disposition” for the purposes of section 150 of the Tax Act. However, non-resident limited partners that are corporations will still be required to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” that is an “excluded disposition” for the purposes of section 150 of the Tax Act if tax would otherwise be payable under Part I of the Tax Act by such non-resident limited partners in respect of the disposition but is not because of an applicable income tax treaty or convention (otherwise than in respect of a disposition of “taxable Canadian property” that is “treaty-protected property” of the corporation). In general, an “excluded disposition” is a disposition of property by a taxpayer in a taxation year where: (a) the taxpayer is a non-resident of Canada at the time of the disposition; (b) no tax is payable by the taxpayer under Part I of the Tax Act for the taxation year; (c) the taxpayer is not liable to pay any amounts under the Tax Act in respect of any previous taxation year (other than certain amounts for which the CRA holds adequate security); and (d) each “taxable Canadian property” disposed of by the taxpayer in the taxation year is either: (i) “excluded property” (as defined in subsection 116(6) of the Tax Act); or (ii) property in respect of the disposition of which a certificate under subsection 116(2), (4) or (5.2) of the Tax Act has been issued by the CRA. Non-resident limited partners should consult their own tax advisors with respect to the requirements to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” by our company or the Property Partnership.

Non-resident limited partners may be subject to Canadian federal income tax on capital gains realized on the disposition of our units if our units are “taxable Canadian property”.

Any capital gain arising from the disposition or deemed disposition of our units by a non-resident limited partner will be subject to taxation in Canada, if, at the time of the disposition or deemed disposition, our units are “taxable Canadian property” of the non-resident limited partner, unless our units are “treaty-protected property” to such non-resident limited partner. In general, our units will not constitute “taxable Canadian property” of any non-resident limited partner at the time of disposition or deemed disposition, unless (a) at any time in the 60-month period immediately preceding the disposition or deemed disposition, more than 50% of the fair market value of our units was derived, directly or indirectly (excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”), from one or any combination of: (i) real or immovable property situated in Canada; (ii) “Canadian resource properties”, as defined in the Tax Act; (iii) “timber resource properties”, as defined in the Tax Act; and (iv) options in respect, of or interests in, or for civil law rights in, such property, whether or not such property exists, or (b) our units are otherwise deemed to be “taxable Canadian property”. Since our company’s assets will consist principally of units of the Property Partnership, our units would generally be “taxable Canadian property” at a particular time if the units of the Property Partnership held by our company derived, directly or indirectly (excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”) more than 50% of their fair market value from properties described in (i) to (iv) above, at any time in the 60-month period preceding the particular time. The BPY General Partner does not expect our units to be “taxable Canadian property” of any non-resident limited partner at any time but no assurance can be given in this regard. See Item 10.E. “Taxation - Certain Material Canadian Federal Income Tax Considerations”. Even if our units constitute “taxable Canadian property”, units of our company will be “treaty protected property” if the gain on the disposition of our units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. If our units constitute “taxable Canadian property”, non-resident limited partners will be required to file a Canadian federal income tax return in respect of a disposition of our units unless the disposition is an “excluded disposition” (as discussed above). If our units constitute “taxable Canadian property”, non-resident limited partners should consult their own tax advisors with respect to the requirement to file a Canadian federal income tax return in respect of a disposition of our units.

Non-resident limited partners may be subject to Canadian federal income tax reporting and withholding tax requirements on the disposition of “taxable Canadian property”.
 
Non-resident limited partners who dispose of “taxable Canadian property”, other than “excluded property” and certain other property described in subsection 116(5.2) of the Tax Act (or who are considered to have disposed of such property on the

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disposition of such property by our company or the Property Partnership) are obligated to comply with the procedures set out in section 116 of the Tax Act and obtain a certificate pursuant to the Tax Act. In order to obtain such certificate, the non-resident limited partner is required to report certain particulars relating to the transaction to CRA not later than 10 days after the disposition occurs. Our units are not expected to be “taxable Canadian property” and neither our company nor the Property Partnership is expected to dispose of property that is “taxable Canadian property” but no assurance can be given in this regard.
 
Payments of dividends or interest (other than interest not subject to Canadian federal withholding tax) by residents of Canada to the Property Partnership will be subject to Canadian federal withholding tax and we may be unable to apply a reduced rate taking into account the residency or entitlement to relief under an applicable income tax treaty or convention of our unitholders.
 
Our company and the Property Partnership will each be deemed to be a non-resident person in respect of certain amounts paid or credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or interest. Dividends or interest (other than interest not subject to Canadian federal withholding tax) paid or deemed to be paid by a person resident or deemed to be resident in Canada to the Property Partnership will be subject to withholding tax under Part XIII of the Tax Act at the rate of 25%. However, the CRA’s administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-resident partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and entitlement to treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts paid by the Holding Entities to the Property Partnership, we expect the Holding Entities to look-through the Property Partnership and our company to the residency of the partners of our company (including partners who are resident in Canada) and to take into account any reduced rates of Canadian federal withholding tax that non-resident limited partners may be entitled to under an applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from dividends or interest paid to the Property Partnership. However, there can be no assurance that the CRA will apply its administrative practice in this context. If the CRA’s administrative practice is not applied and the Holding Entities withhold Canadian federal withholding tax from applicable payments on a look-through basis, the Holding Entities may be liable for additional amounts of Canadian federal withholding tax plus any associated interest and penalties. Under the Canada-United States Tax Convention (1980) (the “Treaty”) a Canadian resident payer is required in certain circumstances to look-through fiscally transparent partnerships, such as our company and the Property Partnership, to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty.
 
While the BPY General Partner expects the Holding Entities to look-through our company and the Property Partnership in determining the rate of Canadian federal withholding tax applicable to amounts paid or deemed to be paid by the Holding Entities to the Property Partnership, we may be unable to accurately or timely determine the residency of our unitholders for purposes of establishing the extent to which Canadian federal withholding taxes apply or whether reduced rates of withholding tax apply to some or all of our unitholders. In such a case, the Holding Entities will withhold Canadian federal withholding tax from all payments made to the Property Partnership that are subject to Canadian federal withholding tax at the rate of 25%. Canadian resident unitholders will be entitled to claim a credit for such taxes against their Canadian federal income tax liability, but non-resident limited partners will need to take certain steps to receive a refund or credit in respect of any such Canadian federal withholding taxes withheld equal to the difference between the withholding tax at a rate of 25% and the withholding tax at the reduced rate they are entitled to under an applicable income tax treaty or convention. See Item 10.E. Additional Information - Taxation - Certain Material Canadian Federal Income Tax Considerations” for further detail. Our unitholders should consult their own tax advisors concerning all aspects of Canadian federal withholding taxes.

Our units may or may not continue to be “qualified investments” under the Tax Act for registered plans.
 
Provided that our units are listed on a “designated stock exchange” (which currently includes the Nasdaq and the Toronto Stock Exchange (the “TSX”), our units will be “qualified investments” under the Tax Act for a trust governed by a registered retirement savings plan (“RRSP”), deferred profit sharing plan, registered retirement income fund (“RRIF”), registered education savings plan (“RESP”), registered disability savings plan (“RDSP”) and a tax-free savings account (“TFSA”). However, there can be no assurance that our units will continue to be listed on a “designated stock exchange”. There can also be no assurance that tax laws relating to “qualified investments” will not be changed. Taxes may be imposed in respect of the acquisition or holding of non-qualified investments by such registered plans and certain other taxpayers and with respect to the acquisition or holding of “prohibited investments”, as defined in the Tax Act, by a RRSP, RRIF, TFSA, RDSP or RESP.

Generally, our units will not be a “prohibited investment” for a trust governed by an RRSP, RRIF, TFSA, RDSP or RESP provided that the annuitant under the RRSP or RRIF, the holder of the TFSA or RDSP or the subscriber of the RESP, as the case may be, deals at arm’s length with our company for purposes of the Tax Act and does not have a “significant interest” as defined

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in the Tax Act for purposes of the prohibited investment rules, in our company. Our unitholders who will hold our units in an RRSP, RRIF, TFSA, RDSP or RESP should consult with their own tax advisors regarding the application of the foregoing prohibited investment rules having regard to their particular circumstances.

The Canadian federal income tax consequences to our unitholders could be materially different in certain respects from those described in this Form 20-F if our company or the Property Partnership is a “SIFT partnership”, as defined in the Tax Act.
 
Under the rules in the Tax Act applicable to a “SIFT partnership” (the “SIFT Rules”) certain income and gains earned by a “SIFT partnership” will be subject to income tax at the partnership level at a rate similar to a corporation, and allocations of such income and gains to its partners will be taxed as a dividend from a “taxable Canadian corporation”, as defined in the Tax Act. In particular, a “SIFT partnership” will generally be required to pay a tax on the total of its income from businesses carried on in Canada, income from “non-portfolio properties”, as defined in the Tax Act, other than taxable dividends, and taxable capital gains from dispositions of “non-portfolio properties”. “Non-portfolio properties” include, among other things, equity interests or debt of corporations, trusts or partnerships that are resident in Canada, and of non-resident persons or partnerships the principal source of income of which is one or any combination of sources in Canada (other than a “portfolio investment entity” as defined in the Tax Act), that are held by the “SIFT partnership” and have a fair market value that is greater than 10% of the equity value of such entity, or that have, together with debt or equity that the “SIFT partnership” holds of entities affiliated (within the meaning of the Tax Act) with such entity, an aggregate fair market value that is greater than 50% of the equity value of the “SIFT partnership”. The tax rate that is applied to the above mentioned sources of income and gains is set at a rate equal to the “net corporate income tax rate”, plus the “provincial SIFT tax rate”, each as defined in the Tax Act.

A partnership will be a “SIFT partnership” throughout a taxation year if at any time in the taxation year (i) it is a “Canadian resident partnership” as defined in the Tax Act, (ii) “investments”, as defined in the Tax Act, in the partnership are listed or traded on a stock exchange or other public market and (iii) it holds one or more “non-portfolio properties”. For these purposes, a partnership will be a “Canadian resident partnership” at a particular time if (a) it is a “Canadian partnership” as defined in the Tax Act at that time, (b) it would, if it were a corporation, be resident in Canada (including, for greater certainty, a partnership that has its central management and control located in Canada) or (c) it was formed under the laws of a province. A “Canadian partnership” for these purposes is a partnership all of whose members are resident in Canada or are partnerships that are “Canadian partnerships”.

Under the SIFT Rules, our company and the Property Partnership could each be a “SIFT partnership” if it is a “Canadian resident partnership”. However, the Property Partnership would not be a “SIFT partnership” if our company is a “SIFT partnership” regardless of whether the Property Partnership is a “Canadian resident partnership” on the basis that the Property Partnership would be an “excluded subsidiary entity” as defined in the Tax Act. Our company and the Property Partnership will be a “Canadian resident partnership” if the central management and control of these partnerships is located in Canada. This determination is a question of fact and is expected to depend on where the BPY General Partner is located and exercises central management and control of the partnerships. The BPY General Partner will take appropriate steps so that the central management and control of these entities is not located in Canada such that the SIFT Rules should not apply to our company or to the Property Partnership at any relevant time. However, no assurance can be given in this regard. If our company or the Property Partnership is a “SIFT partnership”, the Canadian federal income tax consequences to our unitholders could be materially different in certain respects from those described in Item 10.E. “Additional Information - Taxation - Certain Material Canadian Federal Income Tax Considerations”. In addition, there can be no assurance that the SIFT Rules will not be revised or amended in the future such that the SIFT Rules will apply.

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ITEM 4.    INFORMATION ON THE COMPANY
 
4.A. HISTORY AND DEVELOPMENT OF THE COMPANY
 
Our company was established on January 3, 2013 as a Bermuda exempted limited partnership registered under the Bermuda Limited Partnership Act 1883, as amended, and the Bermuda Exempted Partnerships Act 1992, as amended. Our company’s head and registered office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda, and our company’s telephone number is +441 294 3309.

Our company was established by Brookfield Asset Management as its primary vehicle to make investments across all strategies in real estate. Our goal is to be the leading global owner and operator of high-quality real estate, that generates sustainable and growing distributions to our unitholders and capital appreciation of our asset base over the long term. Our LP Units are listed on the Nasdaq and the TSX under the symbols “BPY” and “BPY.UN”, respectively, and our Preferred Units are listed on the Nasdaq under the symbols “BPYPP”, “BPYPO” and “BPYPN”, respectively.

On April 15, 2013, Brookfield Asset Management completed a spin-off of its commercial property operations to our partnership which was effected by way of a special dividend of units of our partnership to holders of Brookfield Asset Management’s Class A and B limited voting shares. Each holder of the shares received one partnership unit for approximately every 17.42 shares, representing 44.7% of the limited partnership interest in our partnership, with Brookfield Asset Management retaining units of our partnership, Redemption-Exchange Units, and a 1% general partner interest in the Property Partnership through Property Special LP, which was then known as Brookfield Property GP L.P. Our general partner is an indirect wholly-owned subsidiary of Brookfield Asset Management. In addition, wholly-owned subsidiaries of Brookfield Asset Management provide management services to us pursuant to our Master Services Agreement.

On August 28, 2018, we acquired all of the outstanding shares of common stock of GGP other than those shares previously held by our partnership and our affiliates (which represented a 34% interest in GGP prior to the acquisition). In connection with the acquisition, we formed Brookfield Property REIT Inc., which is an issuer of public securities that are intended to offer economic equivalence to an investment in our partnership in the form of a U.S. REIT stock. The BPR Units and Series A preferred stock of BPR trade on the Nasdaq under the symbols “BPR” and “BPRAP”, respectively. In the acquisition, former GGP shareholders elected to receive, for each GGP common share, subject to proration, either $23.50 in cash or either one LP Unit or one BPR Unit. As a result of the acquisition of GGP, approximately 161 million BPR Units and 88 million LP Units were issued to former GGP shareholders.

For a description of our principal capital expenditures in the last three fiscal years and a discussion of our acquisitions and dispositions during the year ended December 31, 2019, please see Item 5.A. “Operating and Financial Review and Prospects - Operating Results”.

We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information as a foreign private issuer with the SEC. You may also inspect reports and other information regarding registrants, such as us, that file electronically with the SEC without charge at a website maintained by the SEC at www.sec.gov. See Item 10.H “Documents on Display”.


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4.B.      BUSINESS OVERVIEW
 
Overview of our Business
 
Our partnership is Brookfield Asset Management’s primary vehicle to make investments across all strategies in real estate. Our goal is to be a leading global owner and operator of high-quality real estate, that generates sustainable and growing distributions to our unitholders and capital appreciation of our asset base over the long term. With approximately 22,000 employees involved in Brookfield’s real estate businesses around the globe, we have built operating platforms in various real estate sectors, including:
CORE OFFICE PORTFOLIO CORE RETAIL PORTFOLIO
Class A office assets in gateway markets around the globe 100 of the top 500 malls in the United States
l136 premier properties l122 best-in-class malls and urban retail properties
l93 million square feet l120 million square feet
l93% occupancy l96% occupancy
l8.5 year average lease term   
     
LP INVESTMENTS PORTFOLIO
Invested in mispriced portfolios and/or properties with significant value-add

Our diversified Core portfolios consist of high-quality office and retail assets in some of the world’s most dynamic markets which have stable cash flow as a result of their long-term leases. We target between a 10% and 12% total return on our Core portfolios. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy that should generate strong same-property NOI growth without significant capital investment. Furthermore, we target earning between 6% and 11% unlevered, pre-tax returns on construction costs for our development and redevelopment projects. We currently have approximately 12 million square feet of active development projects underway with another 6 million square feet in planning stages. Our development track record reflects successful completions on time and on budget. We expect that this portion of our balance sheet will be meaningful to earnings growth in our Core businesses throughout the next five to ten years as projects reach completion and begin to contribute rental revenue to our earnings.

Our LP Investments portfolio includes our equity invested in Brookfield-sponsored real estate opportunity funds, which target high-quality assets with operational upside across various real estate sectors, including office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing. We target an average gross 20% total return on our LP Investments portfolio and a 2.0x multiple of capital on the equity we invest into these vehicles. These investments, unlike our Core portfolios, have a defined hold period and typically generate the majority of profits from a gain recognized from realization events including the sale of an asset or portfolio of assets, or exit of the entire investment. The combination of these gains and FFO earned represent our earnings on capital invested in these funds and provide liquidity to support our target distributions.
 
Overall, we seek to earn leveraged after-tax total returns of 12% to 15% on our invested capital. These returns will be comprised of current cash flow, distribution growth and capital appreciation. With our diversified cash flow profile from our Core Office, Core Retail, and LP Investments portfolios, our goal is to pay an attractive annual distribution to our unitholders and to grow our distribution by 5% to 8% per annum. Capital appreciation will be reflected in the fair value gains that flow through our income statement as a result of our revaluation of investment properties in accordance with IFRS to reflect initiatives that increase property level cash flows, change the risk profile of the asset, reflect changes in market conditions, or portfolio premiums realized upon sale of these assets. From time to time, we will convert some or all of these unrealized gains to cash through asset sales, joint ventures or refinancings.

We believe our global scale and best-in-class operating platforms provide us with a unique competitive advantage as we are able to efficiently allocate capital around the world toward those sectors and geographies where we see the greatest returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. In addition, due to the scale of our stabilized portfolio and flexibility of our balance sheet, we believe our business model is self-funding and does not require us to access capital markets to fund our continued growth.

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Our Business Strategy

Our strategy is to be the leading globally-diversified owner and operator of commercial properties. Due to the cyclical nature of the real estate industry, 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 to sectors and geographies that are out of favor will enable us to earn premium returns on the capital that we invest.
 
We are currently targeting investments across our various portfolios. In summary, our strategy is to acquire high-quality assets on a value basis, utilize our operating entities to add value through pro-active management, develop “best-in-class” properties at a discount to asset valuations, recycle capital for re-investment in new opportunities and finance on a non-recourse basis with investment grade metrics.
 
Leverage Brookfield’s operating experience, execution abilities and global relations

Through our operating entities around the globe, we receive real-time information regarding market conditions and opportunities, which helps us identify the investments that offer the best risk-adjusted returns and give us competitive advantages in the marketplace.

Our teams in each of the regions that we target have developed strong local relationships and partnerships. Through these local networks, we originate proprietary transactions that are generally priced at more favorable valuations than competitive processes.

Brookfield has a long history of leading multi-faceted transactions such as recapitalizations. We utilize our structuring expertise to execute these types of transactions, whereby we can acquire high quality assets at a discount to their intrinsic value.
 
Utilize our operating entities to add value through pro-active management

Within our operating entities, we pursue opportunities to maximize revenues in each market, such as optimizing tenant relationships to increase occupancy and raise rents.

We also identify opportunities to redevelop our existing assets that offer premium risk-adjusted returns.

Finally, we make add-on acquisitions that can be integrated into our operating entities.
 
Develop “best-in-class” properties at a discount to asset valuations
 
In markets where asset valuations are at a premium to development cost, we selectively pursue development projects that offer attractive risk-adjusted returns.

Our development strategy is relatively low risk. Before investing a material amount of capital, we generally meet prudent pre-leasing hurdles and secure construction financing and maximum-price contracts. We bring in capital partners on a project-specific basis in order to mitigate risk and manage our cash flow profile. Finally, we monetize land parcels in order to reduce our investment in land.

Recycle capital for re-investment in new opportunities
 
Once we have stabilized an asset, we will consider a full or partial sale in order to recycle capital from these assets, which effectively have low costs of capital, for re-investment in new opportunities with higher rates of return.

For Core assets, our preference is to sell down interests in assets to institutional investors, which enables us to preserve our operating entities and earn incremental fee income.
 

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Finance on a non-recourse basis with investment grade metrics
 
We predominantly utilize asset-level debt. We size the non-recourse debt with investment grade metrics in order to provide broad access to capital throughout market cycles and optimize our cost of capital.

In order to mitigate risk, we generally raise debt financing in local currency, and our debt portfolio is largely fixed rate through issuance of fixed coupon debt or use of interest rate derivatives.

We seek to ladder maturities in order to reduce refinancing risk.
 
For LP Investments transactions, our strategy is to pursue acquisitions through private funds and/or consortium arrangements with institutional investors in order to manage our level of exposure to these higher risk investments. Brookfield has a strong track record of leading such consortiums and partnerships.
 
Competitive Strengths
 
We believe that a number of competitive strengths differentiate us from other commercial real estate companies.

Global Scale. With approximately 22,000 employees involved in Brookfield’s real estate business globally, we have operating entities with scale in each of our targeted sectors and geographies. With the real-time information that we receive regarding market conditions and opportunities, we believe we are well-positioned to opportunistically originate transactions that offer the highest risk-adjusted returns.

Sector and Geographic Diversification. With a portfolio of assets in the office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing asset classes located primarily in North America, Europe and Australia, with a growing presence in Brazil and Asia, we have diversified cash flows that increase stability and over time should lower our cost of capital. As a result of this diversity, combined with Brookfield’s sponsorship and its strong institutional relationships, we believe that we should have access to capital across market cycles. This should enable us to take advantage of attractive opportunities as they arise.

Superior Record of Executing Transactions. Brookfield’s real estate group has a long track record of leading multi-faceted transactions, whereby it utilizes its structuring capabilities to invest in high-quality assets on a value basis. Additionally, Brookfield has demonstrated an ability to develop “best-in-class” assets in markets where asset valuations are in excess of development costs, earning attractive returns on equity.

Strong Organic Cash Flow Growth. As a result of escalation provisions in a majority of our leases, the mark-to-market of rents as long-term leases expire and our ability to increase occupancy/permanent occupancy primarily in our Core Office and Core Retail portfolios, we have a strong foundation for organic cash flow growth. We expect to have flexibility to utilize this incremental cash flow to increase our distribution to our unitholders or fund other growth initiatives.

Attractive Portfolio of Development/Redevelopment Opportunities. Within our Core Office, Core Retail and LP Investments businesses we have a portfolio of development and redevelopment opportunities that offer premium returns on invested capital. We will seek to capture the value of this pipeline through a combination of investment of capital to build-out such projects and sell-downs to partners at values that reflect the development value that has been created.

Relationship with Brookfield. As Brookfield’s flagship public commercial property entity, we are the primary vehicle through which it invests in real estate on a global basis. As a result, our unitholders benefit from Brookfield’s global presence, operating experience, execution capabilities and relationships. Furthermore, with Brookfield’s substantial liquidity and strong relationships with banks and institutional investors, we may be able to participate in attractive investments that we could not have executed on a stand-alone basis.

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Operating Entities
 
Our business is organized in three operating sectors: Core Office, Core Retail and LP Investments. The capital invested in these operating entities is through a combination of: direct investment; investments in asset level partnerships or joint venture arrangements; and participation in private equity funds and consortiums. Combining both publicly-listed and private institutional capital provides a competitive advantage in flexibility and access to capital to fund growth.
bpysegmentchartq42019a01.jpg
(1) 
Represents assets and equity attributable to Unitholders related to our operating segments and excludes corporate assets and obligations.

Core Office
 
Our Core Office portfolio consists of interests in 136 high-quality office properties totaling approximately 93 million square feet, which are located primarily in the world’s leading commercial markets such as New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, and Berlin, as well as approximately 12 million square feet of active office and multifamily developments. We believe that these assets have a stable cash flow profile due to long-term leases in place. We target between a 10% and 12% total return on our Core Office portfolio. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy that should generate strong same-property NOI growth without significant capital investment. Furthermore, we target earning between 8% and 11% unlevered, pre-tax returns on construction costs from our development pipeline.

Within our Core Office business, we remain focused on the following strategic priorities:

Realizing value from our properties through proactive leasing and select redevelopment and repositioning initiatives to convert assets to higher yielding (or cash flow generating) properties;

Managing capital prudently, by utilizing conservative financing structures, including the disposition of select mature or non-core assets; and

Advancing development projects to create “best-in-class” new stock in premium locations.

Our Core Office portfolio occupancy stands at 93% leased at December 31, 2019 and reflects average in-place net rent of $37.31 per square foot compared to average market net rent of $40.07 per square foot, allowing for 7% potential to capture on higher rents on the upcoming expiration of leases.
 

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Another important characteristic of our Core Office portfolio is the credit quality of our tenants. We focus on tenant credit quality in order to ensure the long-term sustainability of rental revenues through economic cycles. The following list shows major tenants in our Core Office portfolio by leased area and their respective credit ratings and lease commitments as at December 31, 2019.
 
TenantPrimary Location
Credit Rating(1)
Exposure (%)(2)

Government and Government AgenciesVariousAA+/AAA7.6%
Morgan StanleyNY/LondonA-2.7%
BarclaysLondon/Toronto/CalgaryBBB-2.1%
CIBC World Markets(3)
Calgary//Toronto/NYAA1.9%
Suncor Energy Inc.CalgaryBBB+1.8%
CenovusCalgaryBB+1.5%
Bank of MontrealCalgary/TorontoAA1.5%
DeloitteVariousNot Rated1.4%
Bank of America | Merrill LynchVariousA1.3%
AmazonNY/LondonA-1.3%
Total  23.1%
(1) 
From Standard & Poor’s Rating Services, Moody’s Investment Services, Inc. or DBRS Limited.
(2) 
Prior to considering partnership interests in partially-owned properties.
(3) 
CIBC World Markets leases 1.1 million square feet at 300 Madison Avenue in New York, of which they sublease 940,000 square feet to PricewaterhouseCoopers LLP and approximately 100,000 square feet to Sumitomo Corporation of America.

Another important strategy for our Core Office business is to sign long-term leases in order to mitigate risk, reduce our overall re-tenanting costs and ensure stable and sustainable cash flows. As at December 31, 2019, the average lease term of our Core Office business was 8.5 years, compared to 8.3 years at December 31, 2018. We typically commence discussions with tenants regarding their space requirements well in advance of the contractual expiration.
 
A portion of our Core Office business is owned through joint venture, partnership, consortium or other arrangements with institutional partners. Prospectively, as we recycle capital, our preference is to sell down interests in assets to institutional partners and to continue to manage the assets on behalf of ourselves and the investors. We believe that this strategy enables us to enhance returns on our capital through associated fees, which represent an important area of growth.

Our development pipeline is a significant component of value of our Core Office business, and we expect this pipeline to contribute significantly to earnings and provide attractive returns on capital upon stabilization. As at December 31, 2019, we held interests in centrally located development sites with total development potential of approximately 29 million square feet primarily in the United States, Canada, Europe and Australia.

We classify our Core Office development sites into three categories: (i) active development, (ii) active planning and (iii) held for development. Of the approximately 29 million square feet in our office development pipeline, 12 million square feet are in the active development stage, 6 million square feet are in the active planning stage and 11 million square feet are held for future development. With all of our development sites, we proceed with construction when our risk adjusted return hurdles and preleasing targets have been met.

Core Retail

Our Core Retail segment consists of 122 best-in-class retail properties containing over 120 million square feet in the United States. These assets have a stable cash flow profile due to long-term leases in place. We target between a 10% and 12% total return on our Core Retail portfolio. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and operating expense monitoring that are expected to generate same-property NOI growth. Furthermore, we expect to earn between 6% and 8% unlevered, pre-tax returns on construction costs from our redevelopment pipeline, which is also expected to drive NOI growth.
 
Our primary objective for this segment is to be an owner and operator of best-in-class retail properties that provide an outstanding environment and experience for our communities, retailers, and consumers. The strategy for our Core Retail business includes:
 
increasing the permanent occupancy of our regional mall portfolio by converting temporary leases to permanent leases and leasing vacant space;


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renewing or replacing expiring leases at greater rental rates;

actively recycling capital through the disposition of assets and investing in whole or partial interests in high-quality regional malls, anchor pads and repaying debt; and

continuing to execute on our existing redevelopment projects and seeking additional opportunities within our portfolio for redevelopment.

As of December 31, 2019, the portfolio was 96.4% leased, compared to 96.5% leased at December 31, 2018. On a suite-to-suite basis, the leases commencing occupancy in the trailing 12 months exhibited initial rents that were 3.6% higher than the final rents paid on expiring leases.
 
For the year ended December 31, 2019, the largest tenant in our Core Retail portfolio, L Brands, Inc. (based on common parent ownership), accounted for approximately 3.8% of rents. Our three largest tenants in the Core Retail portfolio, L Brands, Inc., Foot Locker, Inc., and LVMH, in aggregate, comprised approximately 9.4% of rents.

Competition within the retail property sector is strong. We compete for tenants and visitors to our malls with other malls in close proximity as well as online retailers. We believe the high quality of our properties enables us to compete effectively for retailers and consumers. In order to maintain and increase our competitive position within the marketplace we:
 
strategically locate tenants within each property to achieve a merchandising strategy that promotes traffic, cross-shopping and maximizes sales;

introduce new concepts to the property which may include restaurants, theaters, grocery stores, first-to-market retailers, and e-commerce retailers;

utilize our properties with the opportunities to add other potential uses such as residential, hospitality and office space to complement our retail experience;

invest capital to provide the right environment for our tenants and consumers, including aesthetic, technological, and infrastructure improvements; and

ensure our properties are clean, secure and comfortable.

A portion of our Core Retail business is owned through joint venture, partnership or other arrangements with institutional partners. Prospectively, as we recycle capital, our preference is to sell down interests in assets to institutional partners and to continue to manage the assets on behalf of ourselves and the investors. We believe that this strategy enables us to enhance returns on our capital through associated fees, which represent an important area of growth.
 
Our redevelopment pipeline is a significant component of value of our Core Retail business. We have redevelopment activities with an estimated cost to the company totaling approximately $583 million in the pipeline. We continue to evaluate a number of other redevelopment projects to further enhance the quality of our assets.

LP Investments
Through investments in Brookfield-sponsored real estate funds created to earn attractive returns, we have interests in various real estate sectors around the globe including office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing. Our ownership in these holdings ranges from 26% to 50%.

LP Investments - Office

Our LP Investments - Office business consists of 113 opportunistic office properties comprising of approximately 43 million square feet of office space in the United States, United Kingdom, Brazil and Asia. Our LP Investments - Office strategy is to acquire high-quality portfolios and/or in office properties at a discount to replacement cost or intrinsic value and execute strategies to increase occupancy and rental rates, expand on developments and achieve opportunistic returns through NOI growth and fair value appreciation.

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LP Investments - Retail

Our LP Investments - Retail business is comprised of approximately 27 million square feet of opportunistic retail space across 42 properties across the United States and in select Brazilian markets. Similar to our LP Investments - Office business, our strategy is to acquire high-quality portfolios and/or retail properties at a discount to replacement cost or intrinsic value and execute strategies to increase occupancy and rental rates, expand on developments and achieve opportunistic returns through NOI growth and fair value appreciation.

Multifamily
 
Our multifamily business consists of 51 properties with approximately 15,670 multifamily units across the United States. Our strategy is to selectively develop properties in high growth, supply-constrained markets. We leverage our track record of successfully entitling land for development of multifamily properties and managing construction in order to maximize returns. We also seek opportunities to redevelop well-located, older assets and earn an attractive return on this capital by raising rents, which are still a significant discount to new products.

Logistics

Our logistics business consists of approximately 1 million square feet of logistics space at 1 property, consisting of modern logistics assets in China. Our logistics strategy is to acquire older generation logistics properties that we can redevelop into state-of-the-art product. We also seek to selectively develop projects in supply constrained markets that are critical to the global supply chain. We leverage our long track record of successfully entitling land in these markets and our global relationships with retailers and other logistics companies to negotiate anchor leases to support such projects. 

Hospitality
 
Our hospitality business consists of interests in 130 hospitality assets with over 26,400 rooms across North America, Europe and Australia. Our strategy is to employ a disciplined approach to asset selection and target investments with significant value creation opportunities. We seek to invest in hotels and hospitality related ventures in which we can use our operational expertise to add value. These strategies include, but are not limited to, renovations, repositioning, rebranding, management modification, channel distribution management, expense control and creative capital structuring.

Self-storage

Our self-storage business consists of 100 self-storage facilities comprising approximately 9 million square feet throughout the United States. Our strategy is to acquire new locations, and upgrade existing properties in order to meet and exceed target projections.
 
Triple Net Lease

Our triple net lease business consists of 278 properties that are leased to automotive dealerships across the United States and Canada on a triple net lease basis. Our strategy is to grow the business by acquiring new locations, upgrading existing facilities and constructing new stores.

Manufactured Housing    

Our manufactured housing business consists of 136 manufactured housing communities with over 32,400 sites across the United States. Our strategy is to grow this business through add-on acquisitions of properties, upgrading existing properties, and internalized facilities management and marketing.

Student Housing    

Our student housing business consists of 50 student housing properties with approximately 18,800 beds in the United Kingdom. Our student housing business operates in strong markets with highly ranked universities throughout the United Kingdom. Our strategy is to grow this business through add-on acquisitions of properties, upgrading existing properties, and internalized facilities management and marketing.

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Geographic Distribution
As of December 31, 2019, approximately 69.4% of our assets and 72.2% of our revenues originated from the United States with the remaining 30.6% of our assets and 27.8% of our revenues originating from Canada, Australia, United Kingdom, Europe, Brazil and Asia.
 
Distribution Policy
 
Our distribution policy is to retain sufficient cash flow within our operations to cover tenant improvements, leasing costs and other sustaining capital expenditures and to pay out substantially all remaining cash flow. In order to finance development projects, acquisitions and other investments, we plan to recycle capital or raise external capital. We believe that a payout ratio of 80% of our FFO should accomplish this objective. We have invested a substantial amount of capital in development and redevelopment projects primarily in our Core Office and Core Retail segments. Once we realize stabilized cash flow from these initiatives, we expect the growth in our payout to meet our target range of 5% to 8% per annum.

We established our distribution level and our targeted distribution growth rate based on projections of the amount of FFO that we will generate in the short to medium term. These projections reflect the in-place cash flow of all of our investments and our capital investment plans. In a number of our operating entities, we are retaining operating cash flow for reinvestment. As a result, we are required to finance, in the short term, payment of our distributions to our unitholders. To maintain our distributions at the current level, we have a number of alternatives available to us, including (a) using borrowings under our committed revolving credit facilities; (b) electing to accrue and/or waive distributions to be made in respect of the Redemption-Exchange Units that are held by Brookfield Asset Management in accordance with the Property Partnership’s limited partnership agreement; (c) paying off all or a portion of the fees owed to the Service Providers pursuant to the Master Services Agreement through the issuance of LP Units and/or Redemption-Exchange Units; (d) paying of any equity enhancement distributions to Property Special LP through the issuance of Redemption-Exchange Units; and (e) utilizing distributions of other operating entities from cash flow from operations, asset sales and/or refinancings. We are not a passive investor and we typically hold positions of control or significant influence over assets in which we invest, enabling us to influence distributions from those assets.
 
The current quarterly distribution on our LP Units is $0.3325 per LP Unit (or $1.33 per LP Unit on an annualized basis). Despite our projections and the alternative methods available to maintain our distribution level, there can be no assurance that we will be able to maintain an annual distribution of $1.33 per LP Unit or meet our target growth rate. Based on amounts received in distributions from our operating entities and our projected operating cash flow from our direct investments, our proposed distributions are significantly greater than such amounts.

Additionally, our ability to make distributions will depend on a number of factors, some of which are out of our control, including, among other things, general economic conditions, our results of operations and financial condition, the amount of cash that is generated by our operations and investments, restrictions imposed by the terms of any indebtedness that is incurred to finance our operations, payment of distributions on our Preferred Units, investments or to fund liquidity needs, levels of operating and other expenses, and contingent liabilities. Furthermore, the Property Partnership, the Holding Entities and our operating entities are legally distinct from our company and they are generally required to service their debt and other obligations, such as distributions to preferred unitholders, before making distributions to us or their parent entity as applicable, thereby reducing the amount of our cash flow available to pay distributions on our units, fund working capital and satisfy other needs.
 
Competition and Marketing
 
The nature and extent of competition we face varies from property to property and business to business. Our direct competitors include other office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing operating companies; public and private real estate companies and funds; commercial property developers and other owners of real estate that engage in similar businesses. In addition, we face competition in our retail business from alternatives to traditional mall shopping, particularly online shopping.
 
We believe the principal factors that our tenants consider in making their leasing decisions include: rental rates; quality, design and location of properties; total number and geographic distribution of properties; management and operational expertise; and financial position of the landlord. Based on these criteria, we believe that the size and scope of our operating entities, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for tenants in our local markets. We benefit from using the “Brookfield” name and the “Brookfield” logo in connection with our marketing activities in as Brookfield has a strong reputation throughout the global real estate industry.

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Governmental, Legal and Arbitration Proceedings
 
Our company has not been since its formation and is not currently subject to any material governmental, legal or arbitration proceedings which may have or have had a significant impact on our company’s financial position or profitability nor is our company aware of any such proceedings that are pending or threatened.
 
We are occasionally named as a party in various claims and legal proceedings which arise during the normal course of our business. We review each of these claims, including the nature of the claim, the amount in dispute or claimed and the availability of insurance coverage. Although there can be no assurance as to the resolution of any particular claim, we do not believe that the outcome of any claims or potential claims of which we are currently aware will have a material adverse effect on us.
 
Regulation
 
Our business is subject to a variety of federal, state, provincial and local laws and regulations relating to the ownership and operation of real property, including the following:
 
We are subject to various laws relating to environmental matters. We could be liable under these laws for the costs of removal and remediation of certain hazardous substances or wastes existing in, or released or deposited on or in our properties or disposed of at other locations.

We must comply with regulations under building codes and human rights codes that generally require that public buildings be made accessible to disabled persons.

We must comply with laws and regulations concerning zoning, design, construction and similar matters, including regulations which impose restrictive zoning and density requirements.

We are also subject to state, provincial and local fire and life safety requirements.
 
These laws and regulations may change and we may become subject to more stringent laws and regulations in the future. Compliance with more stringent laws and regulations could have an adverse effect on our business, financial condition or results of operations. We have established policies and procedures for environmental management and compliance, and we have incurred and will continue to incur significant capital and operating expenditures to comply with health, safety and environmental laws and to obtain and comply with licenses, permits and other approvals and to assess and manage potential liability exposure.
 
Environmental, Social and Governance

As a leading global owner and operator of high-quality real estate on a global basis, a strong environmental, social and governance (“ESG”) culture has always been an integral part of how we operate our business. We believe that having a robust ESG strategy is crucial for us to create long-term value for our unitholders.

Brookfield has an effective economic interest in our business of approximately 51% and affiliates of Brookfield Asset Management provide services to us under the Master Services Agreement. Brookfield encourages a common set of ESG principles across its business, while at the same time recognizing that the geographic and sector diversity of our portfolio requires tailored, local management and responsibility. The following are Brookfield’s and our partnership’s ESG principles:
 
Ensuring the well-being and safety of employees
Employee Well-Being: Meet or exceed all applicable labor laws and standards, which includes respecting human rights, offering competitive wages and implementing nondiscriminatory, fully inclusive hiring practices.

Health & Safety: Aim to have zero serious safety incidents by encouraging consistent health and safety principles across the organization.

Be good stewards
Community Engagement: Engage with community groups potentially affected by our actions to ensure that their interests, safety and well-being are appropriately integrated into our decision-making.

Philanthropy: Empower employees to participate in, and use resources to give back, to local communities.

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Mitigate the impact of operations on the environment
Environmental Stewardship: Strive to minimize environmental impact and improve efficient use of resources over time.

Conduct business according to the highest ethical and legal/regulatory standards
Governance, Ethics and Fairness: Operate with high ethical standards by conducting business activities in compliance with applicable legal and regulatory requirements, and consistent with our Code of Business Conduct and Ethics.

Transparency: Be accessible to our investors and stakeholders by being responsive to requests for information and timely in our communication.

ESG and the Investment Process

ESG culture is embedded throughout the investment process, starting with the due diligence of a potential investment through to the exit process. During the initial due diligence phase, Brookfield uses its operating expertise to identify material ESG risks and opportunities relevant to a potential investment. In completing these initial assessments, internal experts are used and, as needed, third-party consultants.

To ensure ESG considerations are fully integrated in the due diligence phase, the investment team prepares a detailed memorandum outlining the merits of the transaction and disclosing potential risks, mitigants and value creation opportunities. Senior management of our Service Providers discuss material ESG issues and potential mitigation strategies, including bribery and corruption risks, health and safety risks, and legal risks, as well as environmental and social risks.

Post-acquisition, local management teams are accountable for the implementation of ESG initiatives within their operations, in accordance with Brookfield and our partnership’s ESG principles. This ensures full alignment between responsibility, authority, experience and execution. This approach is particularly important given the wide range of industries and locations in which we invest that require tailored ESG risk identification and management systems to mitigate unique risks and capitalize on distinct opportunities.

Environmental Initiatives

We pride ourselves on contributing positively to the local communities in which we operate. This means we continually strive to minimize our impact on the environment, while balancing the need for economic growth. We demonstrate respect for the natural environment and take steps to protect it by investing in green technologies, encouraging environmentally sound construction methods, and promoting strategies to minimize our carbon footprint. Green initiatives in our portfolio include energy reduction, use of alternative energy sources such as solar, water conservation, recycling, enhanced indoor air quality, alternative transportation parking, environmentally friendly cleaning materials and erosion control.

Our commitment to sustainability and intelligent design has earned us global recognition. 90% of our eligible global office area has achieved a sustainability designation. Across our portfolio we hold 67 LEED certifications, 88 Energy Star certifications in the United States, 51 BOMA 360 office certifications in the United States and Canada, 26 NABERS certifications in Australia, 9 Green Star certifications and 3 BREEAM certifications.

Social Initiatives

    The health and safety of employees is a top priority. This is why we target zero serious safety incidents and foster a culture of safe practice and leadership. Safety training and protocols are constantly refined by our businesses, and health and safety incident metrics are reviewed regularly.
 
We believe that giving back is essential to doing good business. Across our operations in the United States, Canada, Brazil, Europe, Asia and Australia, we enhance our communities by supporting cultural initiatives and hosting local events, and we encourage our business partners to do the same. Brookfield has a history of deep involvement in philanthropy and continually works to instill a culture of charitable giving and volunteerism among employees and business partners.
 
Governance Initiatives

    Upholding fair and effective business practices is a cornerstone of being a responsible global citizen. Our partnership has adopted strong governance practices to ensure our activities are conducted with the utmost honesty and integrity and in full compliance with all legal and regulatory requirements. Our Code of Business Conduct and Ethics and Anti-bribery and Corruption

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Policy set out the commitments expected by us. We maintain a reporting hotline to report suspected unethical, illegal or unsafe behavior.
 
We are also deeply aware of the benefits that diversity and inclusion add to a workplace and to our ability to achieve better business outcomes. We adopted a Positive Work Environment Policy, which consolidates Brookfield’s previous regional harassment policies into one global policy and sets a consistent and high standard across all jurisdictions by explicitly expressing commitment to maintaining a workplace free from discrimination, violence and harassment.

We are proud of the commitment we have made to ESG. The initiatives we undertake and the investments we make in building our business are guided by our core set of values around sustainable development and ESG, as we encourage a culture and organization that we believe can be successful today and in the future.
 
4.C.  ORGANIZATIONAL STRUCTURE
 
Organizational Chart

The chart on the following page represents a simplified summary of our organizational structure as of December 31, 2019. “GP Interest” denotes a general partnership interest and “LP Interest” denotes a limited partnership interest. Certain subsidiaries through which Brookfield Asset Management holds units of our company have been omitted.

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This chart should be read in conjunction with the explanation of our ownership and organizational structure on the following pages.
bpyq42019simplifiedcorp03.jpg

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(1) 
As of December 31, 2019, public holders own LP Units of our company representing an 81% limited partnership interest in our company, and Brookfield owns the remaining LP Units of our company, representing a 19% limited partnership interest in our company. Assuming the exchange of the Redemption-Exchange Units in accordance with the Redemption-Exchange Mechanism and the exchange of the issued and outstanding Exchange LP Units not held by us and the issued and outstanding BPR Units, Brookfield has a 55% interest in our company. On a fully-exchanged basis and taking into account the exchange of the issued and outstanding BPR Units, public holders (excluding the Class A Preferred Unitholder) would own LP Units of our company representing a 42% interest in our company, the Class A Preferred Unitholder would own LP Units of our company representing a 7% interest in our company and Brookfield would own the remaining LP Units of our company, representing a 51% interest in our company. Brookfield also has an approximately 49% interest in the Property Partnership through Brookfield’s ownership of Redemption-Exchange Units and Special LP Units. On a fully-exchanged basis, our company would directly own 99% of the limited partnership interests in the Property Partnership.
(2) 
The Property Partnership owns, directly or indirectly, all of the common shares or equity interests, as applicable, of the Holding Entities. Brookfield holds $1 million of Class B junior preferred shares of Brookfield BPY Holdings Inc. (“CanHoldco”) as of December 31, 2019. In addition, Brookfield holds $5 million of Class A senior preferred shares of each of CanHoldco and of two wholly-owned subsidiaries of other Holding Entities, which preferred shares are entitled to vote with the common shares of the applicable entity. Brookfield has an aggregate of 2% of the votes to be cast in respect of CanHoldco and 1% of the votes to be cast in respect of any of the other applicable entities. See Item 7.B. “Major Shareholders and Related Party Transactions - Related Party Transactions - Relationship with Brookfield - Preferred Shares of Certain Holding Entities”.
(3) 
Certain of the operating entities and intermediate holding companies that are directly or indirectly owned by the Holding Entities and that directly or indirectly hold our real estate assets are not shown on the chart. All percentages listed represent our economic interest in the applicable entity or group of assets, which may not be the same as our voting interest in those entities and groups of assets. All interests are rounded to the nearest one percent and are calculated as at December 31, 2019.
(4) 
The majority of our Core Office portfolio is held through Brookfield Office Properties, Inc. (“BPO”). We own 100% of its outstanding common shares and outstanding voting preferred shares as well as interests in certain series of its non-voting preferred shares.
(5) 
Our Australian office business consists of our direct interest in our Australian office properties not held through BPO.
(6) 
Our interest in Canary Wharf is held through a joint venture owned 50% by our company and 50% by the Class A Preferred Unitholder.
(7) 
Our Brazilian office business, includes 67% ownership of an office building in Rio de Janeiro, Brazil and our interest in an office building in the Faria Lima section of São Paulo, Brazil.
(8) 
Our economic interest in BPR is 100% as BPR Units are intended to be economically equivalent to LP Units. Our voting interest is 95% of the voting stock of BPR through our 100% ownership of BPR’s Series B preferred stock, Class B-1 stock, Class B-2 stock and Class C stock. The balance of the voting rights in respect of BPR are held by the public holders of the BPR Units.
(9) 
Our economic interest set forth above is reflected as a range because our LP Investments are held through Brookfield-sponsored real estate funds in which we hold varying interests.
(10) 
Our interest in one of our opportunistic real estate finance funds is owned by the Property Partnership.


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The following table provides the percentage of voting securities owned, or controlled or directed, directly or indirectly, by us, and our economic interest in our operating entities included in our organizational chart set out above under “- Organizational Chart”.
 
Name
Economic Interest(1)
Voting Interest(1)
Core Office  
BPO(2)
100%100%
Australia100%100%
Europe100%100%
Canary Wharf50%50%
Brazil51% - 67%51% - 67%
Core Retail  
BPR100%95%
LP Investments  
LP Investments - Office(3,4)
24% - 33%
Rouse50%33%
Brazil Retail(3)
46%
LP Investments - Retail(4)
26%
Logistics(3,4)
31%
Multifamily(3,4)
26% - 37%
Hospitality(3,4)
26% - 33%
Triple Net Lease(3,4)
29%
Self-storage(3,4)
25%
Student Housing(3,4)
25%
Manufactured Housing(3,4)
26%
Finance Funds(3,4)
1% - 18%
Mixed-Use(3,4)
22% - 31%
 
(1) 
All interests are rounded to the nearest one percent and are calculated as at December 31, 2019.
(2) 
Our interest in BPO consists of 100% of its outstanding common shares and outstanding voting preferred shares, as well as interests in certain series of its non-voting preferred shares.
(3) 
We hold our economic interest in these assets primarily through limited partnership interests in Brookfield-sponsored real estate funds. By their nature, limited partnership interests do not have any voting rights.
(4) 
Our economic interest set forth above is reflected as a range because our LP Investments are primarily held through Brookfield-sponsored real estate funds in which we hold varying interests.


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Our Company
 
In connection with the Spin-off, we acquired from Brookfield Asset Management substantially all of its commercial property operations, including its office, retail, multifamily and logistics assets. We are Brookfield Asset Management’s primary vehicle to make investments across all strategies in real estate. We are positioned to take advantage of Brookfield’s global presence, providing our unitholders with the opportunity to benefit from Brookfield’s operating experience, execution abilities and global relationships. As of December 31, 2019, Brookfield Asset Management has an effective economic interest in our business of approximately 55%.
 
Property Partnership
 
Our company’s sole direct investments are a managing general partnership interest in the Property Partnership and an interest in BP US REIT LLC. Our company serves as the managing general partner of the Property Partnership and has sole authority for the management and control of the Property Partnership.
 
Our company owns a direct 50% interest in the Property Partnership through ownership of Managing General Partner Units. Our company also owns the Property Partnership Preferred Units, Series 5, 6 and 7. Brookfield has an approximately 49% interest in the Property Partnership through Brookfield’s ownership of Redemption-Exchange Units. Brookfield’s interest in the Property Partnership also includes a special limited partnership interest held by Property Special LP, a wholly-owned subsidiary of Brookfield Asset Management, which entitles it to receive equity enhancement distributions and incentive distributions from the Property Partnership. Holders of our units, other than Brookfield, including the Class A Preferred Unitholder and the holders of the AO LTIP Units and FV LTIP Units, hold the remaining approximate 1% economic interest in the Property Partnership. See Item 7.B. “Major Shareholders and Related Party Transactions - Related Party Transactions - Relationship with Brookfield - Equity Enhancement and Incentive Distributions”.
 
Our Service Providers
 
The Service Providers, wholly-owned subsidiaries of Brookfield Asset Management, provide management services to us pursuant to our Master Services Agreement. The senior management team that is principally responsible for providing us with management services include many of the same executives that have successfully overseen and grown Brookfield’s global real estate business.

The BPY General Partner
 
The BPY General Partner, a wholly-owned subsidiary of Brookfield Asset Management, has sole authority for the management and control of our company. Holders of our units, in their capacities as such, may not take part in the management or control of the activities and affairs of our company and do not have any right or authority to act for or to bind our company or to take part or interfere in the conduct or management of our company. See Item 10.B. “Additional Information - Memorandum and Articles of Association - Description of Our LP Units, Preferred Units and Our Limited Partnership Agreement”.
 
Property Special LP
 
Property Special LP is a special limited partner of the Property Partnership. The general partner of Property Special LP is Brookfield Asset Management. Property Special LP is entitled to receive equity enhancement distributions and incentive distributions from the Property Partnership as a result of its ownership of the Special LP Units. See Item 7.B. “Major Shareholders and Related Party Transactions Related Party Transactions”.
 
Holding Entities
 
Our company indirectly holds its interests in our operating entities through the Holding Entities, most of which were formed in connection with the Spin-off. The Property Partnership owns, directly or indirectly, all of the common shares or equity interests, as applicable, of the Holding Entities. Brookfield holds $1 million of redeemable Class B junior preferred shares of CanHoldco, one of our Holding Entities. In addition, Brookfield holds $5 million of Class A preferred shares of CanHoldco and of two wholly-owned subsidiaries of other Holding Entities. See Item 7.B. “Major Shareholders and Related Party Transactions - Related Party Transactions - Relationship with Brookfield - Preferred Shares of Certain Holding Entities”.
 

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Operating Sectors
 
Our business is organized in three sectors: Core Office, Core Retail and LP Investments. The capital invested in these sectors is through a combination of: direct investment; investments in asset level partnerships or joint venture arrangements; and participation in private equity funds and consortiums.
 
4.D.  PROPERTY, PLANTS AND EQUIPMENT
 
See Item 4.B. “Information on the Company - Business Overview”, Item 4.C. “Information on the Company - Organizational Structure”, Item 5.A. “Operating and Financial Review and Prospects - Operating Results” and Item 18 “Financial Statements”.
 
ITEM 4A.    UNRESOLVED STAFF COMMENTS
 
Not applicable.


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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
5.A. OPERATING RESULTS
 
OBJECTIVES AND FINANCIAL HIGHLIGHTS
INTRODUCTION
 
This management’s discussion and analysis (“MD&A”) of Brookfield Property Partners L.P. (“BPY”, the “ partnership”, “we”, “us”, or “our”) covers the financial position as of December 31, 2019 and 2018 and results of operations for the years ended December 31, 2019, 2018, and 2017. The information in this MD&A should be read in conjunction with the audited consolidated financial statements as of December 31, 2019 and 2018 and each of the years ended December 31, 2019, 2018, and 2017 (the “Financial Statements”) and related notes contained elsewhere in this Form 20-F.
 
In addition to historical information, this MD&A contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. See “Special Note Regarding Forward-Looking Statements”.
 
BASIS OF PRESENTATION
Our sole direct investments are a 50% managing general partnership unit interest in Brookfield Property L.P. (the “Operating Partnership”) and an interest in BP US REIT LLC. As we have the ability to direct its activities pursuant to our rights as owners of the general partner units, we consolidate the Operating Partnership. Accordingly, our Financial Statements reflect 100% of its assets, liabilities, revenues, expenses and cash flows, including non-controlling interests therein, which capture the ownership interests of other third parties.

We also discuss the results of operations on a segment basis, consistent with how we manage our business. On July 1, 2018, the partnership realigned its LP Investments segment (formerly referred to as Opportunistic) to include the corporate function of the Brookfield-sponsored real estate opportunity funds, previously included in the Corporate segment, to more closely align with how the partnership now presents financial information to the chief operating decision maker (“CODM”) and investors. As of December 31, 2019, the partnership is organized into four reportable segments: i) Core Office, ii) Core Retail, iii) LP Investments and iv) Corporate. These segments are independently and regularly reviewed and managed by the Chief Executive Officer, who is considered the CODM.
 
Our 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 limited partnership units of the Operating Partnership (“Special LP Units”), FV LTIP Units of the Operating Partnership (“FV LTIP Units”), limited partnership units of Brookfield Office Properties Exchange LP (“Exchange LP Units”), Class A stock, par value $0.01 per share, (“BPR Units”) of Brookfield Property REIT Inc. (“BPR”) and Class A Cumulative Redeemable Perpetual Preferred Units, Series 1, Series 2 and Series 3 (“Preferred Equity Units”). Holders of the GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, FV LTIP Units, Exchange LP Units and BPR Units will be collectively referred to throughout this MD&A as “Unitholders”. The LP Units, Redeemable/Exchangeable Partnership Units, Exchange LP Units and BPR Units have the same economic attributes in all respects, except that the holders of Redeemable/Exchangeable Partnership Units and BPR Units have the right to request that their units be redeemed for cash consideration. In the event that Brookfield Asset Management Inc. (“Brookfield Asset Management”), as the holder of the Redeemable/Exchangeable Partnership Units exercises this right, our partnership has the right, at its sole discretion, to satisfy the redemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, Brookfield Asset Management, as holder of Redeemable/Exchangeable Partnership Units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units of our partnership. However, given the redemption feature referenced above and the fact that they were issued by our subsidiary, we present the Redeemable/Exchangeable Partnership Units as a component of non-controlling interests. The Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, for LP Units. We present the Exchange LP Units as a component of non-controlling interests. BPR Units provide their holders with the right to request that their units be redeemed for cash consideration. In the event the holders of BPR Units exercise this right, our partnership has the right at its sole discretion, to satisfy the redemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, BPR Units participates in earnings and distributions on a per unit basis equivalent to the per unit participation of LP Units of our partnership. We present BPR Units as a component of non-controlling interest.
 
This MD&A includes financial data for the year ended December 31, 2019 and includes material information up to the date of this Form 20-F. Financial data has been prepared using accounting policies in accordance with International Financial Reporting Standard (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Non-IFRS measures used in this MD&A are reconciled to or calculated from such financial information. Unless otherwise specified, all operating and other

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statistical information is presented as if we own 100% of each property in our portfolio, regardless of whether we own all of the interests in each property. We believe this is the most appropriate basis on which to evaluate the performance of properties in the 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 (“€”), Brazilian Reais (“R$”), Indian Rupees (“₨”), Chinese Yuan (“C¥”), South Korean Won (“₩”) and United Arab Emirates Dirham (“AED”) are identified where applicable.

We present certain financial information on a proportionate basis. Financial information presented on a proportionate basis provides further information on the financial performance and position of the partnership as a whole, including certain investments which are accounted for under the equity method. We believe that proportionate financial information assists analysts and investors in determining the partnership’s economic interests in its consolidated and unconsolidated investments. The proportionate financial information reflects the financial position and performance of the partnership’s economic ownership of each investment that the partnership does not wholly own.

This proportionate information is not, and is not intended to be, a presentation in accordance with IFRS. Other companies may calculate their proportionate financial information differently than us, limiting its usefulness as a comparative measure. As a result of these limitations, the proportionate information should not be considered in isolation or as a substitute for the partnership’s financial statements as reported under IFRS.
 
OVERVIEW OF OUR BUSINESS
We are Brookfield Asset Management’s primary vehicle to make investments across all strategies in real estate. Our goal is to be a leading global owner and operator of high-quality real estate, that generates sustainable and growing distributions to our unitholders and capital appreciation of our asset base over the long term. With approximately 22,000 employees involved in Brookfield Asset Management’s real estate businesses around the globe, we have built operating platforms in various real estate sectors, including in our:

CORE OFFICE PORTFOLIO CORE RETAIL PORTFOLIO
Class A office assets in gateway markets around the globe 100 of the top 500 malls in the United States
l136 premier properties l122 best-in-class malls and urban retail properties
l93 million square feet l120 million square feet
l93% occupancy l96% occupancy
l8.5 year average lease term   
     
LP INVESTMENTS PORTFOLIO
Invested in mispriced portfolios and/or properties with significant value-add

Our diversified Core portfolios consist of high-quality office and retail assets in some of the world’s most dynamic markets which have stable cash flow as a result of their long-term leases. We target between a 10% and 12% total return on our Core portfolios. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy that should generate strong same-property net operating income (“NOI”) growth without significant capital investment. Furthermore, we target earning between 6% and 11% unlevered, pre-tax returns on construction costs for our development and redevelopment projects. We currently have approximately 12 million square feet of active development projects underway with another 6 million square feet in planning stages. Our development track record reflects successful completions on time and on budget. We expect that this portion of our balance sheet will be meaningful to earnings growth in our Core businesses throughout the next five to ten years as projects reach completion and begin to contribute rental revenue to our earnings.

Our LP Investments portfolio includes our equity invested in Brookfield-sponsored real estate opportunity funds, which target high-quality assets with operational upside across various real estate sectors, including office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing. We target an average gross 20% total return on our LP Investments portfolio and a 2.0x multiple of capital on the equity we invest into these vehicles. These investments, unlike our Core portfolios, have a defined hold period and typically generate the majority of profits from a gain recognized from realization events including the sale of an asset or portfolio of assets, or exit of the entire investment. The combination of these gains and FFO earned represent our earnings on capital invested in these funds and provide liquidity to support our target distributions.


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Overall, we seek to earn leveraged after-tax total returns of 12% to 15% on our invested capital. These returns will be comprised of current cash flow, distribution growth and capital appreciation. With our diversified cash flow profile from our Core Office, Core Retail, and LP Investments portfolios, our goal is to pay an attractive annual distribution to our Unitholders and to grow our distribution by 5% to 8% per annum. Capital appreciation will be reflected in the fair value gains that flow through our income statement as a result of our revaluation of investment properties in accordance with IFRS to reflect initiatives that increase property level cash flows, change the risk profile of the asset, reflect changes in market conditions, or portfolio premiums realized upon sale of these assets. From time to time, we will convert some or all of these unrealized gains to cash through asset sales, joint ventures or refinancings.

We believe our global scale and best-in-class operating platforms provide us with a unique competitive advantage as we are able to efficiently allocate capital around the world toward those sectors and geographies where we see the greatest returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. In addition, due to the scale of our stabilized portfolio and flexibility of our balance sheet, we believe our business model is self-funding and does not require us to access capital markets to fund our continued growth.
 
PERFORMANCE MEASURES
We expect to generate returns to Unitholders from a combination of healthy distributions and capital appreciation. Furthermore, if we are successful in increasing cash flow earned from our operations and distributions from return of capital and realization events from our LP Investments portfolio, we expect to be able to increase distributions at the targeted rate of 5% to 8% per annum to Unitholders to provide them with an attractive total return on their investment.

We also consider the following items to be important drivers of our current and anticipated financial performance:
increases in occupancies by leasing vacant space and pre-leasing active developments;

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 key external performance drivers include the availability of the following:

debt capital at a cost and on terms conducive to our goals;

equity capital at a reasonable cost;

new property acquisitions and other investments that fit into our strategic plan; and

opportunities to dispose of peak value or non-core assets.

In addition to monitoring, analyzing and reviewing earnings performance, we also review initiatives and market conditions that contribute to changes in the fair value of our investment properties. These fair value changes, combined with earnings, represent a total return on the equity attributable to Unitholders and form an important component in measuring how we have performed relative to our targets.

To measure our performance against these targets, as described above, and measure our operating performance, we focus on NOI, same-property NOI, funds from operations (“FFO”), Company FFO, net income attributable to Unitholders and equity attributable to Unitholders. Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies.

NOI: revenues from our commercial properties operations less direct commercial property expenses (“Commercial property NOI”) and revenues from our hospitality operations less direct hospitality expenses (“Hospitality NOI”).

Same-property NOI: a subset of NOI, which excludes NOI that is earned from assets acquired, disposed of or developed during the periods presented, not of a recurring nature, or from LP Investments assets.

FFO: net income, prior to fair value gains, net, depreciation and amortization of real estate assets, and income taxes less non-controlling interests of others in operating subsidiaries and properties therein. When determining FFO, we

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include our proportionate share of the FFO of unconsolidated partnerships and joint ventures and associates, as well as gains (or losses) related to properties developed for sale.

Company FFO: FFO before the impact of depreciation and amortization of non-real estate assets, transaction costs, gains (losses) associated with non-investment properties, imputed interest on equity accounted investments and the partnership’s share of Brookfield Strategic Real Estate Partners III (“BSREP III”) FFO. The partnership accounts for its investment in BSREP III as a financial asset and the income (loss) of the fund is not presented in the partnership’s results. Distributions from BSREP III, recorded as dividend income under IFRS, are removed from investment and other income for Company FFO presentation.

Net income attributable to Unitholders: net income attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPR Units.

Equity attributable to Unitholders: equity attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPR Units.

NOI is a key indicator of our ability to impact the operating performance of our properties. We seek to grow NOI through pro-active management and leasing of our properties. Same-property NOI in our Core Office and Core Retail segments allows us to segregate the impact of leasing and operating initiatives on the portfolio from the impact of investing activities and “one-time items”, which for the historical periods presented consist primarily of lease termination income. We reconcile NOI to net income on page 71.

We also consider FFO an important measure of our operating performance. FFO is a widely recognized measure that is frequently used by securities analysts, investors and other interested parties in the evaluation of real estate entities, particularly those that own and operate income producing properties. Our definition of FFO includes all of the adjustments that are outlined in the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, including the exclusion of gains (or losses) from the sale of investment properties, the add back of any depreciation and amortization related to real estate assets and the adjustment for unconsolidated partnerships and joint ventures. 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 as opposed to real estate investment trusts (“REITs”). These additional adjustments result in an FFO measure that is similar to that which would result if our partnership was organized as a REIT that determined net income in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which is the type of organization on which the NAREIT definition is premised. Our FFO measure will differ from other organizations applying the NAREIT definition to the extent of certain differences between the IFRS and U.S. GAAP reporting frameworks, principally related to the timing of revenue recognition from lease terminations and sale of properties. Because FFO excludes fair value gains (losses), including equity accounted fair value gains (losses), realized gains (losses) on the sale of investment properties, depreciation and amortization of real estate assets and income taxes, it provides a performance measure that, when compared year-over-year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and interest costs, providing perspective not immediately apparent from net income. We do not use FFO as a measure of cash flow generated from operating activities. We reconcile FFO to net income on page 71 as we believe net income is the most comparable measure.

In addition, we consider Company FFO a useful measure for securities analysts, investors and other interested parties in the evaluation of our partnership’s performance. Company FFO, similar to FFO discussed above, provides a performance measure that reflects the impact on operations of trends in occupancy rates, rental rates, operating costs and interest costs. In addition, the adjustments to Company FFO relative to FFO allow the partnership insight into these trends for the real estate operations, by adjusting for non-real estate components. We reconcile net income to Company FFO on page 71.

Net income attributable to Unitholders and Equity attributable to Unitholders are used by the partnership to evaluate the performance of the partnership as a whole as each of the Unitholders participates in the economics of the partnership equally. We reconcile Net income attributable to Unitholders to net income on page 71 and Equity attributable to Unitholders to total equity on page 74.

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FAIR VALUE OF INVESTMENT AND HOSPITALITY PROPERTIES

Investment properties
We measure all investment properties at fair value, including those held within equity accounted investments. Valuations are prepared at a balance sheet date with changes to those values recognized as gains or losses in the statement of income. Our valuations are generally prepared at the individual property level by internal investment professionals with the appropriate expertise in the respective industry, geography and asset type. We leverage their extensive expertise and experience in the valuation of properties accumulated through involvement in acquisitions and dispositions, negotiations with lenders and interactions with institutional private fund investors. Additionally, a number of properties are externally appraised each year and the results of those appraisals are compared to the partnership’s internally prepared values.

Substantially all of our investment properties are valued using one of two accepted income approaches, the discounted cash flow approach or the direct capitalization approach. The valuation methodology utilized is generally determined by asset class. Our office and retail assets are typically valued using a discounted cash flow methodology while our multifamily, self-storage, triple net lease, manufactured housing, student housing, and logistics assets are typically valued using a direct capitalization methodology.

Under the discounted cash flow approach, cash flows for each property are forecast for an assumed holding period, generally, ten-years. A capitalization rate is applied to the terminal year net operating income and an appropriate discount rate is applied to those cash flows to determine a value at the reporting date. The forecast cash flows include assumptions prepared at the property level for lease renewal probabilities, downtime, capital expenditures, future leasing rates and associated leasing costs. The majority of property cash flows consist of contracted leases as a result of our core real estate portfolio having a combined 94.8% occupancy level and an average seven year lease life. Valuation assumptions, such as discount rates and terminal value multiples, are determined by the relevant investment professionals and applied to the cash flows to determine the values.

Under the direct capitalization method, a capitalization rate is applied to estimated stabilized annual net operating income to determine value. Capitalization rates are determined by our investment professionals based on market data from comparable transactions and third-party reports.

Hospitality properties
Hospitality properties are valued annually at December 31 with increases in fair value generally recognized as revaluation surplus in the statement of comprehensive income, unless the increase reverses a previously recognized revaluation loss recorded through prior period net income. Our hospitality properties are valued on an individual location basis using a depreciated replacement cost approach. These valuations are generally prepared by external valuation professionals using information provided by management of the operating business. The fair value estimates for hospitality properties represent the estimated fair value of the property, plant and equipment of the hospitality business only and do not include any associated intangible assets.

Valuation methodology
All of our valuations are subject to various layers of review and controls as part of our financial reporting processes. These controls are part of our system of internal control over financial reporting that is assessed by management on an annual basis. Under the discounted cash flow model, the base cash flows are determined as part of our annual business planning process, prepared within each operating business and reviewed by the senior management teams responsible for each segment, along with senior investment professionals responsible for the relevant asset classes. Valuation assumptions such as discount rates and terminal capitalization rates are compared to market data, third party reports, research material and broker opinions as part of the review process.

External valuations
We have a number of properties externally appraised each year to support our valuation process and for other business purposes. We compare the results of those external appraisals to our internally prepared values and reconcile significant differences when they arise. During 2019, we obtained 203 external appraisals of our properties representing a gross property value of $55 billion (or 27% of the portfolio). These external appraisals were within 1% of management’s valuations. Also, each year we sell a number of assets, which provides support for our valuations, as we typically contract at prices comparable to our IFRS values.

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FINANCIAL STATEMENTS ANALYSIS
REVIEW OF CONSOLIDATED FINANCIAL RESULTS
In this section, we review our consolidated performance for the years ended December 31, 2019, 2018, and 2017 and our financial position as of December 31, 2019, and 2018. Further details on our results from operations and our financial position are contained within the “Segment Performance” section on page 76.

The following acquisitions and dispositions of consolidated properties affected our consolidated results in the comparative periods for the years ended December 31, 2019, 2018, and 2017:

In our Core Office segment:
In the fourth quarter of 2019, we acquired an incremental 50% interest in One and Two London Wall Place in London for approximately £177 million ($229 million) and as a result, gained control. These assets were previously accounted for under the equity method and are now consolidated.

In the fourth quarter of 2019, we sold our interest in Jessie Street Centre in Sydney for approximately A$412 million ($282 million) and a realized gain of approximately A$82 million ($56 million).

In the third quarter of 2019, we sold our interest in the Darling Park office complex in Sydney for approximately A$638 million ($438 million) and a realized gain of approximately A$247 million ($169 million). We sold 3 Spring Street in Sydney for approximately A$173 million ($119 million) and a realized gain of approximately A$98 million ($67 million).

In the second quarter of 2019, we sold our interest in 2001 M Street in Washington, D.C. for approximately $121 million and a realized gain of approximately $32 million.

In the fourth quarter of 2018, we sold 10 Shelley Street in Sydney for A$533 million ($379 million) and a realized gain of A$149 million ($104 million). We sold 12 Shelley Street in Sydney for A$270 million ($192 million) and a realized gain of A$111 million ($78 million). We sold Queen’s Quay Terminal in Toronto for C$261 million ($191 million) and a realized gain of C$173 million ($127 million). We sold our 25% interest in Jean Edmonds Tower in Ottawa for C$47 million ($34 million) and a realized gain of C$5 million ($4 million).

In the fourth quarter of 2018, we launched Brookfield Premier Real Estate Partners Pooling LLC Australia (“BPREP Australia”), an open-ended fund. We contributed interests in Jessie Street, 52 Goulburn Street and 680 George Street in Sydney and 235 St Georges Terrace in Perth to BPREP Australia. Our interest in BPREP Australia is 39%, with the remaining interest of 61% held by external investors. We continue to consolidate the properties contributed to BPREP Australia, except for 680 George Street, which we continue to account for under the equity method.

In the third quarter of 2018, we acquired a development in the South Bronx, New York for consideration of $166 million.

In the third quarter of 2018, we sold 27.5% of our interest in a portfolio of operating and development assets in New York. We retain control over and continue to consolidate these assets after the sale. The interest was sold to Brookfield Asset Management.

In the first quarter of 2018, we acquired 333 West 34th Street in New York for $255 million through a joint venture with Brookfield Premier Real Estate Partners Pooling LLC (“BPREP”).

In the first quarter of 2018, we sold a 50% interest in Bay Adelaide Centre East and West Towers in Toronto for approximately C$850 million ($660 million) and we sold our interest in 1801 California Street in Denver for $286 million.

In our Core Retail segment:
In the fourth quarter of 2019, we acquired our joint venture partner’s incremental interest in four properties including Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, and Shops at Merrick Park in Florida, bringing our ownership in each of the malls to 100%. Concurrently, we sold our interest in Bridgewater Commons in New Jersey to the joint venture partner. Prior to the acquisition of the four assets, our joint venture interest was accounted for under the equity method and is now consolidated.

In the third quarter of 2019, we acquired an incremental 49.7% interest in 730 Fifth Avenue in New York for approximately $779 million. Prior to the acquisition, our 50% joint venture interest was reflected as an equity accounted investment. As a result of the acquisition, we gained control of the investment and consolidated its results.


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In the fourth quarter of 2018, we sold a 49% interest in Fashion Place in Utah for approximately $291 million. We retained joint control of the resulting joint venture and continue to account for our remaining interest as an equity accounted investment.

On August 28, 2018, we acquired all of the outstanding shares of common stock of GGP Inc. (“GGP acquisition”) other than those shares previously held by the partnership and our affiliates, which represented a 34% interest in GGP Inc. (“GGP”) prior to the acquisition. We consolidated the results of BPR beginning August 28, 2018. The previous investment, which was reflected as an equity accounted investment, was derecognized at the time of acquisition.

In our LP Investments segment:
In the fourth quarter of 2019, we sold five multifamily assets in the United States in the Brookfield Strategic Real Estate Partners I (“BSREP I”) fund for approximately $1.1 billion and a realized gain of approximately $203 million.

In the third quarter of 2019, we sold a portfolio of triple-net lease assets in the United States in the BSREP I fund, for approximately $585 million and a realized gain of approximately $36 million.

In the second quarter of 2019, we sold a portfolio of office assets in California in the BSREP I fund, for approximately $270 million and a realized gain of approximately $114 million.

In the first quarter of 2019, BSREP III held its final close with total equity commitments of $15 billion. Prior to final close, we had committed to 25%, or a controlling interest in the fund and as a result, had previously consolidated the investments made to date. Upon final close, on January 31, 2019, we reduced our commitment to $1.0 billion, representing a 7% non-voting position. As a result, we lost control and deconsolidated our investment in the fund.

In the fourth quarter of 2018, we sold a logistics portfolio in the United States in the BSREP I fund for approximately $3.4 billion and a realized gain of approximately $1.1 billion.

In the fourth quarter of 2018, in the BSREP III fund, we acquired a portfolio of mixed-use assets across the United States (“Forest City acquisition”) for consideration of $6,948 million, a student housing portfolio in France for consideration of €279 million ($318 million) and a hotel in Florida for consideration of $222 million. These investments were deconsolidated in 2019 as mentioned above.

In the third quarter of 2018, in the BSREP III fund, we acquired a 100% leasehold interest in 660 Fifth Avenue, a commercial office asset in New York, for consideration of $1,299 million, and two community malls in Shanghai for consideration of C¥728 million ($110 million). These investments were deconsolidated in 2019 as mentioned above.

In the third quarter of 2018, we sold a portfolio of 112 self-storage properties in the BSREP II fund for approximately $1.3 billion and realized a gain of approximately $292 million.

In the second quarter of 2018, in the BSREP II fund, we acquired an office building in Chicago for consideration of $35 million and an office portfolio in Mumbai for consideration of ₨2,726 million ($41 million).

In the first quarter of 2018, in the BSREP II fund, we acquired a portfolio of extended stay hotels across the United States for consideration of $764 million, a portfolio of student housing properties in the United Kingdom for consideration of £518 million ($739 million) and a United Kingdom based owner and operator of serviced apartments for consideration of £209 million ($287 million).

In the first quarter of 2018, we sold the Hard Rock Hotel and Casino in Las Vegas for $510 million.

For the purposes of the following comparison discussion between the years ended December 31, 2019 and December 31, 2018, the above transactions are referred to as the investment activities. In addition to the investment activities, we will use same-property NOI from our Core Office and Core Retail segments to evaluate our operating results.

For the comparison discussions between the years ended December 31, 2018 and December 31, 2017, please refer to Item 5. “Operating and Financial Review and Prospects” of our Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on March 1, 2019.

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Summary of Operating Results

(US$ Millions)2019
2018
2017
Net income$3,157
$3,654
$2,468
Net income attributable to Unitholders(1)
1,956
1,978
375
NOI(1)
4,414
3,869
3,144
FFO(1)
1,147
866
873
Company FFO(1)
1,345
1,179
1,017
(1)
This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Performance Measures” section on page 60. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 71.

Net income for the year ended December 31, 2019 decreased to $3,157 million from $3,654 million during 2018. Net income per unit attributable to Unitholders for the year ended December 31, 2019 was $1.89 compared with $2.28 during 2018. The decrease is primarily attributable to fair value losses recognized on our Core Retail portfolio in the current year, reflecting updated cashflow assumptions and valuation metrics, as compared to gains recognized in 2018. These decreases were partially offset by a full year of NOI from the GGP acquisition compared to four months of NOI in the prior year. Additionally, the prior year benefited from fair value gains associated with our since-sold logistics portfolio in the United States, our office portfolio in India and a gain on extinguishment of debt associated with the sale of a hospitality asset.

FFO increased to $1,147 million for the year ended December 31, 2019 from $866 million in 2018. The increase was driven by incremental NOI from GGP as mentioned above, strong same-property growth in our Core Office segment and lower transactions costs as compared to prior year, which were largely associated with the acquisitions of GGP and Forest City Realty Inc. (“Forest City”). These increases were partially offset by higher interest expense and general and administrative costs due to the GGP acquisition and other investment activities as well as the negative impact of foreign currency translation.

Operating Results
    
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Commercial property revenue$5,691
$5,043
$4,192
Hospitality revenue1,909
1,913
1,648
Investment and other revenue603
283
295
Total revenue8,203
7,239
6,135
Direct commercial property expense1,967
1,851
1,617
Direct hospitality expense1,219
1,236
1,079
Investment and other expense82
26
138
Interest expense2,924
2,464
1,967
Depreciation and amortization341
308
275
General and administrative expense882
1,032
614
Total expenses7,415
6,917
5,690
Fair value gains, net596
2,466
1,254
Share of net earnings from equity accounted investments1,969
947
961
Income before income taxes3,353
3,735
2,660
Income tax expense196
81
192
Net income3,157
3,654
2,468
Net income attributable to non-controlling interests of others in operating
subsidiaries and properties
1,201
1,676
2,093
Net income attributable to Unitholders(1)
$1,956
$1,978
$375
(1)  
This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Performance Measures” section on page 60. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section starting on page 71.
    

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Our basic and diluted net income per unit attributable to Unitholders and weighted average units outstanding are calculated as follows:
(US$ Millions, except per unit information) Years ended Dec. 31,2019
2018
2017
Net income$3,157
$3,654
$2,468
Less: Non-controlling interests1,201
1,676
2,093
Less: Preferred unit dividends15


Net income attributable to Unitholders – basic(1)
1,941
1,978
375
Dilutive effect of conversion of capital securities – corporate and options(2)
8
27

Net income attributable to Unitholders – diluted1,949
2,005
375
Weighted average number of units outstanding – basic(1)
1,025.0
866.9
774.7
Conversion of capital securities – corporate and options(2)
6.7
18.5
1.2
Weighted average number of units outstanding – diluted1,031.7
885.4
775.9
Net income attributable to Unitholders per unit – basic(1)(3)
$1.89
$2.28
$0.48
Net income attributable to Unitholders per unit – diluted(2)(3)
$1.89
$2.26
$0.48
(1) 
Basic net income attributable to Unitholders per unit requires the inclusion of preferred shares of the Operating Partnership that are mandatorily convertible into LP Units without an add back to earnings of the associated carry on the preferred shares.
(2) 
The effect of the conversion of capital securities is anti-dilutive for the year ended December 31, 2017.
(3) 
Net income attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 60.

Commercial property revenue and direct commercial property expense
chart-a7393379848051c4b6d.jpgchart-85ac06272c3d5b61bbe.jpg
ggpa02.jpg
 
a2018a02.jpg
 
a2018.jpg

In 2019, commercial property revenue increased by $648 million compared to 2018 due to the GGP acquisition and same-property growth in our Core Office segment. The GGP acquisition contributed $1,394 million to commercial property revenue as compared to $511 million in 2018 as the GGP acquisition closed in the third quarter of 2018. The results for GGP prior to the transaction were accounted for under the equity method. Our Core Office portfolio generated 7% same-property growth, largely driven by leasing activity in Downtown New York and Toronto. Same-property growth in our Core Office segment contributed $73 million over 2018. These increases were partially offset by the disposition of mature assets and the deconsolidation of certain assets following partial dispositions in addition to the negative impact of foreign currency translation.
 
Direct commercial property expense increased by $116 million largely due to additional expenses relating to the GGP acquisition and property transactions. Margins in 2019 were 65.4%; an improvement of 3.4% compared to 2018 and an improvement of 6.5% compared to 2017.

Commercial property NOI increased to $3,724 million for the year ended December 31, 2019 compared with $3,192 million during 2018. The increase was primarily driven by the GGP acquisition and same-property growth offset by the disposition of mature assets, the deconsolidation of certain assets and the negative impact of foreign currency translation as mentioned above.

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Hospitality revenue and direct hospitality expense
chart-85905c31acbb5370b5e.jpgchart-a3f44314cc5e51a58f5.jpg
Hospitality revenue decreased slightly to $1,909 million for the year ended December 31, 2019 from $1,913 million in 2018. Direct hospitality expense decreased slightly to $1,219 million in 2019 from $1,236 million in 2018. Margins were 36.1% in 2019, an improvement of 2.1% over 2018 and 4.7% over 2017.

Hospitality NOI was relatively flat at $690 million for the year ended December 31, 2019 compared to $677 million during the same period in the prior year. The slight increase is primarily due to investment activity partially offset by dispositions, the deconsolidation of BSREP III investments and the negative impact of foreign currency translation.

Investment and other revenue and investment and other expense
Investment and other revenue includes management fees, leasing fees, development fees, interest income and other non-rental revenue. Investment and other revenue increased by $320 million for the year ended December 31, 2019 as compared to the prior year. The increase is primarily due to $195 million of investment and other revenue from Core Retail compared to $73 million in the prior year, primarily consisting of fee revenues earned from our joint ventures arrangements from the GGP acquisition. Also contributing to the increase is higher development management and joint venture partner fees within Core Office as development activity has increased and we have entered into new joint venture arrangements that contribute fees. Additionally, we earned a performance-based fee of $51 million for achieving certain milestones at Five Manhattan West during the current year and earned revenue associated with the sale of develop-for-sale assets in our multifamily portfolio.

Investment and other expense increased by $56 million for the year ended December 31, 2019 as compared to the prior year. The increase is due to expenses associated with the sale of develop-for-sale assets in our multifamily portfolio.
    
Interest expense
Interest expense increased by $460 million for the year ended December 31, 2019 as compared to the prior year. This increase was primarily due to the assumption of debt obligations and the acquisition debt incurred in connection with the acquisition of GGP. Additionally, interest expense from other property acquisitions and corporate bond issuances contributed to the increase, partially offset by disposition activity, the deconsolidation of our interests in investments held in BSREP III and lower average revolving corporate debt balances.

General and administrative expense
General and administrative expense decreased by $150 million for the year ended December 31, 2019 compared to the prior year. The decrease was due to the deconsolidation of BSREP III investments which had general and administrative expense of $11 million for the year ended December 31, 2019 compared to $348 million in the same period in the prior year, which was primarily due to transaction and operating costs from Forest City in the prior year. Also contributing to the decrease were lower transactions costs relating to the GGP acquisition. These decreases were partially offset by a full year of operating costs related to the GGP acquisition, as compared to four months in the prior year and investment activity. The consolidation of GGP resulted in general and administrative expense of $258 million for the year ended December 31, 2019 as compared to $89 million in the same period in the prior year, when we had four months of consolidated results for GGP.

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Fair value gains, net
Fair value gains, net includes valuation gains (losses) on commercial properties and developments as well as mark-to-market adjustments on financial instruments and derivatives and foreign currency gains (losses) on disposal of assets denominated in foreign currencies. While we measure and record our commercial properties and developments using valuations prepared by management in accordance with our policy, external appraisals and market comparables, when available, are used to support our valuations.
chart-0d5f4cd1eb3456d5a2f.jpg
Fair value gains, net for our Core Office segment were $798 million for the year ended December 31, 2019 which primarily relate to gains at 100 Bishopsgate in London as the development nears substantial completion, fair value gains in Brazil due to improved market outlook and historically low interest rates and fair value gains in Australia due to capitalization rate compression supported by improving market conditions. Additionally, there were gains recognized in the first quarter of 2019 within our New York portfolio to reflect market conditions.

Fair value gains, net for our Core Office segment in the year ended December 31, 2018 were $108 million. These gains primarily related to our Sydney and Toronto portfolios based on market transactions and leasing activity, and gains from disposition of an interest in Bay Adelaide Centre East and West Towers in Toronto and 1801 California Street in Denver. These gains were partially offset by losses in our Downtown New York portfolio.


chart-c6e48f2eb44c5cd49c5.jpg
Fair value losses, net for our Core Retail segment were $686 million for the year ended December 31, 2019. The losses reflect updated cashflow assumptions and valuation metrics.

Fair value gains, net of $412 million were recognized for Core Retail for the year ended December 31, 2018, and were attributable to a bargain gain recognized on the GGP acquisition.



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chart-0a2a839e996e5d53b02.jpg
Fair value gains, net for our LP Investments segment for the year ended December 31, 2019 were $584 million primarily due to our office portfolio in Brazil which benefited from discount rate compression due to improved market conditions and historically low interest rates and our India and student housing portfolios which benefited from capitalization rate compression. These gains were partially offset by fair value losses, net from our retail portfolio as result of lower capitalization rates and updated cashflows.

Fair value gains, net for the LP Investments segment in 2018 was $1,785 million. Total net gains were attributable to the sale of our U.S. logistics portfolio in the fourth quarter of 2018 and due to leasing activity in our India office portfolio. Gains were also recognized from the completion of several developments during the period as well as the sale of a self-storage portfolio. In the second quarter of 2018, we recorded a gain on extinguishment of debt associated with the sale of the Hard Rock Hotel and Casino. These increases were partially offset by fair value losses on our retail portfolio.


In addition, we recorded fair value losses of $100 million (December 31, 2018 - fair value gains of $161 million and December 31, 2017 - fair value losses of $36 million), related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the quarter. The prior year gains related to obtaining control over Brookfield Global Real Estate Special Opportunities Inc. (“BGRESOI”) after converting our loan interest in the entity and becoming the 100% common equity holder.

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Share of net earnings from equity accounted investments
Our most significant equity accounted investments are Canary Wharf and Manhattan West in our Core Office sector, Ala Moana Center in Hawaii, Fashion Show and Grand Canal Shoppes in Las Vegas in our Core Retail segment and our interest in the retail fund in Brazil in our LP Investments segment.
chart-9992d75b93e4576f896.jpg

Our share of net earnings from equity accounted investments for the year ended December 31, 2019 was $1,969 million, which represents an increase of $1,022 million, compared to the prior year. The increase was primarily due to Core Retail fair value gains recognized at 730 Fifth Avenue, prior to our additional interest acquired in the third quarter of 2019 which resulted in consolidation, and Ala Moana Center in the second quarter of 2019. This increase was partially offset by a lower share of net earnings from equity accounted investments from LP Investments mainly due to the disposition of a logistics portfolio in the fourth quarter of 2018.


Income tax expense (benefit)
The increase in income tax expense for the year ended December 31, 2019 is primarily due to the reversal of deferred tax liabilities relating to legislative and entity tax status change, an internal restructuring of the ownership of certain retail investments and the recognition of previously unrecognized net operating losses occurring in 2018.

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Reconciliation of Non-IFRS measures
As described in the “Performance Measures” section on page 60, our partnership uses non-IFRS measures to assess the performance of its operations. An analysis of the measures and reconciliation to IFRS measures is included below.
    
The following table reconciles net income to NOI for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Commercial property revenue$5,691
$5,043
$4,192
Direct commercial property expense(1,967)(1,851)(1,617)
Commercial property NOI3,724
3,192
2,575
Hospitality revenue1,909
1,913
1,648
Direct hospitality expense(1,219)(1,236)(1,079)
Hospitality NOI690
677
569
Total NOI4,414
3,869
3,144
Investment and other revenue603
283
295
Share of net earnings from equity accounted investments1,969
947
961
Interest expense(2,924)(2,464)(1,967)
Depreciation and amortization(341)(308)(275)
General and administrative expenses(882)(1,032)(614)
Investment and other expense(82)(26)(138)
Fair value gains, net596
2,466
1,254
Income before income taxes3,353
3,735
2,660
Income tax (expense) benefit(196)(81)(192)
Net income3,157
3,654
2,468
Net income attributable to non-controlling interests of others in operating subsidiaries and properties1,201
1,676
2,093
Net income attributable to Unitholders$1,956
$1,978
$375
 
The following table reconciles net income to FFO and Company FFO for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Net income$3,157
$3,654
$2,468
Add (deduct): 
 
 
Fair value gains, net(596)(2,466)(1,254)
Share of equity accounted fair value gains, net(1,055)(114)(82)
Depreciation and amortization of real-estate assets283
264
244
Income tax expense (benefit)196
81
192
Non-controlling interests in above items(838)(553)(695)
FFO1,147
866
873
Add (deduct):   
Depreciation and amortization of real-estate assets, net(1)
40
35
27
Transaction costs, net(1)
96
221
41
Gains/losses associated with non-investment properties, net(1)
(1)6

Imputed interest(2)
49
51
38
Net contribution from GGP warrants(3)


38
BSREP III earnings(4)
14


Company FFO$1,345
$1,179
$1,017
(1) 
Presented net of non-controlling interests.
(2) 
Represents imputed interest associated with financing the partnership’s share of commercial developments accounted for under the equity method.
(3) 
Represents incremental FFO that would have been attributable to the partnership’s share of GGP, if all outstanding warrants of GGP had been exercised. Prior to the third quarter of 2017, the adjustment assumed net settlement of the outstanding warrants. For the third quarter of 2017, the adjustment is based on the cash settlement for all applicable warrants to reflect the partnership's settlement of the warrants on such basis which occurred in the fourth quarter of 2017.
(4) 
BSREP III is now accounted for as a financial asset which results in FFO being recognized in line with distributions received. As such, the BSREP III earnings adjustment picks up our proportionate share of the Company FFO.


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Summary of Financial Position
 
(US$ Millions, except per unit information)Dec. 31, 2019
Dec. 31, 2018
Investment properties: 
 
Commercial properties$71,565
$76,014
Commercial developments3,946
4,182
Equity accounted investments20,764
22,698
Property, plant and equipment7,278
7,506
Cash and cash equivalents1,438
3,288
Assets held for sale387
1,004
Total assets111,643
122,520
Debt obligations55,390
63,811
Liabilities associated with assets held for sale140
163
Total equity44,935
46,740
Equity attributable to Unitholders(1)
$28,530
$28,284
Equity per unit(2)
$29.72
$28.72
(1)
Equity attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 60.
(2)
Assumes conversion of mandatorily convertible preferred shares. See page 74 for additional information.

As of December 31, 2019, we had $111,643 million in total assets, compared with $122,520 million at December 31, 2018. The decrease of $10,877 million was primarily due to the deconsolidation of BSREP III investments upon reducing our commitment to the fund on final close, which resulted in loss of control; our commitment to the fund is 7% compared to 25% at December 31, 2018.

Commercial properties represent operating, rent-producing properties. Commercial properties decreased from $76,014 million at the end of 2018 to $71,565 million at the end of the current year. The decrease was largely due to the deconsolidation of BSREP III investments, the full or partial disposition of certain assets during the current year and valuation losses within our retail portfolio. These decreases were partially offset by the impact of the adoption of IFRS 16, Leases (“IFRS 16”) which requires the recognition of right-of-use asset and resulted in $752 million of assets recorded at December 31, 2019. Additionally, investment activity, incremental capital spent to maintain or enhance our properties, valuation gains within our Core Office and LP Investments portfolios and the positive impact of foreign currency translation based on closing spot rates, contributed to the offset.
 
Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $3,946 million at December 31, 2019, a decrease of $236 million from the balance at December 31, 2018. The decrease is primarily due to the partial sale of several development assets into the Brookfield Opportunity Zone fund (“BOZ”) in 2019, which resulted in the deconsolidation of our interest in these assets and subsequent accounting classification as a financial asset. Additionally, the deconsolidation of BSREP III investments contributed to the decrease. These decreases were partially offset by incremental capital spend on our active developments, gains recognized at 100 Bishopsgate in London and other developments as they near completion and the positive impact of foreign currency translation.

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The following table presents the changes in investment properties from December 31, 2018 to December 31, 2019:

 Dec. 31, 2019
(US$ Millions)Commercial properties
Commercial developments
Investment properties, beginning of year$76,014
$4,182
Acquisitions6,797
246
Capital expenditures1,540
1,229
Accounting policy change(1)
704
22
Dispositions(2)
(742)(37)
Fair value gains, net301
557
Foreign currency translation69
72
Transfer between commercial properties and commercial developments354
(354)
Impact of deconsolidation due to loss of control(3)
(10,701)(798)
Reclassifications to assets held for sale and other changes(2,771)(1,173)
Investment properties, end of year$71,565
$3,946
(1) 
Includes the impact of the adoption of IFRS 16 through the recognition of right-of-use assets. See Note 2, Summary of Significant Accounting Policies for further information.
(2) 
Property dispositions represent the carrying value on date of sale.
(3) 
Includes the impact of the deconsolidation of BSREP III investments. See Note 5, Investment Properties for further information.

Equity accounted investments decreased by $1,934 million since December 31, 2018 primarily as a result of the deconsolidation of BSREP III during the first quarter of 2019, and the associated interests in properties held through joint ventures, primarily through Forest City.

The following table presents a roll-forward of changes in our equity accounted investments:

(US$ Millions)Dec. 31, 2019
Equity accounted investments, beginning of year$22,698
Additions684
Disposals and return of capital distributions(764)
Share of net earnings from equity accounted investments1,969
Distributions received(470)
Foreign currency translation127
Reclassification to assets held for sale(189)
Impact of deconsolidation due to loss of control(1)
(1,434)
Other(2)
(1,857)
Equity accounted investments, end of year$20,764
(1) 
Includes the impact of the deconsolidation of BSREP III investments. See Note 5, Investment Properties for further information.
(2) 
Includes the impact of the acquisition of incremental interest in our existing equity accounted investments, primarily in Core Retail. As a result, we gained control of the investments and will consolidate its results. See Note 7, Equity Accounted Investments for further information.

 Property, plant and equipment decreased by $228 million since December 31, 2018, primarily due to deconsolidation of BSREP III investments, which includes a portfolio of serviced apartments in the United Kingdom and two hotel properties in Florida. These decreases were offset by capital spend during the current year, the impact of IFRS 16 requiring the recognition of right-of-use property, plant and equipment and the positive impact of foreign currency translation.

As of December 31, 2019, assets held for sale primarily included our equity accounted investment in a hotel in Florida, an office asset in California and six triple net lease assets in United States.

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The following table presents changes in our assets held for sale from December 31, 2018 to December 31, 2019:

(US$ Millions)Dec. 31, 2019
Balance, beginning of year$1,004
Reclassification to/(from) assets held for sale, net3,387
Disposals(4,038)
Fair value adjustments14
Foreign currency translation(5)
Other25
Assets held for sale$387

Our debt obligations decreased to $55,390 million as at December 31, 2019 from $63,811 million as at December 31, 2018. Contributing to this decrease was the deconsolidation of BSREP III due to loss of control as mentioned above. Also contributing to the decrease was a paydown of the partnership’s credit facilities. These decreases were partially offset by the addition of property-specific borrowings and senior secured notes during the period and the positive impact of foreign currency translation.
    
The following table presents additional information on our partnership’s outstanding debt obligations:

(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Corporate borrowings$1,902
$2,159
Funds subscription facilities57
4,517
Non-recourse borrowings: 
 
Property-specific borrowings47,465
50,406
Subsidiary borrowings5,966
6,729
Total debt obligations55,390
63,811
Current8,825
5,874
Non-current46,565
57,937
Total debt obligations$55,390
$63,811
    
The following table presents the components used to calculate equity attributable to Unitholders per unit:
 
(US$ Millions, except unit information)Dec. 31, 2019
Dec. 31, 2018
Total equity$44,935
$46,740
Less: 
 
Interests of others in operating subsidiaries and properties15,985
18,456
Preferred equity420

Equity attributable to Unitholders28,530
28,284
Mandatorily convertible preferred shares1,650
1,622
Total equity attributable to unitholders30,180
29,906
Partnership units945,413,656
971,144,432
Mandatorily convertible preferred shares70,051,024
70,038,910
Total partnership units1,015,464,680
1,041,183,342
Total equity attributable to Unitholders per unit$29.72
$28.72
 
Equity attributable to Unitholders was $28,530 million at December 31, 2019, an increase of $246 million from the balance at December 31, 2018. The increase was primarily due to net income during the year partially offset by repurchases of LP Units and BPR Units and distributions. Assuming the conversion of mandatorily convertible preferred shares, equity attributable to Unitholders increased to $29.72 per unit at December 31, 2019 from $28.72 per unit at December 31, 2018.
 
Interests of others in operating subsidiaries and properties was $15,985 million at December 31, 2019, a decrease of $2,471 million from the balance at December 31, 2018. The decrease was primarily a result of the deconsolidation of BSREP III.


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SUMMARY OF QUARTERLY RESULTS
 
 20192018
(US$ Millions, except per unit information)Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenue$2,087
$2,017
$2,026
$2,073
$2,140
$1,828
$1,651
$1,620
Direct operating costs(1)
783
776
785
842
837
793
716
741
Net income1,551
870
23
713
858
722
1,051
1,023
Net income attributable to Unitholders1,022
474
127
333
534
380
534
530
Net income attributable to Unitholders per unit – basic$1.00
$0.46
$0.12
$0.32
$0.51
$0.44
$0.69
$0.69
Net income attributable to Unitholders per unit – diluted$1.00
$0.46
$0.12
$0.32
$0.51
$0.43
$0.68
$0.68
 
(1) 
We adopted IFRS 16 in 2019 using the modified retrospective method. The comparative information for periods prior to 2019 has not been restated and is reported under the accounting standards effective for those periods.

Revenue varies from quarter to quarter due to acquisitions and dispositions of commercial and other income producing assets, changes in occupancy levels, as well as the impact of leasing activity at market net rents. In addition, revenue also fluctuates as a result of changes in foreign exchange rates and seasonality. Seasonality primarily affects our retail assets, wherein the fourth quarter exhibits stronger performance in conjunction with the holiday season. In addition, our North American hospitality assets generally have stronger performance in the winter and spring months compared to the summer and fall months, while our European hospitality assets exhibit the strongest performance during the summer months. Fluctuations in our net income is also impacted by the fair value of properties in the period to reflect changes in valuation metrics driven by market conditions or property cash flows.


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SEGMENT PERFORMANCE
Our operations are organized into four operating segments which include Core Office, Core Retail, LP Investments and Corporate.

The following table presents FFO by segment:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Core Office$582
$520
$534
Core Retail707
552
486
LP Investments268
228
281
Corporate(410)(434)(428)
FFO$1,147
$866
$873
 
The following table presents equity attributable to Unitholders by segment as of December 31, 2019 and 2018:
 
(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Core Office$14,240
$14,199
Core Retail14,138
14,136
LP Investments5,126
5,204
Corporate(4,974)(5,255)
Equity attributable to Unitholders$28,530
$28,284
 
Core Office

Overview
Our Core Office portfolio consists of interests in 136 high-quality office properties totaling approximately 93 million square feet, which are located primarily in the world’s leading commercial markets such as New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, and Berlin, as well as approximately 12 million square feet of active office and multifamily developments and office redevelopments. We believe these assets have a stable cash flow profile due to long-term leases in place. We target between a 10% and 12% total return on our Core Office portfolio. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, that should generate strong same-property NOI growth without significant capital investment. Furthermore, we expect to earn 8% and 11% unlevered, pre-tax returns on construction costs from our development pipeline.

Summary of Operating Results
The following table presents FFO and net income attributable to Unitholders in our Core Office segment for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
FFO$582
$520
$534
Net income attributable to Unitholders1,504
934
(4)
 
FFO from our Core Office segment was $582 million for the year ended December 31, 2019 as compared to $520 million in 2018. This increase was largely attributable to same-property growth driven by lease commencements mainly in New York, higher development management fees from increased development activity and joint venture partner fees from assets that we have sold interests to joint venture partners. Additionally, we earned $51 million for a performance-based fee earned at Five Manhattan during the year. These increases were partially offset by dispositions as mentioned in property transactions and the negative impact of foreign currency translation.
  
Net income attributable to Unitholders from our Core Office segment for 2019 was $1,504 million compared to $934 million in 2018. This increase is largely attributable to fair value gains primarily related to 100 Bishopsgate in London as the development nears substantial completion and valuation gains on our Australian and New York assets to reflect market conditions. These increases were partially offset by dispositions and the negative impact of foreign currency translation.

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Leasing Activity

The following table presents key operating metrics for our Core Office portfolio for the years ended December 31, 2019 and 2018:
 
(US$ Millions, except where noted)ConsolidatedUnconsolidated
As at and for the years ended Dec. 31,2019
2018
2019
2018
Total portfolio: 
 
 
 
NOI(1)
$1,104
$1,087
$406
$451
Number of properties72
71
64
71
Leasable square feet (in thousands)47,646
47,480
27,993
30,479
Occupancy92.0%92.7%94.6 %
94.6%
In-place net rents (per square foot)(2)
$30.31
$28.99
$42.08
$44.57
Same-property: 
 
 
 
NOI(2)
$1,071
$998
$412
$389
Number of properties70
70
60
60
Leasable square feet (in thousands)47,388
47,361
26,535
26,602
Occupancy91.9%92.6 %
94.9 %
94.6 %
In-place net rents (per square foot)(2)
$30.25
$29.46
$44.25
$44.29
(1) 
NOI for unconsolidated properties is presented on a proportionate basis, representing the Unitholders’ interest in the property. See “Reconciliation of Non-IFRS Measures - Core Office” below for a description of the key components of NOI in our Core Office segment.
(2) 
Presented using normalized foreign exchange rates, using the December 31, 2019 exchange rate.

NOI from our consolidated properties increased slightly to $1,104 million in 2019 from $1,087 million in 2018 primarily due to strong same-property NOI, NOI from completed development properties that were operational during the year and the acquisition of the incremental interest in One and Two London Wall Place in London, which was previously accounted for under the equity method. These increases were partially offset by dispositions in Sydney, Toronto and Denver since the prior year and the negative impact of foreign currency translation.

Same-property NOI for our consolidated properties for the year ended December 31, 2019 compared with the prior year increased by $73 million to $1,071 million. This increase was primarily the result of higher in-place net rents and lease commencements.
 
NOI from our unconsolidated properties, which is presented on a proportionate basis, declined to $406 million in 2019 from $451 million in 2018. This decrease is due to dispositions since the prior year and the negative impact of foreign currency translation. These decreases were partially offset by higher same-property NOI.
 
The following table presents certain key operating metrics related to leasing activity in our Core Office segment:

 Total portfolio year-to-date
(US$ millions, except where noted)Dec. 31, 2019
Dec. 31, 2018
Leasing activity (in thousands of square feet) 
 
New leases3,788
3,973
Renewal leases4,047
3,796
Total leasing activity7,835
7,769
Average term (in years)8.5
8.3
Year-one leasing net rents (per square foot)(1)
$38.50
$34.01
Average leasing net rents (per square foot)(1)
42.47
36.98
Expiring net rents (per square foot)(1)
32.13
33.56
Estimated market net rents for similar space(1)
40.07
39.13
Tenant improvements and leasing costs (per square foot)66.09
53.04
(1)
Presented using normalized foreign exchange rates, using the December 31, 2019 exchange rate.
 
For the year ended December 31, 2019, we leased approximately 7.8 million square feet at average in-place net rents approximately 32% higher than expiring net rents. Approximately 48% of our leasing activity represented new leases. Our overall Core Office portfolio’s in-place net rents are currently 7% below market net rents, and accordingly we believe that we will be able to increase our NOI in the coming years, as we sign new leases. For the year ended December 31, 2019, tenant improvements and leasing costs were $66.09 per square foot, compared to $53.04 per square foot in the prior year.

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We calculate net rent as the annualized amount of cash rent receivable from leases on a per square foot basis, including tenant expense reimbursements, less operating expenses being incurred for that space, excluding the impact of straight-lining rent escalations or amortization of free rent periods. This measure represents the amount of cash, on a per square foot basis, generated from leases in a given period.

Valuation Metrics
The key valuation metrics for commercial properties in our Core Office segment on a weighted-average basis are as follows:
 
 Dec. 31, 2019Dec. 31, 2018
 
Discount 
rate

Terminal
capitalization
rate

Investment
horizon
Discount rate
Terminal
capitalization
rate

Investment
horizon

Consolidated properties: 
 
  
 
 
United States7.0%5.6%126.9%5.6%12
Canada5.9%5.2%106.0%5.4%10
Australia6.8%5.9%107.0%6.2%10
Europe(1)
4.6%4.1%11%%
Brazil7.9%7.4%109.6%7.7%6
Unconsolidated properties: 
 
  
 
 
United States6.8%4.9%116.6%5.1%10
Australia6.5%5.2%106.7%5.7%10
Europe(2)
4.6%5.0%104.7%4.9%10
(1) 
We acquired an incremental interest in One and Two London Wall Place in London in 2019. The investments were previously accounted for under the equity method.
(2) 
Certain properties in Europe accounted for under the equity method are valued using both discounted cash flow and yield models. For comparative purposes, the discount and terminal capitalization rates and investment horizon calculated under the discounted cash flow method are presented in the table above.

Financial Position
The following table provides an overview of the financial position of our Core Office segment as at December 31, 2019 and 2018:
 
(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Investment properties: 
 
Commercial properties$23,025
$21,350
Commercial developments3,058
2,182
Equity accounted investments8,882
8,365
Participating loan interests
268
Accounts receivable and other1,186
1,218
Cash and cash equivalents607
678
Assets held for sale
34
Total assets36,758
34,095
Debt obligations13,856
11,922
Capital securities922
813
Accounts payable and other liabilities1,801
1,345
Deferred tax liability1,013
953
Non-controlling interests of others in operating subsidiaries and properties4,926
4,863
Equity attributable to Unitholders$14,240
$14,199
 
Equity attributable to Unitholders increased by $41 million to $14,240 million at December 31, 2019 from $14,199 million at December 31, 2018. The increase relates to net income earned during the year and the positive impact of foreign currency translation.
     
Commercial properties totaled $23,025 million at December 31, 2019, compared to $21,350 million at December 31, 2018. This increase was driven primarily by the incremental interest acquisition in One and Two London Wall Place in London, the adoption of IFRS 16 which requires the recognition of right-of-use assets, as well as incremental capital spent to maintain or enhance properties partially offset by dispositions.

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Commercial developments increased by $876 million between December 31, 2018 and December 31, 2019, and was primarily due to incremental capital spend on our active developments and gains recognized at 100 Bishopsgate in London as the development nears completion.
    
The following table presents changes in our partnership’s equity accounted investments in the Core Office segment from December 31, 2018 to December 31, 2019:
 
(US$ Millions)Dec. 31, 2019
Equity accounted investment, beginning of year$8,365
Additions308
Disposals and return of capital distributions(94)
Share of net income, including fair value gains (losses)716
Distributions received(97)
Foreign exchange140
Reclassification from assets held for sale34
Other(1)
(490)
Equity accounted investments, end of year$8,882
(1) 
We acquired an incremental interest in One and Two London Wall Place in London in 2019 and have control over the assets. As a result, we now consolidate our interest in the assets.

Equity accounted investments increased by $517 million to $8,882 million at December 31, 2019 compared to the prior year-end. The increase was driven by our share of income, contributions to our development assets held in joint ventures and the positive impact of foreign currency translation. These increases were partially offset by the change in treatment of One and Two London Wall Place in London from equity accounted investments to commercial properties following our acquisition of an incremental interest and the change in treatment of BPREP from an equity accounted investment to financial asset due to a reduction in our ownership.

Debt obligations increased from $11,922 million at December 31, 2018 to $13,856 million at December 31, 2019. This increase is the result of refinancing activity of property-level debt related to office properties and drawdowns on existing facilities to fund capital expenditures on development properties.
    
The following table provides additional information on our outstanding capital securities in our Core Office segment:

(US$ Millions, except where noted)Shares
outstanding
Cumulative
dividend rate
Dec. 31, 2019
Dec. 31, 2018
BPO Class B Preferred Shares:    
Series 1(1)
3,600,00070% of bank prime

Series 2(1)
3,000,00070% of bank prime

Capital Securities – Fund Subsidiaries  922
813
Total capital securities  $922
$813
(1) 
BPO Class B Preferred Shares, Series 1 and 2 capital securities - corporate are owned by Brookfield Asset Management. BPO has an offsetting loan receivable against these securities earning interest at 95% of bank prime.

We had $922 million of capital securities – fund subsidiaries outstanding at December 31, 2019 (December 31, 2018 - $813 million). Capital securities – fund subsidiaries includes $859 million (December 31, 2018 - $775 million) of equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by our co-investors in the fund, which have been classified as a liability, rather than as non-controlling interests, as the holders of these interests can compel DTLA to redeem their interests in the fund for cash equivalent to the fair value of the interests on October 15, 2023 and on every fifth anniversary thereafter. In addition, capital securities – fund subsidiaries also includes $62 million (December 31, 2018 - $38 million) which represents the equity interests held by our co-investor in Brookfield D.C. Office Partners LLC ("D.C. Fund") which have been classified as a liability, rather than as non-controlling interest, due to the fact that on June 18, 2023, and on every second anniversary thereafter, the holders of these interests can redeem their interests in the D.C. Fund for cash equivalent to the fair value of the interests.

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Active Developments
The following table summarizes the scope and progress of active developments in our Core Office segment as of December 31, 2019:

 Total square feet under construction (in 000’s)
Proportionate
 square feet under construction (in 000’s)

Expected
date of accounting stabilization
 CostLoan
(Millions, except square feet in thousands)
Percent
pre-leased

Total(1)

To-date
Total
Drawn
Office:        
100 Bishopsgate, London938
938
 Q2 202087%£845
£784
£491
£491
One Manhattan West, Midtown New York(2)
2,081
853
 Q4 202091%$795
$678
$554
$431
Manhattan West Retail, Midtown New York(2)
70
39
 Q1 202150%$117
$72
$62
$11
Wood Wharf, Office, London(2)
423
211
 Q2 202144%£125
£44
£93
£
ICD Brookfield Place, Dubai(2)
1,091
545
 Q1 202222%AED1,487
AED1,275
AED908
AED761
Bay Adelaide North, Toronto820
820
 Q3 202386%C$498
C$140
C$350
C$
Two Manhattan West, Midtown New York(2)
1,955
1,095
 Q4 202325%$1,329
$358
$
$
Office Redevelopment:        
388 George Street, Sydney441
221
 Q3 202154%A$185
A$69
A$167
A$49
110 Avenue of the Americas, Midtown New York376
136
 Q2 202295%$113
$33
$
$
Multifamily:        
Wood Wharf - 10 Park Drive, London(2)(3)
269
135
 Q2 2020n/a
£102
£94
£80
£54
Southbank Place(2)(3)
541
135
 Q2 2020n/a
£168
£136
£95
£69
Greenpoint Landing Building F, New York(2)
348
331
 Q4 2020n/a
$347
$267
$206
$100
Newfoundland, London(2)
545
273
 Q2 2021n/a
£249
£232
£174
£120
Wood Wharf - One Park Drive, London(2)(3)
430
215
 Q2 2021n/a
£221
£162
£135
£
Wood Wharf - 8 Water Street & 2 George Street, London(2)
371
186
 Q3 2021n/a
£151
£113
£96
£63
755 Figueroa, Los Angeles(2)
791
374
 Q2 2024n/a
$257
$31
$166
$5
Hotel:        
Pendry Manhattan West, Midtown New York(2)
184
103
 Q2 2023%$157
$82
$
$
Total11,674
6,610
      
(1) 
Net of NOI earned during stabilization.
(2) 
Cost and construction loan information is presented on a proportionate basis at our ownership in these developments.
(3) 
Represents condominium/market sale developments.

Our development pipeline consists of prominent, large-scale projects located primarily in the high growth markets of London and New York. For the office developments, we generally look to secure anchor leases before launching the projects. We monitor the scope and progress of our active developments and have an established track record of completion on time and within budget. We have recently completed office towers in the prime markets of Toronto, London, and Perth and completed two urban multifamily developments in New York. In the near term we expect to complete two landmark office towers in New York and London. Our current office and redevelopment projects stand at an average 61% pre-leased. Our recently completed developments, along with our active pipeline are a large contributing factor to our target growth of 10% to 12% on our Core Office portfolio.

Reconciliation of Non-IFRS Measures – Core Office
The key components of NOI in our Core Office segment are presented below:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Commercial property revenue$1,903
$1,962
$2,020
Hospitality revenue(1)
12
17
26
Direct commercial property expense(797)(879)(948)
Direct hospitality expense(1)
(14)(13)(13)
Total NOI$1,104
$1,087
$1,085
(1) 
Hospitality revenue and Direct hospitality expense within our Core Office segment primarily consists of revenue and expenses incurred at a hotel adjacent to the Allen Center in Houston.

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The following table reconciles Core Office NOI to net income for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Same-property NOI$1,007
$930
$910
Currency variance
12
18
NOI related to acquisitions and dispositions97
145
157
Total NOI1,104
1,087
1,085
Investment and other revenue234
126
101
Interest expense(606)(598)(641)
Depreciation and amortization on non-real estate assets(11)(13)(14)
Investment and other expense(15)

General and administrative expense(250)(197)(164)
Fair value gains, net798
108
(807)
Share of net earnings from equity accounted investments716
725
523
Income before income taxes1,970
1,238
83
Income tax benefit (expense)(123)(54)42
Net income1,847
1,184
125
Net income attributable to non-controlling interests343
250
129
Net income attributable to Unitholders$1,504
$934
$(4)
     
The following table reconciles Core Office net income to FFO for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Net income$1,847
$1,184
$125
Add (deduct): 
 
 
Fair value gains, net(798)(108)807
Share of equity accounted fair value gains, net(420)(459)(222)
Depreciation and amortization of real estate assets3
2
1
Income tax (benefit) expense123
54
(42)
Non-controlling interests in above items(173)(153)(135)
FFO$582
$520
$534
    
The following table reconciles Core Office share of net earnings from equity accounted investment for the years ended December 31, 2019, 2018, and 2017:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Unconsolidated properties NOI$406
$451
$423
Unconsolidated properties fair value gains, net and income tax expense420
459
222
Other(110)(185)(122)
Share of net earnings from equity accounted investments$716
$725
$523
 
Core Retail

Overview
Our Core Retail segment consists of 122 best-in-class regional malls and urban retail properties containing over 120 million square feet in the United States. These assets have a stable cash flow profile due to long-term leases in place. We target between a 10% and 12% total return on our Core Retail portfolio. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and operating expense monitoring that should generate same-property NOI growth. Furthermore, we expect to earn between 5% and 8% unlevered, pre-tax returns on construction costs from our redevelopment pipeline, which will also drive NOI growth. NOI growth has been partially offset by the impact of tenant bankruptcies over the last 12 to 18 months, of which 75% of that space has already been leased to new tenants.

During the first quarter of 2018, we entered into a definitive agreement with GGP for our partnership to acquire all of the outstanding shares of common stock of GGP other than those shares currently held by us and our affiliates. The acquisition of GGP was finalized on August 28, 2018. In the transaction, GGP shareholders received, for each GGP common share, either $23.50 in cash or either one LP Unit or one BPR Unit, subject to proration based on aggregate cash consideration of $9.25 billion. We

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now consolidate our interest in BPR (formerly GGP). Prior to the acquisition in the third quarter of 2018, our investment in GGP was accounted for under the equity method.

Summary of Operating Results
The following table presents FFO and net income attributable to Unitholders in our Core Retail segment for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
FFO$707
$552
$486
Net income attributable to Unitholders659
456
(89)
     
FFO earned in our Core Retail segment for the year ended December 31, 2019 was $707 million compared to $552 million in the prior year. The increase is due to a full year of consolidated NOI from BPR (formerly GGP) in the current year compared to four months of consolidated NOI and eight months of share of net income from equity accounted investment when our interest in GGP was 34% in the prior year, as the GGP acquisition closed in the third quarter of 2018. These increases were partially offset by higher interest expense, including new corporate acquisition debt and senior note debt, and general and administrative expenses associated with our incremental ownership.
 
Net income attributable to Unitholders from our Core Retail segment increased by $203 million to $659 million in 2019 compared to $456 million in 2018. This increase in net income attributable to Unitholders is primarily attributable to FFO earnings from our incremental ownership in GGP and fair value gains recognized on our equity accounted investments, mainly Ala Moana Center. The prior year included fair value losses recognized on our equity accounted investment prior to the GGP acquisition. These increases were partially offset by the fair value losses on our consolidated portfolio as it reflects updated cashflow assumptions and valuation metrics.
 
Leasing Activity
The following table presents key operating metrics in our Core Retail portfolio for the years ended December 31, 2019 and 2018:
 
(US$ Millions, except where noted) 
As at and for the years ended Dec. 31,2019
2018
NOI: 
 
Total portfolio(1)
$1,736
$1,141
Total portfolio: 
 
Number of malls and urban retail properties122
124
Leasable square feet (in thousands)120,526
121,435
Occupancy(2)
96.4%96.5%
In-place net rents (per square foot)(2)
$61.74
$61.44
NOI weighted sales (per square foot)(2)
$798
$753
(1)  
NOI is presented on a proportionate basis. The prior period represents 4 months of our consolidated results of BPR and 8 months of activity from our 34% interest in GGP (prior to the GGP acquisition in the third quarter of 2018).
(2)  
Presented on a same-property basis.

NOI, which is presented on a proportionate basis, increased to $1,736 million from $1,141 million in the prior year due to our increased ownership in GGP.
    
The results of our operations are primarily driven by changes in occupancy and in-place rental rates. The following table presents new and renewal leases for the trailing 12 months compared to expiring leases for the prior tenant in the same suite, for leases where the downtime between new and previous tenant is less than 24 months, among other metrics.
 

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 Total portfolio
(US$ Millions, except where noted)Dec. 31, 2019
Dec. 31, 2018
Number of leases1,329
1,239
Leasing activity (in thousands of square feet)5,256
4,408
Average term in years6.5
7.1
Initial rent (per square foot)(1)
$60.58
$70.35
Expiring rent (per square foot)(2)
58.47
63.60
Initial rent spread (per square foot)2.11
6.75
% Change3.6%10.6%
Tenant allowances and leasing costs$200
$190
(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.
 
Through December 31, 2019, we leased approximately 5.3 million square feet at initial rents approximately 3.6% higher than expiring net rents on a suite-to-suite basis.
 
Our Core Retail portfolio occupancy rate at December 31, 2019 was 96.4%, which is flat compared to occupancy rates at December 31, 2018. In our Core Retail segment, we use in-place rents as a measure of leasing performance. In-place rents are calculated on a cash basis and consist of base minimum rent, plus reimbursements of common area costs, and real estate taxes. In-place rents increased to $61.74 at December 31, 2019 from $61.44 at December 31, 2018. Strong leasing during the year from non-traditional tenants across our Core Retail portfolio kept occupancy rates relatively flat.

Valuation Metrics
The key valuation metrics of properties in our Core Retail segment on a weighted-average basis are presented in the following table. The valuations are most sensitive to changes in the discount rate and timing or variability of cash flows.
 
 Dec. 31, 2019Dec. 31, 2018
 Discount Rate
Terminal
capitalization 
rate

Investment
horizon
Discount Rate
Terminal
capitalization
rate

Investment
horizon
Consolidated properties:      
United States6.7%5.4%107.1%6.0%12
Unconsolidated properties: 
 
  
 
 
United States6.3%4.9%106.6%5.3%11

Financial Position
The following table presents an overview of the financial position of our Core Retail segment as at December 31, 2019 and 2018:
(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Investment properties  
Commercial properties$21,561
$17,224
Commercial developments
383
Equity accounted investments10,555
11,158
Accounts receivable and other609
646
Cash and cash equivalents196
247
Total assets32,921
29,658
Less: 
 
Debt obligations16,107
13,052
Accounts payable and other liabilities821
674
Deferred tax liability68
23
Non-controlling interests of others in operating subsidiaries and properties1,787
1,773
Total equity attributable to Unitholders$14,138
$14,136

Equity attributable to Unitholders in the Core Retail segment was relatively flat from December 31, 2018 to December 31, 2019 primarily due to net income earned during the year and several incremental interest acquisitions from our joint venture partners including Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, Shops at Merrick Park in Florida and 730 Fifth Avenue in New York, bringing our ownership in each of the malls to 100%, where prior to the acquisitions were accounted for under the equity method. After gaining control of these five investments, we consolidated the

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commercial properties and the property-level debt. These increases were partially offset by distribution of income during the period and the $95 million issuer bid buyback of BPR Units in the first quarter of 2019.
 
The following table presents a roll-forward of our partnership’s equity accounted investments for the year ended December 31, 2019:
 
(US$ Millions)Dec. 31, 2019
Equity accounted investments, beginning of year$11,158
Additions197
Disposals and return of capital distributions(166)
Share of net earnings from equity accounted investments1,179
Distributions(486)
Other(1)
(1,327)
Equity accounted investments, end of year$10,555
(1) 
We acquired an incremental interest in Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, Shops at Merrick Park in Florida and 730 Fifth Avenue in New York during the year, bringing our ownership in each of the malls to 100%. As a result, we now consolidate our interest in these assets.

Equity accounted investments decreased by $603 million to $10,555 million. The decrease is primarily due to the incremental interest acquisitions from our joint venture partners as mentioned above, distributions during the year and a disposal of our interest in one property to our joint venture partner during the year. These decreases were partially offset by the share of net earnings BPR’s property-level joint ventures earned and fair value gains recognized at higher-tiered malls during the period.

Reconciliation of Non-IFRS Measures – Core Retail

The key components of NOI in our Core Retail segment are presented below:
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Commercial property revenue$1,394
$511
$
Direct commercial property expense(383)(135)
Total NOI$1,011
$376
$

The following table reconciles Core Retail net income to net income attributable to Unitholders for the years ended December 31, 2019, 2018, and 2017:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Total NOI$1,011
$376
$
Investment and other revenue195
73

Interest expense(683)(218)
Depreciation and amortization on real estate assets(24)(6)
Investment and other expense


General and administrative expense(258)(89)
Fair value gains (losses), net(686)412
(268)
Share of net earnings from equity accounted investments1,179
(52)179
Income before income taxes734
496
(89)
Income tax benefit (expense)(8)(6)
Net income$726
$490
$(89)
Net income attributable to non-controlling interests of others in operating
subsidiaries and properties
67
34

Net income attributable to Unitholders$659
$456
$(89)
 

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The following table reconciles Core Retail net income to FFO for the years ended December 31, 2019, 2018, and 2017:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Net income$726
$490
$(89)
Add (deduct): 
 
 
Fair value (gains) losses, net686
(412)268
Share of equity accounted fair value gains, net(643)505
307
Income tax (benefit) expense8
6

Non-controlling interests in above items(70)(37)
FFO$707
$552
$486
    
The following table reconciles Core Retail share of net earnings from equity accounted investment for the years ended December 31, 2019, 2018, and 2017:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Unconsolidated properties NOI$906
$1,141
$701
Unconsolidated properties fair value gains, net and income tax expense643
(505)(307)
Other(370)(688)(215)
Share of net earnings from equity accounted investments$1,179
$(52)$179

LP Investments (formerly referred to as Opportunistic)

Overview
Our LP Investments portfolio includes our equity invested in Brookfield-sponsored real estate opportunity funds, which target high-quality assets with operational upside across various real estate sectors, including office, retail, multifamily, logistics, hospitality, triple net lease, self-storage, student housing and manufactured housing. We target an average 20% total return on our LP Investments portfolio and a 2.0x multiple of capital on the equity we invest into these vehicles.
 
The partnership has interests in the following Brookfield-sponsored real estate opportunity funds:

BSREP I - 31% interest in BSREP I, which is an opportunistic real estate fund with $4.4 billion in committed capital in aggregate, targeting gross returns of 20%. The fund is in its 8th year, is fully invested and is executing realizations.

BSREP II - 26% interest in BSREP II, which is an opportunistic real estate fund with $9.0 billion in committed capital in aggregate, targeting gross returns of 20%. The fund is in its 5th year and is fully invested.

BSREP III - 7% interest in BSREP III, which is an opportunistic real estate fund with $15.0 billion in committed capital in aggregate, targeting gross returns of 20%; The fund is in its 3rd year.

A blended 36% interest in two value-add multifamily funds totaling $1.8 billion targeting gross returns of 16%. These funds seek to invest in a geographically diverse portfolio of U.S. multifamily properties through acquisition and development.

A 33% interest in a $600 million fund which owns the Atlantis Paradise Island resort in the Bahamas.

A blended 13% interest in a series of real estate debt funds totaling $5.4 billion which seek to invest in commercial real estate debt secured by properties in strategic locations.

While our economic interest in these funds are less than 50% in each case, we generally consolidate the portfolios held through the LP Investments as Brookfield Asset Management’s oversight as general partner together with our exposure to variable returns of the investments through our LP interests provide us with control over the investments. We do not consolidate our interest in BSREP III as our 7% non-voting interest does not provide us with control over the investment and therefore is accounted for as a financial asset.

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Summary of Operating Results
Our LP investments, unlike our Core portfolios, have a defined hold period and typically generate the majority of profits from realization events including the sale of an asset or portfolio of assets, or the exit of the entire investment. The combination of gains from realization events and FFO earned during the hold period represent our earnings on capital invested in these funds and, once distributed by the Brookfield-sponsored real estate opportunity funds, provide liquidity to support our target distributions.

The following table presents distributions received on our LP Investments in Brookfield-sponsored real estate opportunity funds received on sale or refinancing events within the funds for the years ended December 31, 2019, 2018, and 2017:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Return of invested capital$475
$446
$385
Distribution of earnings and gains on invested capital892
949
890
Total LP Investments distributions1,367
1,395
1,275
Less: Incentive fees(181)(32)
Total LP Investments distributions, net1,186
1,363
1,275

During the year ended December 31, 2019, distribution of earnings and gains on invested capital primarily related to distributions of income from our office assets in India, Brazil and South Korea and Center Parcs in the United Kingdom, as well as the realization gains on the disposition of multifamily assets in our second value-add multifamily fund, disposition of multifamily assets within our BSREP I investments, our interest in a retail portfolio in China, an office portfolio in California and dispositions within our office portfolio in Brazil. Total LP Investments distributions for the year ended December 31, 2019 were net of incentive fees associated with the dispositions mentioned above and upfinancing of our office portfolio in India as several developments near completion. Distribution of earnings and gains on invested capital in the prior periods are primarily due to distributions of income from our office and multifamily assets.
.
The following table presents FFO and net income attributable to Unitholders in our LP Investments segment for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
FFO$268
$228
$281
Net income attributable to Unitholders285
636
933

FFO in our LP Investments segment increased by $40 million for the year ended December 31, 2019 primarily driven by NOI earned from investment activity. These increases were partially offset by disposition activity, higher interest expense and the negative impact of foreign currency translation.
 
Net income attributable to Unitholders from our LP Investments segment decreased by $351 million for the year ended December 31, 2019, driven by fair value losses in our LP Investments retail portfolio from updated cashflow assumptions. Additionally, the prior year benefited from valuation gains, particularly related to our industrial portfolio in the United States and our office assets in India, as well as a gain on extinguishment of debt associated with the sale of the Hard Rock Hotel and Casino. These decreases were partially offset by fair value gains in our office portfolio in Brazil which resulted from discount rate compression due to improved market conditions and historically low interest rates, as well as fair value gains in India which resulted from capitalization rate compression.

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Financial Position    
The following table presents equity attributable to Unitholders in our LP Investments segment:
 
(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Investment properties$27,867
$39,057
Property, plant and equipment7,028
7,333
Equity accounted investments1,327
3,175
Accounts receivable and other4,634
5,777
Cash and cash equivalents595
2,298
Assets held for sale387
970
Total assets41,838
58,610
Less: 
 
Debt obligations23,525
36,678
Capital securities431
460
Accounts payable and other liabilities3,361
4,303
Liabilities associated with assets held for sale140
163
Non-controlling interests of others in operating subsidiaries and properties9,255
11,802
Equity attributable to Unitholders$5,126
$5,204
 
The decrease in investment properties is primarily the result of the deconsolidation of BSREP III investments and the sales of a portfolio of triple-net lease assets, a portfolio of office assets in California and a portfolio of multifamily assets in New York, partially offset by investment activity since the prior year, mostly in our office portfolios. Additionally, we had valuation gains from our office portfolios in Brazil and India and our student housing portfolio in the United Kingdom.

The decrease in property, plant and equipment is the result of the deconsolidation of BSREP III investments, which include a portfolio of serviced apartments in the United Kingdom and two hotel properties in Florida. These decreases were offset by capital spend during the current year and the positive impact of foreign currency translation related to our Center Parcs portfolio in the United Kingdom.
 
Equity accounted investments decreased primarily due to the deconsolidation of BSREP III during the first quarter of 2019, the reclassification of our equity accounted interest in a hotel Florida to assets held for sale, as well as distributions of income and return of capital. These decreases were partially offset by net income from these investments.

Assets held for sale and related liabilities as of December 31, 2019 includes our equity accounted investment in a hotel in Florida, an office asset in California and six triple net lease assets in U.S., as we intend to sell controlling interests in these properties to third parties in the next 12 months.

Debt obligations decreased due to the deconsolidation of BSREP III as mentioned in investment activity.


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Reconciliation of Non-IFRS Measures - LP Investments
The following table reconciles LP Investments NOI to net income for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Commercial property revenue$2,394
$2,570
$2,172
Hospitality revenue1,897
1,896
1,622
Direct commercial property expense(787)(837)(669)
Direct hospitality expense(1,205)(1,223)(1,066)
Total NOI2,299
2,406
2,059
Investment and other revenue161
78
193
Interest expense(1,389)(1,357)(1,059)
General and administrative expense(198)(597)(285)
Investment and other expense(67)(26)(138)
Depreciation and amortization(306)(289)(261)
Fair value gains, net584
1,785
2,365
Share of net earnings from equity accounted investments74
274
257
Income before income taxes1,158
2,274
3,131
Income tax (expense)(83)(247)(234)
Net income1,075
2,027
2,897
Net income attributable to non-controlling interests of others in operating subsidiaries and properties790
1,391
1,964
Net income attributable to Unitholders$285
$636
$933
 
The following table reconciles LP Investments net income to FFO for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Net income$1,075
$2,027
$2,897
Add (deduct): 
 
 
Fair value (gains), net(584)(1,785)(2,365)
Share of equity accounted fair value gains, net8
(160)(167)
Depreciation and amortization of real estate assets280
261
243
Income tax expense83
247
234
Non-controlling interests in above items(594)(362)(561)
FFO$268
$228
$281

Corporate
Certain amounts are allocated to our Corporate segment in our management reports as those activities are not used to evaluate our segments’ operating performance.

Summary of Operating Results
The following table presents FFO and net income attributable to Unitholders in our corporate segment for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
FFO$(410)$(434)$(428)
Net income (loss) attributable to Unitholders(492)(48)(465)

FFO from our Corporate segment was a loss of $410 million for the year ended December 31, 2019 compared to a loss of $434 million in the prior year.

Interest expense for the year ended December 31, 2019 was $246 million, which reflects $152 million of interest expense on capital securities and $94 million of interest expense on our credit facilities and corporate bonds. This compares to interest expense of $291 million in the prior year and $267 million in 2017.


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Another component of FFO is general and administrative expense, which for the year ended December 31, 2019, was $176 million, and includes $107 million of asset management fees, $26 million of equity enhancement fees and $43 million of other corporate costs. This compares to general and administrative expense of $149 million in the prior year and $165 million in 2017. The increase is largely driven by an increase in the management fees which is determined, in part, based on the LP Units trading price, which was higher in 2019 as compared to the prior year.

In 2019, income tax benefit allocated to the corporate segment was $18 million (2018 - income tax benefit of $226 million and 2017 - expense of nil). The current year income tax benefit allocated to the corporate segment related to the decrease of deferred tax liabilities of our holding companies and their subsidiaries. The prior year benefit relates to a deferred tax benefit as a result of the acquisition of a controlling interest in GGP.
 
Financial Position
The following table presents equity attributable to Unitholders in our Corporate segment:
 
(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Accounts receivable and other$86
$92
Cash and cash equivalents40
65
Total assets126
157
Debt obligations1,902
2,159
Capital securities1,722
2,112
Deferred tax liabilities101
91
Accounts payable and other liabilities938
1,032
Preferred equity420

Non-controlling interests17
18
Equity attributable to Unitholders$(4,974)$(5,255)
 
The corporate balance sheet includes corporate debt and capital securities from our partnership. The increase in equity attributable to Unitholders is due to repayment of our credit facilities and redemptions of Class B Junior Preferred Shares of Brookfield BPY Holdings Inc., partially offset by an increase in loans and notes payable due to Brookfield Asset Management.

During the first quarter of 2019, we issued $178 million of our Class A Cumulative Redeemable Perpetual Preferred Units, Series 1 at a coupon rate of 6.5% per annum, payable quarterly in arrears.
    
During the third quarter of 2019, we issued $242 million of our Class A Cumulative Redeemable Perpetual Preferred Units, Series 2 at a coupon rate of 6.375% per annum, payable quarterly in arrears.

In addition, as of December 31, 2019, we had $15 million (2018 - $16 million) of preferred shares with a cumulative dividend rate of 5% outstanding. The preferred shares were issued by various holding entities of our partnership.

The following table provides additional information on our outstanding capital securities – corporate:
(US$ Millions, except where noted)Shares
outstanding

Cumulative
dividend rate

Dec. 31, 2019
Dec. 31, 2018
Operating Partnership Class A Preferred Equity Units: 
 
 
 
Series 124,000,000
6.25%$574
$562
Series 224,000,000
6.50%546
537
Series 324,000,000
6.75%530
523
Brookfield BPY Holdings Inc. Junior Preferred Shares:    
Class B Junior Preferred Shares(1)

7.64%
420
BOP Split Senior Preferred Shares: 
 
 
Series 1924,390
5.25%23
23
Series 2699,165
5.75%13
13
Series 3909,814
5.00%18
17
Series 4940,486
5.20%18
17
Total capital securities 
 
$1,722
$2,112
(1) 
In 2019, approximately $420 million of the Brookfield BPY Holdings Inc. Class B Junior Preferred Shares, held by Brookfield Asset Management, were redeemed.

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Reconciliation of Non-IFRS Measures – Corporate
The following table reconciles Corporate net income to net income attributable to Unitholders for the years ended December 31, 2019, 2018, and 2017:

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Net income (loss)$(491)$(47)$(465)
Net income attributable to non-controlling interests of others in operating
subsidiaries and properties
1
1

Net income attributable to Unitholders$(492)$(48)$(465)

The following table reconciles Corporate net income to FFO for the years ended December 31, 2019, 2018, and 2017:
 
(US$ Millions) Years ended Dec. 31,2019
2018
2017
Net income (loss)(491)(47)(465)
Add (deduct): 
 
 
Fair value (gains) losses, net100
(161)36
Income tax (benefit) expense(18)(226)
Non-controlling interests in above items(1)
1
FFO$(410)$(434)$(428)
 
RISKS AND UNCERTAINTIES
The financial results of our business are impacted by the performance of our properties and various external factors influencing the specific sectors 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 include changes in general economic conditions (including the availability and costs of mortgage funds), local conditions (including an oversupply of space 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, must be made regardless of whether a property is producing sufficient income to service these expenses. Certain properties are subject to mortgages 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 sale. We believe the stability and long-term nature 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 in which we own assets. A protracted decline in economic conditions would cause downward pressure on our operating margins and asset values as a result of lower demand for space.

The majority of our properties are located in North America, Europe and Australia, with a growing presence in South America and Asia. A prolonged downturn in the economies of these regions would result in reduced demand for space and number of prospective tenants and will affect the ability of our properties to generate significant revenue. If there is an increase in operating costs resulting from inflation and other factors, we may not be able to offset such increases 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 weather conditions, natural disasters, pandemics 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 retail tenants. In addition, our retail tenants face competition from retailers at other regional malls, outlet malls and other discount shopping centers, discount shopping clubs, catalogue companies, and through internet sales and telemarketing. Competition of these types could reduce the percentage rent payable by certain retail tenants and adversely affect our revenues and cash flows.


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As owners of office and retail properties, lease rollovers also present a risk, as continued growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies. Refer to “Lease Rollover Risk” below for further details.
 
For a more detailed description of the risk factors facing our business, please refer to the section entitled Item 3.D. “Key Information - Risk Factors” elsewhere in this annual report on Form 20-F.

Credit Risk
Credit risk arises from the possibility that tenants may be unable to fulfill their lease commitments. We mitigate this risk by ensuring that our tenant mix is diversified and by limiting our exposure to any one tenant. We also maintain a portfolio that is diversified by property type so that exposure to a business sector is lessened. Government and government agencies comprise 7.6% of our Core Office segment tenant base and, as at December 31, 2019, no one tenant comprises more than this.

The following list shows the largest tenants by leasable area in our Core Office portfolio and their respective credit ratings and exposure as at December 31, 2019:
 
TenantPrimary Location
Credit Rating(1)
Exposure (%)(2)

Government and Government AgenciesVariousAA+/AAA7.6%
Morgan StanleyNY/LondonA-2.7%
BarclaysLondon/Toronto/CalgaryBBB-2.1%
CIBC World Markets(3)
Calgary//Toronto/NYAA1.9%
Suncor Energy Inc.CalgaryBBB+1.8%
CenovusCalgaryBB+1.5%
Bank of MontrealCalgary/TorontoAA1.5%
DeloitteVariousNot Rated1.4%
Bank of America | Merrill LynchVariousA1.3%
AmazonNY/LondonA-1.3%
Total  23.1%
(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 940,000 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 Core Retail portfolio as at December 31, 2019. The largest ten tenants in our portfolio accounted for approximately 21.3% of minimum rents, tenant recoveries and other.
TenantDoing Business As:
Exposure (%)(1)

L Brands, Inc.Victoria's Secret, Bath & Body Works, PINK3.8%
Foot Locker, Inc.Footlocker, Champs Sports, Footaction USA, House of Hoops2.9%
LVMHLouis Vuitton, Sephora, Fendi, Bulgari, Dior, Tag Heuer2.7%
The Gap, Inc.Gap, Banana Republic, Old Navy, Athleta2.3%
Forever 21 Retail, Inc.Forever 212.0%
Signet Jewelers LimitedZales, Gordon's, Kay, Jared1.6%
American Eagle Outfitters, Inc.American Eagle, Aerie1.5%
Ascena Retail GroupAnn Taylor, Loft, Justice, Lane Bryant1.5%
Abercrombie & Fitch Stores, Inc.Abercrombie, Abercrombie & Fitch, Hollister1.5%
Express, Inc.Express, Express Men, Express Factory1.5%
Total 21.3%
(1) 
Exposure is a percentage of minimum rents and tenant recoveries.

Lease Roll-over Risk
Lease roll-over risk arises from the possibility that we may experience difficulty renewing leases as they expire or in re-leasing space vacated by tenants upon early lease expiry. We attempt to stagger the lease expiry profile so that we are not faced with disproportionate amounts of space expiring in any one year. On average, approximately 7.6% of our Core Office and Core Retail leases mature annually up to 2024. Our Core Office and Core Retail leases have a weighted average remaining lease life of approximately 7.2 years. We further mitigate this risk by maintaining a diversified portfolio mix by geographic location and by pro-actively leasing space in advance of its contractual expiry.

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The following table sets out lease expiries, by square footage, for our office, retail and logistics portfolios at December 31, 2019, including our unconsolidated investments:
 
(Sq. ft. in
thousands)
Current
2020
2021
2022
2023
2024
2025
2026
2027 and Total
Beyond 
Core Office5,614
1,825
3,612
5,820
3,627
3,882
5,276
4,406
43,416 77,478
Expiring %7.2%2.4%4.7%7.5%4.7%5.0%6.8%5.7%56.0%100.0%
Core Retail(1)
2,024
5,697
5,800
6,163
5,170
6,062
5,075
3,892
13,642 53,525
Expiring %3.8%10.6%10.8%11.5%9.7%11.3%9.5%7.3%25.5%100.0%
(1) 
Represents regional malls only and excludes traditional anchor and specialty leasing agreements.

Tax Risk
We are subject to income taxes in various jurisdictions, and our tax liabilities are dependent upon the distribution of income among these different 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 change our effective tax rate, which could adversely affect our profitability and results of operations.
 
Environmental Risk
As an owner of real property, we are subject to various federal, provincial, state and municipal laws relating to environmental matters. Such laws provide that we could be liable for the costs of removing certain hazardous substances and remediating certain hazardous locations. The failure to remove such substances or remediate such locations, if any, could adversely affect our ability to sell such real estate or to borrow using such real estate as collateral and could potentially result in claims against us. We are not aware of any material non-compliance with environmental laws at any of our properties nor are we aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection with any of our properties or any pending or threatened claims relating to environmental conditions at our properties.
 
We will continue to make the necessary capital and operating expenditures to ensure that we are compliant with environmental laws and regulations. Although there can be no assurances, we do not believe that costs relating to environmental matters will have a materially adverse effect on our business, financial condition or results of operations. However, environmental laws and regulations can change and we may 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 Risk
Real estate is relatively illiquid. Such illiquidity may limit our ability to vary our portfolio promptly in response to changing economic or investment conditions. Also, financial difficulties of other property owners resulting in distressed sales could depress real estate values in the markets in which we operate.
 
Our commercial properties generate a relatively stable source of income from contractual tenant rent payments. Continued growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies. We are substantially protected against short-term market conditions, as most of our leases are long-term in nature with an average term of over seven years.
 
Insurance Risk
Our insurance may not cover some potential losses or may not be obtainable at commercially reasonable rates. We maintain insurance on our properties in amounts and with deductibles that we believe are in line with what owners of similar properties carry. We maintain all risk property insurance and rental value coverage (including coverage for the perils of flood, earthquake and weather catastrophe).
 

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Interest Rate and Financing Risk
We have an on-going need to access debt markets to refinance maturing debt as 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 at all. Our strategy to stagger the maturities of our mortgage portfolio attempts to mitigate our exposure to excessive amounts of debt maturing in any one year and to maintain relationships with a large number of lenders to limit exposure to any one counterparty.
 
Approximately 45% of our outstanding debt obligations at December 31, 2019 are floating rate debt compared to 47% at December 31, 2018. This debt is subject to fluctuations in interest rates. A 100 basis point increase in interest rates relating to our corporate and commercial floating rate debt obligations would result in an increase in annual interest expense of approximately $250 million. A 100 basis point increase in interest rates relating to fixed rate debt obligations due within one year would result in an increase in annual interest expense of approximately $7 million upon refinancing. In addition, we have exposure to interest rates within our equity accounted investments. We have mitigated, to some extent, the exposure to interest rate fluctuations through interest rate derivative contracts. See “Derivative Financial Instruments” below in this MD&A.
 
At December 31, 2019, our consolidated debt to capitalization was 54% (December 31, 2018 – 56%). It is our view this level of indebtedness is conservative given the cash flow characteristics of our properties and the fair value of our assets. Based on this, we believe that all debts will be financed or repaid as they come due in the foreseeable future.
 
Foreign Exchange Risk
As at and for the year ended December 31, 2019, approximately 31% of our assets and 28% of our revenues originated outside the United States and consequently are subject to foreign currency risk due to potential fluctuations in exchange rates between these currencies and the U.S. Dollar. To mitigate this risk, we attempt to maintain a natural hedged position with respect to the carrying value of assets through debt agreements denominated in local currencies and, from time to time, supplemented through the use of derivative contracts as discussed under “Derivative Financial Instruments”.
    
The following table shows the impact of a 10% change in foreign exchange rates on net income and other comprehensive income:
 
 Dec. 31, 2019
(Millions)Equity attributable to Unitholders OCI
Net income
Canadian Dollar(1)
C$377
$(29)$
Australian DollarA$2,154
(151)
British Pound£3,275
(434)
Euro339
(38)
Brazilian RealR$3,310
(82)
Indian RupeeRs26,628
(37)
Chinese Yuan933
(13)
South Korean Won160,969
(14)
United Arab Emirates DirhamAED683
(19)
Czech KorunaCZK10


Hungarian ForintHUF314


Poland ZlotyPLN3


Total  $(817)$
(1) 
Net of Canadian Dollar denominated loans.


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 Dec. 31, 2018
(Millions)Equity attributable to Unitholders OCI
Net income
Canadian Dollar(1)
C$58
$(4)$
Australian DollarA$2,977
(210)
British Pound£3,965
(506)
Euro505
(58)
Brazilian RealR$2,823
(73)
Indian RupeeRs25,022
(36)
Hong Kong DollarHK$(75)1

Chinese Yuan1,593
(23)
South Korean Won245,507
(22)
United Arab Emirates DirhamAED451
(12)
Total  $(943)$
(1) 
Net of Canadian Dollar denominated loans.

 Dec. 31, 2017
(Millions)Equity attributable to Unitholders OCI
Net income
Canadian Dollar(1)
C$4
$
$
Australian DollarA$2,679
(209)
British Pound£3,719
(503)
Euro213
(26)
Brazilian RealR$2,591
(78)
Indian RupeeRs15,904
(25)
Hong Kong DollarHK$(75)1

Chinese Yuan1,207
(19)
South Korean Won232,345
(22)
United Arab Emirates DirhamAED451
(12)
Total  
$(893)$
(1) 
Net of Canadian Dollar denominated loans.


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DERIVATIVE FINANCIAL INSTRUMENTS
We 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 approved limits. We do not use derivatives for speculative purposes. We and our operating entities use the following derivative instruments to manage these risks:
 
Foreign currency forward contracts to hedge exposures to Canadian Dollar, Australian Dollar, British Pound, Euro, Chinese Yuan, Brazilian Real, Indian Rupee and South Korean Won denominated 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
Cross currency swaps to manage interest rate and foreign currency exchange rates on existing variable rate debt.

We also designate Canadian Dollar financial liabilities of certain of our operating entities as hedges of our net investments in our Canadian operations.

Interest Rate Hedging
The following table provides our partnership’s outstanding derivatives that are designated as cash flow hedges of variability in interest rates associated with forecasted fixed rate financings and existing variable rate debt as of December 31, 2019 and 2018:

(US$ Millions)Hedging itemNotional
RatesMaturity datesFair value
Dec. 31, 2019Interest rate caps of US$ LIBOR debt$7,774
2.7% - 6.0%May. 2020 - Sep. 2023$
 Interest rate swaps of US$ LIBOR debt2,877
1.4% - 2.7%Feb. 2020 - Feb. 2024(57)
 Interest rate caps of £ LIBOR debt3,096
2.0% - 2.5%Jan. 2021 - Jan. 2022
 Interest rate swaps of £ LIBOR debt74
1.5%Apr. 2020
 Interest rate caps of € EURIBOR debt109
1.3%Apr. 2021
 Interest rate caps of C$ LIBOR debt184
3.0%Oct. 2020 - Oct. 2022
 Cross currency swaps of C$ LIBOR Debt600
4.3% - 5.0%Oct. 2021 - Mar. 2024(95)
Dec. 31, 2018Interest rate caps of US$ LIBOR debt$8,180
2.3% - 6.0%Jan. 2019 - Sep. 2023$2
 Interest rate swaps of US$ LIBOR debt1,731
1.6% - 2.8%Feb. 2020 - May 2024(2)
 Interest rate caps of £ LIBOR debt486
2.0%Apr. 2020 - Jan. 2021
 Interest rate swaps of £ LIBOR debt67
1.5%Apr. 2020
 Interest rate caps of € EURIBOR debt115
1.0% - 1.3%Apr. 2020 - Apr. 2021
 Interest rate caps of C$ LIBOR debt176
3.0%Oct. 2020 - Oct. 2022
 Interest rate swaps of C$ LIBOR debt56
4.6%Sep. 2023
 Interest rate swaps on forecasted fixed rate debt100
4.0%Jun. 2019(114)
 
For the year ended December 31, 2019, the amount of hedge ineffectiveness recorded in earnings in connection with our partnership’s interest rate hedging activities totaled $22 million. (December 31, 2018 - $37 million).

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Foreign Currency Hedging

The following table presents the partnership's outstanding derivatives that are designated as net investment hedges in foreign subsidiaries or cash flow hedges as of December 31, 2019 and 2018:

(US$ Millions)Hedging itemNet Notional RatesMaturity datesFair value
Dec. 31, 2019Net investment hedges245
 €0.85/$ - €0.91/$ Mar. 2020 - Jul. 20207
 Net investment hedges£2,444
 £0.74/$ - £0.85/$ Jan. 2020 - Sep. 2021(247)
 Net investment hedgesA$238
 A$1.38/$ - A$1.48/$ Mar. 2020 - Mar. 2021(5)
 Net investment hedges962
 C¥6.75/$ - C¥7.16/$ Apr. 2020 - Jun. 2021
 Net investment hedgesC$355
 C$1.31/$ - C$1.33/$ Jun. 2020 - Sep. 2021
 Net investment hedgesR$1,582
 R$4.16/$ - R$4.16/$ Jun. 2020 - Jun. 2020(10)
 Net investment hedges720,095
 ₩1,149.50/$ - ₩1,174.30/$ Mar. 2020 - Mar. 2021(7)
 Net investment hedgesRs
 Rs71.78/$ - Rs73.01/$ Mar. 2020 - Apr. 2020
 Net investment hedges£77
 £0.88/€ - £0.93/€ Jan. 2020 - Apr. 2021
 Cross currency swaps of C$ LIBOR debtC$800
C$1.29/$ - C$1.33/$Oct. 2021 - Jul. 2023(8)
Dec. 31, 2018Net investment hedges649
€0.78/$ - €0.88/$Jan. 2019 - May 2020$13
 Net investment hedges£3,175
£0.70/$ - £0.79/$Feb. 2019 - Mar. 2020104
 Net investment hedgesA$1,038
A$1.28/$ - A$1.42/$Jan. 2019 - Mar. 202020
 Net investment hedges2,672
C¥6.35/$ - C¥6.91/$Jan. 2019 - Nov. 20196
 Net investment hedgesC$118
C$1.29/$ - C$1.34/$Oct. 2019 - Nov 20194
 Net investment hedgesR$158
R$3.90/$ - R$4.24/$Jan. 2019 - Jun. 2019(9)
 Net investment hedges618,589
 ₩1,087.00/$ - ₩1,130.90/$Jan. 2019 - Nov. 20191
 Net investment hedgesRs31,422
Rs67.44/$ - Rs70.39/$Feb. 2019 - May 20193
 Net investment hedges£77
£0.88/€ - £0.92/€Jan. 2019 - Feb. 2020(1)
 Cross currency swaps of C$ LIBOR debtC$800
C$1.29/$ - C$1.33/$Oct. 2021 - Jul. 2023(31)

For the years ended December 31, 2019 and 2018, the amount of hedge ineffectiveness recorded in earnings in connection with the partnership’s foreign currency hedging activities was not significant.

Other Derivatives
The following tables provide detail of the partnership’s other derivatives, not designated as hedges for accounting purposes, that have been entered into to manage financial risks as of December 31, 2019 and December 31, 2018:
 
(US$ millions)Derivative typeNotional
RatesMaturity datesFair value
Dec. 31, 2019Interest rate caps$5,663
2.5% - 5.0%Mar. 2020 - Nov. 2021$
 Interest rate swaps on forecasted fixed rate debt1,285
1.1% - 6.4%Jun. 2020 - Sep. 2031(149)
 Interest rate swaps of US$ debt2,003
1.7% - 4.6%Nov. 2020 - Sep. 2023(14)
Dec. 31, 2018Interest rate caps$9,750
3.0% - 7.0%Mar. 2019 - Jan. 2022$1
 Interest rate swaps on forecasted fixed rate debt1,660
2.3% - 6.1%Jun. 2019 - Nov. 2030(67)
 Interest rate swaps of US$ debt835
2.4% - 5.8%Jul. 2019 - Oct. 2039(14)
 Interest rate swaps on fixed rate debt180
4.5% - 7.3%Feb. 2019 - Jul. 20232
    
Our partnership recognized fair value (losses) gains, net of approximately $(70) million (December 31, 2018 - gain of $29 million) related to the settlement of certain forward starting interest rate swaps that have not been designated as hedges.

RELATED PARTIES
In the normal course of operations, the partnership enters into transactions with related parties. These transactions are recognized in the consolidated financial statements. These transactions have been measured at exchange value and are recognized in the consolidated financial statements. The immediate parent of the partnership is the BPY 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, certain joint ventures and associates accounted for under the equity method, as well as officers of such entities and their spouses.

The partnership has a management agreement with its service providers, wholly-owned subsidiaries of Brookfield Asset Management. Pursuant to a Master Services Agreement, the partnership pays a base management fee (“base management fee”), to

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the service providers equal to 0.5% of the total capitalization of the partnership, subject to an annual minimum of $50 million, plus annual inflation adjustments. The calculation of the equity enhancement distribution is reduced by the amount by which the base management fee is greater than $50 million per annum, plus annual inflation adjustments, to maintain a fee level in aggregate that would be the same as prior to the amendment. In connection with the GGP acquisition, the Master Services Agreement was amended so that the base management fee took into account any management fee payable by BPR under its master services agreement with Brookfield Asset Management and certain of its subsidiaries.

The base management fee for the year ended December 31, 2019 was $107 million (2018 - $83 million, 2017 - $104 million). The equity enhancement distribution for the year ended December 31, 2019 was $26 million (2018 - $1 million, 2017 - $26 million).

In connection with the issuance of Preferred Equity Units to the Class A Preferred Unitholder in 2014, Brookfield Asset Management has contingently agreed to acquire the seven-year and ten-year tranches of Preferred Equity Units from the Class A Preferred Unitholder for the initial issuance price plus accrued and unpaid distributions and to exchange such units for Preferred Equity Units with terms and conditions substantially similar to the twelve-year tranche to the extent that the market price of the LP Units is less than 80% of the exchange price at maturity.
 
The following table summarizes transactions and balances with related parties:

(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Balances outstanding with related parties: 
 
Participating loan interests$
$268
Net (payables)/receivables within equity accounted investments(81)(26)
Loans and notes receivable(1)
102
54
Receivables and other assets17
50
Deposit and promissory note from Brookfield Asset Management(2)

(733)
Property-specific obligations(3)

(231)
Loans and notes payable and other liabilities(196)(50)
Capital securities held by Brookfield Asset Management(4)

(420)
Preferred shares held by Brookfield Asset Management(15)(15)
(1) 
At December 31, 2019, includes nil (December 31, 2018 - $54 million) receivable from Brookfield Asset Management upon the earlier of the exercise of our option to convert our participating loan interests into direct ownership of the Australian portfolio or the maturity of the participating loan interests.
(2) 
The deposit and promissory note from Brookfield Asset Management were repaid during the year ended December 31, 2019.
(3) 
We exercised our option to acquire properties in Australia from Brookfield Asset Management during the year, therefore the property-specific obligations are now consolidated.
(4) 
In 2019, approximately $420 million of the Brookfield BPY Holdings Inc. Class B Junior Preferred Shares, held by Brookfield Asset Management, were redeemed.

(US$ Millions) Years ended Dec. 31,2019
2018
2017
Transactions with related parties: 
 
 
Commercial property revenue(1)
$26
$22
$19
Management fee income35
5
6
Participating loan interests (including fair value gains, net)50
53
86
Interest expense on debt obligations48
44
29
Interest on capital securities held by Brookfield Asset Management8
64
83
General and administrative expense(2)
198
192
204
Construction costs(3)
411
397
295
Incentive Fees(4)
104


(1) 
Amounts received from Brookfield Asset Management and its subsidiaries for the rental of office premises.
(2) 
Includes amounts paid to Brookfield Asset Management and its subsidiaries for management fees, management fees associated with the Brookfield-sponsored real estate opportunistic funds, and administrative services.
(3) 
Includes amounts paid to Brookfield Asset Management and its subsidiaries for construction costs of development properties.
(4) 
Represents incentive fees the partnership is obligated to pay to the general partner of the partnership’s various fund investments.

During the fourth quarter of 2019, we converted our economic interest, through our participating loan agreements, in a portfolio of properties in Australia owned by Brookfield Asset Management into direct ownership interests.

During the third and fourth quarters of 2019, we sold partial interest in two multifamily developments in Brooklyn, NY and a retail development in Connecticut into the BOZ fund. Upon the final close of BOZ fund in the fourth quarter of 2019, our interests in these development assets were diluted, which resulted in the deconsolidation of the assets and accounting classification as a financial asset.


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During the first quarter of 2018, we along with BPREP acquired a 25% and 75% interest, respectively, in 333 West 34th Street, an office building in New York for $255 million.

During the third quarter of 2018, we sold 27.5% of our interest in a portfolio of operating and development assets in New York. We retain control over and will continue to consolidate these assets after the sale. The interest was sold to Brookfield Asset Management for consideration of approximately $1.4 billion.

During the fourth quarter of 2018, we launched BPREP Australia, an open-ended fund. We contributed interests in Jessie Street, 52 Goulburn Street and 680 George Street in Sydney and 235 St Georges Terrace in Perth to BPREP Australia. Our interest in BPREP Australia is 39%, with the remaining interest of 61% held by external investors. We will continue to consolidate the properties contributed to BPREP Australia, except for 680 George Street, which we will continue to account for under the equity method.


    

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PORTFOLIO LISTING
The following table presents details of our property portfolio as of December 31, 2019:
Core Office Property Portfolio Assets under management 
Proportionate at subsidiary
level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019Number of properties% Leased
Leasable Parking Total Owned % Leasable Total Leasable Total Leasable Total
(Sq. ft in 000’s)         
CONSOLIDATED PROPERTIES                   
United States 
 
 
  
  
  
  
  
  
  
  
  
Midtown New York2
100.0%1,466
 31
 1,497
 80.9% 1,194
 1,211
 1,194
 1,211
 599
 608
Downtown New York6
96.5%7,950
 488
 8,438
 72.6% 5,769
 6,123
 5,769
 6,123
 2,892
 3,070
Washington, D.C.12
91.6%2,887
 1,796
 4,683
 94.1% 2,719
 4,407
 2,719
 4,407
 1,363
 2,209
Los Angeles8
83.3%8,620
 4,283
 12,903
 47.3% 4,078
 6,104
 4,078
 6,104
 2,045
 3,061
Houston5
81.4%5,022
 1,185
 6,207
 86.6% 4,363
 5,373
 4,363
 5,373
 2,188
 2,694
San Francisco2
86.0%623
 6
 629
 33.1% 206
 208
 206
 208
 104
 105
 35
88.8%26,568
 7,789
 34,357
 68.2% 18,329
 23,426
 18,329
 23,426
 9,191
 11,747
Canada 
 
 
  
  
  
  
  
  
  
  
  
Toronto10
98.7%8,780
 1,704
 10,484
 55.7% 4,835
 5,844
 4,835
 5,844
 2,425
 2,931
Calgary9
93.4%7,176
 1,215
 8,391
 58.7% 4,307
 4,923
 4,307
 4,923
 2,160
 2,469
Ottawa5
91.3%1,180
 696
 1,876
 25.1% 298
 471
 298
 471
 150
 237
 24
96.0%17,136
 3,615
 20,751
 54.2% 9,440
 11,238
 9,440
 11,238
 4,735
 5,637
Australia and New Zealand 
  
  
  
  
  
  
  
  
  
Sydney1
99.5%248
 74
 322
 24.1% 60
 78
 60
 78
 30
 39
Melbourne2
99.9%509
 15
 524
 49.5% 252
 260
 252
 260
 127
 131
Brisbane1
86.6%301
 34
 335
 49.9% 151
 167
 151
 167
 76
 84
Perth4
95.2%1,886
 271
 2,157
 81.4% 1,535
 1,755
 1,535
 1,755
 770
 880
 8
95.5%2,944
 394
 3,338
 67.7% 1,998
 2,260
 1,998
 2,260
 1,003
 1,134
United Kingdom 
 
 
  
  
  
  
  
  
  
  
  
London3
95.6%509
 16
 525
 100.0% 509
 525
 509
 525
 255
 263
 3
95.6%509
 16
 525
 100.0% 509
 525
 509
 525
 255
 263
Brazil 
 
 
  
  
  
  
  
  
  
  
  
São Paulo1
100.0%276
 209
 485
 51.0% 141
 248
 141
 248
 71
 125
Rio de Janeiro1
100.0%213
 64
 277
 67.0% 142
 185
 142
 185
 72
 94
 2
100.0%489
 273
 762
 26.7% 283
 433
 283
 433
 143
 219
Total Consolidated Properties72
92.0%47,646

12,087

59,733
 63.4% 30,559
 37,882
 30,559
 37,882
 15,327
 19,000
                      
UNCONSOLIDATED PROPERTIES 
  
  
  
  
  
  
  
  
  
United States 
 
 
  
  
  
  
  
  
  
  
  
Midtown New York3
93.1%3,477
 87
 3,564
 36.4% 1,255
 1,284
 1,255
 1,284
 1,051
 1,066
Downtown New York2
97.0%4,927
 65
 4,992
 23.2% 1,149
 1,156
 1,149
 1,156
 573
 576
Washington, D.C.12
90.7%2,963
 959
 3,922
 42.5% 1,255
 1,658
 1,255
 1,658
 626
 827
Los Angeles2
92.0%371
 389
 760
 42.0% 157
 321
 157
 321
 78
 160
Houston1
98.9%1,135
 699
 1,834
 10.0% 113
 183
 113
 183
 56
 91
Denver1
88.2%1,337
 512
 1,849
 50.0% 669
 924
 669
 924
 334
 461
 21
93.9%14,210
 2,711
 16,921
 32.8% 4,598
 5,526
 4,598
 5,526
 2,718
 3,181
Australia and New Zealand 
  
  
  
  
  
  
  
  
  
Sydney1
100.0%731
 134
 865
 24.0% 176
 208
 176
 208
 88
 104
Melbourne1
99.9%858
 341
 1,199
 50.0% 429
 599
 429
 599
 214
 299
 2
99.9%1,589
 475
 2,064
 39.1% 605
 807
 605
 807
 302
 403
United Kingdom 
 
 
  
  
  
  
  
  
  
  
  
London25
96.1%9,716
 1,152
 10,868
 43.7% 4,180
 4,749
 4,180
 4,749
 2,086
 2,370
 25
96.1%9,716

1,152

10,868

43.7%
4,180

4,749

4,180

4,749

2,086

2,370
Germany                     
Berlin16
88.8%2,478
 1,169
 3,647
 25.0% 620
 913
 620
 912
 310
 456
 16
88.8%2,478

1,169

3,647

25.0%
620

913

620

912

310

456
Total Unconsolidated Properties64
94.6%27,993
 5,507
 33,500
 35.9% 10,003
 11,995
 10,003
 11,994
 5,416
 6,410
Total Core Office Properties136
92.9%75,639
 17,594
 93,233
 53.5% 40,562
 49,877
 40,562
 49,876
 20,743
 25,410
(1) 
Reflects our partnership’s interest before considering non-controlling interests in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.


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Opportunistic Office Property Portfolio Assets under management 
Proportionate at subsidiary
level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019Number of properties% Leased
Leasable Parking Total Owned % Leasable Total Leasable Total Leasable Total
(Sq. ft in 000’s)         
CONSOLIDATED PROPERTIES                   
United States 
 
 
  
  
  
  
  
  
  
  
  
Washington, D.C.13
81.2%2,048
 
 2,048
 100.0% 2,048
 2,048
 523
 523
 262
 262
Los Angeles2
18.1%1,980
 782
 2,762
 100.0% 1,980
 2,763
 510
 711
 256
 357
Chicago1
61.4%1,448
 
 1,448
 100.0% 1,448
 1,448
 370
 370
 186
 186
San Francisco / San Jose2
73.5%409
 
 409
 100.0% 409
 409
 105
 105
 53
 53
Houston5
69.6%4,207
 571
 4,778
 100.0% 4,207
 4,778
 1,075
 1,221
 539
 612
Dallas6
67.9%467
 
 467
 100.0% 467
 467
 142
 142
 71
 71
 29
61.1%10,559
 1,353
 11,912
 100.0% 10,559
 11,913
 2,725
 3,072
 1,367
 1,541
United Kingdom 
 
 
  
  
  
  
  
  
  
  
  
London1
97.5%661
 48
 709
 100.0% 661
 709
 203
 218
 102
 109
 1
97.5%661
 48
 709
 100.0% 661
 709
 203
 218
 102
 109
Brazil 
 
 
  
  
  
  
  
  
  
  
  
Rio de Janeiro5
91.5%1,720
 
 1,720
 100.0% 1,720
 1,720
 554
 554
 278
 278
São Paulo4
73.5%1,221
 
 1,221
 100.0% 1,221
 1,221
 394
 394
 198
 198
 9
84.0%2,941
 
 2,941
 100.0% 2,941
 2,941
 948
 948
 476
 476
India 
 
 
  
  
    
  
  
  
  
  
NCR (Delhi region)41
90.6%11,431
 6,581
 18,012
 90.5% 10,348
 16,306
 3,386
 5,335
 1,698
 2,675
Kolkata12
90.8%3,055
 1,097
 4,152
 100.0% 3,055
 4,152
 1,000
 1,358
 501
 681
Mumbai21
87.6%5,551
 
 5,551
 100.0% 5,551
 5,551
 1,789
 1,789
 897
 897
 74
89.8%20,037
 7,678
 27,715
 93.8% 18,954
 26,009
 6,175
 8,482
 3,096
 4,253
Total Consolidated Properties113
80.6%34,198
 9,079
 43,277
 96.1% 33,115
 41,572
 10,051
 12,720
 5,041
 6,379
                      
Total Opportunistic Office Properties113
80.6%34,198
 9,079
 43,277
 96.1% 33,115
 41,572
 10,051
 12,720
 5,041
 6,379
(1) 
Reflects our partnership’s interest before considering non-controlling interests in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

Core Retail Property Portfolio(1)
     Assets under
management
 
Proportionate at subsidiary level(2)
 
Proportionate to Unitholders(3)
 
Proportionate to LP Unitholders(4)
Dec. 31, 2019 Number of
properties

 % Leased
 Total Owned % Total Total Total
(Sq. ft. in 000’s)       
CONSOLIDATED PROPERTIES  
  
  
  
  
U.S. Properties  
  
  
  
  
  
  
Pacific region 9
 95.4% 5,871
 99.7% 5,855
 4,321
 2,167
Southwest region 10
 96.4% 11,353
 99.7% 11,322
 5,159
 2,587
East North Central region 7
 96.4% 5,943
 99.7% 5,927
 3,663
 1,837
Southeast region 5
 96.3% 5,486
 99.7% 5,471
 3,109
 1,559
Mideast region 8
 95.9% 7,382
 98.1% 7,239
 4,313
 2,163
Mountain region 5
 94.2% 5,035
 99.7% 5,021
 2,556
 1,282
Northeast region 13
 94.7% 9,502
 99.0% 9,408
 5,845
 2,931
West North Central region 5
 94.8% 4,686
 99.7% 4,673
 2,908
 1,458
Total Consolidated Properties 62
 95.6% 55,258
 99.4% 54,916
 31,874
 15,984
UNCONSOLIDATED PROPERTIES  
  
  
  
  
U.S. Properties  
  
  
  
  
  
  
Pacific region 10
 97.6% 10,649
 49.7% 5,298
 3,368
 1,689
Southwest region 7
 98.8% 10,218
 48.7% 4,972
 2,489
 1,248
East North Central region 7
 95.6% 7,755
 49.4% 3,830
 2,752
 1,380
Southeast region 11
 94.7% 10,722
 47.6% 5,106
 2,849
 1,429
Mideast region 8
 96.1% 8,299
 46.6% 3,869
 2,181
 1,094
Mountain region 7
 97.3% 8,209
 50.6% 4,155
 2,447
 1,227
Northeast region 5
 97.3% 4,780
 46.1% 2,206
 1,307
 655
West North Central region 5
 96.5% 4,636
 57.1% 2,645
 1,256
 630
Total Unconsolidated Properties 60
 96.7% 65,268
 49.2% 32,081
 18,649
 9,352
Total Core Retail Properties 122
 96.4% 120,526
 80.9% 86,997
 50,523
 25,336

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(1) 
Does not include non-regional malls
(2) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(3) 
Reflects our partnership’s interest net of non-controlling interests described in note (2) above.
(4) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (3) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

Opportunistic Retail Property Portfolio(1)
     Assets under
management
 
Proportionate at subsidiary level(2)
 
Proportionate to Unitholders(3)
 
Proportionate to LP Unitholders(4)
Dec. 31, 2019 Number of
properties

 % Leased
 Total Owned % Total Total Total
(Sq. ft. in 000’s)       
CONSOLIDATED PROPERTIES  
  
  
  
  
U.S. Properties  
  
  
  
  
  
  
Pacific region 8
 88.4% 6,365
 100.0% 6,365
 3,203
 1,606
Southwest region 6
 83.9% 3,169
 100.0% 3,169
 1,519
 762
East North Central region 6
 84.0% 4,294
 100.0% 4,294
 2,161
 1,084
Southeast region 3
 85.4% 2,915
 87.8% 2,559
 1,288
 646
Mideast region 5
 87.9% 3,990
 100.0% 3,990
 2,008
 1,007
Mountain region 5
 88.4% 1,724
 100.0% 1,724
 868
 435
Northeast region 4
 86.9% 2,329
 63.0% 1,468
 618
 310
  37
 86.5% 24,786
 95.1% 23,569
 11,665
 5,850
Total Consolidated Properties 37
 86.5% 24,786
 95.1% 23,569
 11,665
 5,850
UNCONSOLIDATED PROPERTIES          
Brazil              
São Paulo 3
 97.3% 805
 42.1% 339
 157
 78
Rio de Janeiro 2
 96.9% 961
 73.1% 703
 324
 163
  5
 97.1% 1,766
 59.0% 1,042
 481
 241
Total Unconsolidated Properties 5
 97.1% 1,766
 59.0% 1,042
 481
 241
Total Opportunistic Retail Properties 42
 87.2% 26,552
 92.7% 24,611
 12,146
 6,091
(1) 
Does not include non-regional malls; includes anchor space.
(2) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(3) 
Reflects our partnership’s interest net of non-controlling interests described in note (2) above.
(4) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (3) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

Logistics Property Portfolio   
Assets under
management
 
Proportionate at  subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 Number of properties Total Owned % Total Total Total
(Sq. ft. in 000’s)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
China 1
 357
 76.0% 271
 84
 42
  1
 357
 76.0% 271
 84
 42
Total Logistics Properties 1

357
 76.0% 271
 84
 42
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.


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Multifamily Property Portfolio   Assets under management 
Proportionate  at subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 
Number of
properties
 Total Owned % Total Total Total
(Units)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
United States  
  
  
  
  
  
Ohio 15
 2,884
 100.0% 2,884
 736
 369
Virginia 6
 1,882
 100.0% 1,882
 480
 241
California 4
 1,488
 100.0% 1,488
 444
 223
Georgia 3
 1,304
 100.0% 1,304
 354
 178
Florida 4
 1,294
 100.0% 1,294
 330
 166
Nevada 3
 1,194
 100.0% 1,194
 356
 179
New York 1
 1,190
 100.0% 1,190
 361
 181
Texas 3
 855
 100.0% 855
 232
 116
North Carolina 3
 850
 100.0% 850
 217
 109
Maryland 3
 841
 100.0% 841
 245
 123
Indiana 3
 836
 100.0% 836
 213
 107
Arizona 1
 168
 100.0% 168
 50
 25
Total Consolidated Properties 49
 14,786
 100.0% 14,786
 4,018
 2,017
             
UNCONSOLIDATED PROPERTIES  
  
  
  
  
  
United States  
  
  
  
  
  
California 2
 882
 100.0% 882
 225
 113
Total Unconsolidated Properties 2
 882
 100.0% 882
 225
 113
Total Multifamily Properties 51
 15,668
 100.0% 15,668
 4,243
 2,130
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries and properties.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

Hospitality Property Portfolio   
Assets under
management
 
Proportionate at
subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 
Number of
properties
 Total Owned % Total Total Total
(Rooms)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
North America 118
 17,577
 100.0% 17,577
 4,727
 2,370
United Kingdom 6
 4,819
 100.0% 4,819
 1,315
 659
Canada 1
 1,372
 100.0% 1,372
 351
 176
Total Consolidated Properties 125
 23,768
 100.0% 23,768
 6,393
 3,205
             
UNCONSOLIDATED PROPERTIES  
  
  
  
  
  
North America 4
 2,225
 72.5% 1,614
 376
 189
Australia 1
 433
 100.0% 433
 136
 68
Total Unconsolidated Properties 5
 2,658
 77.0% 2,047
 512
 257
Total Hospitality Properties 130
 26,426
 97.7% 25,815
 6,905
 3,462
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (3) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.
Triple Net Lease Property Portfolio   
Assets under
management
 
Proportionate at subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 
Number of
properties
 Total Owned % Total Total Total
(Sq. ft. in 000’s)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
North America 278
 15,465
 100.0% 15,465
 4,430
 2,221
Total Consolidated Properties 278
 15,465
 100.0% 15,465
 4,430
 2,221
             
Total Triple Net Lease Properties 278
 15,465
 100.0% 15,465
 4,430
 2,221
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.

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(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

Self-Storage Property Portfolio   
Assets under
management
 
Proportionate at subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 
Number of
properties
 Total Owned % Total Total Total
(Sq. ft. in 000’s)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
United States 100
 8,512
 100.0% 8,512
 2,122
 1,064
Total Consolidated Properties 100
 8,512
 100.0% 8,512
 2,122
 1,064
             
Total Self-Storage Properties 100
 8,512
 100.0% 8,512
 2,122
 1,064
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

Student Housing Property Portfolio   
Assets under
management
 
Proportionate at subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 
Number of
properties
 Total Owned % Total Total Total
(Beds)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
United Kingdom 50
 18,799
 100.0% 18,799
 4,757
 2,386
Total Consolidated Properties 50
 18,799
 100.0% 18,799
 4,757
 2,386
             
Total Student Housing Properties 50
 18,799
 100.0% 18,799
 4,757
 2,386
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.
Manufactured Housing Property Portfolio   
Assets under
management
 
Proportionate at subsidiary level(1)
 
Proportionate to Unitholders(2)
 
Proportionate to LP Unitholders(3)
Dec. 31, 2019 
Number of
properties
 Total Owned % Total Total Total
(Sites)      
CONSOLIDATED PROPERTIES  
  
  
  
  
  
United States 136
 32,424
 100.0% 32,424
 8,288
 4,156
Total Consolidated Properties 136
 32,424
 100.0% 32,424
 8,288
 4,156
             
Total Manufactured Housing Properties 136
 32,424
 100.0% 32,424
 8,288
 4,156
(1) 
Reflects our partnership’s interest before considering non-controlling interests of others in operating subsidiaries.
(2) 
Reflects our partnership’s interest net of non-controlling interests described in note (1) above.
(3) 
Reflects our partnership’s proportionate interest net of non-controlling interests described in note (2) above and the Redeemable/Exchangeable Partnership Units and Special LP Units held by Brookfield Asset Management and Exchange LP Units.

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CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The discussion and analysis of our financial condition and results of operations is based upon the Financial Statements, which have been prepared in accordance with IFRS as issued by the IASB. The preparation of the consolidated financial statements, in conformity with IFRS, requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
 
Our most critical accounting policies are those that we believe are the most important in portraying our financial condition and results of operations, and require the most subjectivity and estimates by our management.
 
Investment Properties
Investment properties include commercial properties held to earn rental income and commercial developments that are being constructed or developed for future use as commercial properties. Commercial properties and commercial developments are recorded at fair value, determined based on available market evidence, at the balance sheet date. Substantially all our investment properties are valued using one of two accepted income approaches, the discounted cash flow approach or the direct capitalization approach. Under the discounted cash flow approach, cash flows for each property are forecast for an assumed holding period, generally, ten-years. A capitalization rate is applied to the terminal year net operating income and an appropriate discount rate is applied to those cash flows to determine a value at the reporting date. Under the direct capitalization method, a capitalization rate is applied to estimated stabilized annual net operating income to determine value. We have a number of properties externally appraised each year to support our valuation process and for other business purposes. We compare the results of those external appraisals to our internally prepared values and reconcile significant differences when they arise. Discount and terminal capitalization rates are verified by comparing to market data, third-party reports, research material and brokers opinions. Valuations of investment properties are most sensitive to changes in the discount rate and timing or variability of cash flows. Decreases (increases) in the discount rate or capitalization rate result in increases (decreases) of fair value. Such decreases (increases) may be mitigated by decreases (increases) in cash flows included in the valuation analysis, as circumstances that typically give rise to increased interest rates (e.g., strong economic growth, inflation) usually give rise to increased cash flows at the asset level. We adopted IFRS 16 effective January 1, 2019. We applied IFRS 16 using the modified retrospective approach and comparative periods are not restated. The adoption of IFRS 16 resulted in the recognition of right-of-use assets and lease liabilities for those leases previously classified as operating leases.
 
Borrowing costs associated with direct expenditures on properties under development or redevelopment are capitalized. Borrowing costs are also capitalized on the purchase cost of a site or property acquired specifically for development or redevelopment in the short-term but only where activities necessary to prepare the asset for development or redevelopment are in progress. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross cost incurred on those borrowings less any incidental investment income. Borrowing costs are capitalized from the commencement of the development until the date of practical completion. The capitalization of borrowing costs is suspended if there are prolonged periods when development activity is interrupted. We consider practical completion to have occurred when the property is capable of operating in the manner intended by management. Generally, this occurs upon completion of construction and receipt of all necessary occupancy and other material permits. Where we have pre-leased space as of or prior to the start of the development and the lease requires us to construct tenant improvements which enhance the value of the property, practical completion is considered to occur on completion of such improvements.
 
Initial direct leasing costs we incur in negotiating and arranging tenant leases are added to the carrying amount of investment properties.
 
Business Combinations
We adopted the Amendments to IFRS 3, Business Combinations (“IFRS 3 Amendments”) for business combinations or asset acquisitions occurring after January 1, 2019 in advance of its mandatory effective date January 1, 2020. IFRS 3 Amendments clarifies the definition of a business in determining whether an acquisition is a business combination or an asset acquisition. We account for business combinations in which control is acquired under the acquisition method. We consider three criteria that include input, process and output to assess whether acquired assets and assumed liabilities meet the definition of a business. The acquisition price is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. As a result, our partnership recognizes the acquiree’s identifiable assets and assumed liabilities at their acquisition-date fair values, except for non-current assets classified as held-for-sale, which are recognized at fair value less costs to sell. We also evaluate whether there are intangible assets acquired that have not previously been recognized by the acquiree and recognize them as identifiable intangible assets. The interests of non-controlling shareholders in the acquiree are initially measured at their proportion of the net fair value of the identifiable assets and assumed liabilities recognized.
 

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To the extent that the acquisition price exceeds the fair value of the net identifiable assets, the excess is recorded as goodwill. To the extent the fair value of consideration paid is less than the fair value of net identifiable assets, the excess is recognized as a bargain purchase gain in our partnership’s net income for the respective reporting period.
 
Where a business combination is achieved in stages, previously held interests in the acquired entity are re-measured to fair value at the acquisition date, which is the date control is obtained, and the resulting gain or loss, if any, is recognized in net income. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to net income. Changes in our partnership’s ownership interest of an investee that do not result in a change of control are accounted for as equity transactions and are recorded as a component of equity. Acquisition costs are recorded as an expense in the reporting period as incurred.

In applying this policy, judgment is applied in determining whether an acquisition meets the definition of a business combination or an asset acquisition by considering the nature of the assets acquired, the processes applied to those assets and if the required processes are substantive in nature.
 
Basis of Accounting for Investees
We consolidate an investee when we control the investee, with control existing if and only if we have power over the investee; exposure, or rights, to variable returns from our involvement with the investee; and the ability to use our power over the investee to affect the amount of our partnership’s returns. Whether we consolidate or equity account an investee may have a significant impact on the presentation of our consolidated financial statements, especially as it relates to the consolidation of the operating partnership.
 
In determining if we have power over an investee, we make judgments when identifying which activities of the investee are relevant in significantly affecting returns of the investee and the extent of our existing rights that give us the current ability to direct the relevant activities of the investee. We also make judgments to determine the amount of potential voting rights which provides us or unrelated parties voting powers, the existence of contractual relationships that provide us voting power, the ability to appoint directors and the ability of other investors to remove us as a manager or general partner. We enter into voting agreements to provide our partnership with the ability to contractually direct the relevant activities of the investee (formally referred to as “power” within IFRS 10, Consolidated Financial Statements). In assessing if we have exposure, or rights, to variable returns from our involvement with the investee we make judgments concerning whether returns from an investee are variable and how variable those returns are on the basis of the substance of the arrangement, the size of those returns and the size of those returns relative to others, particularly in circumstances where our voting interest differs from our ownership interest in an investee. In determining if we have the ability to use our power over the investee to affect the amount of our returns we make judgments when we are an investor as to whether we are a principal or agent and whether another entity with decision-making rights is acting as an agent for us. If we determine that we are acting as an agent, as opposed to principal, we do not control the investee.
 
Revaluation Method Hospitality Assets
We account for our investments in hospitality properties as property, plant and equipment under the revaluation model. Hospitality properties are recognized initially at cost or fair value if acquired in a business combination and subsequently carried at fair value at the balance sheet date less any accumulated impairment and subsequent accumulated depreciation. Fair values of North American hospitality properties and the short-break destinations across the United Kingdom owned by Center Parcs UK are determined using a depreciated replacement cost method based on the age, physical condition and the construction costs of the assets. Fair values of the hospitality assets are also reviewed in reference to each hospitality asset’s enterprise value which is determined using a discounted cash flow model.
 
Revaluations of hospitality properties are performed annually at December 31, the end of the fiscal year, to ensure that the carrying amount does not differ significantly from fair value. Where the carrying amount of an asset is increased as a result of a revaluation, the increase is recognized in other comprehensive income and accumulated in equity within revaluation surplus, unless the increase reverses a previously recognized revaluation loss recorded through prior period net income, in which case that portion of the increase is recognized in net income. Where the carrying amount of an asset is decreased, the decrease is recognized in other comprehensive income to the extent of any balance existing in revaluation surplus in respect of the asset, with the remainder of the decrease recognized in net income. Revaluation gains are recognized in other comprehensive income, and are not subsequently recycled into profit or loss. The cumulative revaluation surplus is transferred directly to retained earnings when the asset is derecognized.
 
Taxation
We apply judgment in determining the tax rate applicable to our REIT operating entities and identifying the temporary differences related to such operating entities with respect to which deferred income taxes are recognized. Deferred taxes related to temporary differences arising in our partnership’s REIT operating entities, joint ventures and associates are measured based on the tax rates applicable to distributions received by the investor entity on the basis that REITs can deduct dividends or distributions paid

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such that their liability for income taxes is substantially reduced or eliminated for the year, and we intend that these entities will continue to distribute their taxable income and continue to qualify as REITs for the foreseeable future.
 
We measure deferred income taxes associated with our investment properties based on our specific intention with respect to each asset at the end of the reporting period. Where we have a specific intention to sell a property in the foreseeable future or where existing contractual arrangements create an intention to sell in the future, deferred taxes on the building portion of the investment property are measured based on the tax consequences following from the disposition of the property. Otherwise, deferred taxes are measured on the basis the carrying value of the investment property will be recovered substantially through use. Judgment is required in determining the manner in which the carrying amount of each investment property will be recovered.
 
We also make judgments with respect to the taxation of gains inherent in our investments in foreign subsidiaries and joint ventures. While we believe that the recovery of our original investment in these foreign subsidiaries and joint ventures will not result in additional taxes, certain unremitted gains inherent in those entities could be subject to foreign taxes depending on the manner of realization.
 
Revenue Recognition
For investment properties, we account for our leases with tenants as operating leases as we have retained substantially all of the risks and benefits of ownership of our investment properties. Revenue recognition under a lease commences when the tenant has a right to use the leased asset. Generally, this occurs on the lease commencement date or, where our partnership is required to make additions to the property in the form of tenant improvements which enhance the value of the property, upon substantial completion of the improvements. The total amount of contractual rents expected from operating leases is recognized on a straight-line basis over the term of the lease, including contractual base rent and subsequent rent increases as a result of rent escalation clauses. A rent receivable, included within the carrying amount of investment properties, is used to record the difference between the rental revenue recorded and the contractual amount received.
 
Rent receivables and related revenue also includes percentage participating rents and recoveries of operating expenses. However, recoveries of operating expenses in relation to property taxes as well as property insurance are a component of other rental revenue, separate from the rest of recovery revenue. Percentage participating rents are recognized when tenants’ specified sales targets have been met. Operating expense recoveries, rental or non-rental revenue, are recognized in the period that recoverable costs are chargeable to tenants.
 
With regards to hospitality revenue, we recognize revenue on rooms, food and other revenue as services are provided. We recognize room revenue net of taxes and levies. Advance deposits are deferred and included in accounts payable and other liabilities until services are provided to the customer. We recognize the difference between gaming wins and losses from casino gaming activities as gaming revenue. We recognize liabilities for funds deposited by patrons before gaming play occurs and for chips in the patrons’ possession, both of which are included in accounts payable and other liabilities. Revenue and expenses from tour operations include the sale of travel and leisure packages and are recognized on the day the travel package begins. Amounts collected in advance from guests are deferred and included in accounts payable and other liabilities until such amounts are earned.
 
Financial Instruments
We classify our financial instruments into categories based on the purpose for which the instrument was acquired or issued, its characteristics and our designation of the instrument. The category into which we classify financial instruments determines its measurement basis (e.g., fair value or amortized cost) subsequent to initial recognition. We hold financial instruments that represent secured debt and equity interests in commercial properties that are measured at fair value. Estimation of the fair value of these instruments is subject to the estimates and assumptions associated with the valuation of investment properties. When designating derivatives in cash flow hedging relationships, we make assumptions about the timing and amount of forecasted transactions, including anticipated financings and refinancings.
 
Fair value is the amount that willing parties would accept to exchange a financial instrument based on the current market for instruments with the same risk, principal and remaining maturity. The fair value of interest bearing financial assets and liabilities is determined by discounting the contractual principal and interest payments at estimated current market interest rates for the instrument. Current market rates are determined by reference to current benchmark rates for a similar term and current credit spreads for debt with similar terms and risk.

Use of Estimates
Our partnership makes estimates and assumptions that affect carried amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of earnings for the period. Actual results could differ from estimates. The estimates and assumptions that are critical to the determination of the amounts reported in the consolidated financial statements relate to the following:
 

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(i)   Fair value of investment property
Our partnership determines the fair value of each commercial property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the applicable balance sheet dates, less future cash outflows (including rental payments and other outflows) in respect of such leases. Investment property valuations are completed by undertaking one of two accepted income approach methods, which include either: i) discounting the expected future cash flows, generally over a term of 10 years including a terminal value based on the application of a capitalization rate to estimated year 11 cash flows; or ii) undertaking a direct capitalization approach whereby a capitalization rate is applied to estimated current year cash flows. In determining the appropriateness of the methodology applied, the partnership considers the relative uncertainty of the timing and amount of expected cash flows and the impact such uncertainty would have in arriving at a reliable estimate of fair value. The partnership prepares these valuations considering asset and market specific factors, as well as observable transactions for similar assets. The determination of fair value requires the use of estimates, which the partnership determines using external information including market data, third-party reports and research and observable conditions, where possible, in conjunction with internal analysis.

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. We generally do not measure or record our properties at values prepared by external valuation professionals.
  
(ii)   Fair value of financial instruments
We have certain financial assets and liabilities with embedded participation features related to the values of investment properties whose fair values are based on the fair values of the related properties.
 
We hold other financial instruments that represent equity interests in investment property entities that are measured at fair value as these financial instruments are designated as fair value through profit or loss or fair value through other comprehensive income. Estimation of the fair value of these instruments is also subject to the estimates and assumptions associated with investment properties.
 
The fair value of interest rate caps is determined based on generally accepted pricing models using quoted market interest rates for the appropriate term. Interest rate swaps are valued at the present value of estimated future cash flows and discounted based on applicable yield curves derived from market interest rates.
 
Application of the effective interest method to certain financial instruments involves estimates and assumptions about the timing and amount of future principal and interest payments.

Future Accounting Policy Changes
There are no accounting policies issued that the partnership expects to adopt in the future and which the partnership expects will have a material impact.

5.B.    LIQUIDITY AND CAPITAL RESOURCES
 
The capital of our business consists of debt obligations, capital securities, preferred stock and equity. Our objective when managing this capital is to maintain an appropriate balance between holding a sufficient amount of equity capital to support our operations and reducing our weighted average cost of capital to improve our return on equity. At December 31, 2019, capital totaled $103 billion compared with $114 billion at December 31, 2018.
 
We attempt to maintain a level of liquidity to ensure we are able to participate in investment opportunities as they arise and to better withstand sudden adverse changes in economic circumstances. Our primary sources of liquidity include cash, undrawn committed credit facilities, construction facilities, cash flow from operating activities and access to public and private capital markets. In addition, we structure our 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 occupancy rates 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 necessary funds to cover our short-term liquidity needs. However, material changes in the factors described above may adversely affect our net cash flows.
 
Our principal liquidity needs for the current year and for periods beyond include:
 
Recurring expenses;

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Debt service requirements;
Distributions to unitholders;
Capital expenditures deemed mandatory, including tenant improvements;
Development costs not covered under construction loans;
Unfunded committed capital to funds;
Investing activities which could include:
Fulfilling our capital commitments to various funds;
Discretionary capital expenditures;
Property acquisitions;
Future developments; and
Repurchase of our units.

We plan to meet these liquidity needs by accessing our group-wide liquidity of $6,881 million at December 31, 2019 as highlighted in the table below. In addition, we have the ability to supplement this liquidity through cash generated from operating activities, asset sales, co-investor interests and financing opportunities.
 
(US$ Millions)Dec. 31, 2019
Dec. 31, 2018
Proportionate cash retained at subsidiaries1,587
2,057
Proportionate availability under subsidiary credit facilities4,058
3,092
Proportionate availability under construction facilities1,236
1,544
Group-wide liquidity(1)
$6,881
$6,693
(1) 
This includes liquidity of investments which are not controlled and can only be obtained through distributions which the partnership does not control.
 
We finance our assets principally at the operating company level with asset-specific debt that generally has long maturities, few restrictive covenants and with recourse only to the asset. We endeavor to maintain prudent levels of debt and strive to ladder our principal repayments over a number of years.
 
The following table summarizes our secured debt obligations on investment properties by contractual maturity over the next five years and thereafter:
 
(US$ Millions, except where noted)Dec. 31, 2019
2020$5,657
20218,270
20223,908
20233,617
20248,507
Thereafter11,676
Deferred financing costs(374)
Secured debt obligations$41,261
Debt to capital ratio55%

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 2020 to 2021. Currently our debt to capital ratio is 55%. We are focused on decreasing our debt to capital ratio to 50% through repayment of capital securities and credit facilities with cash flows that we expect from the completion of our active development pipeline with completion dates of 2020 to 2022.

Our partnership’s operating subsidiaries are subject to limited covenants in respect of their corporate debt and are in full compliance with all such covenants at December 31, 2019. The partnership’s operating subsidiaries are also in compliance with all covenants and other capital requirements related to regulatory or contractual obligations of material consequence to our partnership. Summaries of our debt profile for each of our segments are included elsewhere in this Form 20-F.

For the years ended December 31, 2019, 2018 and 2017, the partnership made distributions to unitholders of $1,266 million, $1,059 million and $830 million, respectively. This compares to cash flow from operating activities of $624 million, $1,357 million and $639 million, respectively, for each of the three years then ended. In 2019 and 2017, distributions exceeded cash flow from operating activities. The partnership has a number of alternatives at its disposal to fund any difference between the cash flow from operating activities and distributions to unitholders. The partnership is not a passive investor and typically holds positions of control or significant influence over assets in which it invests, enabling the partnership to influence distributions

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from those assets. The partnership will, from time to time, convert some or all of the unrealized fair value gains on investment properties to cash through asset sales, joint ventures or refinancings. The partnership may access its credit facilities in order to temporarily fund its distributions as a result of timing differences between the payments of distributions and cash receipts from its investments. In 2019 and 2017, the partnership funded the gap between its distributions and cash flow from operating activities through approximately $167 million and $1,779 million of realized gains from the disposition of assets with meaningful returns on capital, respectively. Distributions made to unitholders which exceed cash flow from operating activities in future periods may be considered to be a return of capital to unitholders as defined in Canadian Securities Administrators’ National Policy 41-201 - Income Trusts and Indirect Offerings.

 5.C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
 
Not applicable.
 
 5.D.    TREND INFORMATION
 
We will seek to increase the cash flows from our Core Office and Core Retail property activities through continued leasing activity as described below. In particular, we are operating below our historical office occupancy level, which provides the opportunity to expand cash flows through higher occupancy. In addition, we believe that most of our markets have favorable outlooks, which we believe also provides an opportunity for strong growth in lease rates. Our beliefs as to the opportunities for our partnership to increase occupancy levels, lease rates and cash flows are based on assumptions about our business and markets that management believes are reasonable in the circumstances. There can be no assurance as to growth in occupancy levels, lease rates or cash flows. See “Special Note Regarding Forward-Looking Statements”.
 
We believe our global scale and best-in-class operating platforms provide us with a unique competitive advantage as we are able to efficiently allocate capital around the world toward those sectors and geographies where we see the greatest returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. In addition, due to the scale of our stabilized portfolio and flexibility of our balance sheet, our business model is self-funding and does not require us to access capital markets to fund our continued growth.

Given the small amount of new office and retail development that occurred over the last decade and the near total development halt during the global financial crisis, we see an opportunity to advance our development inventory in the near term in response to demand we are seeing in our major markets. In addition, we continue to reposition and redevelop existing retail properties, in particular, a number of the highest performing shopping centers in the United States.
 
 5.E.    OFF-BALANCE SHEET ARRANGEMENTS
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 

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 5.F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 
The following table summarizes our significant contractual obligations as of December 31, 2019:
 
(US$ Millions) 
Payments due by period
Dec. 31, 2019Total
< 1 Year
1 Year
2 Years
3 Years
4 Years
> 5 Years
Debt obligations(1)
$55,390
$8,829
$9,315
$5,605
$6,011
$10,781
$14,849
Capital securities3,075
75
1,536
141
1
547
775
Lease obligations5,301
78
79
77
77
77
4,913
Commitments(2)
1,138
499
226
401
12


   
 
 
 
 
 
Interest expense(3):
      </