bpy-20200630_d2

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
 
________________________________________________________
 
FORM 6-K
________________________________________________________
 
 
Report of Foreign Private Issuer Pursuant to
Rule 13a-16 or 15d-16
Under the Securities Exchange Act of 1934
 
For the month of August 2020
Commission File Number 001-35505
 ________________________________________________________

BROOKFIELD PROPERTY PARTNERS L.P.
(Exact name of registrant as specified in its charter)

 ________________________________________________________

73 Front Street, 5th Floor, Hamilton, HM 12 Bermuda
(Address of principal executive offices)
 ________________________________________________________

 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F ý       Form 40-F ¨
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

The information contained in Exhibits 99.1 and 99.2 of this Form 6-K is incorporated by reference into the registrant’s following registration statements on Form F-3: File No. 333-218503, 333-218504, 333-225158 and 333-225163; and the registrant’s following registration statements on Form S-8: File Nos. 333-196622, 333-203042 and 333-227082.



























DOCUMENTS FILED AS PART OF THIS FORM 6-K
 
See the Exhibit List to this Form 6-K.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date:August 7, 2020BROOKFIELD PROPERTY PARTNERS L.P.,
  by its general partner, Brookfield Property Partners Limited
   
  By:
 /s/ Jane Sheere
  Name:Jane Sheere
  Title:Secretary
 
EXHIBIT LIST
 
ExhibitDescription

99.1 Management’s Discussion and Analysis of Financial Results of Brookfield Property Partners L.P. as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019

99.2 Unaudited condensed consolidated financial statements of Brookfield Property Partners L.P. as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019

99.3 Certification of Chief Executive Officer of Brookfield Property Group LLC, a manager of Brookfield Property Partners L.P.

99.4 Certification of Chief Financial Officer of Brookfield Property Group LLC, a manager of Brookfield Property Partners L.P.




Document

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, 2020 and December 31, 2019 and results of operations for the three and six months ended June 30, 2020 and 2019. 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, 2020, included elsewhere in this report, and our annual report for the year ended December 31, 2019 on Form 20-F.

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 a novel strain of coronavirus (“COVID-19”); the ability to enter into new leases or renew leases on favorable terms; business competition; dependence on tenants’ financial condition; the use of debt to finance our business; the behavior of financial markets, including fluctuations in interest and foreign 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 (“Global Economic Shutdown” or “the Shutdown”) and the related global reduction in commerce and travel and substantial volatility in stock markets worldwide, which may result in a decrease of cash flows and a potential increase in impairment losses and/or revaluations on our investments and real estate properties, and we may be unable to achieve our expected returns.

We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements or information, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements or information, whether written or oral, that may be as a result of new information, future events or otherwise.

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”). We utilize these measures in managing our business, including 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.

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OBJECTIVES AND FINANCIAL HIGHLIGHTS
BASIS OF PRESENTATION
Our sole direct investments are a 50% managing general partnership unit interest in Brookfield Property L.P. (the “Operating Partnership”) and an interest in BP US REIT LLC. As we have the ability to direct its activities pursuant to our rights as owners of the general partner units, we consolidate the Operating Partnership. Accordingly, our Financial Statements reflect 100% of its assets, liabilities, revenues, expenses and cash flows, including non-controlling interests therein, which capture the ownership interests of other third parties.

We also discuss the results of operations on a segment basis, consistent with how we manage our business. The partnership is organized into four reportable segments: i) Core Office, ii) Core Retail, iii) LP Investments and iv) Corporate. This is consistent with how the partnership presents financial information to the chief operating decision maker (“CODM”) and investors. These segments are independently and regularly reviewed and managed by the Chief Executive Officer, who is considered the CODM.

Our partnership’s equity interests include general partnership units (“GP Units”), publicly traded limited partnership units (“LP Units”), redeemable/exchangeable partnership units of the Operating Partnership (“Redeemable/Exchangeable Partnership Units”), special limited partnership units of the Operating Partnership (“Special LP Units”), FV LTIP Units of the Operating Partnership (“FV LTIP Units”), limited partnership units of Brookfield Office Properties Exchange LP (“Exchange LP Units”), Class A stock, par value $0.01 per share, (“BPYU Units”) of Brookfield Property REIT Inc. (“BPYU”) and Class A Cumulative Redeemable Perpetual Preferred Units, Series 1, Series 2 and Series 3 (“Preferred Equity Units”). Holders of the GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, FV LTIP Units, Exchange LP Units and BPYU Units will be collectively referred to throughout this MD&A as “Unitholders”. The LP Units, Redeemable/Exchangeable Partnership Units, Exchange LP Units and BPYU Units have the same economic attributes in all respects, except that the holders of Redeemable/Exchangeable Partnership Units and BPYU Units have the right to request that their units be redeemed for cash consideration. In the event that Brookfield Asset Management Inc. (“Brookfield Asset Management”), as the holder of the Redeemable/Exchangeable Partnership Units exercises this right, our partnership has the right, at its sole discretion, to satisfy the redemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, Brookfield Asset Management, as holder of Redeemable/Exchangeable Partnership Units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units of our partnership. However, given the redemption feature referenced above and the fact that they were issued by our subsidiary, we present the Redeemable/Exchangeable Partnership Units as a component of non-controlling interests. The Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, for LP Units. We present the Exchange LP Units as a component of non-controlling interests. BPYU Units provide their holders with the right to request that their units be redeemed for cash consideration. In the event the holders of BPYU Units exercise this right, our partnership has the right at its sole discretion, to satisfy the redemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, BPYU Units participates in earnings and distributions on a per unit basis equivalent to the per unit participation of LP Units of our partnership. We present BPYU Units as a component of non-controlling interest.

This MD&A includes financial data for the three and six months ended June 30, 2020 and includes material information up to August 7, 2020. Financial data has been prepared using accounting policies in accordance with IFRS as issued by the IASB. Non-IFRS measures used in this MD&A are reconciled to or calculated from such financial information. Unless otherwise specified, all operating and other 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.

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

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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, that generates sustainable and growing distributions to our unitholders and capital appreciation of our asset base over the long term. With approximately 22,000 employees involved in Brookfield Asset Management’s real estate businesses around the globe, we have built operating platforms in various real estate sectors, including in our:
CORE OFFICE PORTFOLIOCORE RETAIL PORTFOLIO
Class A office assets in gateway markets around the globe100 of the top 500 malls in the United States
l137 premier propertiesl122 best-in-class malls and urban retail properties
l94 million square feetl120 million square feet
l92% occupancyl95% occupancy
l8.5 year average lease term
LP INVESTMENTS PORTFOLIO
Invested in mispriced portfolios and/or properties with significant value-add opportunities.

INVESTMENT STRATEGY
 Our diversified Core portfolios consist of high-quality office and retail assets in some of the world’s most dynamic markets which have stable cash flow as a result of their long-term leases. We target to earn core-plus total returns on our Core portfolios. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, that are expected to generate same-property net operating income (“NOI”) growth without significant capital investment. Furthermore, we enhance the returns on our stable properties through an active development and redevelopment pipeline that earns higher unlevered returns on construction costs. We currently have approximately 11 million square feet of active development projects underway with another 5 million square feet in planning stages. Our development track record reflects successful completions on time and on budget. We expect this portion of our balance sheet to contribute meaningfully to earnings growth in our Core businesses as projects reach completion and begin to contribute rental revenue to our earnings.

        Our LP Investments portfolio includes our equity invested in Brookfield-sponsored real estate opportunity funds, which target high-quality assets with operational upside across various real estate sectors, including office, retail, multifamily, logistics, hospitality, self-storage, triple net lease, manufactured housing and student housing. We target an average gross 20% total return on our LP Investments portfolio and a 2.0x multiple of capital on the equity we invest into these vehicles. These investments, unlike our Core portfolios, have a defined hold period and typically generate the majority of profits from gains recognized from realization events including the sale of an asset or portfolio of assets, or exit of the entire investment. The combination of these realized gains and FFO earned represent our earnings on capital invested in these funds and provide liquidity to support our target distributions.
Overall, our goal is to be the leading global owner and operator of high-quality real estate, generating an attractive total return for our Unitholders comprised of: a current yield supported by stable cash flow from a diversified portfolio; distribution growth in-line with earnings growth; and capital appreciation of our asset base. We operate our business to achieve these objectives with a long term view and will continue to make decisions with that in mind, however, we will caution you that in light of the global economic shutdown resulting from COVID-19 and its impact on the global economy, we may be unable to achieve these objectives in the near term. We have not changed our investment strategy as a result of COVID-19. Capital appreciation will be reflected in the fair value gains that flow through our income statement as a result of our revaluation of investment properties in accordance with IFRS to reflect initiatives that increase property level cash flows, change the risk profile of the asset, reflect changes in market conditions, or portfolio premiums realized upon sale of these assets. From time to time, we will convert some or all of these unrealized gains to cash through asset sales, joint ventures or refinancings.

        We believe our global scale and best-in-class operating platforms provide us with a unique competitive advantage as we are able to efficiently allocate capital around the world toward those sectors and geographies where we see the greatest opportunities to earn attractive returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. Despite the recent economic disruption caused by the global economic shutdown, we expect that the high quality nature of our stabilized properties and associated cash flows will continue to be in demand from investors, although our ability to execute on these recycling of capital initiatives could be impacted in the short term. In addition, due to the scale of our stabilized portfolio and flexibility of our balance sheet, our business model is self-funding and does not require us to access capital markets to fund our continued growth.

PERFORMANCE MEASURES
We expect to generate returns to Unitholders from a combination of healthy distributions and appreciation. Furthermore, if we are successful in increasing cash flow earned from our operations and distributions from return of capital and realization events from our LP Investments portfolio, we expect to be able to increase distributions to Unitholders to provide them with an attractive total return on their investment. As noted above, however, we may be unable to increase our cash flows in the near term and as a result may be unable to increase our distributions as anticipated.

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We consider the following items to be important drivers of our current and anticipated financial performance, however the impact of the recent global economic shutdown could limit our potential to achieve these measures:

increases in occupancies by leasing vacant space and pre-leasing active developments;
increases in rental rates through maintaining or enhancing the quality of our assets and as market conditions permit; and
reductions in operating costs through achieving economies of scale and diligently managing contracts.

We also believe that key external performance drivers include the availability of the following:

debt capital at a cost and on terms conducive to our goals;
equity capital at a reasonable cost;
new property acquisitions and other investments that fit into our strategic plan; and
opportunities to dispose of peak value or non-core assets.

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

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

NOI: revenues from our commercial properties operations less direct commercial property expenses (“Commercial property NOI”) and revenues from our hospitality operations less direct hospitality expenses (“Hospitality NOI”).
Same-property NOI: a subset of NOI, which excludes NOI that is earned from assets acquired, disposed of or developed during the periods presented, not of a recurring nature, or from LP Investments assets.
FFO: net income, prior to fair value gains, net, depreciation and amortization of real estate assets, and income taxes less non-controlling interests of others in operating subsidiaries and properties therein. When determining FFO, we include our proportionate share of the FFO of unconsolidated partnerships and joint ventures and associates, as well as gains (or losses) related to properties developed for sale.
Company FFO: FFO before the impact of depreciation and amortization of non-real estate assets, transaction costs, gains (losses) associated with non-investment properties, imputed interest on equity accounted investments and the partnership’s share of Brookfield Strategic Real Estate Partners III (“BSREP III”) FFO. The partnership accounts for its investment in BSREP III as a financial asset and the income (loss) of the fund is not presented in the partnership’s results. Distributions from BSREP III, recorded as dividend income under IFRS, are removed from investment and other income for Company FFO presentation.
Net income attributable to Unitholders: net income attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPYU Units.
Equity attributable to Unitholders: equity attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units, FV LTIP Units and BPYU Units.

        NOI is a key indicator of our ability to impact the operating performance of our properties. We seek to grow NOI through pro-active management and leasing of our properties. Same-property NOI in our Core Office and Core Retail segments allows us to segregate the impact of leasing and operating initiatives on the portfolio from the impact of investing activities and “one-time items”, which for the historical periods presented consist primarily of lease termination income. We reconcile NOI to net income on page 15.

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 15 as we believe net income is the most comparable measure.
        
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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 15.

        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 15 and Equity attributable to Unitholders to total equity on page 18.

FAIR VALUE OF INVESTMENT AND HOSPITALITY PROPERTIES

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

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

Under the discounted cash flow approach, cash flows for each property are forecast for an assumed holding period, generally, ten-years. A capitalization rate is applied to the terminal year net operating income and an appropriate discount rate is applied to those cash flows to determine a value at the reporting date. The forecast cash flows include assumptions prepared at the property level for lease renewal probabilities, downtime, capital expenditures, future leasing rates and associated leasing costs. The majority of property cash flows consist of contracted leases as a result of our core real estate portfolio having a combined 94% occupancy level and an average 6.8 year lease life. Valuation assumptions, such as discount rates and terminal value multiples, are determined by the relevant investment professionals and often take into consideration relevant market data such as cost of capital, market transactions and/or brokers opinion of value, and are applied to the cash flows to determine the values.

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

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

Hospitality properties
Our hospitality properties, including intangible assets, are carried at cost except for the property, plant and equipment which is re-valued annually, at December 31, using a depreciated replacement cost approach. Revaluation increases are generally recognized as revaluation surplus in the statement of comprehensive income, unless the increase reverses a previously recognized revaluation loss recorded through prior period net income. These assets are classified as property, plant and equipment and are depreciated each quarter during a calendar year.

The hospitality sector has had the most immediate and acute impact from the global economic shutdown as the majority of our hospitality investments were closed, and currently remain closed or are operating at very low occupancy, either as a result of mandatory closure orders from various government authorities or due to severe travel restrictions. As a result of these closures, we have identified an impairment indicator and have performed an impairment test for each hospitality investment based on revised cash flows and valuation metrics. More information on the valuation and impairment of these assets is included in Note 5, Property, Plant And Equipment.

Valuation methodology
All of our valuations are subject to various layers of review and controls as part of our financial reporting processes. These controls are part of our system of internal control over financial reporting that is assessed by management on an annual basis. Under the discounted cash flow model, the base cash flows are determined as part of our annual business planning process, prepared within each operating business and reviewed by the senior management teams responsible for each segment, along with senior investment professionals responsible for the relevant asset classes. Valuation assumptions such as discount rates and terminal capitalization rates are compared to market data, third party reports, research material and broker opinions as part of the review process. Due to uncertainty surrounding COVID-19, the volatility of
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current markets, pace and size of government policy responses and the lack of private market transactions, for the current period, we did not take a wholistic approach to adjusting discount rates and/or terminal capitalization rates on any of our sectors, but rather an asset-by-asset view of risk and long-term value was applied in consideration of a reduction in cashflows in our models. Management also considered changes to risk-free borrowing rates in consideration of risk applied in our models.

External valuations
We have a number of properties externally appraised each year to support our valuation process and for other business purposes. We compare the results of those external appraisals to our internally prepared values and reconcile significant differences when they arise. During the three months ended June 30, 2020, we obtained external appraisals of 60 of our core office properties representing a gross property value of $25 billion (or 14% of the portfolio). These external appraisals were within 0.5% of management’s valuations. Also, each year we sell a number of assets, which provides support for our valuations, as we typically contract at prices comparable to IFRS values.

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FINANCIAL STATEMENTS ANALYSIS
REVIEW OF CONSOLIDATED FINANCIAL RESULTS
In this section, we review our financial position and consolidated performance as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019. Further details on our results from operations and our financial positions are contained within the “Segment Performance” section beginning on page 19.

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

        The following acquisitions and dispositions affected our consolidated results for the three and six months ended June 30, 2020 and 2019:
In our Core Office segment:
In the second quarter of 2020, we sold approximately 50% of our interests in two multifamily properties, One Blue Slip and Andorra, into joint ventures with Brookfield Premier Real Estate Partners Pooling LLC (“BPREP”) for net proceeds of $102 million and $44 million, respectively. Prior to the transactions, our interests were consolidated but are now accounted for under the equity method.

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

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

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

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

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

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

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

In our LP Investments segment:
In the first quarter of 2020, we sold an office asset in California in the Brookfield Strategic Real Estate Partners II (“BSREP II”) fund for approximately $131 million and a realized gain of approximately $58 million.

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

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

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

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

For the purposes of the following comparison discussion between the three and six months ended June 30, 2020 and 2019, the above transactions are referred to as the investment activities. In addition to the investment activities, we will use same-property NOI from our Core Office and Core Retail segments to evaluate our operating results.

Summary Operating Results

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
Net (loss) income$(1,512) $23  $(1,885) $736  
Net (loss) income attributable to Unitholders(1)
(1,253) 127  (1,739) 460  
NOI(1)
800  1,104  1,800  2,227  
FFO(1)
170  291  444  549  
Company FFO(1)
178  335  487  642  
(1)  This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Performance Measures” section on page 3. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 15.

We recognized a net loss for the three months ended June 30, 2020 of $(1,512) million which compares to net income of $23 million for the same period in the prior year. Net loss per unit attributable to Unitholders was $(1.26) in the current period as compared to income of $0.12 in the prior year. The decrease is primarily attributable to fair value losses in our Core Office and Core Retail portfolios, which reflects the impact of the global economic shutdown on our near and mid-term cash flow assumptions. Changes to our near and mid-term cash-flows vary by property and reflect lesser rental rate growth and leasing assumptions, delayed capital expenditures, and tenant-specific credit loss assumptions based on ongoing negotiations with tenants for deferred or abated rent. Fair value losses in Core Office and Core Retail were $(183) million and $(836) million, respectively. Net loss was also impacted due to the impact of a stronger U.S. dollar, mark-to-market losses on derivatives and operating losses at our hospitality properties due to government-mandated shutdowns, while the prior year benefited from a performance-based fee for achieving certain milestones at Five Manhattan West.

Net loss for the six months ended June 30, 2020 was $(1,885) million compared to income of $736 million for the same period in prior year. Net loss per unit attributable to Unitholders for the six months ended June 30, 2020 was $(1.74) compared with income of $0.44 in the prior year. The decrease is primarily attributable to COVID-19 as described in more detail above.

FFO decreased to $170 million during the three months ended June 30, 2020 compared with $291 million during the same period in the prior year. The decrease was driven by operating losses from our hospitality portfolio due to government-mandated closures primarily at Atlantis Paradise Island resort (“Atlantis”) in the Bahamas and Center Parcs in the U.K, as a result of the shutdown, and some properties continue to be closed subsequent to the quarter. Our hotels are running, on average, at much lower occupancies than is required to break even. Since June 30, we have had some openings, notably Center Parcs, and expect that we will see quicker recovery in our leisure hotels in the case that the pandemic continues to slow. These decreases were partially offset by lower interest expense due to the impact of the historically low interest rate environment on our variable debt obligations.

FFO decreased to $444 million during the six months ended June 30, 2020 compared with $549 million during the same period in the prior year. The decrease was driven by the reasons mentioned above.



         8   


Operating Results
Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
Commercial property revenue$1,301  $1,386  $2,705  $2,860  
Hospitality revenue50  503  416  994  
Investment and other revenue86  137  216  245  
Total revenue1,437  2,026  3,337  4,099  
Direct commercial property expense445  479  925  1,001  
Direct hospitality expense106  306  396  626  
Investment and other expense —  13  10  
Interest expense599  710  1,308  1,456  
Depreciation and amortization83  85  170  170  
General and administrative expense195  219  391  442  
Total expenses1,437  1,799  3,203  3,705  
Fair value gains (losses), net(803) (1,092) (1,113) (722) 
Share of earnings from equity accounted investments(757) 826  (793) 1,090  
Income before taxes(1,560) (39) (1,772) 762  
Income tax expense (benefit)(48) (62) 113  26  
Net (loss) income$(1,512) $23  $(1,885) $736  
Net (loss) income attributable to non-controlling interests of others in operating subsidiaries and properties (259) (104) (146) 276  
Net (loss) income attributable to Unitholders(1)
$(1,253) $127  $(1,739) $460  
(1)This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Performance Measures” section on page 3. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 15.

Our basic and diluted net (loss) income attributable to Unitholders per unit and weighted average units outstanding are calculated as follows:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions, except per unit information)2020201920202019
Net (loss) income$(1,512) $23  $(1,885) $736  
Less: Non-controlling interests(259) (104) (146) 276  
Less: Preferred unit dividends11   20   
Net (loss) income attributable to Unitholders - basic(1)
$(1,264) $124  $(1,759) $457  
Dilutive effect of conversion of options(2)
—  —  —  —  
Net (loss) income attributable to Unitholders - diluted$(1,264) $124  $(1,759) $457  
Weighted average number of units outstanding - basic(1)
1,005.6  1,022.2  1,009.6  1,031.4  
Conversion of options(2)
—  0.1  —  0.1  
Weighted average number of units outstanding - diluted1,005.6  1,022.3  1,009.6  1,031.5  
Net (loss) income per unit attributable to Unitholders - basic(1)(3)
$(1.26) $0.12  $(1.74) $0.44  
Net (loss) income per unit attributable to Unitholders - diluted(3)
$(1.26) $0.12  $(1.74) $0.44  
(1)Basic net (loss) income attributable to Unitholders per unit requires the inclusion of preferred shares of the Operating Partnership that are mandatorily convertible into LP Units without an add back to earnings of the associated carry on the preferred shares.
(2)The effect of the conversion of options is anti-dilutive for the three and six months ended June 30, 2020.
(3)Net (loss) income attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 3.


         9   


Commercial property revenue and direct commercial property expense

The global economic shutdown had a modest negative impact to our commercial property revenue earned in the quarter, mostly due to a reduction in parking and fee income. While our commercial property revenues were not materially impacted by the shutdown, near term cash flows have been impacted and future revenues and cash flows produced by these operating properties are more uncertain than normal as a result of the rapid impact to the global economy in response to measures put in place to control the pandemic. We have reflected in our operating results through fair value gains (losses) our estimate of near and mid-term disruptions to cash flows to reflect collections, higher vacancy, longer leasing downtime, bad debt credit reserves and assumptions on new leasing.

For the three months ended June 30, 2020, commercial property revenue decreased by $85 million compared to the same period in the prior year primarily due to property dispositions, lower parking revenue due to the global economic shutdown and the negative impact of foreign currency translation. These decreases were partially offset by investment activity and the substantial completion of 100 Bishopsgate in London.

Direct commercial property expense decreased by $34 million due to core office property dispositions and the impact of foreign currency translation, which was slightly offset by bad debt provisions applied to accounts receivable balances as of June 30, 2020. Margins in 2020 were 65.8%, an increase of 0.4% over 2019.

For the six months ended June 30, 2020, commercial property revenue decreased by $155 million compared to the same period in the prior year due to property dispositions, the negative impact of foreign currency translation, and the deconsolidation of BSREP III investments contributing nil in the current period compared to $87 million in the prior year. Additionally, our Core Office portfolio generated 5% same-property loss, attributable to lower parking revenue due to the shutdown, lease expirations since the prior year and the negative impact of foreign currency translation. These decreases were partially offset by investment activity and the substantial completion of 100 Bishopsgate in London.

Direct commercial property expense decreased by $76 million largely due to property dispositions and the deconsolidation of BSREP III investments since the prior period, which was slightly offset by bad debt provisions applied to accounts receivable balances as of June 30, 2020. Margins in 2020 were 65.8%, an increase of 1% over 2019.

Commercial property NOI decreased by $51 million to $856 million during the three months ended June 30, 2020 compared with $907 million during the same period in the prior year. Commercial property NOI decreased by $79 million to $1,780 million during the six months ended June 30, 2020, compared with $1,859 million during the same period in the prior year. The decrease was primarily driven by the reasons as mentioned above.


         10   


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

For the three months ended June 30, 2020, hospitality revenue decreased by $453 million compared to the same period in the prior year. This decrease was due to closures and cancellations related to COVID-19 during the current period, primarily at the Atlantis and Center Parcs, and the negative impact of foreign currency translation. The majority of our hospitality investments are currently operating at a loss given mandated closures. Direct hospitality expense decreased to $106 million for the three months ended June 30, 2020, compared to $306 million in the same period in the prior year.
        
For the six months ended June 30, 2020, hospitality revenue decreased by $578 million compared to the same period in the prior year. This decrease was due to the reasons mentioned above.

        Direct hospitality expense decreased to $396 million for the six months ended June 30, 2020, compared to $626 million in the same period in the prior year. We have been able to reduce operating costs given most hotels are closed, however certain fixed costs remain and are not offset by revenues because of closures and/or drastically reduced occupancy as a result of the shutdown.

Hospitality NOI decreased by $253 million to $(56) million during three months ended June 30, 2020 compared to $197 million during the same period in the prior year. For the six months ended June 30, 2020, hospitality NOI decreased by $348 million to $20 million compared to $368 million during the same period in the prior year. The decrease is almost entirely attributable to the global economic shutdown.

Investment and other revenue, and investment and other expense
Investment and other revenue includes management fees, leasing fees, development fees, interest income and other non-rental revenue. Investment and other revenue decreased by $51 million and $29 million for the three and six months ended June 30, 2020, respectively, compared to the same period in the prior year. In addition to a reduction in fees in the current quarter as a result of the global economic shutdown, which has slowed leasing activity and development, the decrease is primarily due to a performance-based fee for achieving certain milestones at Five Manhattan West benefiting the prior year.

Investment and other expense for the three and six months ended June 30, 2020 decreased by $9 million and $3 million to $9 million and $13 million, respectively, during the same period in the prior year.

Interest expense
Interest expense decreased by $111 million and $148 million for the three and six months ended June 30, 2020 as compared to the same period in the prior year. This decrease is due to the historically low interest rate environment on our variable debt obligations, disposition activity and a lower average Corporate credit facility debt balance. These decreases are partially offset by interest expense from property acquisitions and Corporate bond issuances.

General and administrative expense
General and administrative expense decreased by $24 million for the three months ended June 30, 2020 as compared to the same period in the prior year. The decrease was primarily attributable to lower transaction costs and management fees during the current period compared to prior year.

General and administrative expense decreased by $51 million for the six months ended June 30, 2020 as compared to the same period in the prior year. The decrease was primarily attributable to the reasons mentioned above.
         11   


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













Fair value losses, net for our Core Office segment were $(169) million and $(183) million for the three and six months ended June 30, 2020, respectively. The current period losses reflect the impact of the global economic shutdown on our near and mid-term cash-flows. Our cash flow assumptions have been updated on a property-by-property basis, which reflect softer rental rate growth and leasing assumptions, including a reduction in speculative leasing and longer downtime, as well as delayed capital expenditures, and tenant-specific credit loss assumptions. Discount rates and terminal capitalization rates were not adjusted on a portfolio-wide basis at this time given the current cost of capital in our markets, we are comfortable with the discount rates applied on a regional basis. Offsetting this was some compression in our city of London assets to better align our rates with recent market comparables.

Fair value gains, net for our Core Office segment of $345 million for the six months ended June 30, 2019. These gains primarily related to 100 Bishopsgate in London as that asset was nearing completion and as a result, we had reduced our discount rate to reflect less risk. We also had gains in two assets in Australia, and certain of our New York portfolio to reflect market conditions at that time.






Fair value losses, net for our Core Retail segment were $(541) million and $(836) million for the three and six months ended June 30, 2020, respectively. Fair value losses, net for our Core Retail portfolio reflects the impact of the global economic shutdown on our near and mid-term cash flow assumptions. During the second quarter of 2020, we performed a detailed analysis of our cashflow models similar to our annual business planning process. Our cash flow assumptions have been updated on a suite-by-suite basis with revised market leasing assumptions, vacancy reserve, downtime, retention assumptions and capital costs. We have also applied tenant-specific credit reserves to most of our tenants, as we continue to have discussions on lease modifications for Q2 receivable balances. We are actively tracking tenant bankruptcies and likelihood of filings and have assigned higher reserves to those respective tenants. We have updated valuation metrics where necessary to reflect changes in the property level risk profile, most notably where we have concerns with anchor tenants who have recently filed for bankruptcy.

Fair value losses, net for our Core Retail segment were $(827) million for the six months ended June 30, 2019. These losses reflected updated cashflow assumptions and valuation metrics following the acquisition of GGP.
         12   





Fair value losses, net for our LP Investments segment were $(82) million for the three months ended June 30, 2020. Fair value gains, net were $66 million for the six months ended June 30, 2020. Certain of our asset classes within our LP Investments were impacted more materially than others from the global economic shutdown, mostly our retail assets. We revisited cash flow assumptions for each of our assets and took into consideration the type of asset, the location, the credit-quality of our tenants, renewal rates, average lease term and restrictions that might be impacting our ability to collect rent. Based on this, we reflected some negative near-term cash flow assumptions into our valuation models. As of June 30, 2020, the most material adversely impacted investments include retail and certain of our office investments.

Fair value losses, net for our LP Investments segment for the six months ended June 30, 2019 were $(179) million primarily due to gains in our student housing portfolio which resulted from capitalization rate compression, partially offset by retail valuation losses mentioned above.

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

Fair value sensitivity
The following table presents a sensitivity analysis to the impact of a 25 basis point (“bps”) increase of the discount rate and terminal capitalization or overall implied capitalization rate (“ICR”) on fair values of the partnership’s commercial properties for the six months ended June 30, 2020, for properties valued using the discounted cash flow or direct capitalization method, respectively:


Jun. 30, 2020
(US$ Millions)Commercial propertiesCommercial developmentsDiscount rate (“DR”)Terminal
capitalization
rate
(“TCR”)
Investment horizon (years)Impact of +25bps DRImpact of +25bps TCRImpact of +25bps DR and +25bps TCR or +25bps ICR
Core Office
United States$14,614  $661  7.0 %5.7 %12$(334) $(420) $(754) 
Canada4,395  281  5.9 %5.2 %10(86) (132) (218) 
Australia1,822  548  6.5 %5.8 %10(45) (75) (120) 
Europe2,707  145  5.1 %4.0 %10(18) (34) (52) 
Brazil269  —  7.9 %7.4 %10(5) (5) (10) 
Core Retail21,253  —  6.9 %5.4 %10(426) (708) (1,134) 
LP Investments
LP Investments- Office7,687  680  9.7 %7.3 %7(143) (242) (385) 
LP Investments- Retail2,832  —  8.6 %7.0 %10(129) (93) (222) 
Mixed-use2,748  —  7.3 %5.2 %10(51) (79) (130) 
Logistics(1)
83  53  5.8 %n/an/a—  (3) (3) 
Multifamily(1)
2,776  —  5.0 %n/an/a—  (127) (127) 
Triple Net Lease(1)
4,426  —  6.2 %n/an/a—  (155) (155) 
Self-storage(1)
1,001  19  5.6 %n/an/a—  (40) (40) 
Student Housing(1)
2,344  220  4.9 %n/an/a—  (104) (104) 
Manufactured Housing(1)
2,517  —  5.5 %n/an/a—  (110) (110) 
Investment property impact$71,474  $2,607  $(1,237) $(2,327) $(3,564) 
(1)  The valuation method used to value multifamily, triple net lease, self-storage, student housing, logistics and manufactured housing properties is the direct capitalization method. The rates presented as the discount rate relate to the overall implied capitalization rate. The terminal capitalization rate and investment horizon are not applicable.
         13   


        
        In addition, for the three and six months ended June 30, 2020, we recorded fair value losses, net of $11 million and $160 million (2019 - fair value losses, net of $33 million and $61 million), respectively, related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the quarter primarily due to the decrease in market interest rates.

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 - the Diplomat hotel and our interest in the retail fund in Brazil.


Our share of net losses from equity accounted investments for the three and six months ended June 30, 2020 was $(757) million and $(793) million, respectively, which represents a decrease of $1,583 million and $1,883 million, respectively, compared to the prior year, primarily due to fair value losses in our Core Retail portfolio, losses in our Canary Wharf portfolio attributable to the retail tenants within, and lower share of net earnings from our hospitality portfolio within LP Investments. Our Core Retail valuations reflect updated cash flow assumptions which have been updated on a suite-by-suite basis with revised market leasing assumptions, vacancy reserve, downtime, retention assumptions, bad debt reserves and capital costs. We have updated valuation metrics where necessary to reflect changes in the property level risk profile. Earnings from the hospitality portfolio were impacted by the global economic shutdown. Additionally, incremental acquisitions of interests in 2019 which included One and Two London Wall Place in London in Core Office, and Park Meadows in Colorado, Towson Town Center in Maryland, Perimeter Mall in Georgia, Shops at Merrick Park in Florida and 730 Fifth in New York in Core Retail, contributed to the decrease in share of net earnings from equity accounted investments as the results for these properties are now consolidated in the current year.
Income tax expense
        The increase in income tax expense for the six months ended June 30, 2020 compared to the prior year is primarily due to an increase to deferred tax liabilities relating to legislative changes and the reversal of a timing difference resulting from an internal restructuring of how the partnership holds some of its retail investments that occurred in 2019.


         14   


Reconciliation of Non-IFRS measures
        As described in the “Performance Measures” section on page 3, 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 (loss) income to NOI for the three and six months ended June 30, 2020 and 2019:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
Commercial property revenue$1,301  $1,386  $2,705  $2,860  
Direct commercial property expense(445) (479) (925) (1,001) 
Commercial property NOI856  907  1,780  1,859  
Hospitality revenue50  503  416  994  
Direct hospitality expense(106) (306) (396) (626) 
Hospitality NOI(56) 197  20  368  
Total NOI800  1,104  1,800  2,227  
Investment and other revenue86  137  216  245  
Share of net earnings from equity accounted investments(757) 826  (793) 1,090  
Interest expense(599) (710) (1,308) (1,456) 
Depreciation and amortization(83) (85) (170) (170) 
General and administrative expense(195) (219) (391) (442) 
Investment and other expense(9) —  (13) (10) 
Fair value gains (losses), net(803) (1,092) (1,113) (722) 
(Loss) income before taxes(1,560) (39) (1,772) 762  
Income tax expense48  62  (113) (26) 
Net (loss) income$(1,512) $23  $(1,885) $736  
Net (loss) income attributable to non-controlling interests(259) (104) (146) 276  
Net (loss) income attributable to Unitholders$(1,253) $127  $(1,739) $460  

        
The following table reconciles net (loss) income to FFO and Company FFO for the three and six months ended June 30, 2020 and 2019:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
Net (loss) income$(1,512) $23  $(1,885) $736  
Add (deduct):
    Fair value losses (gains), net803  1,092  1,113  722  
    Share of equity accounted fair value losses (gains), net908  (618) 1,158  (645) 
    Depreciation and amortization of real estate assets66  70  135  139  
    Income tax expense (benefit)(48) (62) 113  26  
    Non-controlling interests in above items(47) (214) (190) (429) 
FFO$170  $291  $444  $549  
Add (deduct):
Depreciation and amortization of non-real-estate assets, net(1)
12  10  23  21  
Transaction costs, net(1)
(12) 18  (2) 37  
(Gains)/losses associated with non-investment properties, net(1)
—  —   (1) 
Imputed interest(2)
 13  16  27  
BSREP III earnings(3)
—     
Company FFO$178  $335  $487  $642  
(1)  Presented net of non-controlling interests.
(2) Represents imputed interest associated with financing the partnership’s share of commercial developments accounted for under the equity method.
(3)  BSREP III is 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.



         15   


Statement of Financial Position Highlights and Key Metrics

(US$ Millions)Jun. 30, 2020Dec. 31, 2019
Investment properties
    Commercial properties$71,474  $71,565  
    Commercial developments2,607  3,946  
Equity accounted investments19,425  20,764  
Property, plant and equipment6,772  7,278  
Cash and cash equivalents1,530  1,438  
Assets held for sale137  387  
Total assets108,485  111,643  
Debt obligations55,423  55,390  
Liabilities associated with assets held for sale70  140  
Total equity41,579  44,935  
Equity attributable to Unitholders(1)
$25,496  $28,530  
Equity per unit(2)
$27.01  $29.72  
(1)  Equity attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 3.
(2) Assumes conversion of mandatorily convertible preferred shares. See page 18 for additional information.

As of June 30, 2020, we had $108,485 million in total assets, compared with $111,643 million at December 31, 2019. This $3,158 million decrease was primarily due to valuation losses on our office and retail portfolios, impairment losses on our hospitality portfolio and the negative impact of foreign currency translation due to the strength of the U.S. Dollar across all our major foreign currencies during the period. This was in part offset by incremental accounts receivable balances mostly from our core retail tenants, as we continue to work through discussions for lease modifications given the circumstances from the global economic shutdown.

Commercial properties are commercial, operating, rent-producing properties. Commercial properties decreased from $71,565 million at the end of 2019 to $71,474 million at June 30, 2020. The decrease was largely due to the negative impact of foreign currency translation due to the strength of the U.S. Dollar across all our major foreign currencies during the period based on closing spot rates. Additionally, we had valuation losses in our office and retail portfolios due to updated near and mid-term cash flow assumptions resulting from the global economic shutdown. These decreases were partially offset by the reclassification of 100 Bishopsgate in London from development to operating, as well as incremental capital spent to maintain or enhance properties.

        Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $2,607 million at June 30, 2020, a decrease of $1,339 million from the balance at December 31, 2019. The decrease is primarily due to the reclassification of 100 Bishopsgate from development to operating, as the development reached substantial completion in the current period, the completion of an office development in India, and the impact of foreign currency translation. These decreases were partially offset by incremental capital spend on our active developments.

The following table presents the changes in investment properties from December 31, 2019 to June 30, 2020:

Jun. 30, 2020
(US$ Millions)Commercial propertiesCommercial developments
Investment properties, beginning of period$71,565  $3,946  
Acquisitions401  116  
Capital expenditures558  459  
Dispositions(1)
(603) (21) 
Fair value gains, net(996) 182  
Foreign currency translation(1,252) (173) 
Transfer between commercial properties and commercial developments1,914  (1,914) 
Reclassifications to assets held for sale and other changes(113) 12  
Investment properties, end of period$71,474  $2,607  
(1)Property dispositions represent the carrying value on date of sale.


Equity accounted investments decreased by $1,339 million since December 31, 2019. The decrease is primarily due to lower share of net earnings, driven by valuation losses in our retail portfolios and lower earnings from our hospitality portfolio as a result of the global economic shutdown, as well as the negative impact from foreign currency translation. These decreases were partially offset by reclassification of One Blue Slip and Andorra from commercial properties due to change in control and the Diplomat which was transferred out of assets held for sale into equity accounted investments.

         16   



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

(US$ Millions)Jun. 30, 2020
Equity accounted investments, beginning of period$20,764  
Additions191  
Disposals and return of capital distributions(40) 
Share of net earnings from equity accounted investments(793) 
Distributions received(186) 
Foreign currency translation(385) 
Reclassification (to)/from assets held for sale223  
Other comprehensive income and other(349) 
Equity accounted investments, end of period$19,425  

Property, plant and equipment decreased by $506 million since December 31, 2019, primarily due to provisions for impairment taken on certain of our hospitality assets which have been largely nonoperational since the global economic shutdown began. The recovery timeline for our hospitality assets is expected to be the longest of all our sectors and the impairments taken represent a reduction in cashflows through that recovery period which ranges from 2022 (certain of our leisure hotels) to 2024 (certain of our urban and business/conference-heavy hotels). This decline in cashflows had a significant impact on the values of our hotels, which resulted in impairments for certain of our hotel investments. In addition, there was the negative impact of foreign currency translation and depreciation during the period. These decreases were offset by capital expenditures during the current year.

As of June 30, 2020, assets held for sale primarily included five triple net lease assets and an office asset in Brazil within our LP Investments segment, as we intend to sell controlling interests in these properties to third parties in the next 12 months, market conditions permitting.

The following table presents changes in our assets held for sale from December 31, 2019 to June 30, 2020:

(US$ Millions)Jun. 30, 2020
Balance, beginning of period$387  
Reclassification to/(from) assets held for sale, net135  
Disposals(389) 
Fair value adjustments—  
Other 
Balance, end of period$137  

Also included in Total Assets is Accounts Receivable, which had a balance of $781 million as of June 30, 2020 and compares to a balance of $510 million at December 31, 2019. The increase in receivable balance is attributable to uncollected rents, mostly in Core Retail, as a direct result of the global economic shutdown. As tenants were mandated to stay home and/or malls were required to close, many of our tenants did not pay rent for a portion of the quarter. As of June 30, 2020, we have collected approximately 94% of second quarter office rents and 35% of second quarter retail rents. As of June 30, 2020 we have recorded a $37 million loss allowance in commercial property operating expenses. We are in active discussions with our tenants to work to modify their leases to offer them a deferral period or in some cases, rent abatement.

Our debt obligations increased to $55,423 million at June 30, 2020 from $55,390 million at December 31, 2019. Contributing to this increase was the increase in subsidiary borrowings and issuance of senior secured notes during the period partially offset by paydown of the partnership’s credit facilities and the negative impact of foreign currency translation. These increases were partially offset by the negative impact of foreign currency translation and paydown of the partnership’s credit facility.

The following table presents additional information on our partnership’s outstanding debt obligations:

(US$ Millions)Jun. 30, 2020Dec. 31, 2019
Corporate borrowings$1,846  $1,902  
Funds subscription facilities172  57  
Non-recourse borrowings
    Property-specific borrowings46,910  47,465  
    Subsidiary borrowings6,495  5,966  
Total debt obligations$55,423  $55,390  
Current12,730  8,825  
Non-current42,693  46,565  
Total debt obligations$55,423  $55,390  
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The following table presents the components used to calculate equity attributable to Unitholders per unit:

(US$ Millions, except unit information)Jun. 30, 2020Dec. 31, 2019
Total equity$41,579  $44,935  
Less:
Interests of others in operating subsidiaries and properties15,384  15,985  
Preferred equity699  420  
Equity attributable to Unitholders25,496  28,530  
Mandatorily convertible preferred shares1,664  1,650  
Total equity attributable to Unitholders27,160  30,180  
Partnership units935,482,602  945,413,656  
Mandatorily convertible preferred shares70,051,024  70,051,024  
Total partnership units1,005,533,626  1,015,464,680  
Total equity attributable to Unitholders per unit$27.01  $29.72  

Equity attributable to Unitholders was $25,496 million at June 30, 2020, a decrease of $3,034 million from the balance at December 31, 2019. The decrease was primarily due to net loss driven by valuation losses and the negative impact of foreign currency translation during the period. Assuming the conversion of mandatorily convertible preferred shares, equity attributable to Unitholders decreased to $27.01 per unit at June 30, 2020 from $29.72 per unit at December 31, 2019.
Interests of others in operating subsidiaries and properties was $15,384 million at June 30, 2020, a decrease of $601 million from the balance of $15,985 million at December 31, 2019.

202020192018
(US$ Millions, except per unit information)Q2Q1Q4Q3Q2Q1Q4Q3
Revenue$1,437  $1,900  $2,087  $2,017  $2,026  $2,073  $2,140  $1,828  
Direct operating costs(1)
551  770  783  776  785  842  837  793  
Net (loss) income(1,512) (373) 1,551  870  23  713  858  722  
Net (loss) income attributable to Unitholders(1,253) (486) 1,022  474  127  333  534  380  
Net (loss) income per share attributable to Unitholders - basic$(1.26) $(0.49) $1.00  $0.46  $0.12  $0.32  $0.51  $0.44  
Net (loss) income per share attributable to Unitholders - diluted$(1.26) $(0.49) $1.00  $0.46  $0.12  $0.32  $0.51  $0.43  
(1)We adopted IFRS 16, Leases (“IFRS 16”) in 2019 using the modified retrospective method. The comparative information for periods prior to 2019 has not been restated and is reported under the accounting standards effective for those periods.

Revenue varies from quarter to quarter due to acquisitions and dispositions of commercial and other income producing assets, changes in occupancy levels, 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. Fluctuations in our net income is also impacted by the fair value of properties in the period to reflect changes in valuation metrics driven by market conditions or property cash flows. All of this taken into consideration is more applicable prior to the impact of the global economic shutdown, and while we do anticipate seasonality to continue to have an impact on our revenues quarter-to-quarter, it is possible those impacts are outweighed by the ongoing impact of the pandemic in the near-term.


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SEGMENT PERFORMANCE

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

The following table presents FFO by segment:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
Core Office$115  $165  $236  $289  
Core Retail147  161  335  328  
LP Investments(11) 70  38  145  
Corporate(81) (105) (165) (213) 
FFO$170  $291  $444  $549  

The following table presents equity attributable to Unitholders by segment as of June 30, 2020 and December 31, 2019:

(US$ Millions)Jun. 30, 2020Dec. 31, 2019
Core Office$13,534  $14,240  
Core Retail12,950  14,138  
LP Investments4,810  5,126  
Corporate(5,798) (4,974) 
Total$25,496  $28,530  

Core Office

Overview
        Our Core Office portfolio consists of interests in 137 high-quality office properties totaling over 94 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 11 million square feet of active office and multifamily developments and office redevelopments. We believe these assets have a stable cash flow profile due to long-term leases in place. The drivers of earnings growth in this business include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, that are expected to generate strong same-property NOI growth without significant capital investment. Furthermore, we expect to earn higher unlevered, pre-tax returns on construction costs from our development pipeline. However, we caution you that as a result of the global economic shutdown, we may be unable to achieve these returns in the near term. We do expect rent growth to be minimal for the next 12-18 months, but leasing activity continues to be consistent with previous periods and we have a strong average lease-life and occupancy that we think will benefit us from more adverse impacts resulting from the shutdown.

Summary of Operating Results
The following table presents FFO and net (loss) income attributable to Unitholders in our Core Office segment for the three and six months ended June 30, 2020 and 2019:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
FFO$115  $165  $236  $289  
Net (loss) income attributable to Unitholders(158) 343  (92) 693  

FFO from our Core Office segment was $115 million for the three months ended June 30, 2020 as compared to $165 million in the same period in the prior year. This decrease is largely attributable to dispositions as mentioned in investment activity, the negative impact of foreign currency translation and a reduction in same-property NOI driven by the impact of the global economic shutdown which resulted in a reduction to parking income and percentage rents typically earned from certain retail tenants within the portfolio. Additionally, certain provisions for bad debt have been applied as a result of the shutdown as tenant negotiations are underway. The prior year also benefited from a performance based fee of $38M for achieving certain milestones at Five Manhattan West. These decreases were partially offset by incremental NOI from our recently completed development, 100 Bishopsgate in London, and higher development management and joint venture partner fees as development activity has increased and we have sold interests in assets to a number of joint venture partners.

FFO from our Core Office segment was $236 million for the six months ended June 30, 2020 as compared to $289 million in the same period in the prior year. This decrease is largely attributable to investment activity, the negative impact of foreign currency translation and a reduction in same-property NOI. The prior year also benefited from a performance-based fee earned in the prior year, as mentioned above. These decreases were partially offset by higher development joint management and joint venture partners fees, as mentioned above.

Net (loss) income attributable to Unitholders decreased by $501 million to $(158) million during the three months ended June 30, 2020 as compared to $343 million during the same period in 2019. The decrease is largely attributable to fair value losses on investment
         19   


properties and mark-to-market adjustments on financial instruments in the current period, as well as the impact from dispositions and the negative impact of foreign currency translation. The decrease was partially offset by valuation gains in London due to capitalization rate compression to align with market comparables.

Net (loss) income attributable to Unitholders decreased by $785 million to $(92) million during the six months ended June 30, 2020 as compared to $693 million during the same period in 2019. The decrease is largely attributable to fair value losses, dispositions and the negative impact of foreign currency translation, as mentioned above. These decreases were partially offset by fair value gains on our development in Toronto and gains driven by capitalization rate compression in London, as mentioned above.


Leasing Activity
        The following table presents key operating metrics for our Core Office portfolio as at and for the three months ended June 30, 2020 and 2019:

ConsolidatedUnconsolidated
(US$ Millions, except where noted)Jun. 30, 2020Jun. 30, 2019Jun. 30, 2020Jun. 30, 2019
Total portfolio:
    NOI(1)
$256  $283  $116  $107  
    Number of properties73  71  64  72  
    Leasable square feet (in thousands)48,585  47,988  27,750  30,489  
    Occupancy90.6 %91.2 %95.3 %94.3 %
    In-place net rents (per square foot)(2)(3)
$31.19  $29.34  $43.66  $45.11  
Same-property:
    NOI(1,3)
$497  $522  $90  $96  
    Number of properties69  69  60  60  
    Leasable square feet (in thousands)47,148  47,148  26,272  26,541  
    Occupancy90.6 %91.6 %95.5 %94.3 %
    In-place net rents (per square foot)(2)(3)
$29.38  $28.85  $44.41  $43.63  
(1)  NOI for unconsolidated properties is presented on a proportionate basis, representing the Unitholders’ interest in the property. See “Reconciliation of Non-IFRS Measures - Core Office” below for a description of the key components of NOI in our Core Office segment.
(2)  Annualized cash rent from leases on a per square foot basis including tenant expense reimbursements, less operating expenses incurred for that space, but excluding the impact of straight-line rent or amortization of free rent periods.
(3)  Presented using normalized foreign exchange rates, using the June 30, 2020 exchange rate.

NOI from our consolidated properties decreased to $256 million during the three months ended June 30, 2020 from $283 million in the same quarter in 2019. The decrease was primarily attributable to property dispositions and lease expirations since the prior year, as well as lower parking revenue as offices were closed due to the global economic shutdown. These decreases were partially offset by incremental NOI in London from 100 Bishopsgate, which was substantially complete in 2020 and One and Two London Wall Place, which is now consolidated following the incremental interests acquired in 2019. Same-property NOI for our consolidated properties for the three months ended June 30, 2020 compared with the same period in the prior year decreased by $25 million to $497 million. This decrease was primarily the result of lower parking revenue and percentage rents earned due to the shutdown, as well as lease expirations since the prior year.

NOI from our unconsolidated properties, which is presented on a proportionate basis increased to $116 million during the three months ended June 30, 2020, compared to the prior year. The increase is primarily attributable to the One Manhattan West and 655 New York Avenue developments becoming operational since the prior year and the deconsolidation of two multifamily properties in the U.S in the current period. These increases were offset by the exclusion of One and Two London Wall Place since the properties are now consolidated as mentioned above. Same-property NOI decreased by $6 million compared to the prior year due to the impact of the shutdown on retail NOI across the portfolio.
        
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The following table presents certain key operating metrics related to leasing activity in our Core Office segment for the six months ended June 30, 2020 and 2019:

Total portfolio
(US$, except where noted)Jun. 30, 2020Jun. 30, 2019
Leasing activity (square feet in thousands)
    New leases1,052  1,440  
    Renewal leases1,595  1,184  
Total leasing activity2,647  2,624
Average term (in years)8.5  8.2  
Year one leasing net rents (per square foot)(1)
$33.31  $38.50  
Average leasing net rents (per square foot)(1)
34.77  41.49  
Expiring net rents (per square foot)(1)
29.83  34.52  
Estimated market net rents for similar space (per square foot)(1)
38.43  38.51  
Tenant improvement and leasing costs (per square foot)36.64  64.69  
(1)  Presented using normalized foreign exchange rates, using the June 30, 2020 exchange rate.

For the six months ended June 30, 2020, we leased approximately 2.6 million square feet, a similar level to the prior year, at average in-place net rents of $34.77 per square foot. Approximately 40% of our leasing activity represented new leases. Our overall Core Office portfolio’s in-place net rents are currently 5% below market net rents as at June 30, 2020. For the six months ended June 30, 2020, tenant improvements and leasing costs related to leasing activity were $36.64 per square foot, compared to $64.69 per square foot in the prior year.
        We calculate net rent as the annualized amount of cash rent receivable from leases on a per square foot basis, including tenant expense reimbursements, less operating expenses being incurred for that space, excluding the impact of straight-lining rent escalations or amortization of free rent periods. This measure represents the amount of cash, on a per square foot basis, generated from leases in a given period.

Valuation Metrics
The key valuation metrics for commercial properties in our Core Office segment on a weighted-average basis are as follows:

Jun. 30, 2020Dec. 31, 2019
Discount rateTerminal capitalization rateInvestment horizonDiscount rateTerminal capitalization rateInvestment horizon
Consolidated properties
United States7.0 %5.7 %127.0 %5.6 %12
Canada5.9 %5.2 %105.9 %5.2 %10
Australia6.5 %5.8 %106.8 %5.9 %10
Europe5.1 %4.0 %104.6 %4.1 %11
Brazil7.9 %7.4 %107.9 %7.4 %10
Unconsolidated properties
United States6.8 %5.0 %116.8 %4.9 %11
Australia6.4 %5.2 %106.5 %5.2 %10
Europe(1)
4.7 %4.7 %94.6 %5.0 %10
(1) Certain properties in Europe accounted for under the equity method are valued using both discounted cash flow and yield models. For comparative purposes, the discount and terminal capitalization rates and investment horizon calculated under the discounted cash flow method are presented in the table above.


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Financial Position
        The following table provides an overview of the financial position of our Core Office segment as at June 30, 2020 and December 31, 2019:

(US$ Millions)Jun. 30, 2020Dec. 31, 2019
Investment properties
    Commercial properties$23,807  $23,025  
    Commercial developments1,635  3,058  
Equity accounted investments8,460  8,882  
Accounts receivable and other 1,079  1,186  
Cash and cash equivalents523  607  
Total assets$35,504  $36,758  
Debt obligations13,638  13,856  
Capital securities903  922  
Accounts payable and other liabilities1,641  1,801  
Deferred tax liability982  1,013  
Non-controlling interests of others in operating subsidiaries and properties4,806  4,926  
Equity attributable to Unitholders$13,534  $14,240  

Equity attributable to Unitholders decreased by $706 million to $13,534 million at June 30, 2020 from $14,240 million at December 31, 2019. The decrease relates to net loss in the current period and the negative impact of foreign currency translation.

Commercial properties totaled $23,807 million at June 30, 2020, compared to $23,025 million at December 31, 2019. The increase was driven primarily by the reclassification of 100 Bishopsgate from development to operating in the current period and incremental capital spent to maintain or enhance properties, partially offset by the negative impact of foreign currency translation and fair value losses.

Commercial developments decreased by $1,423 million from December 31, 2019 to June 30, 2020. The decrease was primarily due to the reclassification of 100 Bishopsgate in London from development to operating, partially offset by incremental capital spent on our active developments and a gain recognized at Bay Adelaide North in Toronto in the first quarter.


The following table presents changes in our partnership’s equity accounted investments in the Core Office segment from December 31, 2019 to June 30, 2020:

(US$ Millions)Jun. 30, 2020
Equity accounted investments, beginning of period$8,882  
Additions91  
Share of net loss, including fair value losses(32) 
Distributions received(125) 
Foreign currency translation(259) 
Other comprehensive income and Other(97) 
Equity accounted investments, end of period$8,460  

Equity accounted investments decreased by $422 million since December 31, 2019 to $8,460 million at June 30, 2020. The decrease was driven by the negative impact of foreign currency translation and distributions received, partially offset by the addition of two multifamily properties due to change in accounting treatment from the sale of partial interests.

Debt obligations decreased from $13,856 million at December 31, 2019 to $13,638 million at June 30, 2020. This decrease is the result of the negative impact of foreign currency translation, partially offset by refinancing activity of property-level debt and drawdowns on existing facilities to fund capital expenditures on development properties.


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The following table provides additional information on our outstanding capital securities – Core Office:

(US$ Millions)Shares outstandingCumulative dividend rateJun. 30, 2020Dec. 31, 2019
Brookfield Office Properties Inc. (“BPO”) Class B Preferred Shares:
Series 1(1)
3,600,00070% of bank prime—  —  
Series 2(1)
3,000,00070% of bank prime—  —  
Capital Securities – Fund Subsidiaries903  922  
Total capital securities$903  $922  
(1) BPO Class B Preferred Shares, Series 1 and 2 capital securities are owned by Brookfield Asset Management. BPO has an offsetting loan receivable against these securities earning interest at 95% of bank prime.

We had $903 million of capital securities – fund subsidiaries outstanding at June 30, 2020 as compared to $922 million at December 31, 2019. Capital securities – fund subsidiaries includes $842 million (December 31, 2019 - $860 million) of equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by co-investors in the fund, which have been classified as a liability, rather than as non-controlling interest, as holders of these interests can cause DTLA to redeem their interests in the fund for cash equivalent to the fair value of the interests on October 15, 2023, and on every fifth anniversary thereafter. In addition, capital securities – fund subsidiaries also includes $61 million at June 30, 2020 (December 31, 2019 - $62 million) which represents the equity interests held by the partnership’s co-investor in Brookfield D.C. Office Partners LLC ("D.C. Venture"), which have been classified as a liability, rather than as non-controlling interest, due to the fact that on June 18, 2023, and on every second anniversary thereafter, the holders of these interests can redeem their interests in the D.C. Venture for cash equivalent to the fair value of the interests.


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Active Developments
The following table summarizes the scope and progress of active developments in our Core Office segment as of June 30, 2020:

Total square feet under construction (in 000’s)Proportionate
square feet under construction (in 000’s)
Expected
date of accounting stabilization
CostLoan
(Millions, except square feet in thousands)Percent
pre-leased
Total(1)
To-dateTotalDrawn
Office:
One Manhattan West, Midtown New York(2)
2,081  853  Q1 202194 %$795  $713  $554  $479  
Manhattan West Retail, Midtown New York(2)
70  39  Q2 202150 %$117  $84  $64  $16  
Wood Wharf, Office, London(2)
423  211  Q1 202244 %£125  £53  £93  £19  
ICD Brookfield Place, Dubai(2)
1,091  545  Q1 202224 %AED 1,599  AED 1,354  AED 908  AED 871  
1 The Esplanade, Sydney608  304  Q2 202363 %A$331  A$77  A$—  A$—  
Bay Adelaide North, Toronto820  820  Q3 202389 %C$498  C$172  C$350  C$23  
Two Manhattan West, Midtown New York(2)
1,955  1,095  Q4 202325 %$1,329  $469  $812  $220  
Office Redevelopment:
388 George Street, Sydney441  221  Q1 202253 %A$185  A$111  A$167  A$87  
1100 Avenue of the Americas, Midtown New York376  136  Q2 202295 %$113  $52  $62  $—  
Multifamily:
Southbank Place, London(2)(3)
401  100  Q4 2020n/a£110  £97  £68  £63  
Two Blue Slip, New York(2)
348  331  Q2 2021n/a$347  $297  $206  $139  
Wood Wharf - 8 Water Street, London(2)
131  66  Q4 2021n/a£46  £41  £30  £19  
Newfoundland, London(2)
545  273  Q1 2022n/a£267  £244  £174  £135  
Wood Wharf - One Park Drive, London(2)(3)
430  215  Q1 2022n/a£232  £191  £135  £47  
Halley Rise, Phase I, Washington D.C.(4)
359  359  Q1 2023n/a$157  $59  $111  $—  
755 Figueroa, Los Angeles(2)
791  374  Q2 2024n/a$257  $45  $166  $12  
Hotel:
Pendry Manhattan West, Midtown New York(2)
184  103  Q2 2023— %$157  $95  $62  $16  
Total11,054  6,045  
(1) Net of NOI earned during stabilization.
(2) Presented on a proportionate basis at our ownership interest in each of these developments.
(3)  Represents condominium/market sale developments.
(4)  Includes retail square feet that is 94% leased to Wegmans Food Market and other retailers.

Our development pipeline consists of prominent, large-scale projects located primarily in the high growth markets of London and New York. For the office developments, we generally look to secure anchor leases before launching the projects. We monitor the scope and progress of our active developments and have an established track record of completion on time and within budget. We have recently completed office towers in the prime markets of New York, Toronto and London and completed two urban multifamily developments in New York. Our current office and redevelopment projects stand at an average 59% pre-leased and despite the global economic shutdown, are generally tracking on time and budget.

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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)2020201920202019
Commercial property revenue$452  $478  $936  $949  
Hospitality revenue(1)
(2)    
Direct commercial property expense(193) (199) (392) (401) 
Direct hospitality expense(1)
(1) —  (6) (2) 
Total NOI$256  $283  $543  $552  
(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.

The following table reconciles Core Office NOI to net (loss) income for the three and six months ended June 30, 2020 and 2019:

Three months ended Jun. 30,Six months ended Jun. 30,
(US$ Millions)2020201920202019
Same-property NOI$233  $263  $497  $522  
Currency variance—   —   
NOI related to acquisitions and dispositions23  15  46  21  
Total NOI256  283  543  552  
Investment and other revenue44  76  83  116  
Interest expense(140) (149) (296) (297) 
Depreciation and amortization on real estate assets(3) (1) (6) (5) 
Investment and other expense(9) —  (13) —  
General and administrative expense(60) (69) (125) (121) 
Fair value (losses) gains, net(169) 118  (183) 345  
Share of net earnings from equity accounted investments(110) 138  (32) 302  
Income before taxes(191) 396  (29) 892  
Income tax (expense)26  (3)  (45) 
Net (loss) income(165) 393