Loading...
Docoh

Brookfield Property Partners (BPYPP)

Filed: 5 Aug 22, 1:44pm

Management’s Discussion and Analysis of Financial Results

INTRODUCTION
This management’s discussion and analysis (“MD&A”) of Brookfield Property Partners L.P. (“BPY”, the “partnership”, or “we”) covers the financial position as of June 30, 2022 and December 31, 2021 and results of operations for the three and six months ended June 30, 2022 and 2021. This MD&A should be read in conjunction with the unaudited condensed consolidated financial statements (the “Financial Statements”) and related notes as of June 30, 2022, included elsewhere in this report, and our annual report for the year ended December 31, 2021 on Form 20-F.

We disclose a number of financial measures in this MD&A that are calculated and presented using methodologies other than in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Non-IFRS measures used in this MD&A are reconciled to or calculated from the most comparable IFRS measure. We utilize these measures in managing our business, including for performance measurement, capital allocation and valuation purposes and believe that providing these performance measures on a supplemental basis to our IFRS results is helpful to investors in assessing our overall performance. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with IFRS. We caution readers that these non-IFRS financial measures may differ from the calculations disclosed by other businesses, and as a result, may not be comparable to similar measures presented by others. Reconciliations of these non-IFRS financial measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, where applicable, are included within this MD&A on page 19. We also caution readers that this MD&A may contain forward-looking statements, see page 28 for our “Statement Regarding Forward-Looking Statements.”

This MD&A includes financial data for the three and six months ended June 30, 2022 and includes material information up to August 5, 2022.

OBJECTIVES AND FINANCIAL HIGHLIGHTS
BASIS OF PRESENTATION
The partnership’s equity interests include general partnership units (“GP Units”), 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”) and Class A Cumulative Redeemable Perpetual Preferred Units, Series 1, Series 2 and Series 3. Prior to the Privatization described below, our partnership’s equity interests also included limited partnership units of Brookfield Office Properties Exchange LP (“Exchange LP Units”) and Class A stock (“BPYU Units”) of Brookfield Properties Retail Holding LLC (“BPYU”). 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. BPYU Units provided their holders with the right to request that their units be redeemed for cash consideration. In the event the holders of BPYU Units exercised this right, our partnership had 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 participated in earnings and distributions on a per unit basis equivalent to the per unit participation of LP Units of our partnership. We presented BPYU Units as a component of non-controlling interest. The Exchange LP Units were exchangeable at any time on a one-for-one basis, at the option of the holder, for LP Units. We presented the Exchange LP Units as a component of non-controlling interests.

On July 26, 2021, Brookfield Asset Management acquired all of the publicly traded LP Units outstanding that it did not previously own (“the Privatization”). In addition, i) the publicly held Exchange LP Units were acquired directly or indirectly by Brookfield Asset Management and subsequently converted into Class A LP Units of Brookfield Office Properties Exchange LP, ii) the publicly held BPYU Units were acquired in the Privatization and the terms of the BPYU Units were subsequently amended to, among other things, remove the entitlement to be exchanged for LP Units, iii) new publicly traded preferred units were issued by Brookfield Property Preferred L.P. (“New LP Preferred Units”), a subsidiary of our partnership, and iv) non-voting common shares in a BPY subsidiary were issued to Brookfield Asset Management (“Canholdco Class B Common Shares”).

Financial data has been prepared using accounting policies in accordance with IFRS as issued by the IASB. Unless otherwise specified, 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. 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.

        1         


Additional information is available on our website at bpy.brookfield.com, or on www.sedar.com or www.sec.gov.

OVERVIEW OF THE 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. With approximately 29,500 employees involved in Brookfield Asset Management’s real estate businesses around the globe, we have built operating platforms in various real estate sectors.

Core Office
Our diversified Core Office portfolio consists of 95 million square feet across 139 premier office assets in some of the world’s most dynamic gateway markets. We target to earn core-plus total returns on this portfolio.

Represented within this portfolio are some of our most iconic assets, including Manhattan West in New York and Canary Wharf in London. We seek to maintain this irreplaceable portfolio of large-scale mixed-use complexes in global gateway cities, which provide our tenants with a 24-hour, 7-days-a-week live, work, play environment, on a long-term basis. These assets, which represent 77% of the equity attributable to Unitholders in our Core Office portfolio, cover 33 million square feet across 61 properties. These assets have stable cash flows and retain their values very well over long periods of time, as a result of their long-term leases. These properties are 93% leased.

    The remaining 78 properties, covering 62 million square feet of space, represent properties with transitional operational uplift and realization potential. These assets earn attractive short-term rates of return, as we acquire underperforming assets and improve their operations. We add significant value during this transitional period before ultimately monetizing them and reinvesting the proceeds.

Core Retail
Our Core Retail portfolio consists of 112 million square feet across 112 best-in-class malls and urban retail properties across the United States. We also target to earn core-plus total returns on this portfolio.

Similar to our Core Office portfolio, 24 million square feet across 19 properties are represented by assets in which we intend to retain long-term ownership. These assets include trophy assets, such as Ala Moana in Honolulu and Fashion Show in Las Vegas, and collectively represent 56% of the equity attributable to Unitholders in our Core Retail portfolio. Their stable and growing cash flows ensure that we can earn attractive compounding rates of return. These properties are 96% leased.

For the remaining 93 properties, covering 88 million square feet of space, we seek to maximize returns through leasing, redevelopment of existing retail or in some cases through the addition of a mixed-use component like multifamily or office. We add significant value during this transitional period before ultimately monetizing them and reinvesting the proceeds.

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, mixed-use and other alternative real estate. We target to earn opportunistic returns on our LP Investments portfolio. These investments have a defined hold period and typically generate the majority of profits from gains recognized from realization events, including the sale of an asset or portfolio of assets, or exit of the entire investment. As such, capital invested in our LP Investments recycles over time, as existing funds return capital, and we reinvest these proceeds in future vintages of Brookfield-sponsored funds.

There have been no material changes to our investment strategy since December 31, 2021. For a more detailed description of our investment strategy, please refer to the section titled Item 4.B. “Business Overview” in our December 31, 2021 annual report on Form 20-F.

PERFORMANCE MEASURES
We consider the following items to be important drivers of our current and anticipated financial performance:
increases in occupancies by leasing vacant space and pre-leasing active developments;
increases in rental rates through maintaining or enhancing the quality of our assets and as market conditions permit; and
reductions in operating costs through achieving economies of scale and diligently managing contracts.

We also believe that key external performance drivers include the availability of the following:
debt capital at a cost and on terms conducive to our goals;
preferred 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 non-IFRS measures including net operating income (“NOI”), same-property NOI, funds from operations (“FFO”), Company FFO, and equity attributable to Unitholders. We define these financial measures on page 18.

        2         


FINANCIAL STATEMENTS ANALYSIS
REVIEW OF CONSOLIDATED FINANCIAL RESULTS
In this section, we review our financial position and consolidated performance as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021. Further details on our results from operations and our financial positions are contained within the “Segment Performance” section beginning on page 8.

The Privatization impacted the composition of our equity structure. Refer to Note 3, Privatization of the Partnership of our Q2 2022 Financial Statements for further information.

    The following acquisitions and dispositions affected our consolidated results for the three and six months ended June 30, 2022 and 2021. Unless stated otherwise, proceeds represent the selling price attributable to the properties:
Q2 2022
We sold eleven multifamily assets in the United States in the Brookfield Strategic Real Estate Partners (“BSREP”) II fund for approximately $469 million.
One mall was conveyed to the lender in satisfaction of outstanding debt obligations of $361 million.
We acquired our joint venture partner’s incremental interest in two properties including Plaza Frontenac and Saint Louis Galleria in Missouri, bringing our ownership in each of the malls to 100%. Prior to the acquisition of the two assets, our joint venture interest was accounted for under the equity method. These two assets are now consolidated.
We sold an office asset in the United Kingdom for approximately £294 million ($360 million).

Q1 2022
We sold a portfolio of triple net lease assets in the United States in the BSREP I fund for approximately $3.7 billion.
We sold a portfolio of hotel assets in the United States in the BSREP II fund for approximately $1.5 billion.

Q4 2021
We sold eight multifamily assets in the United States for approximately $1.2 billion.
We sold an office complex in Canada for approximately C$350 million ($277 million).
We sold a 20% interest in an office asset in the United Kingdom for net proceeds of approximately £73 million ($101 million).
We sold two retail assets in the United States for approximately $278 million.
We sold two office assets in Brazil for approximately R$2,156 million ($383 million).
We sold a hotel in the United States in the BSREP II fund for approximately $356 million.

Q3 2021
We sold eight multifamily assets in the United States in the BSREP II fund for approximately $690 million.
We sold seven retail assets in the United States for approximately $58 million.

Q2 2021
We converted our preferred equity interest in a portfolio of select-service hospitality assets (“Hospitality Investors Trust”) valued at approximately $472 million into common shares in the BSREP II fund. Prior to the transaction, our interest was reflected as a financial asset and is now consolidated, as we gained control over the investment.
We acquired a portfolio of manufactured housing assets in the BSREP II fund for consideration of approximately $159 million.

Q1 2021
We sold 50% of our interest in Bay Adelaide North in Toronto for approximately C$365 million ($291 million). Prior to the transaction, our interest was consolidated but is now accounted for under the equity method.
Two malls were conveyed to the lenders in satisfaction of outstanding debt obligations of $247 million and $90 million, respectively.
We sold four retail assets in the United States in the BSREP II fund for approximately $73 million.

For the purposes of the following comparison discussion between the three and six months ended June 30, 2022 and 2021, 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.


        3         


Operating Results

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Commercial property revenue$1,185 $1,284 $2,440 $2,569 
Hospitality revenue400 196 713 255 
Investment and other revenue158 180 644 286 
Total revenue1,743 1,660 3,797 3,110 
Direct commercial property expense(1)
452 492 922 998 
Direct hospitality expense(1)
277 170 565 291 
Investment and other expense32 23 271 31 
Interest expense623 710 1,223 1,322 
General and administrative expense234 243 466 456 
Total expenses1,618 1,638 3,447 3,098 
Fair value gains, net23 498 1,293 1,138 
Share of earnings from equity accounted investments419 253 799 459 
Income before taxes567 773 2,442 1,609 
Income tax expense47 87 230 192 
Net income$520 $686 $2,212 $1,417 
(1)During the fourth quarter of 2021, as a result of a change in accounting policy, the partnership reclassified depreciation and amortization expense, which was previously presented as a separate line item, to direct commercial property expense and direct hospitality expense. Prior period amounts were also adjusted to reflect this change, which resulted in an increase to direct commercial property expense of $18 million and $38 million and direct hospitality expense of $50 million and $98 million, respectively, for the three and six months ended June 30, 2021, with equal and offsetting decreases to depreciation and amortization expense. This reclassification had no impact on revenues or net income. 

Net income for the three months ended June 30, 2022 was $520 million compared to $686 million for the same period in the prior year. The decrease is primarily attributable to fair value losses at a mixed-use asset in Seoul, due to capitalization and discount rate expansion, partially offset by fair value gains in the Core Retail portfolio in the current year as a result of revised cash flow assumptions and increased earnings at our retail and hospitality properties, as they were impacted by closures and occupancy limits due to the impact of the global economic shutdown (“the shutdown”) caused by the coronavirus (“COVID-19”) pandemic in the prior year. The prior year also had higher fair value gains from several multifamily assets in the U.S. that have since been disposed.

Net income for the six months ended June 30, 2022 was $2,212 million compared to $1,417 million for the same period in prior year. The increase is primarily attributable to fair value gains in the Core Retail portfolio in the current year as a result of higher cash flows, compared to fair value losses recorded in the Core Retail portfolio in the prior year. The current year also benefited from increased earnings at our retail and hospitality properties as mentioned above, partially offset by lower fair value gains compared to the prior year at certain office and multifamily assets in the U.S.

Following the acquisition of all LP Units held by public holders by BAM on July 26, 2021, there are no longer publicly traded LP Units. As such, earnings per unit is no longer presented. Refer to Note 3, Privatization of the Partnership of our Q2 2022 Financial Statements for further discussion on the Privatization.

Commercial property revenue and direct commercial property expense
For the three months ended June 30, 2022, commercial property revenue decreased by $99 million compared to the same period in the prior year primarily due to property dispositions in our LP Investments and Core Retail segments.

Direct commercial property expense decreased by $40 million due to dispositions since the prior year in our Core Retail and LP Investments segments. Margins in 2022 were 61.9%, an increase of 0.2% over 2021.

For the six months ended June 30, 2022, commercial property revenue decreased by $129 million compared to the same period in the prior year due to property dispositions in our LP Investments and Core Office segments. The decrease was partially offset by incremental revenue in our Core Retail portfolio as the retail sector recovered from the impact of the shutdown in the prior year.

Direct commercial property expense decreased by $76 million compared to the prior year. Margins in 2022 were 62.2%, an increase of 1.0% compared to 2021.

Hospitality revenue and direct hospitality expense
For the three months ended June 30, 2022, hospitality revenue increased by $204 million compared to the same period in the prior year. The increase was due to improved performance of our hospitality assets, primarily Center Parcs, due to a reduction in pandemic-related restrictions and closures since the prior year. The current period also benefited from additional revenue due to the consolidation of Hospitality Investors Trust. These increases were partially offset by the disposition of a hospitality portfolio in the current year. Direct hospitality expense increased to $277 million for the three months ended June 30, 2022, compared to $170 million in the same period in the prior year.


        4         


For the six months ended June 30, 2022, hospitality revenue increased by $458 million compared to the same period in the prior year. The increase was due to the reasons discussed above.

Direct hospitality expense increased to $565 million for the six months ended June 30, 2022, compared to $291 million in the same period in the prior year. The increase was due to higher operating costs at our hospitality assets in the current year, as our hospitality assets reopened following pandemic-related restrictions and closures in the prior year. The increase was also attributable to additional expenses due to the consolidation of Hospitality Investors Trust, as discussed above. These increases were partially offset by the disposition of a hospitality portfolio in the current year.

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. For the three months ended June 30, 2022, investment and other revenue decreased by $22 million primarily due to an incremental distribution from BSREP III of approximately $40 million associated with the sale of a life science portfolio in the prior year, partially offset by higher interest income in the current period.

For the six months ended June 30, 2022, investment and other revenue increased by $358 million, primarily due to income from the sale of multifamily develop-for-sale assets.

Investment and other expense for the three and six months ended June 30, 2022 increased by $9 million and $240 million to $32 million and $271 million, respectively, compared to the prior year due to expenses from the sale of multifamily develop-for-sale assets.

Interest expense
Interest expense decreased by $87 million and $99 million for the three and six months ended June 30, 2022, as compared to the same period in the prior year. This decrease is primarily due to reduced debt levels from disposition activity and paydowns and higher defeasance costs from refinancing of our manufactured housing portfolio in the prior year. These decreases were partially offset by the rising interest rate environment on our variable debt obligations in the current year and interest expense relating to asset-level upfinancings in the current period.

General and administrative expense
General and administrative expense decreased by $9 million for the three months ended June 30, 2022 as compared to the same period in the prior year. The decrease was primarily attributable to higher transaction costs associated with the Hospitality Investors Trust transaction in the prior year, partially offset by higher management fees in the current period.

General and administrative expense increased by $10 million for the six months ended June 30, 2022 as compared to the same period in the prior year. The increase was primarily due to higher management fees in the current period, partially offset by higher transaction costs associated with the Hospitality Investors Trust transaction during in the prior year as discussed above.

Fair value gains, net
Fair value gains, net includes valuation gains (losses) on commercial properties and developments as well as mark-to-market adjustments on financial instruments and derivatives and foreign currency gains (losses) on disposal of assets denominated in foreign currencies. While we measure and record our commercial properties and developments using valuations prepared by management in accordance with our policy, external appraisals and market comparables, when available, are used to support our valuations.

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.

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 the three months ended June 30, 2022, we obtained external appraisals of 75 of our Core Office properties representing a gross property value of $29 billion (or 17% of the portfolio). These external appraisals were within 1% of management’s valuations. Our historical dispositions further provide support for our valuations, as we typically contract at prices comparable to IFRS values.

There have been no material changes to our valuation methodology since December 31, 2021. Refer to our 2021 Annual Report on Form 20-F for further detail on the valuation methodology of our investment properties and hospitality properties.

Fair value (losses) gains, net for our Core Office segment were $(12) million and $88 million for the three and six months ended June 30, 2022, respectively. The current period losses are driven by an increase in the value of the Brookfield DTLA Holdings LLC (“DTLA”) capital securities, partially offset by fair value gains driven by improved cash flow assumptions at assets in Canada and in the U.K.

Fair value gains, net for our Core Office segment were $385 million for the six months ended June 30, 2021. These gains were driven by a reduction in risk at a development in the U.K. as the development continued through the lease-up phase, gains on certain of our multifamily developments in the U.S. due to updated cash flow assumptions, favorable market rent assumptions at an asset in Brazil, and burn-off of free rent in Midtown New York and London.

        5         


Fair value gains, net for our Core Retail segment were $104 million and $150 million for the three and six months ended June 30, 2022, respectively. Fair value gains, net for our Core Retail portfolio were primarily due to updated cash flow assumptions.

Fair value losses, net for our Core Retail segment were $396 million for the six months ended June 30, 2021. These losses were due to updated cash flow assumptions, which included the impact of an anchor-tenant expiation at one of our malls and realized losses on the disposition of two assets.

Fair value (losses) gains, net for our LP Investments segment were $(109) million and $918 million for the three and six months ended June 30, 2022, respectively. These losses for the three months ended June 30, 2022 were driven by fair value losses due to capitalization and discount rate expansion at an asset in South Korea, partially offset by fair value gains on our student housing portfolio to mark to anticipated sales price and fair value gains at an office asset in California due to updated cashflows as the asset approaches lease-up. The fair value gains for the six months ended June 30, 2022 were driven by fair value gains in our student housing portfolio and office portfolios as mentioned above, as well as capitalization rate compression in our U.S. manufactured housing portfolio.

Fair value gains, net for our LP Investments segment for the six months ended June 30, 2021 were $1,129 million primarily driven by capitalization rate compression in South Korea and increased operating cash flows in certain office assets in India. These gains were partially offset by certain of our asset classes that were more materially impacted than others from the shutdown.

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

During the six months ended June 30, 2022, we sold a 49% interest in One Manhattan West for approximately $1.4 billion.

Our share of net earnings from equity accounted investments for the three and six months ended June 30, 2022 was $419 million and $799 million, respectively, which represents an increase of $166 million and $340 million, respectively, compared to the prior year. The increase in current year earnings is primarily due to same-property NOI growth in our Core Retail portfolio reflecting the recovery from the shutdown in the prior year, gains on derivatives, and higher share of net earnings from our hospitality portfolio within LP investments due to recovery from the economic shutdown, partially offset by the disposition activity mentioned above.

Income tax expense
The decrease in income tax expense for the three months ended June 30, 2022 as compared to the prior year is primarily due to a decrease in pre-tax income and a change in the tax rate of certain subsidiaries. These decreases were partially offset by an increase in previously unrecognized deferred tax assets. The increase in income tax expense for the six months ended June 30, 2022 compared to the prior year is primarily due to an increase in pre-tax income, a reduction in the benefit recognized for previously unrecognized deferred tax assets, and non-recurring tax benefits from Brookfield Opportunity Zone fund investments that occurred in the prior year. These increases were partially offset by a change in the tax rate of certain subsidiaries.
    
Statement of Financial Position and Key Metrics
(US$ Millions)Jun. 30, 2022Dec. 31, 2021
Investment properties
    Commercial properties$59,778 $62,313 
    Commercial developments1,976 2,300 
Equity accounted investments20,233 20,807 
Property, plant and equipment5,266 5,623 
Cash and cash equivalents2,175 2,576 
Assets held for sale7,934 10,510 
Total assets105,543 112,004 
Debt obligations50,533 52,321 
Liabilities associated with assets held for sale957 3,082 
Total equity43,509 45,005 

As of June 30, 2022, we had $105,543 million in total assets, compared with $112,004 million at December 31, 2021. This $6,461 million decrease was primarily due to dispositions, including a triple net lease portfolio, multifamily assets, and a hospitality portfolio, as well as the negative impact of foreign currency translation from all major currencies.

        6         


The following table presents the changes in investment properties from December 31, 2021 to June 30, 2022:

Jun. 30, 2022
(US$ Millions)Commercial propertiesCommercial developments
Investment properties, beginning of period$62,313 $2,300 
Acquisitions710 — 
Capital expenditures368 252 
Dispositions(1)
(34)(1)
Fair value (losses) gains, net1,115 104 
Foreign currency translation(847)(106)
Transfer between commercial properties and commercial developments126 (126)
Reclassifications to assets held for sale and other changes(3,973)(447)
Investment properties, end of period$59,778 $1,976 
(1)Property dispositions represent the carrying value on date of sale.

Commercial properties are commercial, operating, rent-producing properties. Commercial properties decreased from $62,313 million at the end of 2021 to $59,778 million at June 30, 2022. The decrease was primarily due to the reclassification of a student housing portfolio, eleven properties in our multifamily portfolio, and an office asset in London to assets held for sale and the negative impact of foreign currency translation. These decreases were partially offset by fair value gains in our LP Investments and the acquisition of our joint venture partners’ interest in certain Core Retail properties. As a result of this acquisition, we discontinued accounting for these assets under the equity method and now consolidate these properties. Refer to Note 4, Investment Properties of our Q2 2022 Financial Statements for further information.

    Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $1,976 million at June 30, 2022, a decrease of $324 million from the balance at December 31, 2021. The decrease is primarily due to reclassifications to assets held for sale, an office asset becoming operational in the current period, and the negative impact of foreign currency translation, partially offset by fair value gains in our LP investments as well as capital spend. Refer to Note 4, Investment Properties of our Q2 2022 Financial Statements for further information.

The following table presents a roll-forward of changes in our equity accounted investments December 31, 2021 to June 30, 2022:

(US$ Millions)Jun. 30, 2022
Equity accounted investments, beginning of period$20,807 
Additions37 
Disposals and return of capital distributions(632)
Share of net earnings from equity accounted investments799 
Distributions received(112)
Foreign currency translation(465)
Reclassification (to)/from assets held for sale(17)
Other comprehensive income and other(184)
Equity accounted investments, end of period$20,233 

Equity accounted investments decreased by $574 million since December 31, 2021. The decrease is primarily due to the partial disposition of One Manhattan West, distributions, and the negative impact of foreign currency translation partially offset by an increase in share of net earnings from equity accounted investments, driven by same-property NOI growth in our Core Office and Core Retail segments. Refer to Note 5, Equity Accounted Investments of our Q2 2022 Financial Statements for further information.

Property, plant and equipment decreased by $357 million since December 31, 2021, primarily due to the negative impact of foreign currency translation and reclassifications to assets held for sale, partially offset by acquisitions within the period. Refer to Note 6, Property, Plant and Equipment of our Q2 2022 Financial Statements for further information. Property, plant and equipment primarily includes our hospitality assets which are revalued annually at December 31, using a depreciated replacement cost approach.

As of June 30, 2022, assets held for sale primarily included eight malls in the U.S., five hospitality assets in the U.S., four office assets in the U.S., a portfolio of student housing assets in the U.K., a mixed-use asset in South Korea, and a multifamily asset in the U.S., as we intend to sell controlling interests in these properties to third parties in the next 12 months. Refer to Note 11, Held For Sale of our Q2 2022 Financial Statements for further information.

Our debt obligations decreased to $50,533 million at June 30, 2022 from $52,321 million at December 31, 2021. The decrease was driven by the repayment of debt due to disposition activity since the prior year and the impact of foreign currency translation. Refer to Note 12, Debt Obligations of our Q2 2022 Financial Statements for further information.

        7         


Total equity was $43,509 million at June 30, 2022, a decrease of $1,496 million from the balance at December 31, 2021. The decrease was primarily due to distributions during the period and the impact of foreign currency translation, partially offset by income earned.
Interests of others in operating subsidiaries and properties was $18,033 million at June 30, 2022, a decrease of $1,673 million from the balance of $19,706 million at December 31, 2021 due to dispositions since the prior year and the redemption of an additional interest in an office portfolio in the U.S.

The following table summarizes our key operating results:

202220212020
(US$ Millions, except per unit information)Q2Q1Q4Q3Q2Q1Q4Q3
Revenue$1,743 $2,054 $2,169 $1,821 $1,660 $1,450 $1,620 $1,636 
Direct operating costs(1)
729 758 779 773 662 627 632 760 
Net income (loss)520 1,692 1,682 400 686 731 (38)(135)
Net income (loss) attributable to Unitholders400 702 620 71 319 266 (390)(229)
(1)During the fourth quarter of 2021, as a result of a change in accounting policy, we reclassified depreciation and amortization expense, which was previously presented as a separate line item, to direct commercial property expense and direct hospitality expense. Prior period amounts were also adjusted to reflect this change, which resulted in an increase to direct commercial property expense and direct hospitality expense, with equal and offsetting decreases to depreciation and amortization expense. This reclassification had no impact on revenues or net income.

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 well as the impact of leasing activity at market net rents. In addition, revenue also fluctuates as a result of changes in foreign exchange rates and seasonality. Seasonality primarily affects our retail assets, wherein the fourth quarter exhibits stronger performance in conjunction with the holiday season. In addition, our North American hospitality assets generally have stronger performance in the winter and spring months compared to the summer and fall months, while our European hospitality assets exhibit the strongest performance during the summer months. Seasonality, however, had less of an impact in the last eight quarters due to the material effect of the economic shutdown on our retail and hospitality sectors. Fluctuations in our net income are 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.

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:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Core Office(1)
$95 $131 $234 $254 
Core Retail(1)
188 103 356 198 
LP Investments(1)
80 40 145 34 
Corporate(1)
(157)(130)(331)(255)
FFO(1)
$206 $144 $404 $231 
(1)This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Non-IFRS Financial Measures” section on page 18. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 19.

The following table presents Company FFO (“CFFO”) by segment:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Core Office(1)
$104 $147 $253 $287 
Core Retail(1)
158 120 338 228 
LP Investments(1)
76 38 154 40 
Corporate(1)
(156)(129)(329)(254)
CFFO(1)
$182 $176 $416 $301 
(1)This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Non-IFRS Financial Measures” section on page 18. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 19.

        8         


The following table presents equity attributable to Unitholders by segment as of June 30, 2022 and December 31, 2021:

(US$ Millions)Jun. 30, 2022Dec. 31, 2021
Core Office(1)
$13,985 $14,344 
Core Retail(1)
15,486 14,995 
LP Investments(1)
5,334 5,772 
Corporate(1)
(10,028)(10,511)
Equity attributable to Unitholders(1)
$24,777 $24,600 
(1)This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Non-IFRS Financial Measures” section on page 18. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 19.

Core Office

Overview
    Our Core Office portfolio consists of interests in 139 high-quality office properties totaling approximately 95 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 4 million square feet of active office and multifamily developments, in some of the world’s most dynamic gateway markets. Represented within this portfolio are some of our most iconic assets, including Manhattan West in New York and Canary Wharf in London. We seek to maintain this irreplaceable portfolio of large-scale, mixed-use complexes in global gateway cities, which provide our tenants with a 24-hour, 7-days-a-week live, work, play environment, on a long-term basis. These iconic assets, which represent 77% of the equity attributable to Unitholders in our Core Office portfolio, cover 33 million square feet across 61 properties. These assets have stable cash flows and retain their values very well over long periods of time, as a result of their long-term leases. The remaining 78 properties, covering 62 million square feet of space, represent properties with transitional operational uplift and realization potential. These assets earn attractive short-term rates of return, as we acquire underperforming assets and improve their operations. We add significant value during this transitional period before ultimately monetizing them and reinvesting the proceeds.

Summary of Operating Results
The following table presents FFO, CFFO and net income in our Core Office segment for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
FFO$95 $131 $234 $254 
CFFO104 147 253 287 
Net income282 374 700 942 

FFO from our Core Office segment was $95 million for the three months ended June 30, 2022 as compared to $131 million in the same period in the prior year. This decrease was driven by higher interest expense due to increased interest rates on our variable debt obligations coupled with an increase in debt obligations as a result of financing activity, the impact of foreign currency translation, as well as decreased earnings from equity accounted investments as the prior period benefited from higher condominium sales in London.

FFO from our Core Office segment was $234 million for the six months ended June 30, 2022 as compared to $254 million in the same period in the prior year. This decrease is primarily attributable to the movements discussed above, partially offset by higher fee income in the U.S.

For the three and six months ended June 30, 2022, CFFO decreased by $43 million and $34 million, respectively, primarily attributable to the FFO movements discussed above.

Net income decreased by $92 million to $282 million during the three months ended June 30, 2022 as compared to net income of $374 million during the same period in 2021. The decrease is attributable to fair value losses in the current period due to an increase in carrying value of the DTLA capital securities compared to fair value gains in the prior period.

Net income decreased by $242 million to $700 million during the six months ended June 30, 2022 as compared to the same period in 2021. The decrease is attributable to lower fair value gains compared to the prior period.

        9         


Key Operating Metrics
    The following table presents key operating metrics for our Core Office portfolio as at and for the three months ended June 30, 2022 and 2021:

ConsolidatedUnconsolidated
(US$ Millions, except where noted)Jun. 30, 2022Jun. 30, 2021Jun. 30, 2022Jun. 30, 2021
Total portfolio:
    NOI(1)
$262 $265 $122 $117 
    Number of properties65 70 74 71 
    Leasable square feet (in thousands)46,381 47,846 31,724 30,507 
    Occupancy85.0 %87.5 %92.4 %91.1 %
    In-place net rents (per square foot)(2)(3)
$33.09 $33.07 $49.29 $52.10 
Same-property:
    NOI(1,3)
$262 $258 $111 $104 
    Number of properties65 65 70 70 
    Leasable square feet (in thousands)46,381 46,473 29,606 29,586 
    Occupancy85.0 %87.4 %92.1 %91.1 %
    In-place net rents (per square foot)(2)(3)
$33.09 $32.27 $48.95 $48.53 
(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 June 30, 2022 exchange rate.

NOI from our consolidated properties decreased to $262 million during the three months ended June 30, 2022 compared to the prior year. Same-property NOI for our consolidated properties for the three months ended June 30, 2022 increased to $262 million from $258 million. This increase was primarily due to lease commencements since prior year partially offset by lease expirations in the U.S.

NOI from our unconsolidated properties, which is presented on a proportionate basis, increased to $122 million during the three months ended June 30, 2022, compared to $117 million in the prior year. This increase was primarily the result of two properties becoming operational since the prior year partially offset by the negative impact of foreign currency translation and dispositions since the prior year. Same-property NOI increased compared to the prior year due to leasing activity and higher revenue.

The following table presents the changes in investment properties in the Core Office segment from December 31, 2021 to June 30, 2022:

Jun. 30, 2022
(US$ Millions)Commercial propertiesCommercial developments
Investment properties, beginning of period$24,644 $1,023 
Capital expenditures92 189 
Property dispositions— (1)
Fair value gains, net112 
Foreign currency translation(443)(44)
Transfer between commercial properties and commercial developments(11)11 
Reclassifications to assets held for sale(94)
Investment properties, end of period$24,300 $1,187 

Commercial properties totaled $24,300 million at June 30, 2022, compared to $24,644 million at December 31, 2021. The decrease was driven primarily by the negative impact of foreign currency translation and the sale of an office asset in the U.K., partially offset by fair value gains and the reclassification of an office asset in Brazil out of assets held for sale.

Commercial developments increased by $164 million from December 31, 2021 to June 30, 2022. The increase was primarily due to incremental capital expenditures on our active developments, partially offset by the impact of foreign currency translation.

        10         


The following table presents the changes in equity accounted investments in the Core Office segment from December 31, 2021 to June 30, 2022:

(US$ Millions)Jun. 30, 2022
Equity accounted investments, beginning of period$9,819 
Additions
Disposals and return of capital distributions(288)
Share of net earnings, including fair value gains470 
Distributions received(63)
Foreign currency translation(476)
Other comprehensive income and Other85 
Equity accounted investments, end of period$9,555 

Equity accounted investments decreased by $264 million since December 31, 2021 to $9,555 million at June 30, 2022. The decrease was driven by the partial disposition of One Manhattan West and the negative impact of foreign currency translation, partially offset by our share of net earnings, including fair value gains.

Debt obligations increased by $101 million since December 31, 2021 to $14,661 million at June 30, 2022. The increase was driven by issuances, partially offset by disposals and the negative impact of foreign currency translation.

Active Developments
The following table summarizes the scope and progress of active developments in our Core Office segment as of June 30, 2022:

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:
1 The Esplanade, Perth(2)
609 152 Q2 202383 %A$170 A$123 A$113 A$52 
Two Manhattan West, Midtown New York(2)
1,948 1,091 Q4 202333 %$1,342 $931 $812 $406 
Leadenhall Court, London430 430 Q1 202657 %£564 £212 £426 £106 
Multifamily:
5 & 8 Harbord Square, London(2)
82 41 n/an/a£32 £15 £25 £8 
755 Figueroa, Los Angeles(2)
674 319 Q1 2025n/a$269 $212 $166 $108 
Mixed-Use:
Wood Wharf - 15 Water Street, London(2)
187 94 Q4 2023n/a£72 £55 £47 £31 
1 Charter Street, London(2)
94 24 Q3 2024n/a£29 £13 £19 £4 
Total4,024 2,151 
(1)Net of NOI earned during stabilization.
(2)Presented on a proportionate basis at our ownership interest in each of these developments.

Our development pipeline consists of prominent, large-scale projects located primarily in the high growth markets of London and New York. For the office developments, we generally look to secure anchor leases before launching the projects. We monitor the scope and progress of our active developments and have an established track record of completion on time and within budget. We have recently completed office towers in the prime markets of New York, London, Toronto and Dubai and completed two urban multifamily developments in New York. Our current office and redevelopment projects stand at an average 47% pre-leased and despite the global economic shutdown, are generally tracking on time and budget.

Core Retail

Overview
Our Core Retail portfolio consists of 112 million square feet across 112 best-in-class malls and urban retail properties across the United States. We target to earn core-plus total returns on this portfolio. Similar to our Core Office portfolio, 24 million square feet across 19 properties are represented by assets in which we intend to retain long-term ownership. These assets include trophy assets, such as Ala Moana in Honolulu and Fashion Show in Las Vegas, and collectively represent 56% of the equity attributable to Unitholders in our Core Retail portfolio. Their stable and growing cash flows ensure that we can earn attractive compounding rates of return. For the remaining 93 properties, covering 88 million square feet of space, we seek to maximize return through leasing, redevelopment of existing retail or in some cases through the addition of a mixed-use component like multifamily or office. We add significant value during this transitional period before ultimately monetizing them and reinvesting the proceeds.

        11         


Summary of Operating Results
The following table presents FFO, CFFO and net income (loss) in our Core Retail segment for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
FFO$188 $103 $356 $198 
CFFO158 120 338 228 
Net income (loss)315 147 607 (158)

FFO earned in our Core Retail segment for the three months ended June 30, 2022 was $188 million compared to $103 million for the same period in the prior year. FFO increased as the retail business continued to recover from the shutdown, as well as lower interest expense as a result of debt paydowns since the prior year.

For the six months ended June 30, 2022, FFO earned in our Core Retail segment was $356 million compared to $198 million for the same period in the prior year. FFO increased due to the reasons discussed above.

For the three and six months ended June 30, 2022, CFFO increased by $38 million and $110 million respectively, primarily attributable to the FFO movements discussed above.

Net income was $315 million for the three months ended June 30, 2022 as compared to net income of $147 million during the same period in the prior year. The current year included fair value gains as a result of higher cash flows compared to fair value losses in the prior year.

Net income was $607 million for the six months ended June 30, 2022 compared to a loss of $158 million during the same period in the prior year primarily attributable to the movements discussed above.

Key Operating Metrics
The following table presents key operating metrics in our Core Retail portfolio as at and for the three months ended June 30, 2022 and 2021:
ConsolidatedUnconsolidated
(US$ Millions, except where noted)Jun. 30, 2022Jun. 30, 2021Jun. 30, 2022Jun. 30, 2021
Total portfolio:
NOI$239 $232 $180 $163 
Number of malls and urban retail properties59 62 53 57 
Leasable square feet (in thousands)(1)
52,449 54,153 59,920 63,442 
Same-property:
Number of malls and urban retail properties52 52 50 50 
Leasable square feet - mall and freestanding (in thousands)22,699 22,451 27,868 27,315 
Leased %(2)
93.0 %91.5 %95.6 %93.9 %
Occupancy %(2)
91.9 %90.5 %94.1 %92.9 %
Permanent Occupancy %(2)
85.9 %85.2 %88.8 %88.1 %
(1)Total Portfolio Leasable square feet represents total leasable area whereas Same-property leasable square feet represents Mall and Freestanding GLA.
(2)Presented on a same-property basis.

NOI from our consolidated properties increased to $239 million during the three months ended June 30, 2022 from $232 million in the same quarter in 2021, primarily due to higher occupancy and recovery from the global economic shutdown in the prior year, partially offset by disposition activity.

NOI from our unconsolidated properties increased to $180 million during the three months ended June 30, 2022 from $163 million in the same quarter in 2021 for the reasons discussed above.

        12         


The following table presents the changes in investment properties in the Core Retail segment from December 31, 2021 to June 30, 2022:

Jun. 30, 2022
(US$ Millions)Commercial properties
Investment properties, beginning of period$18,991 
Property acquisitions689 
Capital expenditures145 
Property dispositions(7)
Fair value gains, net181 
Transfer between commercial properties and commercial developments(98)
Reclassifications to assets held for sale(58)
Investment properties, end of period$19,843 

Commercial properties increased by $852 million to $19,843 million, primarily due to acquisitions of our joint venture partners’ interest in certain Core Retail properties. As a result of this acquisition, we discontinued accounting for these assets under the equity method and now consolidate these properties. Also contributing to this increase are fair value gains, and capital expenditures, partially offset by the reclassification of assets to under development.

The following table presents a roll-forward of our partnership’s equity accounted investments in the Core Retail segment for the six months ended June 30, 2022:
 
(US$ Millions)Jun. 30, 2022
Equity accounted investments, beginning of year$9,945 
Additions14 
Disposals and return of capital(317)
Share of net earnings from equity accounted investments315 
Distributions(18)
Other(283)
Equity accounted investments, end of period$9,656 

Equity accounted investments decreased by $289 million to $9,656 million, primarily due to disposals and return of capital distributions as well as several incremental interest acquisitions from our joint venture partners as discussed above, partially offset by share of net earnings from equity accounted investments.

Debt obligations decreased by $316 million to $13,107 million, primarily due to disposition activity and paydown on the term debt, partially offset by debt that is now consolidated following the acquisition of interests in certain assets from joint venture partners and drawdowns on the revolver.

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 and manufactured housing. We target to earn opportunistic returns on our LP Investments portfolio.
    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 11th 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 8th year, is fully invested and is executing realizations.

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 5th 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.

        13         


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 consolidate several of the portfolios, specifically BSREP I and BSREP II, 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.

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 FFO, CFFO, and net income in our LP Investments segment for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
FFO$80 $40 $145 $34 
CFFO76 38 154 40 
Net income29 353 1,071 892 

FFO increased by $40 million for the three months ended June 30, 2022 primarily due to increased earnings in our hospitality portfolio, due to increased occupancy and average daily rates, and resort spend outperforming pre-pandemic levels. In addition, the prior year was negatively impacted by defeasance costs incurred upon refinancing our manufactured housing portfolio, offset by an incremental distribution from BSREP III following the sale of a life science portfolio in the prior year.

FFO increased by $111 million for the six months ended June 30, 2022 primarily due to increased earnings at our hospitality properties, primarily at Center Parcs and Atlantis, for the reasons discussed above. The current year also benefited from incremental income on the sale of develop-for-sale multifamily properties while the prior year was negatively impacted by defeasance costs incurred upon refinancing our manufactured housing portfolio, offset by the disposition activity mentioned above.

For the three and six months ended June 30, 2022, CFFO increased by $38 million and $114 million, respectively, for the reasons discussed above.

Net income decreased for the three months ended June 30, 2022 by $324 million, driven by fair value losses due to capitalization and discount rate expansion at a mixed-use asset in South Korea, as well as dispositions since the prior year.

Net income increased for the six months ended June 30, 2022 by $179 million, driven by for the reasons mentioned above, as well as fair value gains in our manufactured housing, U.K. student housing, and multifamily portfolios partially offset by the impact of dispositions.

Corporate
Certain amounts are allocated to our corporate segment as those activities should not be used to evaluate our other segments’ operating performance.

Summary of Operating Results
The following table presents FFO, CFFO and net (loss) in our corporate segment for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
FFO$(157)$(130)$(331)$(255)
CFFO(156)(129)(329)(254)
Net loss(106)(188)(166)(259)

FFO was a loss of $157 million (2021 - loss of $130 million) and $331 million (2021 - loss of $255 million) for the three and six months ended June 30, 2022, respectively. Corporate FFO includes interest expense and general and administrative expense.

Interest expense for the three months ended June 30, 2022 totaled $68 million (2021 - $72 million), which reflects $25 million (2021 - $37 million) of interest expense on capital securities and $43 million (2021 - $35 million) of interest expense on our credit facilities and corporate bonds. For the six months ended June 30, 2022, interest expense totaled $139 million (2021 - $142 million), which reflects $49
        14         


million (2021 - $74 million) of interest expense on capital securities and $90 million (2021 - $68 million) of interest expense on our credit facilities and corporate bonds.

Another component of FFO is general and administrative expense, which, for the three months ended June 30, 2022 was $72 million (2021 - $60 million) and consists of management fees and equity enhancement fees of $57 million (2021 - $46 million) and $15 million (2021 - $14 million) of other corporate costs. For the six months ended June 30, 2022, general and administrative expense consisted of $114 million of asset management fees (2021 - $61 million), nil of equity enhancement fees (2021 - $27 million) and $27 million (2021 - $28 million) of other corporate costs. The management fee is calculated at an annualized rate of 1.05% of the sum of the following amounts, as of the last day of the immediately preceding quarter: (1) the equity attributable to unitholders for our Core Office, Core Retail and the Corporate segments; and (ii) the carrying value Canholdco Class B Common Shares.

For the three and six months ended June 30, 2022, we also recorded an income tax expense of $8 million and income tax expense $25 million (2021 - income tax expense of $2 million and income tax expense of $24 million), respectively, allocated to the corporate segment related to an increase in book income of our holding companies and their subsidiaries as well as non-recurring tax benefits from Brookfield Opportunity Zone fund investments that occurred in the prior year.

As of June 30, 2022, the carrying value of the Canholdco Class B Common Shares was $1,940 million (December 31, 2021 - $2,083 million). Refer to Note 3, Privatization of the Partnership of our Q2 2022 Financial Statements for further information.

LIQUIDITY AND CAPITAL RESOURCES
We attempt to maintain a level of liquidity to ensure we are able to participate in investment opportunities as they arise and to better withstand sudden adverse changes in economic circumstances. Our primary sources of liquidity include cash, undrawn committed credit facilities, construction facilities, cash flow from operating activities and access to public and private capital markets. In addition, we structure our affairs to facilitate monetization of longer-duration assets through financings and co-investor participations.

The principal sources of our operating cash flow are from our consolidated properties as well as properties in joint venture arrangements. These sources generate a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and dividends to holders of our preferred units. Cash is used in investing activities to fund acquisitions, development or redevelopment projects and recurring and nonrecurring capital expenditures. For the six months ended June 30, 2022, our operating cash flow was $580 million, cash flow from investing activities was $3,278 million and cash used for financing activities was $(4,217) million.

In order to maintain financial flexibility, we maintain capacity under credit facilities at BPY and certain subsidiaries. We believe we will be able to continue to borrow funds on these facilities from our lenders when and as required. Furthermore, we are able to maintain financial flexibility with our deposit agreement with Brookfield Asset Management. As of June 30, 2022, a $180 million on-demand deposit was payable to Brookfield Asset Management.

We finance our assets principally at the operating company level with asset-specific debt that generally has long maturities, few restrictive covenants and with recourse only to the asset. We endeavor to maintain prudent levels of debt and strive to ladder our principal repayments over a number of years.

The following table summarizes our secured debt obligations on investment properties by contractual maturity over the next five years and thereafter:

(US$ Millions)Jun. 30, 2022
2022$5,188 
202311,015 
20249,615 
20253,173 
20262,541 
2027 and thereafter6,202 
Deferred financing costs(177)
Secured debt obligations$37,557 
Debt to investment property ratio60.8 %

We generally believe that we will be able to either extend the maturity date, repay, or refinance the debt that is scheduled to mature in 2022-2023, however, approximately 1.2% of our debt obligations represent non-recourse mortgages where we have suspended contractual payments. We are currently engaging in modification or restructuring discussions with the respective creditors. These negotiations may, under certain circumstances, result in certain properties securing these loans being transferred to the lenders.

For further discussion on our liquidity and capital resources, refer to our annual report for the year ended December 31, 2021 on Form 20-F.

        15         


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. With the successful rollout of vaccination campaigns against COVID-19 in markets in which we operate, the macroeconomic outlook has improved in certain geographies with the return of more favorable economic conditions, including the removal of occupancy restrictions and government-mandated closures. However, uncertainty remains in the near-term surrounding risks of new economic restrictions and general uncertainty surrounding supply chains, disrupted travel, impacted social conditions and the labor markets.

    There have been no material changes to risk factors facing our business, including tenant credit risk, lease rollover risk and other risks, since December 31, 2021. 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” in our December 31, 2021 annual report on Form 20-F.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS
We and our operating entities use derivative and non-derivative instruments to manage financial risks, including interest rate, commodity, equity price and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approved limits. We do not use derivatives for speculative purposes. We and our operating entities use the following derivative instruments to manage these risks:

foreign currency forward contracts to hedge exposures to Canadian Dollar, Australian Dollar, British Pound, Euro, Chinese Yuan, Brazilian Real, Indian Rupee and South Korean Won denominated investments in foreign subsidiaries and foreign currency denominated financial assets;
interest rate swaps to manage interest rate risk associated with planned refinancings and existing variable rate debt;
interest rate caps to hedge interest rate risk on certain variable rate debt; and
cross-currency swaps to manage interest rate and foreign currency exchange rates on existing variable rate debt.

We are progressing through our transition plan to address the impact and effect required changes as a result of amendments to the contractual terms of Interbank Offered Rates (“IBOR”) referenced floating-rate borrowings, interest rate swaps, interest rate caps, and to update hedge designations. Sterling Overnight Index Average (“SONIA”) replaced £ London Interbank Offered Rate (“£ LIBOR”), and one week and two month US$ LIBOR were discontinued effective December 31, 2021. Euro Short-term Rate (“€STR”) was published as an alternative to Euro Interbank Offered Rate (“EURIBOR”) during 2021, though EURIBOR remains available for Euro lending. It is currently expected that Secured Overnight Financing Rate (“SOFR”) will replace US$ LIBOR, and Canadian Overnight Repo Rate Average (“CORRA”) will replace Canadian Dollar Offered Rate (“CDOR”), though the transition period has been extended to June 2023 for the remaining US$ LIBOR and June 2024 for CDOR. The partnership has addressed the impact and effected the changes required as a result of amendments to the contractual terms of £ LIBOR referenced floating-rate borrowings, interest rate swaps, interest rate caps, and to update hedge designations. The adoption did not have a significant impact on the partnership’s financial reporting.

There have been no other material changes to our financial risk exposure or risk management activities since December 31, 2021. Please refer to Note 32, Financial Instruments in our December 31, 2021 annual report on Form 20-F for a detailed description of our financial risk exposure and risk management activities, and refer to Note 28, Financial Instruments of our Q2 2022 Financial Statements for further information on derivative financial instruments as at June 30, 2022.

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 Brookfield Property Partners Limited. The ultimate parent of the partnership is Brookfield Asset Management. Other related parties of the partnership include 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.

In connection with the Privatization, Brookfield Asset Management’s ownership interest in the partnership was restructured, including the issuance of Canholdco Class B Common Shares to Brookfield Asset Management and the management fee structure was amended. Refer to Note 3, Privatization of the Partnership and Note 29, Related Parties, respectively, of our Q2 2022 Financial Statements for further information.
    


        16         


ADDITIONAL INFORMATION
CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGEMENTS
USE OF ESTIMATES
The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of our ongoing evaluation of these estimates forms the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

Prior to the end of the first quarter of 2020, the global economic shutdown prompted certain responses from global government authorities across the various geographies in which the partnership owns and operates investment properties. Such responses have included mandatory temporary closure of, or imposed limitations on, the operations of certain non-essential properties and businesses including office properties and retail malls and associated businesses which operate within these properties, such as retailers and restaurants. In addition, travel restrictions have had a significant adverse impact on consumer spending and demand in the near term. These negative economic indicators, restrictions and closures have created significant estimation uncertainty in the determination of the fair value of investment properties as of June 30, 2022. Specifically, while discount and capitalization rates are inherently uncertain, there has been an absence of recently observed market transactions across the partnership’s geographies to support changes in such rates which is a key input into the determination of fair value. In addition, the partnership has had to make assumptions with respect to the length and severity of these restrictions and closures as well as the viability of our tenants in consideration of any credit reserves that should be applied based on deemed tenant risk and the recovery period in estimating the impact and timing of future cash flows generated from investment properties and used in the discounted cash flow model used to determine fair value. As a result of this material estimation uncertainty, there is a risk that the assumptions used to determine fair value as of June 30, 2022 may result in a material adjustment to the fair value of investment properties in future reporting periods as more information becomes available.

For further reference on accounting policies and critical judgments and estimates, see our significant accounting policies contained in Note 2, Summary of Significant Accounting Policies to the December 31, 2021 consolidated financial statements and Note 2, Summary of Significant Accounting Policies of the Financial Statements.

TREND INFORMATION
We seek to increase the cash flows from our office and retail property activities through continued leasing activity as described below. In particular, we are operating below our historical office and retail occupancy levels, which provides the opportunity to expand cash flows through higher occupancy. However, our future results may be impacted by risks associated with any emerging or future variants of COVID-19, and any any responses from global government authorities. There remains some uncertainty in the near-term surrounding leasing trends, market rates, and the ability to exit investments in the partnership’s expected timeframe, which the partnership will continue to monitor and mitigate. In addition, we expect to face a meaningful amount of lease rollover in 2022 and 2023, which may restrain FFO growth from this part of our portfolio in the near future. Our belief is as to the opportunities for our partnership to increase its occupancy levels, lease rates and cash flows are based on assumptions about our business and markets that management believes are reasonable in the circumstances. There can be no assurance as to growth in occupancy levels, lease rates or cash flows. See “Statement Regarding Forward-looking Statements and Use of Non-IFRS Measures”.

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

Given the small amount of new office and retail development that occurred over the last decade, we see an opportunity to advance our development inventory in the near term in response to demand we are seeing in our major markets. In addition, we continue to reposition and redevelop existing retail properties, in particular, a number of the highest performing shopping centers in the United States.

OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
CONTROLS AND PROCEDURES
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes made in our internal control over financial reporting that have occurred during the six months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting due to the global economic shutdown.


        17         


NON-IFRS FINANCIAL MEASURES
To measure our operating performance, we focus on NOI, same-property NOI, FFO, CFFO, net income, and equity attributable to Unitholders. Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies.

NOI: revenues from our commercial properties operations less direct commercial property expenses before the impact of depreciation and amortization (“Commercial property NOI”) and revenues from our hospitality operations less direct hospitality expenses before the impact of depreciation and amortization (“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 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. Because NOI excludes depreciation and amortization of real estate assets, it provides a performance measure that, when compared year-over-year, reflects the impact on operations from trends in occupancy rates and rental rates. We reconcile NOI to net income on page 19.

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 19 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 19.

    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 19.


        18         


Reconciliation of Non-IFRS measures
    As described in the “Non-IFRS Financial Measures” section on page 18, 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 (loss) to NOI for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Commercial property revenue$1,185 $1,284 $2,440 $2,569 
Direct commercial property expense(452)(492)(922)(998)
Add: Depreciation and amortization expense in direct commercial property expense(1)
6 18 15 38 
Commercial property NOI(1)
739 810 1,533 1,609 
Hospitality revenue400 196 713 255 
Direct hospitality expense(277)(170)(565)(291)
Add: Depreciation and amortization expense in direct hospitality expense(1)
62 50 135 98 
Hospitality NOI185 76 283 62 
Total NOI924 886 1,816 1,671 
Investment and other revenue158 180 644 286 
Share of net earnings from equity accounted investments419 253 799 459 
Interest expense(623)(710)(1,223)(1,322)
Depreciation and amortization(1)
(68)(68)(150)(136)
General and administrative expense(234)(243)(466)(456)
Investment and other expense(32)(23)(271)(31)
Fair value gains (losses), net23 498 1,293 1,138 
Income before taxes567 773 2,442 1,609 
Income tax expense(47)(87)(230)(192)
Net income$520 $686 $2,212 $1,417 
Net income attributable to non-controlling interests120 367 1,110 832 
Net income attributable to Unitholders$400 $319 $1,102 $585 
(1)As described in the “Non-IFRS Financial Measures” section on page 18, commercial property NOI and hospitality NOI excludes the impact of depreciation and amortization included in direct commercial property expense and direct hospitality expense, respectively.    

The following table reconciles net income (loss) to FFO and Company FFO for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Net income$520 $686 $2,212 $1,417 
Add (deduct):
    Fair value (gains), net(23)(498)(1,293)(1,138)
    Share of equity accounted fair value (gains), net(177)(105)(369)(181)
    Depreciation and amortization of real estate assets(1)
46 46 98 91 
    Income tax expense47 87 230 192 
    Non-controlling interests in above items(207)(72)(474)(150)
FFO$206 $144 $404 $231 
Add (deduct):
Depreciation and amortization of non-real-estate assets, net(1)(2)
13 14 28 29 
Transaction costs, net(2)
(29)55 (16)73 
Imputed interest(3)
4 9 
BSREP III earnings(4)
(12)(41)(9)(41)
Company FFO$182 $176 $416 $301 
(1)Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.
(2)Presented net of non-controlling interests.
(3)Represents imputed interest associated with financing the partnership’s share of commercial developments accounted for under the equity method.
(4)BSREP III is 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.

        19         


Reconciliation of Non-IFRS Measures – Core Office
The key components of NOI in our Core Office segment are presented below:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Commercial property revenue$463 $474 $935 $959 
Hospitality revenue(1)
6 10 
Direct commercial property expense(204)(212)(408)(429)
Direct hospitality expense(1)
(6)(3)(11)(6)
Add: Depreciation and amortization included in direct commercial property expense and direct hospitality expense(2)
3 6 
Total NOI - Core Office(2)
$262 $265 $532 $535 
(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.
(2)As described in the “Non-IFRS Financial Measures” section on page 18, commercial property NOI and hospitality NOI excludes the impact of depreciation and amortization included in direct commercial property expense and direct hospitality expense, respectively.    

The following table reconciles Core Office NOI to net (loss) income for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Same-property NOI$262 $258 $533 $516 
Currency variance  
NOI related to acquisitions and dispositions (1)12 
Total NOI - Core Office(1)
262 265 532 535 
Investment and other revenue71 63 163 107 
Interest expense(171)(139)(318)(282)
Depreciation and amortization included in direct commercial property expense and direct hospitality expense(2)
(3)(3)(6)(8)
Investment and other expense(32)(23)(67)(31)
General and administrative expense(63)(65)(124)(128)
Fair value gains (losses), net(12)155 88 385 
Share of net earnings from equity accounted investments253 146 470 377 
Income before taxes305 399 738 955 
Income tax (expense) benefit(23)(25)(38)(13)
Net income282 374 700 942 
Net income attributable to non-controlling interests30 98 121 185 
Net income attributable to Unitholders$252 $276 $579 $757 
(1)As described in the “Non-IFRS Financial Measures” section on page 18, commercial property NOI and hospitality NOI excludes the impact of depreciation and amortization included in direct commercial property expense and direct hospitality expense, respectively.    
(2)Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.    


    
        20         


The following table reconciles Core Office net income to FFO and CFFO for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Net income$282 $374 $700 $942 
Add (deduct):
    Fair value (gains), net12 (155)(88)(385)
    Share of equity accounted fair value (gains), net(177)(60)(316)(212)
    Depreciation and amortization of real estate assets(1)
1 2 
    Income tax expense23 25 38 13 
    Non-controlling interests in above items(46)(54)(102)(106)
FFO$95 $131 $234 $254 
Add (deduct):
Depreciation and amortization of non-real-estate assets, net(1)(2)
4 7 
Transaction costs, net(1)
1 3 17 
Imputed interest(3)
4 9 
Company FFO$104 $147 $253 $287 
(1)Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.
(2)Presented net of non-controlling interests.
(3)Represents imputed interest associated with financing the partnership’s share of commercial developments accounted for under the equity method.

The following table reconciles Core Office share of net earnings from equity accounted investments for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Unconsolidated properties NOI$122 $117 $242 $233 
Unconsolidated properties fair value gains (losses), net177 60 316 212 
Other(1)
(46)(31)(88)(68)
Share of net earnings from equity accounted investments$253 $146 $470 $377 
(1)Other primarily includes the partnership’s share of interest expense, general and administrative expense and investment and other income/expense from unconsolidated investments.

Reconciliation of Non-IFRS Measures – Core Retail
The key components of NOI in our Core Retail segment are presented below:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Commercial property revenue$326 $338 $677 $670 
Direct commercial property expense(92)(118)(201)(225)
Add: Depreciation and amortization included in direct commercial property expense(1)
5 12 10 12 
Total NOI$239 $232 $486 $457 
(1)As described in the “Non-IFRS Financial Measures” section on page 18, commercial property NOI and hospitality NOI excludes the impact of depreciation and amortization included in direct commercial property expense and direct hospitality expense, respectively.    


        21         


The following table reconciles Core Retail NOI to net income (loss) attributable to Unitholders for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Total NOI - Core Retail(1)
$239 $232 $486 $457 
Investment and other revenue39 34 82 66 
Interest expense(151)(165)(295)(328)
Depreciation and amortization included in direct commercial property expense(2)
(5)(6)(10)(12)
General and administrative expense(52)(48)(108)(101)
Fair value gains (losses), net104 (36)150 (396)
Share of net earnings from equity accounted investments151 148 315 167 
Income (loss) before taxes325 159 620 (147)
Income tax (expense) benefit(10)(12)(13)(11)
Net income (loss)$315 $147 $607 $(158)
Net income (loss) attributable to non-controlling interests24 21 51 (4)
Net income (loss) attributable to Unitholders$291 $126 $556 $(154)
(1)    As described in the “Non-IFRS Financial Measures” section on page 18, commercial property NOI and hospitality NOI excludes the impact of depreciation and amortization included in direct commercial property expense and direct hospitality expense, respectively.    
(2)    Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.


    The following table reconciles Core Retail net (loss) income to FFO and CFFO for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Net income (loss)$315 $147 $607 $(158)
Add (deduct):
    Share of equity accounted fair value (gains) losses, net(20)(76)(85)(19)
    Fair value (gains) losses, net(104)36 (150)396 
    Income tax expense (benefit)10 12 13 11 
    Non-controlling interests in above items(13)(16)(29)(32)
FFO$188 $103 $356 $198 
Add (deduct):
Depreciation and amortization of non-real-estate assets, net(1)(2)
4 9 12 
Transaction costs, net(2)
(34)11 (27)18 
Company FFO$158 $120 $338 $228 
(1) Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.
(2)Presented net of non-controlling interests.

The following table reconciles Core Retail share of net earnings from equity accounted investments for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Unconsolidated properties NOI$179 $390 $366 $324 
Unconsolidated properties fair value gains (losses), net and income tax expense20 76 85 19 
Other(1)
(48)(318)(136)(176)
Share of net earnings and (losses) from equity accounted investments$151 $148 $315 $167 
(1)Other primarily includes the partnership’s share of interest expense, general and administrative expense and investment and other income/expense from unconsolidated investments.

        22         


Reconciliation of Non-IFRS Measures - LP Investments
The following table reconciles LP Investments NOI to net income (loss) for the three and six months ended June 30, 2022 and 2021:
Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Commercial property revenue$396 $472 $828 $940 
Hospitality revenue394 194 703 252 
Direct commercial property expense(156)(179)(313)(344)
Direct hospitality expense(271)(214)(554)(285)
Add: Depreciation and amortization included in direct commercial property expense and direct hospitality expense(1)
60 116 134 116 
Total NOI(1)
423 389 798 679 
Investment and other revenue46 81 397 110 
Interest expense(233)(334)(471)(570)
General and administrative expense(47)(70)(93)(111)
Investment and other expense — (204)— 
Depreciation and amortization included in direct commercial property expense and direct hospitality expense(2)
(60)(59)(134)(116)
Fair value gains, net(109)435 918 1,129 
Share of net (losses) earnings from equity accounted investments15 (41)14 (85)
Income before taxes35 401 1,225 1,036 
Income tax expense(6)(48)(154)(144)
Net income29 353 1,071 892 
Net income attributable to non-controlling interests25 248 833 651 
Net income attributable to Unitholders$4 $105 $238 $241 
(1)As described in the “Non-IFRS Financial Measures” section on page 18, commercial property NOI and hospitality NOI excludes the impact of depreciation and amortization included in direct commercial property expense and direct hospitality expense, respectively.    
(2)Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.    

The following table reconciles LP Investments net income to FFO and CFFO for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Net income$29 $353 $1,071 $892 
Add (deduct):
    Fair value (gains), net109 (435)(918)(1,129)
    Share of equity accounted fair value losses, net20 31 32 50 
    Depreciation and amortization of real estate assets(1)
45 45 96 89 
    Income tax expense6 48 154 144 
    Non-controlling interests in above items(129)(2)(290)(12)
FFO$80 $40 $145 $34 
Add (deduct):
Depreciation and amortization of non-real-estate assets, net(1)(2)
5 12 10 
Transaction costs, net(2)
3 34 6 37 
BSREP III earnings(3)
(12)(41)(9)(41)
CFFO$76 $38 $154 $40 
(1)Depreciation and amortization are included in direct commercial property expense and direct hospitality expense on the income statement.
(2)Presented net of non-controlling interests.
(3)BSREP III is 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.


        23         


Reconciliation of Non-IFRS Measures – Corporate

The following table reconciles Corporate net loss to net loss attributable to Unitholders for the three and six months ended June 30, 2022 and 2021:
Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Net loss$(106)$(188)$(166)$(259)
Net loss attributable to non-controlling interests41 — 105 — 
Net loss attributable to Unitholders$(147)$(188)$(271)$(259)

The following table reconciles Corporate net loss to FFO and CFFO for the three and six months ended June 30, 2022 and 2021:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2022202120222021
Net loss$(106)$(188)$(166)$(259)
Add (deduct):
    Fair value (gains) losses, net(40)56 (137)(20)
    Income tax expense8 25 24 
    Non-controlling interests in above items(19)— (53)— 
FFO$(157)$(130)$(331)$(255)
Add (deduct):
Transaction costs, net(1)
1 2 
CFFO$(156)$(129)$(329)$(254)
(1)Presented net of non-controlling interests.



        24         


SUBSIDIARY PUBLIC ISSUERS
Brookfield Property Split Corp. (“BOP Split”) was incorporated for the purpose of being an issuer of preferred shares and owning a portion of the partnership’s investment in Brookfield Office Properties Inc. (“BPO”) common shares. Pursuant to the terms of a Plan of Arrangement, holders of outstanding BPO Class AAA Preferred Shares Series G, H, J and K, which were convertible into BPO common shares, were able to exchange their shares for BOP Split Senior Preferred Shares, subject to certain conditions. The BOP Split Senior Preferred shares are listed on the TSX and began trading on June 11, 2014. All shares issued by BOP Split are retractable by the holders at any time for cash.

In connection with an internal restructuring completed in July 2016, the partnership and certain of its related entities agreed to guarantee all of BPO’s Class AAA Preferred Shares and all of BPO’s debt securities issued pursuant to BPO’s indenture dated December 8, 2009.

In April 2018, the partnership formed two subsidiaries, Brookfield Property Finance ULC and Brookfield Property Preferred Equity Inc. to act as issuers of debt and preferred securities, respectively. The partnership and certain of its related entities have agreed to guarantee securities issued by these entities.

In connection with the Privatization (refer to Note 3, Privatization of the Partnership of our Q2 2022 Financial Statements for further information), the partnership formed a subsidiary, Brookfield Property Preferred L.P. (“New LP”), to issue preferred securities. The partnership and certain of its related entities have agreed to guarantee the securities issued by this entity.

(US$ Millions)
For the three months ended Jun. 30, 2022
Brookfield Property Partners L.P.BOP SplitBPOBrookfield Property Preferred Equity Inc.Brookfield Property Finance ULCBrookfield Property Preferred L.P.
Holding entities(2)
Additional holding entities and eliminations(3)
Consolidating
adjustments(4)
Brookfield Property Partners L.P consolidated
Revenue$ $42 $10 $ $26 $50 $140 $11 $1,464 $1,743 
Net income attributable to unitholders(1)
144 116 35  59 45 400 23 (422)400 
For the three months ended Jun. 30, 2021
Revenue$— $45 $191 $— $21 $— $133 $160 $1,110 $1,660 
Net income attributable to unitholders(1)
156 145 123 — (25)— 319 129 (528)319 
(1)Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units and BPYU Units.
(2)Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3)Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4)Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

(US$ Millions)
For the six months ended Jun. 30, 2022
Brookfield Property Partners L.P.BOP SplitBPOBrookfield Property Preferred Equity Inc.Brookfield Property Finance ULCBrookfield Property Preferred L.P.
Holding entities(2)
Additional holding entities and eliminations(3)
Consolidating
adjustments(4)
Brookfield Property Partners L.P consolidated
Revenue$ $85 $17 $ $51 $98 $318 $191 $3,037 $3,797 
Net income attributable to unitholders(1)
395 291 164  39 83 1,102 236 (1,208)1,102 
For the six months ended Jun. 30, 2021
Revenue$— $91 $285 $— $41 $— $270 $236 $2,187 $3,110 
Net income attributable to unitholders(1)
286 422 394 — (50)— 585 237 (1,289)585 
(1)Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPYU Units.
(2)Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3)Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4)Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

        25         



(US$ Millions)
As of Jun. 30, 2022
Brookfield Property Partners L.P.BOP SplitBPOBrookfield Property Preferred Equity Inc.Brookfield Property Finance ULCBrookfield Property Preferred L.P.
Holding entities(2)
Additional holding entities and eliminations(3)
Consolidating
adjustments(4)
Brookfield Property Partners L.P consolidated
Current assets$ $680 $126 $ $1,918 $2,952 $6,302 $191 $(7,678)$4,491 
Non-current assets9,124 28,299 17,319  433  32,377 2,308 3,258 93,118 
Assets held for sale        7,934 7,934 
Current liabilities 2,831 943  194  7,317 1,391 7,630 20,306 
Non-current liabilities 4,264 4,303  2,116 474 5,887 67 23,660 40,771 
Liabilities associated with assets held for sale        957 957 
Preferred equity699         699 
Equity attributable to interests of others in operating subsidiaries and properties  2,839      15,194 18,033 
Equity attributable to unitholders(1)
$8,425 $21,884 $9,360 $ $41 $2,478 $25,475 $1,041 $(43,927)$24,777 
(1)Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPYU Units.
(2)Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3)Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4)Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

(US$ Millions)
As of Dec. 31, 2021
Brookfield Property Partners L.P.BOP SplitBPOBrookfield Property Preferred Equity Inc.Brookfield Property Finance ULCBrookfield Property Preferred L.P.
Holding entities(2)
Additional holding entities and eliminations(3)
Consolidating
adjustments(4)
Brookfield Property Partners L.P consolidated
Current assets$— $738 $145 $— $1,915 $2,952 $6,479 $206 $(7,510)$4,925 
Non-current assets10,848 30,254 23,197 — 441 — 40,811 2,320 (11,302)96,569 
Assets held for sale— — — — — — — — 10,510 10,510 
Current liabilities— 2,930 1,051 — 199 — 7,711 1,165 4,509 17,565 
Non-current liabilities— 4,339 4,467 — 2,153 474 14,279 582 20,058 46,352 
Liabilities associated with assets held for sale— — — — — — — — 3,082 3,082 
Preferred equity699 — — — — — — — 699 
Equity attributable to interests of others in operating subsidiaries and properties— — 2,723 — — — — — 16,983 19,706 
Equity attributable to unitholders(1)
$10,149 $23,723 $15,101 $— $$2,478 $25,300 $779 $(52,934)$24,600 
(1)Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPYU Units.
(2)Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3)Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4)Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.



        26         


NEW LP PREFERRED UNITS GUARANTEE
New LP was created in connection with the Privatization in order to issue New LP Preferred Units. The payment obligations of New LP to the holders of the New LP Preferred Units, including accrued and unpaid distributions, are fully and unconditionally guaranteed by the partnership, the Operating Partnership and several Holding Entities (Brookfield BPY Holdings Inc. (“CanHoldco”), Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, BPY Bermuda Holdings II Limited, BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited). The guarantee of each guarantor ranks senior to all subordinate guarantor obligations.

Pursuant to Rule 13-01 of the SEC’s Regulation S-X, the following tables provides combined summarized financial information of New LP and New LP guarantor entities:

(US$ Millions)
For the six months ended Jun. 30, 2022
BPYNew LPOther GuarantorsConsolidating adjustmentsCombined Guarantor entities
Revenue - from non-guarantor subsidiaries$ $48 $77 $(11)$114 
Dividend income - from non-guarantor subsidiaries116  286 (153)249 
Operating profit116 38 250 (153)251 
Net income116 38 343 (153)344 

(US$ Millions)
For the year ended Dec. 31, 2021
BPYNew LPOther GuarantorsConsolidating adjustmentsCombined Guarantor entities
Revenue$— $— $$— $
Revenue - from non-guarantor subsidiaries— 85 481 (82)484 
Dividend income - from non-guarantor subsidiaries416 — 669 (628)457 
Operating profit409 67 612 (628)460 
Net income409 67 598 (628)446 

Total revenue of the partnership and its controlled subsidiaries for the six months ended months ended Jun. 30, 2022 was $3,797 million.

(US$ Millions)
As at Jun. 30, 2022
BPYNew LPOther GuarantorsConsolidating adjustmentsCombined Guarantor entities
Current assets$1 $ $65 $ $66 
Current assets - due from non-guarantor subsidiaries 2,952 6,993 (1,133)8,812 
Long-term assets  114  114 
Current liabilities  216  216 
Current liabilities - due to related parties  705  705 
Current liabilities - due to non-guarantor subsidiaries  8,742 (1,133)7,609 
Long-term liabilities  2,076  2,076 
Long-term liabilities - due to non-guarantor subsidiaries  1,704  1,704 
Preferred equity and capital securities699 474 1,838 (722)2,289 
Non-controlling interests  1,986  1,986 

        27         


(US$ Millions)
As at Dec. 31, 2021
BPYNew LPOther GuarantorsConsolidating adjustmentsCombined Guarantor entities
Current assets$$— $55 $— $56 
Current assets - due from non-guarantor subsidiaries— 2,952 7,397 (1,465)8,884 
Long-term assets— — 60 — 60 
Current liabilities— — 249 249 
Current liabilities - due to related parties— 699 700 
Current liabilities - due to non-guarantor subsidiaries— — 8,703 (1,465)7,238 
Long-term liabilities— — 2,432 — 2,432 
Long-term liabilities - due to non-guarantor subsidiaries— — 10,597 — 10,597 
Preferred equity and capital securities722 474 1,808 (722)2,282 
Non-controlling interests— — 2,088 2,088 

Total assets of the partnership and its controlled subsidiaries for the period ended Jun. 30, 2022 were $105,543 million (Dec. 31, 2021 - $112,004 million).

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND USE OF NON-IFRS MEASURES
This MD&A, particularly “Objectives and Financial Highlights – Overview of the Business” and “Additional Information – Trend Information”, 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 caused by the COVID-19 pandemic; 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 exchange 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, 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.
        28         


Corporate Information

CORPORATE PROFILE
    Brookfield Property Partners is one of the world’s largest commercial real estate companies, with approximately $106 billion in total consolidated assets. We are leading owners, operators and developers of commercial property assets, with a diversified portfolio of premier office and retail properties, as well as multifamily, logistics, hospitality, student housing and manufactured housing assets. Further information is available at bpy.brookfield.com.

Brookfield Property Partners is a subsidiary of Brookfield Asset Management, a leading global alternative asset manager with approximately $725 billion in assets under management. More information is available at www.brookfield.com.

BROOKFIELD PROPERTY PARTNERS
73 Front Street, 5th Floor
Hamilton, HM 12
Bermuda
Tel: (441) 294-3309
bpy.brookfield.com

UNITHOLDERS INQUIRIES
Brookfield Property Partners welcomes inquiries from Unitholders, media representatives and other interested parties. Questions relating to investor relations or media inquiries can be directed to Rachel Nappi, Investor Relations at 855-212-8243 or via email at bpy.enquiries@brookfield.com. Unitholder questions relating to distributions, address changes and unit certificates should be directed to the partnership’s transfer agent, AST Trust Company, as listed below.

AST TRUST COMPANY (Canada)
By mail:         P.O. Box 4229
Station A
Toronto, Ontario, M5W 0G1
Tel:         (416) 682-3860; (800) 387-0825
Fax:         (888) 249-6189
E-mail:         inquiries@astfinancial.com
Web site:        www.astfinancial.com/ca

COMMUNICATIONS
Brookfield Property Partners maintains a website, bpy.brookfield.com, which provides access to our published reports, press releases, statutory filings, and unit and distribution information as well as summary information on our outstanding preferred units.

We maintain an investor relations program and strive to respond to inquiries in a timely manner.
        29