Loading...
Docoh

Brookfield Property Partners (BPYPP)

Filed: 26 Feb 21, 5:18pm
0001545772currency:BRL2020-12-31




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
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2020
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 UnitsBPYNasdaq Stock Market
Limited Partnership UnitsBPY.UNToronto Stock Exchange
Preferred Units, Series 1BPYPPNasdaq Stock Market
Preferred Units, Series 2BPYPONasdaq Stock Market
Preferred Units, Series 3BPYPNNasdaq 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: 435,979,195 Limited Partnership Units as of December 31, 2020.
 
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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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 Board
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
 
- 4 -




- 5 -




- 6 -




 
- 7 -




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 (“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 BPYU 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;

“BPYU” are to Brookfield Property REIT Inc.;

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

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

“BPYU Units” are to the shares of Class A Stock of BPYU, 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, triple net lease, manufactured housing, mixed-use 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.;
- 8 -





“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 BPYU 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;
- 9 -





“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 BPYU 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 BPYU 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
- 10 -




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 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.

- 11 -




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, including as a result of the recent global economic shutdown (“global economic shutdown” or “the shutdown”) caused by the coronavirus pandemic (“COVID-19”); 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, hurricanes or pandemics/epidemics; 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. In addition, our future results may be impacted by risks associated with the global economic shutdown and the related global reduction in commerce and travel and substantial volatility in stock markets worldwide, which may result in a decrease of cash flows and a potential increase in impairment losses and/or revaluations on our investments and real estate properties, and we may be unable to achieve our expected returns.
 
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.

 
- 12 -




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)20202019201820172016
Total revenue$6,593 $8,203 $7,239 $6,135 $5,352 
Net (loss) income(2,058)3,157 3,654 2,468 2,717 
Net (loss) income attributable to LP Units(1,098)884 764 136 660 
Net (loss) income per LP Unit(2.39)1.89 2.28 0.48 2.30 
Distributions per LP Unit1.33 1.32 1.26 1.18 1.12 
FFO(1)
707 1,147 866 873 895 
(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, 2020Dec. 31, 2019Dec. 31, 2018Dec. 31, 2017Dec. 31, 2016
Investment properties$72,610 $75,511 $80,196 $51,357 $48,784 
Equity accounted investments19,719 20,764 22,698 19,761 16,844 
Total assets107,951 111,643 122,520 84,347 78,127 
Debt obligations54,337 55,390 63,811 36,884 33,519 
Capital securities3,033 3,075 3,385 4,165 4,171 
Total equity41,523 44,935 46,740 35,124 34,161 
Equity attributable to Unitholders(1)
25,137 28,530 28,284 22,186 22,358 
(1)As at December 31, 2020, 2019, 2018, 2017 and 2016, refers to holders of LP Units, GP Units, Redemption-Exchange Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPYU Units, as applicable.

3.B. CAPITALIZATION AND INDEBTEDNESS
 
Not applicable.
 
3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not applicable.
 
- 13 -




3.D. RISK FACTORS
 
The following summarizes some, but not all, of the risks provided below. 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

Risks relating to the risks incidental to the ownership and operation of real estate assets.

Risks relating to developments associated with the COVID-19 pandemic and the potential for future outbreaks of other highly infectious or contagious diseases.

Risks relating to our changes in our credit rating, current and future indebtedness, refinancing risks and compliance with restrictive covenants.

Risks relating to reliance on significant tenants and tenant defaults, bankruptcies or insolvencies.

Risks relating to our ability to renew or enter into new leases with tenants for space that is subject to expiring leases.

Risks relating to force majeure events, uninsurable losses and higher insurance premiums.

Risks relating to development and redevelopment projects.

Risks relating to the factors that affect the retail environment, including unemployment, weak income growth, lack of available consumer credit, industry slowdowns, increased consumer debt, poor housing market conditions and the need to pay down existing obligations.

Risks relating to the multifamily residential industry, including the level of mortgage interest rates and governmental regulation of consumer protections.

Risks relating to trends in the office real estate industry, including employee working from home, flexible work schedules, open workspaces, video conferences and teleconferences.

Risks relating to the factors that affect the hospitality industry, including the seasonality of the hotel industry and trends in business and leisure travel.

Risks relating to business disruptions and the performance of our information technology systems.

Risks relating to businesses and properties that we are invested in, either solely or in connection with co-venturers, partners, fund investors or co-tenants.

Risks relating to our tenants and contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control.

Risks relating to disputes, governmental and regulatory policies and investigations and possible litigation.

Risks relating to climate change and its impact on our operations and markets.

Risks relating to the potential discontinuation of LIBOR.

Risks Relating to Us and Our Structure

Risks relating to our reliance on the Property Partnership and, indirectly, the Holding Entities and our operating entities to provide us with funds.

Risks relating to our ability to continue paying comparable or growing cash distributions to our unitholders in the future.

- 14 -




Risks Relating to Our Relationship with Brookfield

Risks relating to our dependence on Brookfield and the Service Providers, and conflicts of interests therewith.

Risks relating to our inability to have access to all acquisitions of commercial properties that Brookfield identifies.

Risks relating to the departure of some or all of Brookfield’s professionals.

Risks relating to Brookfield’s ownership position in BPY.

Risks relating to the lack of any fiduciary obligations imposed on Brookfield to act in the best interests of the Service Recipients, us or our Unitholders.

Risks relating to Brookfield’s relationship with Oaktree.

Risks relating to our inability to terminate the Master Services Agreement.

Risks relating to our indemnification of the Service Providers.

Risks Relating to Our Units

Risks relating to issuance of additional units, BPYU Units or exchange of BPYU Units for newly issued LP Units.

Risks relating to ability to enforce service of process and enforcement of judgments against us and directors and officers of the BPY General Partner and the Service Providers.

Risks Relating to Taxation

Risks related to United States, Canadian and Bermudan taxation, and the effects thereof on our business and operations.

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;

- 15 -




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.

Our business has been and is expected to continue to be adversely affected by the COVID-19 pandemic and the preventive measures taken to curb the spread of the virus, as well as the potential for future outbreaks of other highly infectious or contagious diseases.

As a result of the rapid spread of COVID-19, many companies and various governments have imposed restrictions on business activity and travel which may continue and could expand. Business has slowed significantly around the globe specifically in our hospitality and retail office businesses, and there can be no assurance that strategies to address potential disruptions in operations will mitigate the adverse impacts related to the pandemic. Given the ongoing and dynamic nature of the circumstances surrounding COVID-19, it is difficult to predict how significant the impact of this pandemic, including any responses to it, will be on the global economy, our company and our businesses or for how long disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, rapidly evolving and cannot be predicted, including new information which may emerge concerning the severity and transmissibility of this coronavirus and actions taken, including the pace, availability, distribution and acceptance of effective vaccines, among others. Such developments, depending on their nature, duration, and intensity, could have a material adverse effect on our business, financial position, results of operations or cash flows.

We operate in industries or geographies impacted by COVID-19. Many of these are facing financial and operational hardships due to COVID-19 and responses to it. Adverse impacts on our business may include:

a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;

a slowdown in business activity may severely impact our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to fund their business operations, meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

an increase in re-leasing timelines, potential delays in lease-up of vacant space and the market rates at which such lease will be executed;

reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending and demand; and

expected completion dates for our development and redevelopment projects may be subject to delay as a result of local economic conditions that may continue to be disrupted as a result of the COVID-19 pandemic.

If these and potential other disruptions caused by COVID-19 continue, our business could be materially adversely affected.

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, Brazil and Australia but also include a growing presence in 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
- 16 -




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 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.

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 $1.2 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.
- 17 -





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.
 
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.
 
Certain of our tenants have incurred and may continue to incur significant costs or losses as a result of the COVID-19 pandemic and/or incur other liabilities related to shelter-in-place orders, quarantines, infection or other related factors that may adversely impact their ability or willingness to pay us rent on a timely basis, or at all.

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 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
- 18 -




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. 

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.

- 19 -




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.

 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.

- 20 -




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 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.

The hospitality sector has experienced the most immediate and acute impact from the global economic shutdown as the majority of our hospitality properties were closed, and either currently remain closed or are operating at very low occupancy, either as a result of mandatory closure orders from various government authorities or due to prohibitive travel restrictions. These closures 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. 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 may also incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations.
- 21 -




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 potentially illiquid, we may not be able to sell these assets when appropriate or when desired.
 
Due to uncertainty surrounding COVID-19, the volatility of current markets and the pace and size of government policy responses, 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 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 we 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 we 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.

- 22 -




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 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.

- 23 -




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.

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, 2020, 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, particularly as we continue to comply with restrictions and operating regulations related to COVID-19. 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 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.

- 24 -




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.
 
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 transition risk. We are working to understand these risks and mitigate them throughout the investment management process to preserve and enhance value.

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. Although we work to mitigate these risks by securing adequate insurance to cover damage that may be incurred through adverse weather incidents or business interruption, through our annual capital planning processes that assess factors related to climate change such as physical risks, energy efficiency, equipment end of life, and asset competitiveness and by taking up technologies that seek to lower our overall energy demands, we can provide no assurance that such efforts will be effective.

Transition risk refers to economic, societal and technological challenges resulting from the shift to a low carbon economy that may be seen in changes to climate and energy policies, shifts to low-carbon technologies and liability issues which can vary substantially depending on scenarios for policy and technology changes. Although we work to mitigate these risks by undertaking internal climate change risk reviews within parts of our business and developing awareness and competency in other parts, we can provide no assurance that such efforts will be effective.

We believe, to address climate change, the world will have to transition to a net zero-carbon economy. We are proactively evolving our portfolio of investments consistent with this imperative. As demand and needs shift, our investment strategy will continue to adapt in line with broader trends and opportunities to ensure we continue to perform for our investors. Although we are incorporating climate change implications as part of underwriting; focussing on assets that are essential for the
- 25 -




economies in which we invest, meet societal needs and that we believe will appreciate in value over time; and driving efficiencies across our businesses, contributing to lower environmental impact and improved operations, we can provide no assurance that such efforts will be effective.

We have launched various initiatives to better understand our climate change risks and incorporate these considerations into risk management activities. Such activities include creating an inventory of greenhouse gas (GHG) emissions; conducting a more in-depth climate change risk assessment; and aligning to the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) to better measure and communicate risks.
 
We may be adversely affected by the potential discontinuation of LIBOR.

The Financial Conduct Authority in the U.K. has announced that it will cease to compel banks to participate in LIBOR after 2021. LIBOR is widely used as a benchmark rate around the world for derivative financial instruments, bonds and other floating-rate instruments. This change to the administration of LIBOR, and any other reforms to benchmark interest rates, could create significant risks and challenges for us and our operating businesses. The gradual elimination of LIBOR rates may have an impact on over-the-counter derivative transactions, including potential contract repricing. 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. This may result in market uncertainty until a new benchmark rate is established and potentially increased costs under such agreements.

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 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.
- 26 -




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”.

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 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 57% 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 or under the direction of the Service Providers. Brookfield personnel that provide services to us under our Master Services Agreement 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
- 27 -




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 specifically 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 and executing acquisitions that are suitable for us are responsible for sourcing and executing 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 will likewise result in a limitation on the availability of acquisition opportunities 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

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 determinations about acquisition opportunities and investments, consortium arrangements or partnerships, 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
- 28 -




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 may differ from the interests of our partnership and our unitholders, including with respect to the types of acquisitions made, the timing and amount of distributions, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisers and service providers. These actual and potential conflicts of interest are described in detail 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 BPYU 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.
- 29 -




 
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 were 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 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
- 30 -




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 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
- 31 -




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 exchange of BPYU Units for newly issued LP Units could negatively affect the market price of our LP Units, and additional issuances of BPYU Units would be dilutive.
    Each BPYU 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 BPYU 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, BPYU may in the future sell additional BPYU Units in connection with raising capital as well as for acquisitions. Such additional BPYU 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 BPYU nor BPY satisfies its obligations to deliver cash and/or LP Units in connection with BPYU 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 BPYU 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 BPYU Units), or the limited partnership units of the Property Partnership would have on the market price of our units.
 
- 32 -




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 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
- 33 -




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. 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.

- 34 -




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. 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
- 35 -




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”.

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. Under U.S. Treasury Regulations, the 10% U.S. federal withholding tax generally does not apply to transfers of interests in publicly traded partnerships before January 1, 2022. 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.
- 36 -




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. 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.

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.

- 37 -




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 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 (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 (“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”.
 
- 38 -




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 (“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.
 
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.

- 39 -




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 during 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 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
- 40 -




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 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
- 41 -




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.

General Risks

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.

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.

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;

- 42 -




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. We 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 could negatively affect our financial performance.  

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.

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
- 43 -




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 corruption 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.
 
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.

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;

- 44 -




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 BPYU Units, which may be impacted by: (i) public announcements made by BPYU; (ii) changes in stock market analyst recommendations or earnings estimates regarding BPYU; (iii) actual or anticipated fluctuations in BPYU’s operating results or future prospects; and (iv) future issuances or sales of BPYU Units by BPYU 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.

Our LP Units trade at a discount to equity per unit and may continue to trade at a discount in the future.

As a result of the COVID-19 pandemic, our LP Units traded at historic lows, and compared to equity per unit, which is largely based on the fair value of our investment properties less outstanding debt obligations, traded at a significant discount as a result of concerns over liquidity, leverage restrictions and distribution requirements. In part, as a result of adverse economic conditions and increasing pressure within the real estate sector of which we are a part, our LP Units have regularly traded at a discount since our inception. We cannot predict whether our LP Units will trade above, at or below our equity per unit in the future.
- 45 -




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 BPYU Units and Series A preferred stock of BPYU trade on the Nasdaq under the symbols “BPYU” and “BPYUP”, 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 BPYU Unit. As a result of the acquisition of GGP, approximately 161 million BPYU Units and 88 million LP Units were issued to former GGP shareholders.

On January 4, 2021, Brookfield Asset Management announced a proposal to acquire 100% of the LP Units that it does not already own for a price of $16.50 per LP Unit, or $5.9 billion in total value. The proposal provides that each holder of LP Units can elect to receive consideration per LP Unit of a combination of (i) 0.4 class A limited voting shares of Brookfield Asset Management (“Brookfield Shares”), (ii) $16.50 in cash, and/or (iii) 0.66 preferred units of our partnership with a liquidation preference of $25.00 per unit (“New Preferred Units”), subject in each case to pro-ration based on a maximum of 59.5 million Brookfield Shares (42% of the total value of the LP Units), maximum cash consideration of $2.95 billion (50% of the total value of the LP Units), and a maximum value of $500 million in New Preferred Units (8% of the total value of the LP Units). If holders of LP Units collectively elect to receive in excess of $500 million in New Preferred Units, the amount of New Preferred Units can increase to a maximum of $1 billion, offset against the maximum amount of Brookfield Shares. The maximum amount of cash consideration would not be affected. The board of directors of the BPY General Partner has established a committee of independent directors to review and consider the proposal.

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, 2020, 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”.

- 46 -




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 24,400 employees involved in Brookfield’s real estate businesses around the globe, we have built operating platforms in various real estate sectors, including:
CORE OFFICE PORTFOLIOCORE RETAIL PORTFOLIO
Class A office assets in gateway markets around the globe100 of the top 500 malls in the United States
l139 premier propertiesl121 best-in-class malls and urban retail properties
l97 million square feetl119 million square feet
l90% occupancyl92% occupancy
l8.1 year average lease term
LP INVESTMENTS PORTFOLIO
Invested in mispriced portfolios and/or properties with significant value-add opportunities

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 to earn core-plus total returns 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 enhance the returns on our stable properties through an active development and redevelopment pipeline that earns higher unlevered returns on construction costs. We currently have approximately 7 million square feet of active development projects underway with another 4 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 to contribute meaningfully to earnings growth in our Core businesses 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, triple net lease, manufactured housing, mixed-use and student housing. We target to earn opportunistic returns on our LP Investments portfolio. 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 realized gains and FFO earned represent our earnings on capital invested in these funds and provide liquidity to support our target distributions.
Overall, our goal is to be the leading global owner and operator of high-quality real estate, generating an attractive total return for our Unitholders comprised of: a current yield supported by stable cash flow from a diversified portfolio; distribution growth in-line with earnings growth; and capital appreciation of our asset base. We operate our business to achieve these objectives with a long term view and will continue to make decisions with that in mind, however, we will caution you that in light of the global economic shutdown and its impact on the global economy, we may be unable to achieve these objectives in the near term. We have not changed our investment strategy as a result of COVID-19. 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 opportunities to earn attractive returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. Despite the recent economic disruption caused by the global economic shutdown, we expect that the high quality nature of our stabilized properties and associated cash flows will continue to be in demand from investors, although our ability to execute on these recycling of capital initiatives could be impacted in the short term. 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.
- 47 -




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.
 
- 48 -




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 24,400 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, triple net lease, manufactured housing, mixed-use 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.
- 49 -




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.
bpy-20201231_g1.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 139 high-quality office properties totaling approximately 97 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 7 million square feet of active office and multifamily developments and office redevelopments. We believe that these assets have a stable cash flow profile due to long-term leases in place. The drivers of earnings growth in this business include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, that are expected to generate strong same-property NOI growth without significant capital investment. Furthermore, we expect to earn higher unlevered, pre-tax returns on construction costs from our development pipeline. However, we caution you that as a result of the global economic shutdown, we may be unable to achieve these returns in the near term. While we expect rent growth to be minimal for the next 12-18 months, we have a strong average lease-life and occupancy that we think will benefit us from more adverse impacts resulting from the shutdown.

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 90% leased at December 31, 2020 and reflects average in-place net rent of $38.68 per square foot compared to average market net rent of $39.86 per square foot, allowing for 3% potential to capture on higher rents on the upcoming expiration of leases.
 
- 50 -




    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, 2020.
 
TenantPrimary Location
Credit Rating(1)
Exposure (%)(2)
Government and Government AgenciesVariousAA+/AAA8.2 %
Morgan StanleyNY/LondonA2.7 %
BarclaysLondon/Toronto/CalgaryBBB2.1 %
CIBC World Markets(3)
Calgary/Toronto/NYAA1.8 %
Suncor Energy Inc.CalgaryBBB+1.8 %
Bank of MontrealCalgary/TorontoAA1.5 %
EYVariousNot Rated1.4 %
CenovusCalgaryBB1.3 %
Royal Bank of CanadaVariousAA-1.3 %
DeloitteVariousNot Rated1.3 %
Total  23.4 %
(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, 2020, the average lease term of our Core Office business was 8.1 years, compared to 8.5 years at December 31, 2019. 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, 2020, we held interests in centrally located development sites with total development potential of approximately 36 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 36 million square feet in our office development pipeline, 7 million square feet are in the active development stage, 4 million square feet are in the active planning stage and 25 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 pre-leasing targets have been met.

Core Retail

Our Core Retail segment consists of 121 best-in-class retail properties containing over 119 million square feet in the United States. These assets have a stable cash flow profile due to long-term leases in place. The drivers of these targets in the business 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 higher 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 in the last 18 months, and while significant progress has been made on re-letting the majority of that space, we are now facing potential new tenant-viability challenges as a result of the shutdown. We are in negotiations with the vast majority of our tenants on lease modifications given most of our malls were closed for a portion of the second quarter as mandated by the government. These modifications have resulted in rent deferrals of 4% and abatements of 5% of total 2020 rent. Additionally, it is possible that more bankruptcies result from the shutdown which could lead to further down-time in the near and mid-term. In the current period, we have applied a credit reserve to most of our portfolio which varies based on tenant viability risk; normally reserves would only be applied to those tenants which have filed bankruptcy, were expected to file bankruptcy or were deemed high-risk. Incremental reserves recognized in the current period decreased our NOI.
- 51 -




 
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;

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, 2020, the portfolio was 92.5% leased, compared to 96.4% leased at December 31, 2019. On a suite-to-suite basis, the leases commencing occupancy in the trailing 12 months exhibited initial rents that were 1.1% higher than the final rents paid on expiring leases.
 
    For the year ended December 31, 2020, the largest tenant in our Core Retail portfolio, L Brands, Inc. (based on common parent ownership), accounted for approximately 4.3% of rents. Our three largest tenants in the Core Retail portfolio, L Brands, Inc, Foot Locker, Inc, and LVMH, in aggregate, comprised approximately 10.3% 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 $776 million in the pipeline. We continue to evaluate a number of other redevelopment projects to further enhance the quality of our assets.


- 52 -




LP Investments
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, student housing, manufactured housing and mixed-use. We target to earn opportunistic returns on our LP Investments portfolio. We caution you that in light of the global economic shutdown and its impact stock markets worldwide, we may be unable to achieve these returns in the near term.

LP Investments - Office

    Our LP Investments - Office business consists of 111 opportunistic office properties comprising of approximately 42 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.

LP Investments - Retail

    Our LP Investments - Retail business is comprised of approximately 24 million square feet of opportunistic retail space across 38 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 40 properties with approximately 12,590 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 3 modern logistics development 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 124 hospitality assets with over 25,700 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.

Triple Net Lease

Our triple net lease business consists of 216 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.
- 53 -




Student Housing    

Our student housing business consists of 53 student housing properties with approximately 19,880 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.

Mixed-use    

Our mixed-use business consists of 7 mixed-use properties with approximately 6 million square feet in Germany and South Korea. Our mixed-use strategy is to acquire high-quality assets 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.

Geographic Distribution

As of December 31, 2020, approximately 67.4% of our assets and 71.9% of our revenues originated from the United States with the remaining 32.6% of our assets and 28.1% 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 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.
 

- 54 -




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, triple net lease, manufactured housing, mixed-use 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.

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 57% and affiliates of Brookfield Asset Management provide services to us under the Master Services Agreement. Brookfield encourages a common set of ESG
- 55 -




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: Strive to 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 in the communities in which we operate
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.

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 and, as needed, third-party consultants are used. Brookfield also draws on the guidance of the Sustainability Accounting Standards Board’s Engagement Guide, which seeks to identify material ESG considerations and integrate these into the underwriting of potential investments.

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. Sustainability initiatives in our portfolio vary by investment but include energy reduction strategies, 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.

- 56 -




We seek to measure the success of our environmental initiatives and report on our progress, including by participating in the Global Real Estate Sustainability Benchmark (“GRESB”) and seeking certifications within our business:

GRESB Reporting
In 2020, we embarked on expanded reporting to GRESB, with a new commitment from BSREP III to report to GRESB in 2021 for base year 2020.
BSREP III will be the sixth Brookfield business segment to respond to GRESB, joining businesses in our Core Office and Core Retail segments. The aforementioned business segments achieved an average GRESB score of 83% and our performance score is 12 points higher on average in all business segments compared to the GRESB participant average.

Certifications
Our commitment to sustainability and intelligent design has earned us global recognition. 99% of our eligible global office area has achieved a sustainability designation; specifically, across our portfolio we hold 52 LEED certifications, 41 Energy Star certifications in the United States, 50 BOMA 360 office certifications in the United States and Canada, 29 NABERS certifications in Australia, 7 Green Star certifications and 4 BREEAM certifications.

Social Initiatives

Consistent with our ESG Principles, we aim to create sustainable value by acting responsibly while aligning the interest of our investors, stakeholders and employees. Our focus on stakeholder alignment, long-term horizon and fostering a collaborative culture are foundational to our achieving superior results. We remain actively involved in discussions aimed at advancing our awareness across various social considerations, including the following key focus areas:

Human Capital Development
We hire people who we believe have the capability and the drive to grow and develop, providing stretch opportunities with fast track development where appropriate.
We invest heavily in the development of our people. Our “grow-from-within” development approach focuses on internal mobility across business groups, functions and regions.
We view our philanthropic activities as an opportunity to engage our people and support their development, and be of benefit to the local communities in which we operate. In 2019, Brookfield replaced its regional approach to philanthropy with a two-pronged global approach, which includes a global matching program and a capital pool for each office to support philanthropic activities that are important to our people and facilitate relationship building in support of collaboration.

Diversity & Inclusion
Brookfield is committed to a positive, open and inclusive work environment. Our approach to ethnic and gender diversity in our human resources starts with a strong tone at the top and our Code of Conduct and Positive Work Environment Policy set a consistently high standard for how we interact with each other across our global asset management business.
In 2020, Brookfield created a Global Diversity Advisory Group. The mandate of the group is twofold: provide insight into the concerns, challenges and successes around attracting and retaining members of the Black community and other underrepresented groups within our business; and to find ways to increase our engagement with these groups.

Our Health & Safety Program
Health and safety policies and procedures apply not only to employees, but also to contractors and subcontractors and take into consideration the protection of the surrounding community. Our objective is to have zero serious safety incidents by working toward implementing consistent health and safety principles across the organization. Senior management in our respective Service Providers are accountable for the health and safety performance of their individual businesses.

Human Rights and Modern Slavery
Brookfield is committed to conducting business in an ethical and responsible manner, including by carrying out our activities in a manner that respects and supports the protection of human rights through i.) the elimination of discrimination in employment; ii.) the prohibition of child and force labor; and iii.) the eradication of harassment and physical or mental abuse in the workplace.
- 57 -




We strive to embed these standards into all core business activities, including training, communications, contracts and due diligence processes as appropriate. These practices extend to our interactions with key suppliers and other business partners.

Governance Initiatives

We recognize that strong governance is essential to sustainable business operations, and we aim to conduct our business according to the highest ethical and legal standards. We rigorously maintain sound governance practices that guide our actions and give our investors peace of mind. Given the trend toward increased regulations targeting ESG in many jurisdictions, such as the EU, we are focused on regularly updating how we manage our ESG compliance. This involves continuing review of evolving legislation, guidelines and best practices for all jurisdictions in which we operate.

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 Policy set out the commitments expected by us. We maintain a reporting hotline to report suspected unethical, illegal or unsafe behavior.

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, 2020. “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.
- 58 -




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

bpy-20201231_g2.jpg



(1)As of December 31, 2020, public holders own LP Units of our company representing a 73% limited partnership interest in our company, and Brookfield owns the remaining LP Units of our company, representing a 27% 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 BPYU Units, Brookfield has a 62% interest in
- 59 -




our company. On a fully-exchanged basis and taking into account the exchange of the issued and outstanding BPYU Units, public holders (excluding the Class A Preferred Unitholder) would own LP Units of our company representing a 36% 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 57% interest in our company. Brookfield also has an approximately 51% 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, 2020. 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, 2020.
(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 BPYU is 100% as BPYU Units are intended to be economically equivalent to LP Units. Our voting interest is 97% of the voting stock of BPYU through our 100% ownership of BPYU’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 BPYU are held by the public holders of the BPYU 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.

- 60 -




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  
BPYU100%97%
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%— 
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, 2020.
(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.

- 61 -




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, 2020, Brookfield Asset Management has an effective economic interest in our business of approximately 62%.
 
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 49% 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 51% 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”.
 
- 62 -




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.

- 63 -




ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
5.A. OPERATING RESULTS
 
OBJECTIVES AND FINANCIAL HIGHLIGHTS
OVERVIEW
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, 2020 and 2019 and results of operations for the years ended December 31, 2020, 2019, and 2018. The information in this MD&A should be read in conjunction with the audited consolidated financial statements as of December 31, 2020 and 2019 and each of the years ended December 31, 2020, 2019, and 2018 (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 49% 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, 2020, 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, (“BPYU Units”) of Brookfield Property REIT Inc. (“BPYU”) 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 BPYU Units will be collectively referred to throughout this MD&A as “Unitholders”. The LP Units, Redeemable/Exchangeable Partnership Units, Exchange LP Units and BPYU Units have the same economic attributes in all respects, except that the holders of Redeemable/Exchangeable Partnership Units and BPYU 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. BPYU Units provide their holders with the right to request that their units be redeemed for cash consideration. In the event the holders of BPYU 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, BPYU 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 BPYU Units as a component of non-controlling interest.
 
This MD&A includes financial data for the year ended December 31, 2020 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
- 64 -




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 24,400 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 PORTFOLIOCORE RETAIL PORTFOLIO
Class A office assets in gateway markets around the globe100 of the top 500 malls in the United States
l139 premier propertiesl121 best-in-class malls and urban retail properties
l97 million square feetl119 million square feet
l90% occupancyl92% occupancy
l8.1 year average lease term
LP INVESTMENTS PORTFOLIO
Invested in mispriced portfolios and/or properties with significant value-add opportunities

    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 to earn core-plus total returns 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 enhance the returns on our stable properties through an active development and redevelopment pipeline that earns higher unlevered returns on construction costs. We currently have approximately 7 million square feet of active development projects underway with another 4 million square feet in planning stages. Our development track record reflects successful completions on time and on budget. We expect this portion of our balance sheet to contribute meaningfully to earnings growth in our Core businesses 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, triple net lease, manufactured housing, mixed-use and student housing. We target to earn opportunistic returns on our LP Investments portfolio. 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 realized gains and FFO earned represent our earnings on capital invested in these funds and provide liquidity to support our target distributions.

- 65 -




Overall, our goal is to be the leading global owner and operator of high-quality real estate, generating an attractive total return for our Unitholders comprised of: a current yield supported by stable cash flow from a diversified portfolio; distribution growth in-line with earnings growth; and capital appreciation of our asset base. We operate our business to achieve these objectives with a long term view and will continue to make decisions with that in mind, however, we will caution you that in light of the global economic shutdown and its impact on the global economy, we may be unable to achieve these objectives in the near term. We have not changed our investment strategy as a result of COVID-19. 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 opportunities to earn attractive returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. Despite the economic disruption caused by the global economic shutdown, we expect that the high quality nature of our stabilized properties and associated cash flows will continue to be in demand from investors, although our ability to execute on these recycling of capital initiatives could be impacted in the short term. 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.
 
PERFORMANCE MEASURES
We expect to generate returns to Unitholders from a combination of healthy distributions and 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 to Unitholders to provide them with an attractive total return on their investment. As noted above, however, we may be unable to increase our cash flows in the near term and as a result may be unable to increase our distributions as anticipated.

We also consider the following items to be important drivers of our current and anticipated financial performance, however the impact of the recent global economic shutdown could limit our potential to achieve these measures:
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 property operations less direct commercial property expenses (“Commercial property NOI”) and revenues from our hospitality operations less direct hospitality expenses (“Hospitality NOI”).
- 66 -





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 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 BPYU 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 BPYU 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 80.

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 80 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 80.

    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 80 and Equity attributable to Unitholders to total equity on page 81.
- 67 -




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, retail and mixed-use assets are typically valued using a discounted cash flow methodology while our multifamily, logistics, triple net lease, manufactured housing, and student housing 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 91.1% occupancy level and an average seven-year lease life. Valuation assumptions, such as discount rates and capitalization rates, 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.

As a result of the ongoing global economic shutdown, we believe uncertainty remains with respect to certain input factors on our fair value of investment properties, including capitalization rates and discount rates, due to a lack of market transactions since early March 2020. However, we have adjusted capitalization and discount rates in certain assets to reflect changes to risk-free borrowing rates. During the current period, cash flow adjustments have been made as we have taken into account the anticipated outcome of tenant negotiations, leasing downtime, nil-to-minimal rental growth in the near-term and bad debt reserves, as new information related to the pandemic is understood.

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.

The hospitality sector has experienced the most immediate and acute impact from the global economic shutdown as the majority of our hospitality investments were closed, and currently remain closed or are operating at very low occupancy, either as a result of mandatory closure orders from various government authorities or due to severe travel restrictions. As a result of these closures, we have identified an impairment indicator and have performed an impairment test for each hospitality investment based on revised cash flows and valuation metrics. More information on the valuation and impairment of these assets is included in Note 8, Property, Plant And Equipment.




- 68 -




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. Due to uncertainty surrounding COVID-19, the volatility of current markets, pace and size of government policy responses and the lack of private market transactions, for the current period, we did not take a holistic approach to adjusting discount rates and/or terminal capitalization rates on any of our sectors, but rather an asset-by-asset view of risk and long-term value was applied in consideration of a reduction in cashflows in our models. Management also considered changes to risk-free borrowing rates in consideration of risk applied in our models.

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 2020, we obtained 85 external appraisals of our properties representing a gross property value of $32 billion (or 16% 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.
- 69 -




FINANCIAL STATEMENTS ANALYSIS
REVIEW OF CONSOLIDATED FINANCIAL RESULTS
In this section, we review our consolidated performance for the years ended December 31, 2020, 2019, and 2018 and our financial position as of December 31, 2020, and 2019. Further details on our results from operations and our financial position are contained within the “Segment Performance” section on page 85.

    The global economic shutdown continues to interrupt business activities and supply chains; disrupt travel; and contribute to significant volatility in the financial markets, resulting in a general decline in equity prices and lower interest rates. The shutdown has also impacted social conditions and adversely impacted local, regional, national and international economic conditions, as well as the labor markets. We have seen an adverse impact to our financial position and consolidated performance as a direct result of the shutdown and it is possible that our results in future periods may continue to be adversely impacted.

The following acquisitions and dispositions of consolidated properties affected our consolidated results in the comparative periods for the years ended December 31, 2020, 2019, and 2018:

In our Core Office segment:
In the fourth quarter of 2020, we sold our interest in One London Wall Place in London for approximately £460 million ($614 million) and a realized gain of approximately £107 million ($143 million)

In the second quarter of 2020, we sold approximately 50% of our interests in two multifamily properties, One Blue Slip and Andorra, into joint ventures with Brookfield Premier Real Estate Partners Pooling LLC (“BPREP”) for net proceeds of $102 million and $44 million, respectively. Prior to the transactions, our interests were consolidated but are now accounted for under the equity method.

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 our Core Retail segment:
In the second quarter of 2020, we restructured our joint venture partnership in Water Tower Place in which we acquired an incremental 43.9% interest through the assumption of our partner’s share of debt held on the property. Prior to the acquisition, our joint venture interest was reflected as an equity accounted investment and is now consolidated.

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.


- 70 -




In our LP Investments segment:
In the fourth quarter of 2020, we sold our portfolio of self-storage assets in the United States in the Brookfield Strategic Real Estate Partners II (“BSREP II”) fund for approximately $1.2 billion and a realized gain of approximately $244 million.

In the fourth quarter of 2020, we sold a partial interest in a portfolio of triple-net lease assets in the United States in the Brookfield Strategic Real Estate Partners I (“BSREP I”) fund for approximately $728 million and a realized gain of approximately $105 million. As part of the sale, we no longer have certain voting rights, which has resulted in a loss of control over the investment; as a result, we deconsolidated our investment in the portfolio.

In the fourth quarter of 2020, we sold two office assets in Brazil in the BSREP II fund for approximately R$2.0 billion ($379 million) and a realized gain of approximately R$735 million ($136 million).

In the fourth quarter of 2020, we sold five multifamily assets in the United States in the BSREP II fund for approximately $390 million and a realized gain of approximately $61 million.

In the third quarter of 2020, we completed the recapitalization of the Atlantis Paradise Island resort (“Atlantis”) with a consortium of investors who made a total commitment of $300 million in the form of preferred equity, of which we committed approximately $125 million. As a result, we no longer control the previously consolidated investment and account for the investment under the equity method following recapitalization.

In the first quarter of 2020, we sold an office asset in California in the BSREP II fund for approximately $131 million and a realized gain of approximately $58 million.

In the fourth quarter of 2019, we sold five multifamily assets in the United States in the 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.

For the purposes of the following comparison discussion between the years ended December 31, 2020 and December 31, 2019, 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, 2019 and December 31, 2018, 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, 2019, filed with the SEC on February 28, 2020.
- 71 -




Summary of Operating Results

(US$ Millions)202020192018
Net (loss) income$(2,058)$3,157 $3,654 
Net (loss) income attributable to Unitholders(1)
(2,358)1,956 1,978 
NOI(1)
3,535 4,414 3,869 
FFO(1)
707 1,147 866 
Company FFO(1)
815 1,345 1,179 
(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 66. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 80.

    We recognized a net loss of $2,058 million for the year ended December 31, 2020 which compares to net income of $3,157 million during 2019. Net loss per unit attributable to Unitholders for the year ended December 31, 2020 was $2.39 compared with income of $1.89 during 2019. The decrease is primarily attributable to fair value losses recognized on our Core Office and Core Retail portfolios, which reflects the impact of the global economic shutdown on our near and mid-term cash flow assumptions. Changes to our near and mid-term cash-flows vary by property and reflect lesser rental rate growth and leasing assumptions, delayed capital expenditures, and tenant-specific credit loss assumptions based on ongoing and completed negotiations with tenants for deferred or abated rent. Fair values losses in Core Office and Core Retail were $223 million and $1,706 million, respectively. Additionally, higher discount rates and terminal capitalization rates were applied to assets, mostly in our Core Retail portfolio, where we have more exposure to anchor tenants who have recently filed for bankruptcy. Net loss was also impacted due to mark-to-market losses on derivatives and operating losses at our hospitality properties due to government-mandated shutdowns.

FFO decreased to $707 million for the year ended December 31, 2020 from $1,147 million in 2019. The decrease was driven by operating losses from our hospitality portfolio due to government-mandated closures primarily at Atlantis in the Bahamas and occupancy restrictions at Center Parcs in the U.K., as a result of the shutdown. Our hotels are running, on average, at much lower occupancies than is required to break-even, and some properties continue to be closed subsequent to the end of the year. These decreases were partially offset by lower interest expense due to the impact of the historically low interest rate environment on our variable debt obligations.

Operating Results
    
(US$ Millions) Years ended Dec. 31,202020192018
Commercial property revenue$5,397 $5,691 $5,043 
Hospitality revenue702 1,909 1,913 
Investment and other revenue494 603 283 
Total revenue6,593 8,203 7,239 
Direct commercial property expense1,936 1,967 1,851 
Direct hospitality expense628 1,219 1,236 
Investment and other expense69 82 26 
Interest expense2,592 2,924 2,464 
Depreciation and amortization319 341 308 
General and administrative expense816 882 1,032 
Total expenses6,360 7,415 6,917 
Fair value (losses) gains, net(1,322)596 2,466 
Share of net (losses) earnings from equity accounted investments(749)1,969 947 
(Losses) Income before income taxes(1,838)3,353 3,735 
Income tax expense220 196 81 
Net (loss) income(2,058)3,157 3,654 
Net (loss) income attributable to non-controlling interests of others in operating subsidiaries and properties300 1,201 1,676 
Net (loss) income attributable to Unitholders(1)
$(2,358)$1,956 $1,978 
(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 66. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section starting on page 80.
    
- 72 -




    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. 31,202020192018
Net (loss) income$(2,058)$3,157 $3,654 
Less: Non-controlling interests300 1,201 1,676 
Less: Preferred unit dividends42 15 — 
Net (loss) income attributable to Unitholders – basic(1)
(2,400)1,941 1,978 
Dilutive effect of conversion of capital securities – corporate and options(3)
 27 
Net (loss) income attributable to Unitholders – diluted(2,400)1,949 2,005 
Weighted average number of units outstanding – basic(1)
1,005.0 1,025.0 866.9 
Conversion of capital securities – corporate and options(3)
 6.7 18.5 
Weighted average number of units outstanding – diluted1,005.0 1,031.7 885.4 
Net (loss) income attributable to Unitholders per unit – basic(1)(2)
$(2.39)$1.89 $2.28 
Net (loss) income attributable to Unitholders per unit – diluted(2)
$(2.39)$1.89 $2.26 
(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)Net income attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 66.
(3)There was no dilutive impact from options during 2020 as the average market price did not exceed the exercise price.

Commercial property revenue and direct commercial property expense
bpy-20201231_g3.jpgbpy-20201231_g4.jpg
The global economic shutdown had a modest negative impact to our commercial property revenue earned in the year, as most of our revenues are from contractual rent agreements. Reductions in revenue were mostly from parking and fee income. While our commercial property revenues were not materially impacted by the shutdown, near-term cash flows have been impacted and future revenues and cash flows produced by the partnership’s commercial properties are more uncertain as a result of the rapid impact to the global economy. We have reflected in our operating results through fair value gains (losses) our estimate of near and mid-term disruptions to cash flows to reflect collections, higher vacancy, longer leasing downtime, bad debt credit reserves and assumptions on new leasing.

In 2020, commercial property revenue decreased by $294 million compared to 2019 due to property dispositions, the negative impact of foreign currency translation, and the deconsolidation of BSREP III investments, which was consolidated in the prior year and contributed $87 million to revenue. Additional decreases were driven by a 7.8% same-property loss in our Core Office portfolio, attributable to lower parking revenue due to the shutdown and lease expirations since the prior year, as well as the impact of lower occupancy, abatements and tenant bankruptcies within our Core Retail portfolio due to the shutdown. These decreases were partially offset by investment activity and the substantial completion of 100 Bishopsgate in London.
Direct commercial property expense decreased by $31 million largely due to property dispositions and the deconsolidation of BSREP III investments. Margins in 2020 were 64.1%; a 2.0% decline compared to 2019 and an improvement of 1.3% compared to 2018.

Commercial property NOI decreased to $3,461 million for the year ended December 31, 2020 compared with $3,724 million during 2019. The decrease was primarily driven by the reasons mentioned above.


- 73 -




Hospitality revenue and direct hospitality expense
bpy-20201231_g5.jpgbpy-20201231_g6.jpg
Our hospitality assets have experienced a significant slowing of operations and closures since the month of March 2020 due to travel restrictions and stay-at-home orders as a direct result of the global economic shutdown; the impact of which is reflected in our revenues and also resulted in a number of impairments.

Hospitality revenue decreased to $702 million for the year ended December 31, 2020 from $1,909 million in 2019. The decrease was due to closures and cancellations related to COVID-19 during the year, primarily at the Atlantis and Center Parcs. The majority of our hospitality investments are currently operating at a loss given reduced occupancy levels or mandated closures. Direct hospitality expense decreased to $628 million in 2020 from $1,219 million in 2019. We have been able to reduce operating costs given most hotels are closed, however certain fixed costs remain and are not offset by revenues because of closures and/or drastically reduced occupancy as a result of the shutdown.

Hospitality NOI decreased to $74 million for the year ended December 31, 2020 compared to $690 million during the same period in the prior year. The decrease is entirely attributable to the global economic shutdown.

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 decreased by $109 million for the year ended December 31, 2020 as compared to the prior year. In addition to a reduction in fees in the current year as a result of the global economic shutdown, the decrease is primarily due to the prior year benefiting from performance-based fees for achieving certain milestones at Five Manhattan West.

    Investment and other expense decreased by $13 million to $69 million for the year ended December 31, 2020 as compared to $82 million in the prior year.
    
Interest expense
Interest expense decreased by $332 million for the year ended December 31, 2020 as compared to the prior year. This decrease was primarily due to the historically low interest rate environment on our variable debt obligations and disposition activity, partially offset by interest expense from property acquisitions and corporate bond issuances.

General and administrative expense
General and administrative expense decreased by $66 million for the year ended December 31, 2020 compared to the prior year. The decrease was primarily attributable to lower transaction costs and management fees during the current period.
- 74 -




Fair value (losses) gains, net
    
Fair value (losses) 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. For the current period, we have made property-specific, asset class-specific and market-specific updates to our underlying property-level cash flows based on our expected scenarios which are anticipated to occur over the near- and mid-term period. We have assessed each of our asset classes to determine the level of impact on cash flows after taking into account current and upcoming quarter rent collection rates, renewal percentages, and the credit quality of our tenant base, which aided in the application of bad debt credit reserve assumptions. We have also looked on an asset-by-asset basis at the discount rates and terminal capitalization rates applied to each properties’ cashflows and made adjustments where we felt it appropriate to amend the risk profile which also had an impact on current quarter valuations. It is possible that there will continue to be further cash flow and valuation metric changes in future periods as new information related to the pandemic is understood, including the continued impact on our tenants as well as the evolution of government restrictions and travel limitations.

bpy-20201231_g7.jpg
Fair value losses, net for our Core Office segment were $223 million for the year ended December 31, 2020. The current period losses reflect the impact of the global economic shutdown on our near and mid-term cash-flows, primarily in our US markets. Our cash flow assumptions have been updated on a property-by-property basis, which reflect softer rental rate growth and leasing assumptions, including a reduction in speculative leasing and longer downtime, as well as delayed capital expenditures, and tenant-specific credit loss assumptions. Offsetting this was capitalization rate compression in certain assets in our New York, Sydney and UK portfolios.

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 asset was nearing 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.


- 75 -




bpy-20201231_g8.jpg
Fair value losses, net for our Core Retail segment were $1,706 million for the year ended December 31, 2020. Fair value losses, net for our Core Retail portfolio reflects the impact of the global economic shutdown on our near and mid-term cash flow assumptions. During the second and fourth quarters of 2020, we performed a detailed analysis of our cashflow models. Our cash flow assumptions were updated on a suite-by-suite basis with revised market leasing assumptions, vacancy reserves, downtime, retention assumptions, overage and temporary rental revenue assumptions, bad debt reserves and capital costs. We also applied tenant-specific credit reserves to most of our tenants, as we continue to have discussions on lease modifications for receivable balances dating back to the second quarter of 2020. We are actively tracking tenant bankruptcies and likelihood of filings and have assigned higher reserves to those respective tenants. We have also updated valuation metrics where necessary to reflect changes in certain property level risk profiles, mostly the lower quality malls in the sub $400 per square foot sales bands.

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.

- 76 -





bpy-20201231_g9.jpg
Fair value gains, net for our LP Investments segment for the year ended December 31, 2020 were $696 million. Certain of our asset classes within our LP Investments were impacted more materially than others from the global economic shutdown, mostly our retail assets. For our retail investments, we followed the same approach as referenced in the Fair value (losses) gains - Core Retail discussion above. Additionally, for the balance of our investment portfolios, we revisited cash flow assumptions for each of our assets and took into consideration the type of asset, the location, the credit-quality of our tenants, renewal rates, average lease term and restrictions that might be impacting our ability to collect rent. Based on this, we reflected some negative near-term cash flow assumptions into our valuation models. Offsetting these losses were gains in our US manufactured housing and UK student housing portfolios, as well as realized gains due to the disposition of our self-storage portfolio.

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.



- 77 -




We undertook a process to assess the appropriateness of the discount and terminal capitalization rates considering changes to property-level cash flows and any risk premium inherent in such cash flow changes as well as the current cost of capital and credit spreads. These considerations led us to make some discount rate changes to certain of our assets, mostly within our retail portfolio for assets where we have more exposure to anchor tenants who have recently filed for bankruptcy. We did not make holistic changes overall to our discount rates or terminal capitalization rates, as we were largely impacted by detailed revision of our cashflow models and feel comfortable with the level of risk applied in our cashflows. As we learn more about the mid- and longer-term impacts of the pandemic on our business, we will update our valuation models accordingly.    

Fair value sensitivity
The following table presents a sensitivity analysis to the impact of a 25 basis point (“bps”) increase of the discount rate and terminal capitalization or overall implied capitalization rate (“ICR”) on fair values of the partnership’s commercial properties for the year ended December 31, 2020, for properties valued using the discounted cash flow or direct capitalization method, respectively:

Dec. 31, 2020
(US$ Millions)Commercial propertiesCommercial developmentsDiscount rate (“DR”)Terminal
capitalization
rate
(“TCR”)
Investment horizon (years)Impact of +25bps DRImpact of +25bps TCRImpact of +25bps DR and +25bps TCR or +25bps ICR
Core Office
United States$14,682 $411 6.9 %5.6 %12$(335)$(419)$(748)
Canada4,721 381 5.9 %5.2 %10(89)(137)(223)
Australia2,366 365 6.6 %5.7 %10(63)(105)(166)
Europe2,526 173 5.2 %3.8 %10(50)(107)(155)
Brazil309  7.6 %7.0 %10(7)(19)(5)
Core Retail20,324  7.0 %5.3 %10(684)(408)(1,076)
LP Investments
LP Investments- Office7,946 781 9.7 %7.2 %7(127)(280)(401)
LP Investments- Retail2,538  8.7 %7.0 %10(64)(94)(148)
Mixed-use3,096  7.3 %5.2 %10(56)(88)(142)
Hospitality(1)
84  n/an/an/a   
Multifamily(2)
2,442  4.9 %n/an/a (117)(117)
Triple Net Lease(2)
3,719  6.2 %n/an/a (137)(137)
Student Housing(2)
2,757 205 4.9 %n/an/a (122)(122)
Manufactured Housing(2)
2,784  4.8 %n/an/a (130)(130)
Investment property impact$70,294 $2,316 $(1,475)$(2,163)$(3,570)
(1)Represents excess land held for capital appreciation rather than an operating hotel asset.
(2)The valuation method used to value multifamily, triple net lease, student housing, and manufactured housing properties is the direct capitalization method. The rates presented as the discount rate relate to the overall implied capitalization rate. The terminal capitalization rate and investment horizon are not applicable.

In addition, we recorded fair value losses of $89 million (December 31, 2019 - fair value losses of $100 million and December 31, 2018 - fair value gains of $161 million), related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the year. The prior year losses also related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the year.

- 78 -




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 Atlantis (as of the end of the third quarter of 2020) and the retail fund in Brazil in our LP Investments segment.
bpy-20201231_g10.jpg

Our share of net earnings from equity accounted investments for the year ended December 31, 2020 was a loss of $749 million, which represents a decrease of $2,718 million compared to the prior year. The decrease is primarily due to fair value losses in our Core Retail portfolio, losses in our Canary Wharf investment attributable to the retail portfolio within, and lower share of net earnings from our hospitality portfolio within LP Investments. Our Core Retail valuations reflect updated cash flow assumptions which have been updated on a suite-by-suite basis with revised market leasing assumptions, vacancy reserves, overage and temporary rental revenue assumptions, bad debt reserves and capital costs. We have updated valuation metrics where necessary to reflect changes in the property level risk profile. Earnings from the hospitality portfolio were impacted by the global economic shutdown. Additionally, incremental acquisitions of interests in 2019 which included One and Two London Wall Place in London in Core Office, and Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, Shops at Merrick Park in Florida and 730 Fifth in New York in Core Retail, contributed to the decrease in share of net earnings from equity accounted investments as the results for these properties are now consolidated in the current year.


Income tax expense (benefit)
    The increase in income tax expense for the year ended December 31, 2020 is primarily related to tax rate changes in jurisdictions in which we hold investments.
- 79 -




Reconciliation of Non-IFRS measures
As described in the “Performance Measures” section on page 66, 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, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Commercial property revenue$5,397 $5,691 $5,043 
Direct commercial property expense(1,936)(1,967)(1,851)
Commercial property NOI3,461 3,724 3,192 
Hospitality revenue702 1,909 1,913 
Direct hospitality expense(628)(1,219)(1,236)
Hospitality NOI74 690 677 
Total NOI3,535 4,414 3,869 
Investment and other revenue494 603 283 
Share of net earnings from equity accounted investments(749)1,969 947 
Interest expense(2,592)(2,924)(2,464)
Depreciation and amortization(319)(341)(308)
General and administrative expenses(816)(882)(1,032)
Investment and other expense(69)(82)(26)
Fair value (losses) gains, net(1,322)596 2,466 
Income before income taxes(1,838)3,353 3,735 
Income tax (expense) benefit(220)(196)(81)
Net (loss) income(2,058)3,157 3,654 
Net income attributable to non-controlling interests of others in operating subsidiaries and properties300 1,201 1,676 
Net (loss) income attributable to Unitholders$(2,358)$1,956 $1,978 
 
    The following table reconciles net income to FFO and Company FFO for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Net (loss) income$(2,058)$3,157 $3,654 
Add (deduct):   
Fair value losses (gains), net1,322 (596)(2,466)
Share of equity accounted fair value losses (gains), net1,403 (1,055)(114)
Depreciation and amortization of real-estate assets249 283 264 
Income tax expense (benefit)220 196 81 
Non-controlling interests in above items(429)(838)(553)
FFO707 1,147 866 
Add (deduct):
Depreciation and amortization of real-estate assets, net(1)
48 40 35 
Transaction costs, net(1)
33 96 221 
Gains/losses associated with non-investment properties, net(1)
3 (1)
Imputed interest(2)
23 49 51 
BSREP III earnings(3)
1 14 — 
Company FFO$815 $1,345 $1,179 
(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)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.

- 80 -




Summary of Financial Position
 
(US$ Millions, except per unit information)Dec. 31, 2020Dec. 31, 2019
Investment properties:  
Commercial properties$70,294 $71,565 
Commercial developments2,316 3,946 
Equity accounted investments19,719 20,764 
Property, plant and equipment5,235 7,278 
Cash and cash equivalents2,473 1,438 
Assets held for sale588 387 
Total assets107,951 111,643 
Debt obligations54,337 55,390 
Liabilities associated with assets held for sale396 140 
Total equity41,523 44,935 
Equity attributable to Unitholders(1)
$25,137 $28,530 
Equity per unit(2)
$26.66 $29.72 
(1)Equity attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 66.
(2)Assumes conversion of mandatorily convertible preferred shares. See page 81 for additional information.

As of December 31, 2020, we had $107,951 million in total assets, compared with $111,643 million at December 31, 2019. The decrease of $3,692 million was primarily due to valuation losses on our office and retail portfolios, the deconsolidation of the Atlantis, and impairment losses on our hospitality portfolio. This was in part offset by the positive impact of foreign currency translation due to the strengthening of all our major foreign currencies as compared to the U.S. dollar during the year.

Commercial properties represent operating, rent-producing properties. Commercial properties decreased from $71,565 million at the end of 2019 to $70,294 million at the end of the current year. The decrease was largely due to reclassification of a portfolio of self-storage assets and a Core Office asset in London to assets held for sale prior to their sales in the fourth quarter and valuation losses in our office and retail portfolios due to updated near and mid-term cash flow assumptions resulting from the global economic shutdown. These decreases were partially offset by the reclassification of 100 Bishopsgate in London from development to operating, the positive impact of foreign currency translation and incremental capital spent to maintain or enhance properties.
 
    Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $2,316 million at December 31, 2020, a decrease of $1,630 million from the balance at December 31, 2019. The decrease is primarily due to the reclassification of 100 Bishopsgate in the second quarter from development to operating, as the development reached substantial completion, the completion of an office redevelopment in Australia and the completion of an office development in India. These decreases were partially offset by incremental capital spend on our active developments and the impact of foreign currency translation.

The following table presents the changes in investment properties from December 31, 2019 to December 31, 2020:

Dec. 31, 2020
(US$ Millions)Commercial propertiesCommercial developments
Investment properties, beginning of year$71,565 $3,946 
Acquisitions647 108 
Capital expenditures1,140 857 
Dispositions(1)
(2,339)(21)
Fair value (losses) gains, net(1,607)219 
Foreign currency translation322 (44)
Transfer between commercial properties and commercial developments2,709 (2,709)
Reclassifications to assets held for sale and other changes(2)
(2,143)(40)
Investment properties, end of year$70,294 $2,316 
(1)Property dispositions represent the carrying value on date of sale.
(2)Includes a portfolio of self-storage assets and a Core Office asset in London, which were disposed of in the fourth quarter of 2020.


- 81 -




    
Equity accounted investments decreased by $1,045 million since December 31, 2019 primarily due to lower share of net earnings, driven by valuation losses in our retail portfolios and lower earnings from our hospitality portfolio as a result of the global economic shutdown and distributions. These decreases were partially offset by the reclassification of One Blue Slip and Andorra from commercial properties and the Atlantis resort from property, plant and equipment due to changes in control, the reclassification of the Diplomat out of assets held for sale into equity accounted investments and the positive impact of foreign currency translation.

The following table presents the changes in our equity accounted investments from December 31, 2019 to December 31, 2020:

(US$ Millions)Dec. 31, 2020
Equity accounted investments, beginning of year$20,764 
Additions522 
Disposals and return of capital distributions(108)
Share of net earnings from equity accounted investments(749)
Distributions received(618)
Foreign currency translation107 
Reclassification (to)/from assets held for sale121 
Other comprehensive income and other(320)
Equity accounted investments, end of year$19,719 

     Property, plant and equipment decreased by $2,043 million since December 31, 2019, primarily due to the deconsolidation of the Atlantis. Refer to Segment Performance, LP Investments for further detail. Additionally, we have recorded provisions for impairment on certain of our hospitality assets which are largely operating at reduced occupancy levels or have been nonoperational since the global economic shutdown began. The recovery timeline for our hospitality assets is expected to be the longest of all our sectors and the impairments taken represent a reduction in cashflows through that recovery period which ranges from 2022 (certain of our leisure hotels) to 2025 (certain of our urban and business/conference-heavy hotels). This decline in cashflows had a significant impact on the values of our hotels, which resulted in impairments for certain of our hotel investments. In addition, there was depreciation recorded during the period. These decreases were offset by capital expenditures and the positive impact of foreign currency translation during the current year.

As of December 31, 2020, assets held for sale primarily included a multifamily asset in the U.S., two malls in the U.S., a mall in Brazil, four triple net lease assets in the U.S., and an office asset in Australia.

The following table presents the changes in our assets held for sale from December 31, 2019 to December 31, 2020:

(US$ Millions)Dec. 31, 2020
Balance, beginning of year$387 
Reclassification to/(from) assets held for sale, net2,381 
Disposals(2,222)
Fair value adjustments
Foreign currency translation20 
Other13 
Assets held for sale$588 

Also included in total assets is accounts receivable, which had a balance of $753 million as of December 31, 2020 and compares to a balance of $510 million at December 31, 2019. The increase in accounts receivable balance is attributable to uncollected rents, mostly in Core Retail, as a direct result of the global economic shutdown. As tenants were mandated to stay home and/or malls were required to close, many of our tenants did not pay rent for a portion of the second quarter. As of December 31, 2020, we have collected approximately 96% of office rents and 67% of retail rents since April, when the global economic shutdown began. For the year ended December 31, 2020 we have recorded a $99 million allowance (2019 - $31 million) in commercial property operating expenses. We continue to make meaningful progress in negotiations and discussions with our tenants to work to modify their leases to offer them a deferral period or in some cases, rent abatement. As of December 31, 2020, we granted rent deferrals of 4% and rent abatements of 5% of 2020 retail rent. The rent abatements granted were considered lease modifications and will be recognized prospectively over the remaining lease terms from the period the rent was abated While we anticipate that we may grant further rent concessions, such as the deferral or abatement of lease payments, such rent concession requests are evaluated on a case-by-case basis.
- 82 -






Our debt obligations decreased to $54,337 million as at December 31, 2020 from $55,390 million as at December 31, 2019. The decrease was driven by the deconsolidation of the Atlantis, the dispositions of a portfolio of self-storage assets and a portfolio of triple net lease assets. These decreases were partially offset by an increase in subsidiary borrowings, issuance of senior secured notes, drawdown of the partnership’s credit facilities and the impact of foreign currency translation.
    
    The following table presents additional information on our partnership’s outstanding debt obligations:

(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Corporate borrowings$3,232 $1,902 
Funds subscription facilities314 57 
Non-recourse borrowings:  
Property-specific borrowings44,515 47,465 
Subsidiary borrowings6,276 5,966 
Total debt obligations54,337 55,390 
Current13,074 8,825 
Non-current41,263 46,565 
Total debt obligations$54,337 $55,390 
    
    The following table presents the components used to calculate equity attributable to Unitholders per unit:
 
(US$ Millions, except unit information)Dec. 31, 2020Dec. 31, 2019
Total equity$41,523 $44,935 
Less:  
Interests of others in operating subsidiaries and properties15,687 15,985 
Preferred equity699 420 
Equity attributable to Unitholders25,137 28,530 
Mandatorily convertible preferred shares1,679 1,650 
Total equity attributable to unitholders26,816 30,180 
Partnership units935,984,543 945,413,656 
Mandatorily convertible preferred shares70,051,024 70,051,024 
Total partnership units1,006,035,567 1,015,464,680 
Total equity attributable to Unitholders per unit$26.66 $29.72 
 
Equity attributable to Unitholders was $25,137 million at December 31, 2020, a decrease of $3,393 million from the balance at December 31, 2019. The decrease was primarily due to valuation losses. Assuming the conversion of mandatorily convertible preferred shares, equity attributable to Unitholders decreased to $26.66 per unit at December 31, 2020 from $29.72 per unit at December 31, 2019.
 
Interests of others in operating subsidiaries and properties was $15,687 million at December 31, 2020, a decrease of $298 million from the balance at December 31, 2019.

SUMMARY OF QUARTERLY RESULTS
 
 20202019
(US$ Millions, except per unit information)Q4Q3Q2Q1Q4Q3Q2Q1
Revenue$1,620 $1,636 $1,437 $1,900 $2,087 $2,017 $2,026 $2,073 
Direct operating costs566 677 551 770 783 776 785 842 
Net (loss) income(38)(135)(1,512)(373)1,551 870 23 713 
Net (loss) income attributable to Unitholders(390)(229)(1,253)(486)1,022 474 127 333 
Net (loss) income attributable to Unitholders per unit – basic$(0.38)$(0.24)$(1.26)$(0.49)$1.00 $0.46 $0.12 $0.32 
Net (loss) income attributable to Unitholders per unit – diluted$(0.38)$(0.24)$(1.26)$(0.49)$1.00 $0.46 $0.12 $0.32 
 
    Revenue varies from quarter to quarter due to acquisitions and dispositions of commercial and other income producing assets, changes in occupancy levels, including mandated closures as a result of the shutdown, 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.
- 83 -




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. All of this taken into consideration is more applicable prior to the impact of the global economic shutdown, and while we do anticipate seasonality to continue to have an impact on our revenues quarter-to-quarter, it is possible those impacts are outweighed by the ongoing impact of the COVID-19 pandemic in the near-term.

- 84 -




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. 31,202020192018
Core Office$495 $582 $520 
Core Retail521 707 552 
LP Investments64 268 228 
Corporate(373)(410)(434)
FFO$707 $1,147 $866 
 
The following table presents equity attributable to Unitholders by segment as of December 31, 2020 and 2019:
 
(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Core Office$14,246 $14,240 
Core Retail12,500 14,138 
LP Investments5,262 5,126 
Corporate(6,871)(4,974)
Equity attributable to Unitholders$25,137 $28,530 
 
Core Office

Overview
    Our Core Office portfolio consists of interests in 139 high-quality office properties totaling approximately 97 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 7 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. The drivers of earnings growth in this business 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 higher unlevered, pre-tax returns on construction costs from our development pipeline. However, we caution you that as a result of the global economic shutdown, we may be unable to achieve these returns in the near term. We do expect rent growth to be minimal for the next 12-18 months, but we have a strong average lease-life and occupancy that we think will benefit us from more adverse impacts resulting from the shutdown.

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, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
FFO$495 $582 $520 
Net income attributable to Unitholders83 1,504 934 
 
FFO from our Core Office segment was $495 million for the year ended December 31, 2020 as compared to $582 million in 2019. This decrease was largely attributable to dispositions as mentioned in investment activity, a reduction in same-property NOI driven by the impact of the global economic shutdown which resulted in a reduction to parking income and percentage rents typically earned from certain retail tenants within the portfolio, and the negative impact of foreign currency translation. Additionally, certain provisions for bad debt have been applied as a result of the shutdown. The prior year also benefited from a performance-based fee for achieving certain milestones at Five Manhattan West. These decreases were partially offset by incremental NOI from our recently completed developments and higher development management fees as development activity has increased.

Net income attributable to Unitholders from our Core Office segment for 2020 was $83 million compared to $1,504 million in 2019. This decrease is largely attributable to fair value losses, dispositions and the negative impact of foreign currency translation. These decreases were partially offset by fair value gains on our development in Toronto and capitalization rate compression in certain of our assets in New York, London and Sydney.
- 85 -




Leasing Activity
The following table presents key operating metrics for our Core Office portfolio for the years ended December 31, 2020 and 2019:
 
(US$ Millions, except where noted)ConsolidatedUnconsolidated
As at and for the years ended Dec. 31,2020201920202019
Total portfolio:    
NOI(1)
$1,075 $1,104 $422 $406 
Number of properties73 72 66 64 
Leasable square feet (in thousands)48,730 47,646 30,929 27,993 
Occupancy88.5 %92.0 %92.2 %94.6 %
In-place net rents (per square foot)(2)(3)
$31.56 $30.31 $43.36 $42.08 
Same-property:    
NOI(1)(3)
$985 $1,060 $384 $393 
Number of properties68 68 60 60 
Leasable square feet (in thousands)46,901 46,902 26,271 25,809 
Occupancy88.7 %91.9 %94.7 %94.7 %
In-place net rents (per square foot)(2)(3)
$30.23 $29.54 $47.34 $46.63 
(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)Annualized cash rent from leases on a per square foot basis including tenant expense reimbursements, less operating expenses incurred for that space, but excluding the impact of straight-line rent or amortization of free rent periods.
(3)Presented using normalized foreign exchange rates, using the December 31, 2020 exchange rate.

NOI from our consolidated properties decreased to $1,075 million in 2020 from $1,104 million in 2019 primarily due to lease expirations since the prior year, as well as lower parking revenue as offices were closed due to the global economic shutdown. Same-property NOI for our consolidated properties decreased by $75 million to $985 million compared with the prior year due to lower parking revenue and percentage rents earned due to the shutdown, as well as lease expiration since the prior year. The decrease was partially offset by incremental NOI in London from 100 Bishopsgate, which was substantially complete in 2020 and One and Two London Wall Place which were consolidated in the current year following the incremental interests acquired in 2019.

NOI from our unconsolidated properties, which is presented on a proportionate basis, increased to $422 million in 2020 from $406 million in 2019. This increase is primarily due to incremental NOI earned from One Manhattan West and 655 New York Avenue as the developments became operational since the prior year. These increases were offset by the impact of the shutdown on retail NOI across the portfolio, as well as the exclusion of One and Two London Wall Place since the properties were consolidated during the year following the incremental interests acquired in 2019.
 
    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, 2020Dec. 31, 2019
Leasing activity (in thousands of square feet)  
New leases1,609 3,788 
Renewal leases2,550 4,047 
Total leasing activity4,159 7,835 
Average term (in years)8.1 8.5 
Year-one leasing net rents (per square foot)(1)
$35.53 $39.15 
Average leasing net rents (per square foot)(1)
37.21 43.13 
Expiring net rents (per square foot)(1)
32.36 32.72 
Estimated market net rents for similar space(1)
39.86 40.73 
Tenant improvements and leasing costs (per square foot)39.61 66.09 
(1)Presented using normalized foreign exchange rates, using the December 31, 2020 exchange rate.
 
For the year ended December 31, 2020, we leased approximately 4.2 million square feet at average in-place net rents approximately 15% higher than expiring net rents. Approximately 39% of our leasing activity represented new leases. Our overall Core Office portfolio’s in-place net rents are currently 3% 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, 2020, tenant improvements and leasing costs were $39.61 per square foot, compared to $66.09 per square foot in the prior year.
- 86 -




 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, 2020Dec. 31, 2019
 Discount 
rate
Terminal
capitalization
rate
Investment
horizon
Discount rateTerminal
capitalization
rate
Investment
horizon
Consolidated properties:      
United States6.9 %5.6 %127.0 %5.6 %12
Canada5.9 %5.2 %105.9 %5.2 %10
Australia6.6 %5.7 %106.8 %5.9 %10
Europe5.2 %3.8 %104.6 %4.1 %11
Brazil7.6 %7.0 %107.9 %7.4 %10
Unconsolidated properties:      
United States6.4 %4.7 %116.8 %4.9 %11
Australia6.3 %5.3 %106.5 %5.2 %10
Europe(1)
5.6 %4.7 %104.6 %5.0 %10
(1)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, 2020 and 2019:
 
(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Investment properties:  
Commercial properties$24,604 $23,025 
Commercial developments1,329 3,058 
Equity accounted investments8,866 8,882 
Accounts receivable and other1,094 1,186 
Cash and cash equivalents458 607 
Assets held for sale196 — 
Total assets36,547 36,758 
Debt obligations13,681 13,856 
Capital securities863 922 
Accounts payable and other liabilities1,664 1,801 
Deferred tax liability1,151 1,013 
Non-controlling interests of others in operating subsidiaries and properties4,862 4,926 
Equity attributable to Unitholders$14,246 $14,240 
 
Equity attributable to Unitholders increased by $6 million to $14,246 million at December 31, 2020 from $14,240 million at December 31, 2019. The increase relates to net loss during the year partially offset by the positive impact of foreign currency translation.
     
    Commercial properties totaled $24,604 million at December 31, 2020, compared to $23,025 million at December 31, 2019. This increase was driven by the reclassification of 100 Bishopsgate, Two Blue Slip and 388 George Street from development to operating in the current year and incremental capital spent to maintain or enhance properties, partially offset by the sale of a Core Office asset in London and fair value losses.
- 87 -




Commercial developments decreased by $1,729 million between December 31, 2019 and December 31, 2020, and was primarily due to the reclassification of 100 Bishopsgate in London and 388 George Street in Sydney from development to operational, partially offset by incremental capital spent on our active developments and a gain recognized at Bay Adelaide North in Toronto in the first quarter.
    
    The following table presents changes in our partnership’s equity accounted investments in the Core Office segment from December 31, 2019 to December 31, 2020:
 
(US$ Millions)Dec. 31, 2020
Equity accounted investment, beginning of year$8,882 
Additions256 
Share of net income, including fair value gains (losses)150 
Distributions received(530)
Foreign exchange190 
Other(82)
Equity accounted investments, end of year$8,866 

Equity accounted investments decreased by $16 million to $8,866 million at December 31, 2020 compared to the prior year-end. The decrease was driven by distributions received, partially offset by the addition of two multifamily properties due to change in accounting treatment from the sale of partial interests and the impact of foreign currency translation.

Assets held for sale and related liabilities as of December 31, 2020 includes our interest in a multifamily asset in Maryland, as we intend to sell controlling interests in these properties to third parties in the next 12 months, market conditions permitting.

Debt obligations decreased from $13,856 million at December 31, 2019 to $13,681 million at December 31, 2020. This decrease is driven by the paydown of property-level debt in conjunction with the sale of One London Wall Place, as well as the deconsolidation of two multifamily assets. These decreases were partially offset by refinancing activity of property-level debt related to office properties and drawdowns on existing facilities to fund capital expenditures on development properties and the negative impact of foreign currency translation.
    
    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, 2020Dec. 31, 2019
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 Subsidiaries863 922 
Total capital securities$863 $922 
(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 $863 million of capital securities – fund subsidiaries outstanding at December 31, 2020 (December 31, 2019 - $922 million). Capital securities – fund subsidiaries includes $807 million (December 31, 2019 - $860 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 $56 million (December 31, 2019 - $62 million) which represents the equity interests held by our co-investor in Brookfield D.C. Office Partners LLC ("D.C. Venture") 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.
- 88 -




Active Developments
The following table summarizes the scope and progress of active developments in our Core Office segment as of December 31, 2020:

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-dateTotalDrawn
Office:
Manhattan West Retail, Midtown New York(2)
70 39 Q4 202153 %$119 $87 $64 $20 
Wood Wharf - 20 Water Street, London(2)
236 118 Q1 2022— %£57 £37 £47 £16 
1 The Esplanade, Sydney610 305 Q2 202368 %A$331 A$93 A$— A$ 
Bay Adelaide North, Toronto823 823 Q4 202389 %C$496 C$262 C$350 C$116 
Two Manhattan West, Midtown New York(2)
1,948 1,091 Q4 202325 %$1,331 $577 $812 $224 
Office Redevelopment:
110 Avenue of the Americas, Midtown New York376 136  Q2 202295 %$113 $69 $62 $19 
Multifamily:
Wood Wharf - One Park Drive, London(2)(3)
426 213 Q4 2021n/a£202 £177 £135 £61 
Newfoundland, London(2)
685 343 Q1 2022n/a£279 £258 £174 £137 
Halley Rise, Phase I, Washington D.C(4)
359 359 Q1 2023n/a$153 $93 $111 $42 
755 Figueroa, Los Angeles(2)
674 319 Q1 2025n/a$257 $59 $166 $26 
Hotel:
Wood Wharf - 15 Water Street, London(2)
188 94 Q2 2022n/a£70 £27 £47 £13 
1 Charter Street, London(2)
94 24 Q2 2023n/a£31 £4 £19 £3 
Pendry Manhattan West, Midtown New York(2)
184 103  Q3 2023n/a$162 $120 $62 $16 
Total6,673 3,967 
(1)Net of NOI earned during stabilization.
(2)Presented on a proportionate basis at our ownership in each of these developments.
(3)Represents condominium/market sale developments.
(4)Includes retail square feet that is 94% leased to Wegmans Food Market and other retailers.

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 New York and London and completed two urban multifamily developments in New York. Our current office and redevelopment projects stand at an average 50% pre-leased and despite the global economic shutdown, are generally tracking on time and budget.

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. 31,202020192018
Commercial property revenue$1,875 $1,903 $1,962 
Hospitality revenue(1)
6 12 17 
Direct commercial property expense(796)(797)(879)
Direct hospitality expense(1)
(10)(14)(13)
Total NOI$1,075 $1,104 $1,087 
(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.
- 89 -




    The following table reconciles Core Office NOI to net income for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Same-property NOI$951 $1,032 $969 
Currency variance 22 
NOI related to acquisitions and dispositions124 63 96 
Total NOI1,075 1,104 1,087 
Investment and other revenue168 234 126 
Interest expense(586)(606)(598)
Depreciation and amortization on non-real estate assets(13)(11)(13)
Investment and other expense(24)(15)— 
General and administrative expense(254)(250)(197)
Fair value (losses) gains, net(223)798 108 
Share of net earnings from equity accounted investments150 716 725 
Income before income taxes293 1,970 1,238 
Income tax benefit (expense)(50)(123)(54)
Net income243 1,847 1,184 
Net income attributable to non-controlling interests160 343 250 
Net income attributable to Unitholders$83 $1,504 $934 
     
    The following table reconciles Core Office net income to FFO for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Net income$243 $1,847 $1,184 
Add (deduct):   
Fair value losses (gains), net223 (798)(108)
Share of equity accounted fair value losses (gains), net160 (420)(459)
Depreciation and amortization of real estate assets4 
Income tax (benefit) expense50 123 54 
Non-controlling interests in above items(185)(173)(153)
FFO$495 $582 $520 
    
    The following table reconciles Core Office share of net earnings from equity accounted investment for the years ended December 31, 2020, 2019, and 2018:

(US$ Millions) Years ended Dec. 31,202020192018
Unconsolidated properties NOI$422 $406 $451 
Unconsolidated properties fair value (losses) gains, net and income tax expense(160)420 459 
Other(112)(110)(185)
Share of net earnings from equity accounted investments$150 $716 $725 
 
Core Retail

Overview
Our Core Retail segment consists of 121 best-in-class regional malls and urban retail properties containing over 119 million square feet in the United States. These assets generally have a stable cash flow profile due to long-term leases in place. The key drivers of growth in the business 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 higher unlevered, pre-tax returns on construction costs from our redevelopment pipeline, which will also drive NOI growth. However, this business has been significantly impacted by the economic shutdown. NOI growth has been partially offset by the impact of tenant bankruptcies in the last 18 months, and while significant progress has been made on re-letting the majority of that space, we are now facing potential new tenant-viability challenges as a result of the shutdown. We are in negotiations with the vast majority of our tenants on lease modifications given most of our malls were closed for a portion of the second quarter as mandated by the government. These modifications have resulted in rent deferrals of 4% and abatements of 5% of total 2020
- 90 -




rent. The rent abatements granted were considered lease modification and will be recognized prospectively over the remaining lease terms from the period the rent was abated. Additionally, it is possible that more bankruptcies result from the shutdown which could lead to further down-time in the near and mid-term. In the current period, we have applied a credit reserve to most of our portfolio which varies based on tenant viability risk; normally reserves would only be applied to those tenants which have filed bankruptcy, were expected to file bankruptcy or were deemed high-risk. We recorded a $99 million loss allowance in the current year (2019 - $31 million) which decreased our NOI.

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, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
FFO$521 $707 $552 
Net (loss) income attributable to Unitholders(1,972)659 456 
     
    FFO earned in our Core Retail segment for the year ended December 31, 2020 was $521 million compared to $707 million in the prior year. The decrease is due to lower share of earnings from equity accounted investments and a reduction in NOI, both driven by an increase in bad debt reserves as we continue to work through tenant negotiations and lower short-term revenue earned, including parking, temporary tenants and overage rent, due to the impact of the global economic shutdown. These decreases were partially offset by the incremental acquisition of interests in 2019 of Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, Shops at Merrick Park in Florida and 730 Fifth in New York as the results for these properties are now consolidated in the current year.
 
Net loss attributable to Unitholders from our Core Retail segment was $1,972 million in 2020 compared to income of $659 million in 2019. This increase in net (loss) attributable to Unitholders is primarily attributable to fair value losses, net which reflects the impact of the shutdown on our near and mid-term cash flow assumptions. Our cash flow assumptions have been updated on a suite-by-suite basis with revised market leasing assumptions, vacancy reserves, downtime, retention assumptions, overage and temporary rental revenue assumptions, bad debt reserves and capital costs. We have updated valuation metrics where necessary to reflect changes in the property level risk profile.

Leasing Activity
The following table presents key operating metrics in our Core Retail portfolio for the years ended December 31, 2020 and 2019:
 
ConsolidatedUnconsolidated
(US$ Millions, except where noted)2020201920202019
Total Portfolio:
NOI$981 $1,011 $713 $906 
Number of malls and urban retail properties63 62 58 60 
Leasable square feet (in thousands)55,425 55,258 64,380 65,268 
Same-property:  
Number of malls and urban retail properties57 57 57 57 
Leasable square feet (in thousands)23,038 23,315 29,987 29,804 
Leased %(1)
91.1 %95.5 %93.5 %97.0 %
Occupancy %(1)
90.9 %95.1 %93.0 %96.5 %
Permanent Occupancy %(1)
85.8 %89.7 %89.0 %92.6 %
(1)     Presented on a same-property basis.

    NOI from our consolidated properties decreased to $981 million during the year ended December 31, 2020 from $1,011 million in 2019 primarily due to the negative impact of the global economic shutdown, partially offset by incremental acquisitions mentioned above.

NOI from our unconsolidated properties decreased to $713 million during the year ended December 31, 2020 from $906 million in 2019 primarily due to incremental acquisitions mentioned above as they were unconsolidated in the prior period. Also contributing to the decrease was the impact of property closures mentioned above.
    
- 91 -




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.
 
 Total portfolio
(US$ Millions, except where noted)Dec. 31, 2020Dec. 31, 2019
Number of leases717 1,329 
Leasing activity (in thousands of square feet)2,553 5,256 
Average term in years6.5 6.5 
Initial rent (per square foot)(1)
$52.30 $60.58 
Expiring rent (per square foot)(2)
51.74 58.47 
Initial rent spread (per square foot)0.56 2.11 
% Change1.1 %3.6 %
Tenant allowances and leasing costs$84 $200 
(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, 2020, we leased approximately 2.6 million square feet at initial rents approximately 1.1% higher than expiring net rents on a suite-to-suite basis.
 
Our Core Retail portfolio same-property occupancy rate at December 31, 2020 was 90.9% and 93.0%, for consolidated and unconsolidated properties, respectively.

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, 2020Dec. 31, 2019
 Discount RateTerminal
capitalization 
rate
Investment
horizon
Discount RateTerminal
capitalization
rate
Investment
horizon
Consolidated properties:
United States7.0 %5.3 %106.7 %5.4 %10
Unconsolidated properties:      
United States6.3 %4.9 %106.3 %4.9 %10

Financial Position
    The following table presents an overview of the financial position of our Core Retail segment as at December 31, 2020 and 2019:
(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Investment properties
Commercial properties$20,324 $21,561 
Equity accounted investments9,685 10,555 
Accounts receivable and other899 609 
Cash and cash equivalents205 196 
Assets held for sale353 — 
Total assets31,466 32,921 
Less:  
Debt obligations16,290 16,107 
Accounts payable and other liabilities853 821 
Deferred tax liability23 68 
Liabilities associated with assets held for sale263 — 
Non-controlling interests of others in operating subsidiaries and properties1,537 1,787 
Total equity attributable to Unitholders$12,500 $14,138 

Equity attributable to Unitholders in the Core Retail segment decreased by $1,638 million from December 31, 2019 to December 31, 2020 primarily due to net loss recognized and distribution of income during the period.
- 92 -




The following table presents a roll-forward of our partnership’s equity accounted investments for the year ended December 31, 2020:
 
(US$ Millions)Dec. 31, 2020
Equity accounted investments, beginning of year$10,555 
Additions86 
Disposals and return of capital12 
Share of net (losses) earnings from equity accounted investments(743)
Distributions(94)
Reclassification to assets held for sale and other(131)
Equity accounted investments, end of year$9,685 

Equity accounted investments decreased by $870 million to $9,685 million. The decrease is primarily due to the valuation losses mentioned above.

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. 31,202020192018
Commercial property revenue$1,450 $1,394 $511 
Direct commercial property expense(469)(383)(135)
Total NOI$981 $1,011 $376 

    The following table reconciles Core Retail net (loss) income to net income attributable to Unitholders for the years ended December 31, 2020, 2019, and 2018:

(US$ Millions) Years ended Dec. 31,202020192018
Total NOI$981 $1,011 $376 
Investment and other revenue162 195 73 
Interest expense(647)(683)(218)
Depreciation and amortization on real estate assets(25)(24)(6)
General and administrative expense(255)(258)(89)
Fair value (losses) gains, net(1,706)(686)412 
Share of net (losses) earnings from equity accounted investments(743)1,179 (52)
(Loss) income before income taxes(2,233)734 496 
Income tax benefit (expense)50 (8)(6)
Net (loss) income$(2,183)$726 $490 
Net (loss) income attributable to non-controlling interests of others in operating
subsidiaries and properties
(211)67 34 
Net (loss) income attributable to Unitholders$(1,972)$659 $456 
 
- 93 -




    The following table reconciles Core Retail net (loss) income to FFO for the years ended December 31, 2020, 2019, and 2018:

(US$ Millions) Years ended Dec. 31,202020192018
Net (loss) income$(2,183)$726 $490 
Add (deduct):   
Fair value losses (gains), net1,706 686 (412)
Share of equity accounted fair value losses (gains), net1,112 (643)505 
Income tax (benefit) expense(50)
Non-controlling interests in above items(64)(70)(37)
FFO$521 $707 $552 
    
    The following table reconciles Core Retail share of net (losses) earnings from equity accounted investment for the years ended December 31, 2020, 2019, and 2018:

(US$ Millions) Years ended Dec. 31,202020192018
Unconsolidated properties NOI$713 $906 $1,141 
Unconsolidated properties fair value (losses) gains, net and income tax expense(1,112)643 (505)
Other(344)(370)(688)
Share of net (losses) earnings from equity accounted investments$(743)$1,179 $(52)

LP Investments

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, student housing, mixed-use and manufactured housing. We target to earn opportunistic returns on our LP Investments portfolio. We caution you that in light of the global economic shutdown and its impact stock markets worldwide, we may be unable to achieve these returns in the near term.
    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 9th 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 6th 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 4th 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 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.
- 94 -




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, 2020, 2019, and 2018:

(US$ Millions) Years ended Dec. 31,202020192018
Return of invested capital$116 $475 $446 
Distribution of earnings and gains on invested capital192 892 949 
Total LP Investments distributions308 1,367 1,395 
Less: Incentive fees(11)(181)(32)
Total LP Investments distributions, net297 1,186 1,363 

    During the year ended December 31, 2020, distribution of earnings and gains on invested capital primarily related to realized gains on the dispositions of multifamily assets in our second value-add multifamily fund, two office assets in BSREP II and a portfolio of triple net lease assets in BSREP I, as well as distributions of income from our hotel and multifamily assets, and our investment in a Brookfield-sponsored debt fund. Total LP Investments distributions for the year ended December 31, 2020 were net of incentive fees associated with the dispositions mentioned above. Distribution of earnings and gains on invested capital in the prior periods are primarily due to distributions 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.

    The following table presents FFO and net income attributable to Unitholders in our LP Investments segment for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
FFO$64 $268 $228 
Net (loss) income attributable to Unitholders(45)285 636 

    FFO in our LP Investments segment decreased by $204 million for the year ended December 31, 2020 primarily due to reduced NOI, mostly in our hospitality investments, most materially at the Atlantis and Center Parcs, due to cancellations and closures resulting from the shutdown. The majority of our hospitality properties operated at reduced occupancy for the duration of the year. Additionally, property dispositions since the prior year contributed to the decrease. These decreases were partially offset by lower interest expense and general and administrative expense than prior period relating to the deconsolidation of BSREP III investments, as well as the favorable impact of foreign currency translation.
    Net loss attributable to Unitholders from our LP Investments segment decreased by $330 million for the year ended December 31, 2020. In addition to earning negative NOI in certain of our hospitality properties in the current period, fair value losses were recorded in our retail portfolio driven by updated near and mid-term cash flow assumptions. Our retail cash flow assumptions have been updated on a suite-by-suite basis with revised market leasing assumptions, vacancy reserve, downtime, retention assumptions and capital costs. We have updated valuation metrics where appropriate to reflect changes in the property level risk profile. Partially offsetting fair value losses in our retail portfolio were fair value gains in our US manufactured housing and UK student housing portfolios, fair value gains in a mixed-use asset in Korea, and realized gains due to the sale of our portfolio of self-storage assets.
- 95 -




Financial Position    
    The following table presents equity attributable to Unitholders in our LP Investments segment:
 
(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Investment properties$26,353 $27,867 
Property, plant and equipment5,010 7,028 
Equity accounted investments1,168 1,327 
Accounts receivable and other5,250 4,634 
Cash and cash equivalents1,789 595 
Assets held for sale39 387 
Total assets39,609 41,838 
Less:  
Debt obligations21,134 23,525 
Capital securities431 431 
Accounts payable and other liabilities3,458 3,361 
Liabilities associated with assets held for sale53 140 
Non-controlling interests of others in operating subsidiaries and properties9,271 9,255 
Equity attributable to Unitholders$5,262 $5,126 
 
The decrease in investment properties is primarily the result of the disposition of property dispositions, including a portfolio of self-storage assets and fair value losses in our retail portfolio. These decreases were offset by several student housing developments becoming operational in the period, capital spend, and valuation gains from certain asset classes not materially impacted by the global economic shutdown, including our mixed-use and manufactured housing portfolios.

The decrease in property, plant and equipment is the result of the deconsolidation of our interest in the Atlantis and impairment losses on our hospitality properties resulting from the global economic shutdown. These decreases were offset by capital spend and the positive impact of foreign currency translation related to our Center Parcs portfolio in the United Kingdom. Impairment losses were primarily related to the Atlantis prior to deconsolidation of the investment and were recorded in revaluation (losses) gains, net within other comprehensive income to offset previously recorded revaluation gains.


- 96 -





The following table presents a roll-forward of changes in our property, plant and equipment within our LP Investments segment:

(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Cost:
Balance at the beginning of year$6,992 $7,295 
Accounting policy change(1)
 71 
Additions140 378 
Disposals(68)(35)
Foreign currency translation142 98 
Impact of deconsolidation due to loss of control and other(2)
(1,901)(815)
5,305 6,992 
Accumulated fair value changes:
Balance at the beginning of year1,324 1,049 
Revaluation (losses) gains, net(3)
(124)282 
Impact of deconsolidation due to loss of control and other(2)
(729)(7)
Disposals13 — 
Provision for impairment(3)
(15)— 
Foreign currency translation6 — 
475 1,324 
Accumulated depreciation:
Balance at the beginning of year(1,288)(1,012)
Depreciation(270)(294)
Disposals27 25 
Foreign currency translation(25)(14)
Impact of deconsolidation due to loss of control and other(2)
786 
(770)(1,288)
Total property, plant and equipment$5,010 $7,028 
(1)The prior year includes the impact of the adoption of IFRS 16 through the recognition of right-of-use assets.
(2)The prior year includes the impact of the deconsolidation of BSREP III investments. The current year includes the impact of deconsolidation of the Atlantis.
(3)The current year impairment losses were recorded in revaluation losses, net in other comprehensive income and fair value (losses) gains, net in the income statement, which was a result of the impairment tests performed on each of the partnership’s hospitality investments from the impact of the shutdown as discussed above.
 
Equity accounted investments decreased primarily due to the impairment losses on equity-accounted hospitality investments, the negative impact of foreign currency translation and distributions. The decrease was partially offset by the reclassification of the Diplomat hotel from assets held for sale to equity accounted investments and the deconsolidation of Atlantis which was previously recorded in property plant and equipment but is now accounted for under the equity method.

    Assets held for sale and related liabilities as of December 31, 2020 includes four 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, market conditions permitting.

Debt obligations decreased due to the deconsolidation of the Atlantis as well as repayments due to property dispositions, partially offset by drawdowns on existing facilities to fund capital expenditures and the negative impact of foreign currency translation.

- 97 -




Reconciliation of Non-IFRS Measures - LP Investments
    The following table reconciles LP Investments NOI to net income for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Commercial property revenue$2,072 $2,394 $2,570 
Hospitality revenue696 1,897 1,896 
Direct commercial property expense(671)(787)(837)
Direct hospitality expense(618)(1,205)(1,223)
Total NOI1,479 2,299 2,406 
Investment and other revenue152 161 78 
Interest expense(1,104)(1,389)(1,357)
General and administrative expense(177)(198)(597)
Investment and other expense(45)(67)(26)
Depreciation and amortization(281)(306)(289)
Fair value gains, net696 584 1,785 
Share of net earnings from equity accounted investments(156)74 274 
Income before income taxes564 1,158 2,274 
Income tax (expense)(258)(83)(247)
Net income306 1,075 2,027 
Net income attributable to non-controlling interests of others in operating subsidiaries and properties351 790 1,391 
Net (loss) income attributable to Unitholders$(45)$285 $636 
 
    The following table reconciles LP Investments net income to FFO for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Net income$306 $1,075 $2,027 
Add (deduct):   
Fair value (gains), net(696)(584)(1,785)
Share of equity accounted fair value gains (losses), net131 (160)
Depreciation and amortization of real estate assets244 280 261 
Income tax expense258 83 247 
Non-controlling interests in above items(179)(594)(362)
FFO$64 $268 $228 

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, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
FFO$(373)$(410)$(434)
Net (loss) income attributable to Unitholders(424)(492)(48)

FFO was a loss of $373 million for the year ended December 31, 2020 compared to a loss of $410 million in the prior year. Corporate FFO generally includes interest expense and general and administrative expense.

Interest expense for the year ended December 31, 2020 was $255 million (2019 - $246 million), which reflects $146 million (2019 - $152 million) of interest expense on capital securities and $109 million (2019 - $94 million) of interest expense on our credit facilities and corporate bonds. This compares to interest expense of $246 million in the prior year and $291 million in 2018.

- 98 -




Another component of FFO is general and administrative expense, which for the year ended December 31, 2020, was $130 million, and includes $73 million (2019 - $107 million) of asset management fees, $6 million (2019 - $26 million) of equity enhancement fees and $51 million (2019 - $43 million) of other corporate costs. This compares to general and administrative expense of $176 million in the prior year and $149 million in 2018.

In 2020, income tax benefit allocated to the corporate segment was $38 million (2019 - income tax benefit of $18 million and 2018 - benefit of $226 million). The current year income tax benefit allocated to the corporate segment related to tax changes in jurisdictions in which we hold investments. The prior year benefit relates to a decrease in deferred tax liabilities of our holding companies and their subsidiaries.
 
Financial Position
    The following table presents equity attributable to Unitholders in our Corporate segment:
 
(US$ Millions)Dec. 31, 2020Dec. 31, 2019
Accounts receivable and other$308 $86 
Cash and cash equivalents21 40 
Total assets329 126 
Debt obligations3,232 1,902 
Capital securities1,739 1,722 
Deferred tax liabilities37 101 
Accounts payable and other liabilities1,476 938 
Preferred equity699 420 
Non-controlling interests17 17 
Equity attributable to Unitholders$(6,871)$(4,974)
 
    The corporate balance sheet includes corporate debt and capital securities from our partnership. The decrease in equity attributable to Unitholders is primarily due to current period net loss, proceeds from corporate bond issuances contributed to operating segments and distributions to Unitholders.

    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. We also issued C$350 million of medium term notes at a fixed interest rate of 4.3% for general corporate purposes.

    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.

During the first quarter of 2020, we issued $279 million of our Class A Cumulative Redeemable Perpetual Preferred Units, Series 3 at a coupon rate of 5.75% per annum, payable quarterly in arrears. We also issued C$400 million of medium term notes at a fixed interest rate of 3.93% to fund sustainable building initiatives and C$100 million of medium term notes at a fixed interest rate of 4.35% for general corporate purposes.

In the third quarter of 2020, we issued C$500 million of medium term notes at a fixed interest rate of 3.926%. Proceeds are being used to fund recently completed and future green initiatives.

In addition, as of December 31, 2020, we had $15 million (2019 - $15 million) of preferred shares with a cumulative dividend rate of 5% outstanding. The preferred shares were issued by various holding entities of our partnership.


- 99 -




The following table provides additional information on our outstanding capital securities – corporate:
(US$ Millions, except where noted)Shares
outstanding
Cumulative
dividend rate
Dec. 31, 2020Dec. 31, 2019
Operating Partnership Class A Preferred Equity Units:    
Series 124,000,000 6.25 %$586 $574 
Series 224,000,000 6.50 %555 546 
Series 324,000,000 6.75 %538 530 
Brookfield Property Split Corp. Senior Preferred Shares:
Class A Series 1842,534 5.25 %21 23 
Class A Series 2556,746 5.75 %11 13 
Class A Series 3789,718 5.00 %16 18 
Class A Series 4594,994 5.20 %12 18 
Total capital securities  $1,739 $1,722 

Reconciliation of Non-IFRS Measures – Corporate
    The following table reconciles Corporate net income to net loss attributable to Unitholders for the years ended December 31, 2020, 2019, and 2018:

(US$ Millions) Years ended Dec. 31,202020192018
Net (loss)$(424)$(491)$(47)
Net income attributable to non-controlling interests of others in operating
subsidiaries and properties
 
Net loss attributable to Unitholders$(424)$(492)$(48)

    The following table reconciles Corporate net loss to FFO for the years ended December 31, 2020, 2019, and 2018:
 
(US$ Millions) Years ended Dec. 31,202020192018
Net (loss)(424)(491)(47)
Add (deduct):   
Fair value (gains) losses, net89 100 (161)
Income tax expense(38)(18)(226)
Non-controlling interests in above items (1)— 
FFO$(373)$(410)$(434)
 
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. In particular, in the near term, we expect to be impacted by the ongoing global economic shutdown, which has interrupted business activities and supply chains; disrupted travel; contributed to significant volatility in the financial markets, resulting in a general decline in equity prices and lower interest rates; impacted social conditions; and adversely impacted local, regional, national and international economic conditions, as well as the labor markets.

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.

- 100 -




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. As noted above, economic conditions have been impacted substantially by the global economic shutdown. 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. These risks may be exacerbated by the ongoing global economic shutdown. 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.

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.

Public Health Risk
Our business could be materially adversely affected by the effects of the COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases. As a result of the rapid spread of COVID-19, many companies and various governments have imposed restrictions on business activity and travel which may continue and could expand. Business has slowed significantly around the globe specifically in our hospitality and retail businesses, and there can be no assurance that strategies to address potential disruptions in operations will mitigate the adverse impacts related to the pandemic. Given the ongoing and dynamic nature of the circumstances surrounding COVID-19, it is difficult to predict how significant the impact of this pandemic, including any responses to it, will be on the global economy, our company and our businesses or for how long disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, rapidly evolving and cannot be predicted, including new information which may emerge concerning the severity and transmissibility of this coronavirus and actions taken to contain it, including the pace, availability, distribution and acceptance of effective vaccines, among others. Such developments, depending on their nature, duration, and intensity, could have a material adverse effect on our business, financial position, results of operations or cash flows.

We operate in industries or geographies impacted by COVID-19. Many of these are facing financial and operational hardships due to COVID-19 and responses to it. Adverse impacts on our business may include:
a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;
a slowdown in business activity may severely impact our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to fund their business operations, meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
an increase in re-leasing timelines, potential delays in lease-up of vacant space and the market rates at which such lease will be executed;
reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending and demand; and
expected completion dates for our development and redevelopment projects may be subject to delay as a result of local economic conditions that may continue to be disrupted as a result of the COVID-19 pandemic.

If these and potential other disruptions caused by COVID-19 continue, our business could be materially adversely affected.

Credit Risk
- 101 -




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. The global economic shutdown has increased the risk in the near-term of our tenants’ ability to fulfill lease commitments, which has been materially impacted by retail store closures, quarantines and stay-at-home orders. Many of our tenants could declare bankruptcy or become insolvent and cease business operations as a result of prolonged mitigation efforts. Our retail and hospitality assets are experiencing the most immediate impact. Our office asset tenants, while facing hardships from stay-at-home orders, do not presently have as acute difficulty in fulfilling lease commitments in near-term, they could face increased difficulty if prolonged mitigation efforts material impact their business.

Government and government agencies comprise 8.2% of our Core Office segment tenant base and, as at December 31, 2020, 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, 2020:
 
TenantPrimary Location
Credit Rating(1)
Exposure (%)(2)
Government and Government AgenciesVariousAA+/AAA8.2 %
Morgan StanleyNY/LondonA2.7 %
BarclaysLondon/Toronto/CalgaryBBB2.1 %
CIBC World Markets(3)
Calgary/Toronto/NYAA1.8 %
Suncor Energy Inc.CalgaryBBB+1.8 %
Bank of MontrealCalgary/TorontoAA1.5 %
EYVariousNot Rated1.4 %
CenovusCalgaryBB1.3 %
Royal Bank of CanadaVariousAA-1.3 %
DeloitteVariousNot Rated1.3 %
Total  23.4 %
(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, 2020. The largest ten tenants in our portfolio accounted for approximately 22.1% of minimum rents, tenant recoveries and other.
TenantDBA
Exposure (%)(1)
L Brands, IncVictoria's Secret, Bath & Body Works, PINK4.3 %
Foot Locker, IncFootlocker, Champs Sports, Footaction USA, House of Hoops3.1 %
LVMHLouis Vuitton, Sephora, Fendi, Bulgari, Dior, Tag Heuer2.9 %
The Gap, IncGap, Banana Republic, Old Navy, Athleta2.3 %
American Eagle Outfitters, IncAmerican Eagle Outfitters, Aerie1.9 %
Signet Jewelers LimitedZales, Gordon's, Kay, Jared1.8 %
Express, IncExpress, Express Men, Express Factory1.6 %
H&M Hennes & MauritzH&M, COS1.4 %
Luxottica Group S.P.A.Lenscrafters, Sunglass Hut, Pearle Vision1.4 %
Abercrombie & Fitch Stores, IncAbercrombie, Abercrombie & Fitch, Hollister1.4 %
Total 22.1 %
(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. Due to the global economic shutdown, we may experience an increase in re-leasing timelines, potential delays in lease-up of vacant space and the market rates at which such leases will be executed could be impacted. 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 8.2% of our Core Office and Core Retail leases mature annually up to 2025. Our Core Office and Core Retail leases have a weighted average remaining lease life of approximately 6.9
- 102 -




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.
    
The following table sets out lease expiries, by square footage, for our office and retail portfolios at December 31, 2020, including our unconsolidated investments:
 
(Sq. ft. in
thousands)
Current20212022202320242025202620272027 andTotal
Beyond
Core Office7,978 2,122 4,335 4,669 3,160 4,953 4,734 5,034 41,496 78,481 
Expiring %10.2 %2.7 %5.5 %5.9 %4.0 %6.3 %6.0 %6.4 %53.0 %100.0 %
Core Retail(1)
4,206 5,461 7,011 6,217 7,043 4,940 4,236 3,755 10,667 53,536 
Expiring %7.9 %10.2 %13.1 %11.6 %13.2 %9.2 %7.9 %7.0 %19.9 %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 and may be even more illiquid in the context of the global economic shutdown. 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).
 
- 103 -




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. This risk may be increased as a result of disrupted market conditions resulting from the global economic shutdown. 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 43% of our outstanding debt obligations at December 31, 2020 are floating rate debt compared to 45% at December 31, 2019. 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 $236 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 $30 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, 2020, our consolidated debt to capitalization was 55% (December 31, 2019 – 54%). 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, 2020, approximately 32.6% of our assets and 28.1% 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, 2020
(Millions)Equity attributable to UnitholdersOCINet income
Canadian Dollar(1)
C$521 $(41)$ 
Australian DollarA$2,056 (158) 
British Pound£4,206 (575) 
Euro328 (40) 
Brazilian RealR$3,364 (65) 
Indian RupeeRs28,281 (39) 
Chinese Yuan1,084 (17) 
South Korean Won204,795 (19) 
United Arab Emirates DirhamAED708 (19) 
Czech KorunaCZK8   
Hungarian ForintHUF334   
Poland ZlotyPLN3   
Total $(973)$ 
(1)Net of Canadian Dollar denominated loans.

- 104 -




 Dec. 31, 2019
(Millions)Equity attributable to UnitholdersOCINet 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 ZlotyPLN— — 
Total $(817)$— 
(1)Net of Canadian Dollar denominated loans.

 Dec. 31, 2018
(Millions)Equity attributable to UnitholdersOCINet 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)— 
Chinese Yuan1,593 (23)— 
South Korean Won245,507 (22)— 
United Arab Emirates DirhamAED451 (12)— 
Total  $(943)$— 
(1)Net of Canadian Dollar denominated loans.

- 105 -




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.

The global economic shutdown has impacted business across the globe and we are monitoring and actively mitigating its impact on our business. While it is difficult to predict how significant the impact will continue to be, our business has been highly resilient in some of the most critical sectors in the world and has a robust balance sheet with a strong investment grade rating.

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, 2020 and 2019:

(US$ Millions)Hedging itemNotionalRatesMaturity datesFair value
Dec. 31, 2020Interest rate caps of US$ LIBOR debt$8,371 2.5% - 5.5%May. 2021 - Sep. 2023$ 
 Interest rate swaps of US$ LIBOR debt2,380 1.0% - 2.6%Nov. 2022 - Feb. 2024(112)
 Interest rate caps of £ LIBOR debt3,198 2.0% - 2.5%Jan. 2021 - Jan. 2022 
Interest rate caps of € EURIBOR debt119 1.3%Apr. 2021 
 Interest rate caps of C$ LIBOR debt189 3.0%Oct. 2021 - Oct. 2022 
 Interest rate swaps of AUD BBSW/BBSY debt447 0.8% - 1.6%Apr. 2023 - Apr. 2024(11)
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)

 
For the year ended December 31, 2020, the amount of hedge ineffectiveness recorded in earnings in connection with our partnership’s interest rate hedging activities was nil (December 31, 2019 - $22 million).
- 106 -




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, 2020 and 2019:

(US$ Millions)Hedging itemNet NotionalRatesMaturity datesFair value
Dec. 31, 2020Net investment hedges €0.87/$- €0.88/$Sep. 2021 - Sep. 20211 
Net investment hedges£201 £0.50/$ - £1.08/$Mar. 2021 - Dec. 20215 
Net investment hedgesA$240 A$1.34/$ - A$1.52/$Jun. 2021 - Dec. 20213 
Net investment hedges813  C¥4.02/$ - C¥7.43/$Mar. 2021 - Sep. 2021(11)
Net investment hedgesR$620 R$5.20/$ - R$5.20/$Mar. 2021 - Mar. 2021(3)
Net investment hedges720,095 ₩914.84/$ - - ₩1,169.58/$Mar. 2021 - Jun. 2022(54)
Net investment hedgesRs4,703  Rs76.28/$ - Rs76.28/$Jun. 2021 - Jun. 2021(2)
Net investment hedges£90 £0.89/€ - £0.93/€Apr. 2021 - Apr. 2021 
Cross currency swaps of C$ LIBOR debtC$2,400 C$0.81/$ -C$1.70/$Oct. 2021 - Jan. 202766 
Dec. 31, 2019Net investment hedges245 €0.85/$ - €0.91/$Mar. 2020 - Jul. 2020$
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)

    For the years ended December 31, 2020 and 2019, 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, 2020 and December 31, 2019:
 
(US$ millions)Derivative typeNotionalRatesMaturity datesFair value
Dec. 31, 2020Interest rate caps$3,560 3.0% - 5.0%Jan. 2021 - Feb. 2027$ 
Interest rate swaps on forecasted fixed rate debt1,285 2.7% - 6.4%Mar. 2021 - Jun. 2030(308)
Interest rate swaps of US$ debt1,746 0.8% - 5.1%Jun. 2021 - Mar. 2024(32)
Interest rate swaptions350 2.0%Mar. 2031 - Mar. 2031 
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)
    
    Our partnership recognized fair value losses of approximately $45 million (December 31, 2019 - loss of $(70) million) related to the settlement of certain forward starting interest rate swaps that have not been designated as hedges.

- 107 -




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 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 “equity enhancement adjustment”). 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 BPYU under its master services agreement with Brookfield Asset Management and certain of its subsidiaries.

The following table calculates base management fees and equity enhancement fees:

Twelve months ended December 31,
(US$ Millions)202020192018
Base fee amount at 0.125% of current capitalization$81 $100 $93 
Fee on increased market capitalization (.3125%)57 107 88 
Total calculated fees138 207 181 
Less credits:
    Equity enhancement adjustment(24)(45)(38)
    Applied creditable operating payments and other adjustments(35)(29)(57)
Total fee, subject to minimum adjusted for inflation79 133 86 
Total fee, by component:
    Base fee73 107 86 
    Equity enhancement adjustment6 26 — 
Total fee$79 $133 $86 

    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, 2020Dec. 31, 2019
Balances outstanding with related parties:  
Net (payables)/receivables within equity accounted investments(91)(81)
Loans and notes receivable50 102 
Receivables and other assets59 17 
Deposit payable to Brookfield Asset Management(1)
(754)— 
Loans and notes payable and other liabilities(313)(196)
Preferred shares held by Brookfield Asset Management(15)(15)
(1) As of December 31, 2020, a $754 million on-demand deposit was payable to Brookfield Asset Management, provided for in the deposit agreement between the partnership and Brookfield Asset Management. The deposit agreement provides for a deposit limit of $2.0 billion. Subsequent to year-end, an additional $525 million was drawn and payable to Brookfield Asset Management.


- 108 -




(US$ Millions) Years ended Dec. 31,202020192018
Transactions with related parties:   
Commercial property revenue(1)
$32 $26 $22 
Management fee income32 35 
Participating loan interests (including fair value gains, net) 50 53 
Interest expense on debt obligations19 48 44 
Interest on capital securities held by Brookfield Asset Management 64 
General and administrative expense(2)
164 198 192 
Construction costs(3)
265 411 397 
Incentive Fees(4)
16 104 — 
(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.

On January 4, 2021, Brookfield Asset Management announced a proposal to acquire 100% of the LP Units that it does not already own for a price of $16.50 per LP Unit, or $5.9 billion in total value. The proposal provides that each holder of LP Units can elect to receive consideration per LP Unit of a combination of (i) 0.4 class A limited voting shares of Brookfield Asset Management (“Brookfield Shares”), (ii) $16.50 in cash, and/or (iii) 0.66 preferred units of our partnership with a liquidation preference of $25.00 per unit (“New Preferred Units”), subject in each case to pro-ration based on a maximum of 59.5 million Brookfield Shares (42% of the total value of the LP Units), maximum cash consideration of $2.95 billion (50% of the total value of the LP Units), and a maximum value of $500 million in New Preferred Units (8% of the total value of the LP Units). If holders of LP Units collectively elect to receive in excess of $500 million in New Preferred Units, the amount of New Preferred Units can increase to a maximum of $1 billion, offset against the maximum amount of Brookfield Shares. The maximum amount of cash consideration would not be affected. The board of directors of the BPY General Partner has established a committee of independent directors to review and consider the proposal.

During the year ended December 31, 2020, we issued 9,416,816 LP units at $11.36 per unit, 2,696,841 LP units at $12.00 per unit, 5,967,063 LP units at $12.65 per unit, 13,392,277 LP Units at $13.92 per unit, and 18,715,912 Redeemable/Exchangeable Partnership Units at $12.00 per unit to Brookfield Asset Management.

During the third quarter of 2020, we completed the recapitalization of the Atlantis with an investment from a Brookfield Asset Management affiliate. Refer to Note 5, Equity Accounted Investments and Note 8, Property, Plant And Equipment for further detail.

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.



    
- 109 -




PORTFOLIO LISTING
The following table presents details of our property portfolio as of December 31, 2020:
Core Office Property Portfolio Assets under management
Proportionate at subsidiary
level(1)
Proportionate to Unitholders(2)
Proportionate to LP Unitholders(3)
Dec. 31, 2020Number of properties% LeasedLeasableParkingTotalOwned %LeasableTotalLeasableTotalLeasableTotal
(Sq. ft in 000’s)
CONSOLIDATED PROPERTIES          
United States            
Midtown New York100.0 %1,466 31 1,497 80.9 %1,194 1,211 1,194 1,211 584 592 
Downtown New York95.4 %7,950 488 8,438 72.6 %5,770 6,123 5,770 6,123 2,820 2,993 
Washington, D.C.12 86.5 %2,887 1,796 4,683 97.0 %2,778 4,544 2,778 4,544 1,358 2,221 
Los Angeles79.7 %8,620 4,283 12,903 47.3 %4,078 6,104 4,078 6,104 1,994 2,984 
Houston72.5 %5,022 1,185 6,207 86.6 %4,363 5,373 4,363 5,373 2,133 2,627 
San Francisco84.1 %623 629 33.1 %206 208 206 208 100 101 
 35 85.0 %26,568 7,789 34,357 68.6 %18,389 23,563 18,389 23,563 8,989 11,518 
Canada            
Toronto10 95.9 %8,776 1,704 10,480 55.8 %4,832 5,844 4,832 5,844 2,362 2,857 
Calgary89.7 %7,178 1,215 8,393 58.7 %4,308 4,924 4,308 4,924 2,106 2,407 
Ottawa91.0 %1,182 695 1,877 25.1 %298 472 298 472 145 230 
 24 93.0 %17,136 3,614 20,750 54.2 %9,438 11,240 9,438 11,240 4,613 5,494 
Australia and New Zealand         
Sydney73.2 %690 102 792 39.5 %281 313 281 313 138 154 
Melbourne99.5 %509 15 524 49.4 %252 259 252 259 123 126 
Brisbane90.2 %300 34 334 50.0 %149 167 149 167 73 82 
Perth96.4 %1,886 262 2,148 81.2 %1,534 1,745 1,534 1,745 750 853 
 91.6 %3,385 413 3,798 65.4 %2,216 2,484 2,216 2,484 1,084 1,215 
United Kingdom            
London90.1 %1,152 29 1,181 100.0 %1,152 1,181 1,152 1,181 563 577 
 90.1 %1,152 29 1,181 100.0 %1,152 1,181 1,152 1,181 563 577 
Brazil            
São Paulo100.0 %276 209 485 51.0 %141 248 141 248 69 121 
Rio de Janeiro100.0 %213 64 277 67.0 %142 185 142 185 69 90 
 100.0 %489 273 762 26.7 %283 433 283 433 138 211 
Total Consolidated Properties73 88.5 %48,730 12,118 60,848 63.9 %31,478 38,901 31,478 38,901 15,387 19,015 
UNCONSOLIDATED PROPERTIES          
United States            
Midtown New York95.3 %5,559 87 5,646 38.0 %2,109 2,138 2,109 2,138 1,031 1,045 
Downtown New York97.2 %4,927 65 4,992 23.0 %1,149 1,156 1,149 1,156 562 565 
Washington, D.C.12 88.7 %2,963 959 3,922 36.3 %1,065 1,417 1,065 1,417 521 693 
Los Angeles94.1 %372 388 760 42.0 %157 321 157 321 76 156 
Houston90.1 %1,135 699 1,834 10.0 %113 183 113 183 55 89 
Denver82.9 %1,338 511 1,849 50.0 %669 924 669 924 327 452 
 22 93.3 %16,294 2,709 19,003 32.4 %5,262 6,139 5,262 6,139 2,572 3,000 
Australia and New Zealand         
Sydney100.0 %732 135 867 24.0 %176 209 176 209 86 102 
Melbourne99.8 %858 341 1,199 50.0 %429 599 429 599 209 292 
 99.9 %1,590 476 2,066 39.1 %605 808 605 808 295 394 
United Kingdom            
London25 95.5 %9,771 1,120 10,891 43.6 %4,197 4,749 4,197 4,749 2,051 2,321 
 25 95.5 %9,771 1,120 10,891 43.6 %4,197 4,749 4,197 4,749 2,051 2,321 
Germany
Berlin16 95.3 %2,176 1,168 3,344 25.0 %543 834 543 834 266 408 
16 95.3 %2,176 1,168 3,344 25.0 %543 834 543 834 266 408 
United Arab Emirates
Dubai30.6 %1,098 475 1,573 50.0 %549 787 549 787 268 384 
30.6 %1,098 475 1,573 50.0 %549 787 549 787 268 384 
Total Unconsolidated Properties66 92.2 %30,929 5,948 36,877 34.0 %11,156 13,317 11,156 13,317 5,452 6,507 
Total Core Office Properties139 90.0 %79,659 18,066 97,725 53.4 %42,634 52,218 42,634 52,218 20,839 25,522 
(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.
- 110 -