EX-99.2 3 bpyex992q32018.htm EXHIBIT 99.2 Exhibit
Brookfield Property Partners L.P.

Condensed consolidated financial statements (unaudited)
As at September 30, 2018 and December 31, 2017 and
for the three and nine months ended September 30, 2018 and 2017

1             


Brookfield Property Partners L.P.
Condensed Consolidated Balance Sheets
Unaudited
 
 
As at
(US$ Millions)
Note
 
Sep. 30, 2018

Dec. 31, 2017

Assets
 
 
 
 
Non-current assets
 
 
 
 
Investment properties
5
 
$
73,957

$
51,357

Equity accounted investments
6
 
21,940

19,761

Participating loan interests
7
 
266

517

Property, plant and equipment
8
 
6,863

5,457

Goodwill
9
 
1,124

1,079

Intangible assets
10
 
1,214

1,188

Other non-current assets
11
 
1,143

898

Loans and notes receivable
 
 
446

178

Total non-current assets
 
 
106,953

80,435

Current assets
 
 
 
 
Loans and notes receivable
 
 
105

7

Accounts receivable and other
12
 
1,690

981

Cash and cash equivalents
 
 
2,444

1,491

Total current assets
 
 
4,239

2,479

Assets held for sale
13
 
391

1,433

Total assets
 
 
$
111,583

$
84,347

 
 
 
 
 
Liabilities and equity
 
 
 
 
Non-current liabilities
 
 
 
 
Debt obligations
14
 
$
49,909

$
30,749

Capital securities
15
 
2,900

2,839

Other non-current liabilities
17
 
1,519

918

Deferred tax liabilities
 
 
2,659

2,888

Total non-current liabilities
 
 
56,987

37,394

Current liabilities
 
 
 
 
Debt obligations
14
 
4,472

6,135

Capital securities
15
 
824

1,326

Accounts payable and other liabilities
18
 
3,394

3,052

Total current liabilities
 
 
8,690

10,513

Liabilities associated with assets held for sale
13
 
148

1,316

Total liabilities
 
 
65,825

49,223

 
 
 
 
 
Equity
 
 
 
 
Limited partners
19
 
11,212

7,395

General partner
19
 
4

6

Non-controlling interests attributable to:
 
 
 
 
Redeemable/exchangeable and special limited partnership units
19,20
 
12,683

14,500

Limited partnership units of Brookfield Office Properties Exchange LP
19,20
 
98

285

Class A shares of Brookfield Property REIT Inc. (“BPR”)
19,20
 
4,277


Interests of others in operating subsidiaries and properties
20
 
17,484

12,938

Total equity
 
 
45,758

35,124

Total liabilities and equity
 
 
$
111,583

$
84,347


See accompanying notes to the condensed consolidated financial statements.

2             


Brookfield Property Partners L.P.
Condensed Consolidated Income Statements
Unaudited
 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions, except per unit amounts)
Note
2018

2017

2018

2017

Commercial property revenue
21
$
1,251

$
1,066

$
3,478

$
3,111

Hospitality revenue
22
502

410

1,460

1,214

Investment and other revenue
23
75

34

161

232

Total revenue
 
1,828

1,510

5,099

4,557

Direct commercial property expense
24
478

419

1,308

1,201

Direct hospitality expense
25
315

249

942

788

Investment and other expense
 
17

1

17

123

Interest expense
 
632

493

1,689

1,475

Depreciation and amortization
26
81

69

229

201

General and administrative expense
27
241

147

593

454

Total expenses
 
1,764

1,378

4,778

4,242

Fair value gains, net
28
556

339

1,943

717

Share of net earnings from equity accounted investments
6
65

371

581

897

Income before income taxes
 
685

842

2,845

1,929

Income tax (benefit) expense
16
(37
)
183

49

419

Net income
 
$
722

$
659

$
2,796

$
1,510

 
 
 
 
 
 
Net income attributable to:
 
 
 
 
 
Limited partners
 
$
144

$
61

$
532

$
88

General partner
 




Non-controlling interests attributable to:
 
 
 
 
 
Redeemable/exchangeable and special limited partnership units
 
206

104

857

149

Limited partnership units of Brookfield Office Properties Exchange LP
 
2

3

16

4

Class A shares of Brookfield Property REIT Inc.
 
28


39


Interests of others in operating subsidiaries and properties
 
342

491

1,352

1,269

Total
 
$
722

$
659

$
2,796

$
1,510

 
 
 
 
 
 
Net income per LP Unit:
 
 
 
 
 
Basic
19
$
0.44

$
0.22

$
1.79

$
0.31

Diluted
19
$
0.43

$
0.22

$
1.77

$
0.31


See accompanying notes to the condensed consolidated financial statements.

3             


Brookfield Property Partners L.P.
Condensed Consolidated Statements of Comprehensive Income
Unaudited
 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
Note
2018

2017

2018

2017

Net income
 
$
722

$
659

$
2,796

$
1,510

Other comprehensive income (loss)
30
 
 
 
 
Items that may be reclassified to net income:
 
 
 
 
 
Foreign currency translation
 
(189
)
278

(690
)
573

Cash flow hedges
 
9

1

62

40

Available-for-sale securities
 

(1
)


Equity accounted investments
 
8

5

29

8

Items that will not be reclassified to net income:
 
 
 
 
 
Securities - fair value through other comprehensive income ("FVTOCI")
 
(1
)

(5
)

Remeasurement of defined benefit obligations
 


2

(2
)
Revaluation surplus
 
1


3


Total other comprehensive income (loss)
 
(172
)
283

(599
)
619

Total comprehensive income (loss)
 
$
550

$
942

$
2,197

$
2,129

 
 
 
 
 
 
Comprehensive income attributable to:
 
 
 
 
 
Limited partners
 
 
 
 
 
Net income
 
$
144

$
61

$
532

$
88

Other comprehensive income (loss)
 
(37
)
77

(136
)
145

 
 
107

138

396

233

Non-controlling interests
 
 
 
 
 
Redeemable/exchangeable and special limited partnership units
 
 
 
 
 
Net income
 
206

104

857

149

Other comprehensive income (loss)
 
(49
)
131

(219
)
247

 
 
157

235

638

396

Limited partnership units of Brookfield Office Properties Exchange LP
 
 
 
 
 
Net income
 
2

3

16

4

Other comprehensive income (loss)
 

3

(4
)
6

 
 
2

6

12

10

Class A shares of Brookfield Property REIT Inc.
 
 
 
 
 
Net income
 
28


39


Other comprehensive income (loss)
 
(10
)

(10
)

 
 
18


$
29

$

Interests of others in operating subsidiaries and properties
 
 
 
 
 
Net income
 
342

491

1,352

1,269

Other comprehensive income (loss)
 
(76
)
72

(230
)
221

 
 
266

563

1,122

1,490

Total comprehensive income
 
$
550

$
942

$
2,197

$
2,129


See accompanying notes to the condensed consolidated financial statements.

4             



Brookfield Property Partners L.P.
Condensed Consolidated Statements of Changes in Equity
 
Limited partners
 
General partner
 
Non-controlling interests
 
Unaudited
(US$ Millions)
Capital
Retained earnings
Ownership Changes
Accumulated other comprehensive (loss) income
Total limited partners equity
 
Capital
Retained earnings
Ownership Changes
Accumulated other comprehensive (loss) income
Total general partner equity
 
Redeemable /
exchangeable and special limited partnership units
Limited partnership units of Brookfield Office Properties Exchange LP
Class A shares of Brookfield Property REIT Inc.
Interests of others in operating subsidiaries and properties
Total equity
Balance as at Dec 31, 2017
$
5,613

$
1,878

$
140

$
(236
)
$
7,395

 
$
4

$
2

$

$

$
6

 
$
14,500

$
285

$

$
12,938

$
35,124

Net income

532


 
532

 





 
857

16

39

1,352

2,796

Other comprehensive income (loss)



(136
)
(136
)
 





 
(219
)
(4
)
(10
)
(230
)
(599
)
Total comprehensive income (loss)

532


(136
)
396

 





 
638

12

29

1,122

2,197

Distributions

(278
)


(278
)
 





 
(413
)
(8
)
(51
)
(794
)
(1,544
)
Issuance / repurchase of interests in operating subsidiaries
2,202

(1
)
112


2,313

 





 
63

1

3,386

4,218

9,981

Exchange of exchangeable units
156


19

(2
)
173

 





 
30

(203
)



Conversion of Class A shares of Brookfield Property REIT Inc.
306


2


308

 


 


 
3


(311
)


Change in relative interests of non-controlling interests


971

(66
)
905

 


(2
)

(2
)
 
(2,138
)
11

1,224



Balance as at Sep. 30, 2018
$
8,277

$
2,131

$
1,244

$
(440
)
$
11,212

 
$
4

$
2

$
(2
)
$

$
4

 
$
12,683

$
98

$
4,277

$
17,484

$
45,758

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as at Dec 31, 2016
$
5,743

$
2,085

$
127

$
(419
)
$
7,536

 
$
4

$
2

$

$

$
6

 
$
14,523

$
293

$

$
11,803

$
34,161

Net income

88



88

 





 
149

4


1,269

1,510

Other comprehensive (loss)



145

145

 





 
247

6


221

619

Total comprehensive income (loss)

88


145

233

 





 
396

10


1,490

2,129

Distributions

(226
)


(226
)
 





 
(387
)
(10
)

(1,219
)
(1,842
)
Issuance / repurchase of interest in operating subsidiaries
(136
)
(39
)
12


(163
)
 





 
(46
)


711

502

Exchange of exchangeable units
6




6

 





 
1

(7
)



Balance as at Sep. 30, 2017
$
5,613

$
1,908

$
139

$
(274
)
$
7,386

 
$
4

$
2

$

$

$
6

 
$
14,487

$
286

$

$
12,785

$
34,950


See accompanying notes to the condensed consolidated financial statements.

5             



Brookfield Property Partners L.P.
Condensed Consolidated Statements of Cash Flows
Unaudited
 
 
Nine Months Ended Sep. 30,
 
(US$ Millions)
Note
 
2018

2017

Operating activities
 
 
 
 
Net income
 
 
$
2,796

$
1,510

Share of equity accounted earnings, net of distributions
 
 
(219
)
(660
)
Fair value (gains), net
28
 
(1,943
)
(717
)
Deferred income tax expense
16
 
(57
)
314

Depreciation and amortization
26
 
229

201

Working capital and other
 
 
342

(261
)
 
 
 
1,148

387

Financing activities
 
 
 
 
Debt obligations, issuance
 
 
16,704

13,918

Debt obligations, repayments
 
 
(12,933
)
(11,355
)
Capital securities issued
 
 

249

Capital securities redeemed
 
 
(555
)
(297
)
Non-controlling interests, issued
 
 
1,643

1,719

Non-controlling interests, purchased
 
 

(483
)
Limited partnership units, issued
 
 
500


Limited partnership units, repurchased
 
 
(14
)
(136
)
Distributions to non-controlling interests in operating subsidiaries
 
 
(765
)
(1,198
)
Distributions to limited partnership unitholders
 
 
(278
)
(226
)
Distributions to redeemable/exchangeable and special limited partnership unitholders
 
 
(413
)
(387
)
Distributions to holders of Brookfield Office Properties Exchange LP units
 
 
(8
)
(10
)
Distributions to holders of Class A shares of Brookfield Property REIT Inc.
 
 
(51
)

 
 
 
3,830

1,794

Investing activities
 
 
 
 
Investment properties and subsidiaries, proceeds of dispositions
 
 
2,028

1,515

Property acquisitions and capital expenditures
 
 
(6,781
)
(3,739
)
Investment in equity accounted investments
 
 
(424
)
(471
)
Proceeds from sale and distributions of equity accounted investments and participating loan interests
 
 
571

891

Financial assets and other
 
 
(58
)
(262
)
Property, plant and equipment investments, net of dispositions
 
 
172

(187
)
Cash acquired in business combinations, net of cash impact from deconsolidation
 
 
563

(55
)
Restricted cash and deposits
 
 
(55
)
34

 
 
 
(3,984
)
(2,274
)
Cash and cash equivalents
 
 
 
 
Net change in cash and cash equivalents during the period
 
 
994

(93
)
Effect of exchange rate fluctuations on cash and cash equivalents held in foreign currencies
 
 
(41
)
35

Balance, beginning of period
 
 
1,491

1,456

Balance, end of period
 
 
$
2,444

$
1,398

 
 
 
 
 
Supplemental cash flow information
 
 
 
 
Cash paid for:
 
 
 
 
Income taxes
 
 
$
106

$
55

Interest (excluding dividends on capital securities)
 
 
$
1,449

$
1,150


See accompanying notes to the condensed consolidated financial statements.

6             



Brookfield Property Partners L.P.
Notes to the Condensed Consolidated Financial Statements

NOTE 1. ORGANIZATION AND NATURE OF THE BUSINESS
Brookfield Property Partners L.P. (“BPY” or the “partnership”) was formed as a limited partnership under the laws of Bermuda, pursuant to a limited partnership agreement dated January 3, 2013, as amended and restated on August 8, 2013. BPY is a subsidiary of Brookfield Asset Management Inc. (“Brookfield Asset Management” or the “parent company”) and is the primary entity through which the parent company and its affiliates own, operate, and invest in commercial and other income producing property on a global basis.

The partnership’s sole material asset at September 30, 2018 is a 47% managing general partnership unit interest in Brookfield Property L.P. (the “operating partnership”), which holds the partnership’s interest in commercial and other income producing property operations. The partnership’s interest in the operating partnership is comprised solely of an interest in managing general partner units (“GP Units”). The GP Units provide the partnership with the power to direct the relevant activities of the operating partnership.

The partnership’s limited partnership units (“BPY Units” or “LP Units”) are listed and publicly traded on the Nasdaq Stock Market (“Nasdaq”) and the Toronto Stock Exchange (“TSX”) under the symbols “BPY” and “BPY.UN”, respectively.

The registered head office and principal place of business of the partnership is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)
Statement of compliance
The interim condensed consolidated financial statements of the partnership and its subsidiaries have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB, have been omitted or condensed.

These condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018 were approved and authorized for issue by the Board of Directors of the partnership on October 31, 2018.
 
b)
Basis of presentation
The interim condensed consolidated financial statements are prepared using the same accounting policies and methods as those used in the consolidated financial statements for the year ended December 31, 2017, except for accounting standards adopted as identified in Note c) below. Consequently, the information included in these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the partnership’s annual report on Form 20-F for the year ended December 31, 2017.

The interim condensed consolidated financial statements are unaudited and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented in accordance with IFRS. The results reported in these interim condensed consolidated financial statements should not necessarily be regarded as indicative of results that may be expected for the entire year.

The interim condensed consolidated financial statements are prepared on a going concern basis and have been presented in U.S. Dollars rounded to the nearest million unless otherwise indicated.

c)
Change in operating segments
IFRS 8, Operating Segments, requires operating segments to be determined based on internal reports that are regularly reviewed by the chief operating decision maker (“CODM”) for the purpose of allocating resources to the segment and to assessing its performance. On July 1, 2018, the partnership realigned its LP Investments segment (formerly referred to as Opportunistic) to include the corporate function of the Brookfield-sponsored real estate opportunity funds, previously included in the Corporate segment, to more closely align with the how the partnership now presents financial information to the CODM and investors. As of September 30, 2018, the partnership is organized into four reportable segments: i) Core Office, ii) Core Retail, iii) LP Investments and iv) Corporate. These segments are independently and regularly reviewed and managed by the Chief Executive Officer, who is considered the CODM. Segment disclosures for periods prior to the realignment of segments have been recast to reflect the changes in the partnership’s operating segments. See Note 35, Segment Information, for further discussion.

d)
Adoption of Accounting Standards
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
The partnership adopted IFRS 15 effective January 1, 2018. IFRS 15 specifies how and when revenue should be recognized as well as requiring more informative and relevant disclosures. The standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts and a number of revenue-related interpretations. IFRS 15 applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. The partnership’s revenue from leases are outside the scope of IFRS 15. The partnership’s material revenue streams subject to IFRS 15 are hospitality revenue and non-lease components within lease arrangements arising from the recovery of certain operating expenses from tenants. The adoption of IFRS 15 did not result in any material change to the pattern of revenue recognition by the partnership. The partnership adopted the standard using the modified retrospective approach with no restatement of comparatives and did not record any adjustment upon

7             



adoption. The partnership made additional disclosures in Note 20, Commercial Property Revenue, Note 21, Hospitality Revenue and Note 34, Segment Information, as a result of the adoption.
Following the adoption of IFRS 15, the partnership has separately disclosed other revenue from tenants in Note 20, Commercial Property Revenue, which consists of non-lease components within lease arrangements arising from the recovery of certain operating expenses from tenants which are accounted for in accordance with IFRS 15. Other revenue from tenants is recognized when the partnership has satisfied its performance obligation by delivering services as agreed upon in the lease agreements to tenants at an amount equal to the component of revenue allocated to such performance obligation.
The recognition pattern of hospitality revenue is not impacted upon adoption of IFRS 15. Room revenue is recognized net of taxes and levies. The partnership recognizes net wins from casino gaming activities, the difference between gaming wins and losses, as gaming revenue. Advance deposits from guests’ bookings of rooms and leisure activities are deferred and included as a liability until services are provided to guests. Similarly, the partnership recognizes a liability for deposits received from patrons before gaming activities occurs as well as for chips in patron’s possession. Revenue from accommodation is recognized over the period that the guest stays at the hotel; food and beverage revenue is recognized when goods and services are provided; and revenue from leisure activities is recognized when leisure activities are completed given the short duration.
The recognition pattern of fee revenue is not impacted upon adoption of IFRS 15. It is recognized over a period of time as the partnership satisfies its performance obligations as agreed upon in contracts with customers.
IFRS 9, Financial Instruments (“IFRS 9”)
The partnership adopted IFRS 9 effective January 1, 2018. IFRS 9 supersedes IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge accounting more closely to risk management. It does not fully change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it will allow more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship.
The partnership adopted IFRS 9 retrospectively with no restatement of comparatives. The adoption did not result in any material adjustment to the carrying amounts of financial assets, financial liabilities or opening retained earnings.
The following table presents the types of financial instruments held by the partnership within each financial instrument classification under IAS 39 and IFRS 9:
 
IAS 39
IFRS 9
 
Classification
Measurement
basis
Classification and measurement basis

Financial assets
 
 
 
Participating loan interests
Loans and receivables
Amortized cost
FVTPL
Loans and notes receivable
Loans and receivables
Amortized cost
Amortized cost
Other non-current assets
 
 
 
Securities designated as FVTPL
FVTPL
Fair value
FVTPL
Derivative assets
FVTPL
Fair value
FVTPL
Securities designated as AFS
AFS
Fair value
FVTOCI
Restricted cash
Loans and receivables
Amortized cost
Amortized cost
Accounts receivable and other
 
 
 
Derivative assets
FVTPL
Fair value
FVTPL
Other receivables
Loans and receivables
Amortized cost
Amortized cost
Cash and cash equivalents
Loans and receivables
Amortized cost
Amortized cost
Financial liabilities
 
 
 
Debt obligations
Other liabilities
Amortized cost
Amortized cost
Capital securities
Other liabilities
Amortized cost
Amortized cost
Capital securities - fund subsidiaries
Other liabilities
Fair value
FVTPL
Other non-current liabilities
 
 
 
Loan payable
FVTPL
Fair value
FVTPL
Other non-current financial liabilities
Other liabilities
Amortized cost
Amortized cost
Derivative liabilities
FVTPL
Fair value
FVTPL
Accounts payable and other liabilities
Other liabilities
Amortized cost
Amortized cost
For financial instruments measured at amortized cost, the partnership assesses if there have been significant increases in credit risk since initial recognition to determine whether lifetime or 12-month expected credit losses should be recognized. Any related loss allowances are recorded through profit or loss. The change in impairment policy did not have a material impact on the partnership’s financial statements.

8             



The adoption of IFRS 9 did not have any material impact to the partnership’s policy for hedge accounting applied to certain derivative instruments. The partnership’s accounting policy is outlined in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements for the year ended December 31, 2017.
e)
Estimates
The preparation of the partnership’s interim condensed consolidated financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise judgment in applying the partnership’s accounting policies. The accounting policies and critical estimates and assumptions have been set out in Note 2, Summary of Significant Accounting Policies, to the partnership’s consolidated financial statements for the year ended December 31, 2017 and have been consistently applied in the preparation of the interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018.

f)
Future Accounting Policy
IFRS 16, Leases (“IFRS 16”)
IFRS 16 supersedes IAS 17, Leases and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 has also been applied. IFRS 16 brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and finance leases is retained.
The partnership has participated in strategic planning sessions with its subsidiaries and associates and has developed and implemented an adoption project plan. Using the population of existing contractual arrangements, the partnership has substantially completed its identification of leases that are required to be capitalized under the new standard. The partnership is currently quantifying the present value of the identified lease contracts to determine the impact on the January 1, 2019 balance sheet and is assessing the expected impact to other financial statement line items once the standard has been adopted. The partnership is progressing as planned in its adoption project plan. Next steps include completing analysis on the transitional adjustment, assessing the impact to internal controls and drafting the additional disclosures required by the new standard.
The partnership currently anticipates adopting the standard using the modified retrospective approach, whereby any transitional impact is recorded in equity as of January 1, 2019 and comparative periods are not restated. The partnership intends to complete the transition using the current definition of a lease and expects to apply certain transition reliefs, practical expedients and policy choice options on adoption of the new standard.

The partnership will continue to evaluate the overall impact of IFRS 16 on its consolidated financial statements.

NOTE 3. ACQUISITION OF GGP INC.
On March 26, 2018, the partnership entered into a definitive merger agreement with GGP Inc. (“GGP”) to acquire all of the outstanding common shares of GGP other than those shares already held by the partnership and its subsidiaries. Under the terms of the agreement, GGP common shareholders had the right to elect, for each GGP share, to receive, subject to proration, (i) $23.50 in cash or (ii) either one BPY unit or one share of Class A stock, par value $0.01 per share, of BPR (“BPR Unit”), a new U.S. REIT security formed by recapitalizing GGP and amending its governing documents. Each BPR Unit is structured to provide an economic return equivalent to a LP Unit. The holder of a BPR Unit has the right, at any time, to request the share be redeemed for cash equivalent to the value of a LP Unit. In the event the holder of a BPR Unit exercises this right, the partnership has the right, at its sole discretion, to satisfy the redemption request with a LP Unit rather than cash.

On July 26, 2018, GGP shareholders approved the merger which closed on August 28, 2018. On closing the partnership controlled BPR as it held 87% of the voting stock of BPR through its 100% ownership of the BPR Class B and Class C shares. The balance of the voting rights in respect of BPR are held by the holders of the BPR Units.

Based on shareholder elections, which were subject to proration, cash totaling $9.05 billion was paid by GGP to its shareholders, other than the partnership, in the form of a pre-closing dividend on August 27, 2018. According to the terms of the agreement, the consideration payable on close of the merger was reduced by the amount of the pre-closing dividend. The pre-closing dividend was funded with new term debt, property-level refinancings, proceeds from the sale of partial interests in certain GGP properties and the issuance of non-controlling interests in subsidiaries of GGP.

The acquisition of GGP was accounted for as a business combination achieved in stages. The partnership’s existing equity interest in GGP was remeasured to fair value immediately prior to the acquisition date of August 28, 2018 based on the partnership’s interest in the fair value of the identifiable net assets and liabilities of GGP at the time. As a result of this remeasurement, a loss of approximately $580 million was recognized in fair value gains, net.

Consideration paid on acquisition of control by the partnership was comprised of the following:
88 million LP Units with a fair value of $1,786 million determined with reference to the trading price of the LP Units on the closing date;
161 million BPR Units with a fair value of $3,383 million determined with reference to the initial trading price of the BPR Unit;
Cash consideration of $200 million; and
Share-based payment awards to GGP employees with a fair value of $28 million.

As discussed in Note 19, Equity, the BPR Units issued on closing represent a non-controlling interest in the partnership.

As of September 30, 2018, the valuation of the investment properties, equity accounted investments, debt obligations, deferred tax liabilities, transaction costs, certain working capital balances and the acquisition date fair value of the partnership’s existing equity interest in GGP were still under evaluation by the partnership. Accordingly, the business combination has been accounted for on a provisional basis.

9             





The following table summarizes the provisional amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed in addition to the consideration paid and transaction costs incurred:

(US$ Millions)
GGP

Investment properties
$
17,991

Equity accounted investments
10,850

Property, plant and equipment
56

Accounts receivable and other
579

Cash and cash equivalents
423

Total assets
29,899

Less:
 
Debt obligations
(13,147
)
Accounts payable and other
(830
)
Deferred tax liabilities
(161
)
Non-controlling interests(1)
(1,938
)
Net assets acquired
$
13,823

Consideration(2)
$
13,166

Transaction costs
2

(1)
Includes non-controlling interests in a subsidiary of BPR measured as the proportionate share of the fair value of the assets, liabilities and contingent liabilities on the date of acquisition.
(2) 
Includes the acquisition date fair value of the partnership’s previously held equity interest in GGP of $7,770 million.

In connection with the acquisition of GGP, the partnership has recognized a bargain purchase gain of $657 million in fair value gains, net. The agreed transaction price and the fair value of the consideration transferred was less than the aggregate fair values of the individual assets acquired net of the liabilities assumed. The partnership determined the purchase price allocation, on a provisional basis, is complete and appropriately measured giving consideration to fact that the fair value of the investment properties acquired was determined based on transaction prices agreed with third parties for the sale of partial interests in certain of the GGP assets and valuation models prepared by an independent external appraiser.

In the period from August 28, 2018 to September 30, 2018, the partnership recorded revenue and net income in connection with this acquisition of approximately $129 million and $77 million, respectively. If the acquisition had occurred on January 1, 2018, the partnership’s total revenue and net income would have been $6,142 million and $3,413 million, respectively, for the nine months ended September 30, 2018.

NOTE 4. BUSINESS ACQUISITIONS AND COMBINATIONS
In addition to the acquisition of GGP, discussed in Note 3, Acquisition of GGP Inc., the partnership completed the following significant business combinations during 2018:
On February 1, 2018, the partnership acquired a portfolio of 105 extended-stay hotel properties across the United States (“Extended-Stay Hotel Portfolio”) for total consideration of $764 million.
On February 1, 2018, the partnership acquired a portfolio of 15 student housing properties in the United Kingdom (“UK Student Housing IV”), for total consideration of £527 million ($752 million).
On August 3, 2018, the partnership acquired a 100% leasehold interest in 666 Fifth Avenue, a commercial office asset in New York, for consideration of $1,252 million.

The partnership also completed several immaterial acquisitions during 2018 for total consideration of $3,056 million. The acquisitions were primarily LP Investments made by Brookfield-sponsored real estate funds to invest the fund capital. The partnership consolidates the acquired investments as Brookfield’s power as general partner, together with the partnership’s LP interests, provide the partnership with control over the investments.

10             


The following table summarizes the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed in addition to the consideration and transaction costs incurred:
(US$ Millions)
Extended- Stay Hotel Portfolio

UK Student Housing IV

666 Fifth Avenue(3)

Other

Total

Date of acquisition
2/1/2018

2/1/2018

8/3/2018

Various

 
Investment properties
$

$
742

$
1,246

$
3,418

$
5,406

Property, plant and equipment
768

2


600

1,370

Goodwill



92

92

Intangible assets



54

54

Accounts receivable and other
7

53

10

542

612

Cash and cash equivalents
2

18


132

152

Total assets
777

815

1,256

4,838

7,686

Less:
 
 
 
 
 
Debt obligations



(1,163
)
(1,163
)
Accounts payable and other
(13
)
(63
)
(4
)
(283
)
(363
)
Deferred tax liabilities



(44
)
(44
)
Non-controlling interests(1)



(53
)
(53
)
Net assets acquired
$
764

$
752

$
1,252

$
3,295

$
6,063

Consideration(2)
$
764

$
752

$
1,252

$
3,056

$
5,824

Transaction costs
$
9

$
7

$
44

$
55

$
115

(1)
Includes non-controlling interests recognized on business combinations measured as the proportionate share of the fair value of the assets, liabilities and contingent liabilities on the date of acquisition.
(2)
Includes consideration paid with funds received from issuance of non-controlling interests to certain institutional investors in funds sponsored by Brookfield Asset Management.
(3) 
The valuation of the investment property was still under evaluation by the partnership. Accordingly, this business combination has been accounted for on a provisional basis.

Excluding the acquisition of GGP, in the period from each acquisition date to September 30, 2018, the partnership recorded revenue and net income in connection with these acquisitions of approximately $308 million and $80 million, respectively. If the acquisitions had occurred on January 1, 2018, the partnership’s total revenue and net income would have been $5,279 million and $2,870 million, respectively, for the nine months ended September 30, 2018.

Transaction costs, which primarily relate to legal and consulting fees, are expensed as incurred in accordance with IFRS 3, Business Combinations and included in general and administrative expense on the consolidated income statement.

NOTE 5. INVESTMENT PROPERTIES
The following table presents a roll forward of the partnership’s investment property balances, all of which are considered Level 3 within the fair value hierarchy, for the nine months ended September 30, 2018 and the year ended December 31, 2017:

 
Nine months ended Sep. 30, 2018
Year ended Dec. 31, 2017
(US$ Millions)
Commercial properties

Commercial developments

Total

Commercial properties

Commercial developments

Total

Balance, beginning of period
$
48,780

$
2,577

$
51,357

$
45,699

$
3,085

$
48,784

Changes resulting from:
 
 
 
 
 
 
  Property acquisitions(1)
22,479

936

23,415

5,545

107

5,652

  Capital expenditures
614

837

1,451

905

990

1,895

Property dispositions(2)
(647
)
(3
)
(650
)
(1,240
)
(675
)
(1,915
)
Fair value gains, net
626

454

1,080

347

202

549

Foreign currency translation
(1,165
)
(98
)
(1,263
)
1,121

159

1,280

Transfer between commercial properties and commercial developments
688

(688
)

1,038

(1,038
)

Reclassifications to assets held for sale and other changes
(1,435
)
2

(1,433
)
(4,635
)
(253
)
(4,888
)
Balance, end of period
$
69,940

$
4,017

$
73,957

$
48,780

$
2,577

$
51,357

(1) 
Includes the commercial properties and developments from the GGP acquisition. See Note 3, Acquisition of GGP Inc. for further information.      
(2) 
Property dispositions represent the carrying value on date of sale.

The partnership determines the fair value of each commercial property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the applicable balance sheet dates, less future cash outflows in respect of such leases. Investment property valuations are completed by undertaking one of two accepted income approach methods, which include either: i) discounting the expected future cash flows, generally over a term of 10 years including a terminal value based on the application

11             


of a capitalization rate to estimated year 11 cash flows; or ii) undertaking a direct capitalization approach whereby a capitalization rate is applied to estimated current year cash flows. In determining the appropriateness of the methodology applied, the partnership considers the relative uncertainty of the timing and amount of expected cash flows and the impact such uncertainty would have in arriving at a reliable estimate of fair value. The partnership prepares these valuations considering asset and market specific factors, as well as observable transactions for similar assets. The determination of fair value requires the use of estimates, which are internally determined and compared with market data, third-party reports and research as well as observable conditions. There are currently no known trends, events or uncertainties that the partnership reasonably believes could have a sufficiently pervasive impact across the partnership’s businesses to materially affect the methodologies or assumptions utilized to determine the estimated fair values reflected in these financial statements. Discount rates and capitalization rates are inherently uncertain and may be impacted by, among other things, movements in interest rates in the geographies and markets in which the assets are located. Changes in estimates of discount and capitalization rates across different geographies and markets are often independent of each other and not necessarily in the same direction or of the same magnitude. Further, impacts to the partnership’s fair values of commercial properties from changes in discount or capitalization rates and cash flows are usually inversely correlated. Decreases (increases) in the discount rate or capitalization rate result in increases (decreases) of fair value. Such decreases (increases) may be mitigated by decreases (increases) in cash flows included in the valuation analysis, as circumstances that typically give rise to increased interest rates (e.g., strong economic growth, inflation) usually give rise to increased cash flows at the asset level. Refer to the table below for further information on valuation methods used by the partnership for its asset classes.

Commercial developments are also measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. Development sites in the planning phases are measured using comparable market values for similar assets.

In accordance with its policy, the partnership generally measures and records its commercial properties and developments using valuations prepared by management. However, for certain recently acquired subsidiaries, including GGP, the partnership has used valuations prepared by external valuation professionals. 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.

The key valuation metrics for the partnership’s consolidated commercial properties are presented in the following tables below on a weighted-average basis:

 
 
Sep. 30, 2018
Dec. 31, 2017
Consolidated properties
Primary valuation method
Discount rate

Terminal capitalization rate

Investment horizon (years)
Discount rate

Terminal capitalization rate

Investment horizon (years)

Core Office
 
 
 
 
 
 
 
    United States
Discounted cash flow
7.0
%
5.6
%
12
7.0
%
5.8
%
13

    Canada
Discounted cash flow
6.0
%
5.5
%
10
6.1
%
5.5
%
10

    Australia
Discounted cash flow
6.9
%
6.1
%
10
7.0
%
6.1
%
10

    Brazil
Discounted cash flow
9.6
%
7.6
%
7
9.7
%
7.6
%
7

Core Retail(1)
Discounted cash flow
7.1
%
6.0
%
10
%
%

LP Investments- Office(2)
Discounted cash flow
10.1
%
7.0
%
6
10.2
%
7.5
%
7

LP Investments- Retail
Discounted cash flow
8.9
%
7.7
%
10
9.0
%
8.0
%
10

Industrial
Discounted cash flow
6.6
%
5.7
%
10
6.8
%
6.2
%
10

Mixed-use(2)
Discounted cash flow
8.2
%
5.4
%
10
8.4
%
5.3
%
10

Multifamily(3)
Direct capitalization
4.8
%
n/a

n/a
4.8
%
n/a

n/a

Triple Net Lease(3)
Direct capitalization
6.3
%
n/a

n/a
6.4
%
n/a

n/a

Self-storage(3)
Direct capitalization
5.7
%
n/a

n/a
5.8
%
n/a

n/a

Student Housing(3)
Direct capitalization
5.5
%
n/a

n/a
5.8
%
n/a

n/a

Manufactured Housing(3)
Direct capitalization
5.4
%
n/a

n/a
5.8
%
n/a

n/a

(1)
The partnership obtained control of GGP during the third quarter of 2018 following the acquisition of the common shares not held by the partnership. Subsequent to this transaction, the partnership is consolidating the financial results of GGP. Please see Note 3, Acquisition of GGP Inc., for further information.
(2)
In the third quarter of 2018, the valuation metrics for International Finance Center Seoul (“IFC”) are reported under the mixed-use sector. The valuation metrics for LP Investments- Office have been updated for both periods presented.
(3)
The valuation method used to value multifamily, triple net lease, self-storage, student housing, and manufactured housing properties is the direct capitalization method. The rates presented as the discount rate relate to the overall implied capitalization rate. The terminal capitalization rate and investment horizon are not applicable.
 
The following table presents the partnership’s investment properties measured at fair value in the condensed consolidated financial statements and the level of the inputs used to determine those fair values in the context of the hierarchy as defined in Note 2(i), Summary of Significant Accounting Policies: Fair value measurement, in the consolidated financial statements as of December 31, 2017:


12             


 
Sep. 30, 2018
Dec. 31, 2017
 
 
 
Level 3
 
 
Level 3
(US$ Millions)
Level 1

Level 2

Commercial properties

Commercial developments

Level 1

Level 2

Commercial properties

Commercial developments

Core Office
 
 
 
 
 
 
 
 
United States
$

$

$
14,105

$
1,148

$

$

$
14,259

$
568

Canada


4,238

110



4,493

104

Australia


2,843

49



2,472

8

Europe


130

1,209



120

920

Brazil


302




327


Core Retail(1)


17,721

309





LP Investments
 
 
 
 
 
 
 
 
LP Investments- Office(2)


7,980

428



6,044

231

LP Investments- Retail


3,493

6



3,406

6

Industrial


2,341

459



1,409

533

Multifamily


4,107




3,925


Triple Net Lease


4,974




4,804


Self-storage


799

79



1,796

58

Student Housing


2,040

220



1,204

149

Manufactured Housing


2,356




2,206


Mixed-Use(2)


2,511




2,315


Total
$

$

$
69,940

$
4,017

$

$

$
48,780

$
2,577

(1)
The partnership obtained control of GGP during the third quarter of 2018 following the acquisition of the common shares not previously held by the partnership. Subsequent to this transaction, the partnership is consolidating the financial results of GGP. Please see Note 3, Acquisition of GGP Inc., for further information.
(2)
During the third quarter of 2018, the commercial properties for IFC are reported under the mixed-use sector. The valuation metrics for LP Investments- Office have been updated for both periods presented.

The following table presents a sensitivity analysis to the impact of a 25 basis point movement of the discount rate and terminal capitalization or overall implied capitalization rate on fair values of the partnership’s commercial properties for the nine months ended September 30, 2018, for properties valued using the discounted cash flow or direct capitalization method, respectively:

 
Sep. 30, 2018
(US$ Millions)
Impact on fair value of commercial properties

Core Office
 
United States
$
897

Canada
259

Australia
154

Brazil
35

Core Retail
612

LP Investments
 
LP Investments- Office
283

LP Investments- Retail
147

Industrial
171

Mixed-use
123

Multifamily
203

Triple Net Lease
175

Self-storage
28

Student Housing
93

Manufactured Housing
103

Total
$
3,283


 

13             


NOTE 6. EQUITY ACCOUNTED INVESTMENTS
The partnership has investments in joint arrangements that are joint ventures, and also has investments in associates. Joint ventures hold individual commercial properties and portfolios of commercial properties and developments that the partnership owns together with co-owners where decisions relating to the relevant activities of the joint venture require the unanimous consent of the co-owners. Associates are investments in which the partnership has significant influence over financial and operating decisions but does not have control or joint control. Details of the partnership’s investments in joint ventures and associates, which have been accounted for in accordance with the equity method of accounting, are as follows:
 
 
 
 
Proportion of ownership interests
Carrying value
(US$ Millions)
Principal activity
Principal place of business
Sep. 30, 2018

Dec. 31, 2017

Sep. 30, 2018

Dec. 31, 2017

Joint Ventures
 
 
 
 
 
 
Canary Wharf Joint Venture(1)
Property holding company
United Kingdom
50
%
50
%
$
3,358

$
3,284

BPR JV Pool A(2)
Property holding company
United States
50
%
%
1,927


BPR JV Pool B(2)
Property holding company
United States
51
%
%
1,191


Ala Moana Center, Hawaii(2)
Property holding company
United States
50
%
%
1,598

 
Manhattan West, New York
Property holding company
United States
56
%
56
%
1,526

1,439

Fashion Show, Las Vegas(2)
Property holding company
United States
50
%
%
875


The Grand Canal Shoppes, Las Vegas(2)
Property holding company
United States
50
%
%
603


Grace Building, New York
Property holding company
United States
50
%
50
%
582

585

Oakbrook Center, Illinois(2)
Property holding company
United States
48
%
%
519


One Liberty Plaza, New York
Property holding company
United States
51
%
51
%
439

408

Southern Cross East, Melbourne(3)
Property holding company
Australia
50
%
50
%
403

407

Brookfield Fairfield U.S. Multifamily Value Add Fund II ("VAMF II")
Property holding company
United States
37
%
37
%
321

291

Park Meadows, Colorado(2)
Property holding company
United States
35
%
%
311


Miami Design District, Florida(2)
Property holding company
United States
22
%
%
298


E&Y Complex, Sydney(3)
Property holding company
Australia
50
%
50
%
298

311

Brookfield D.C. Office Partners LLC ("D.C. Fund"), Washington, D.C.
Property holding company
United States
51
%
51
%
294

310

Brookfield Brazil Retail Fundo de Investimento em Participaçõe ("Brazil Retail")
Holding company
Brazil
46
%
46
%
282

339

The Mall in Columbia, Maryland(2)
Property holding company
United States
50
%
%
262


Shops at Merrick Park, Florida(2)
Property holding company
United States
55
%
%
259


Kenwood Towne Center, Ohio(2)
Property holding company
United States
50
%
%
251


Other(4)
Various
Various
10% - 90%

12% - 90%

5,058

2,193

 
 
 
 
 
20,655

9,567

Associates
 
 
 
 
 
 
GGP(2)
Real estate investment trust
United States
%
34
%

8,844

China Xintiandi (“CXTD”)(5)
Property holding company
China
22
%
22
%
492

499

Diplomat Resort and Spa ("Diplomat")
Property holding company
United States
90
%
90
%
324

339

Brookfield Premier Real Estate Partners Pooling LLC ("BPREP")
Property holding company
United States
9
%
10
%
107

122

Other
Various
Various
23% - 31%

23% - 31%

362

390

 
 
 
 
 
1,285

10,194

Total
 
 
 
 
$
21,940

$
19,761

(1) 
Stork Holdco LP is the joint venture through which the partnership acquired Canary Wharf Group plc (“Canary Wharf”) in London.
(2) 
The partnership obtained control of GGP during the third quarter of 2018 following the acquisition of the common shares not previously held by the partnership. Subsequent to this transaction, the partnership is consolidating the financial results of GGP, including its interests in properties held through joint ventures. The partnership’s 34% interest in GGP prior to the acquisition was deconsolidated. Please see Note 3, Acquisition of GGP Inc., for further information.
(3) 
The partnership exercises joint control over these jointly controlled assets through a participating loan agreement with Brookfield Asset Management that is convertible at any time into a direct equity interest in the entity.
(4) 
Other joint ventures consists of approximately 88 joint ventures, all of which have a carrying value below $250 million.
(5) 
The partnership’s interest in CXTD is held through a subsidiary, BSREP CXTD Holdings L.P., in which it has an approximate 31% interest.

There are no quoted market prices for the partnership’s equity accounted investments.

14             


The following table presents the change in the balance of the partnership’s equity accounted investments as of September 30, 2018 and December 31, 2017:

 
Nine months ended

Year ended

(US$ Millions)
Sep. 30, 2018

Dec. 31, 2017

Equity accounted investments, beginning of period
$
19,761

$
16,844

GGP joint ventures acquired from business acquisition(1)
10,850


Deconsolidation of pre-acquisition GGP equity interest(1)
(8,349
)

Additions
510

1,372

Disposals and return of capital distributions
(647
)
(281
)
Share of net earnings from equity accounted investments(2)
581

961

Distributions received
(362
)
(369
)
Foreign currency translation
(300
)
430

Reclassification to assets held for sale(3)

(712
)
Impact of warrant conversion(2)

1,448

Other comprehensive income and other
(104
)
68

Equity accounted investments, end of period
$
21,940

$
19,761

(1) 
The partnership obtained control of GGP during the third quarter of 2018 following the acquisition of the common shares not previously held by the partnership. As a result of the acquisition, GGP’s interest in joint ventures of $10,850 million was added to the balance of equity accounted investments, offset by the deconsolidation of the partnership’s 34% interest of $7,769 million and fair value loss of $580 million from adjusting the partnership’s interest in GGP to its fair value immediately prior to acquiring control. See Note 3, Acquisition of GGP Inc., for further information.
(2) 
During the fourth quarter of 2017, in the Core Retail segment, the partnership exercised all of its outstanding warrants of GGP. Of these warrants, 16 million were exercised on a cashless basis and the remaining 43 million warrants on a full share settlement basis for approximately $462 million. The exercise resulted in the partnership’s acquisition of an additional 68 million common shares of GGP, increasing its ownership from 29% to 34%. The partnership determined its share of the net fair value of the incremental interests acquired in GGP’s identifiable assets and liabilities. The excess of its share of this net fair value over the cost of the investment of $442 million represents a gain that is included in share of net earnings from equity accounted investments for the year ended December 31, 2017.
(3) 
The partnership’s interest in 245 Park Avenue in Midtown New York was reclassified to assets held for sale in the first quarter of 2017 and sold in the second quarter of 2017.

The key valuation metrics for the partnership’s commercial properties held within the partnership’s equity accounted investments are set forth in the table below on a weighted-average basis:

 
 
Sep. 30, 2018
Dec. 31, 2017
Equity accounted investments
Primary valuation method
Discount rate

Terminal capitalization rate

Investment horizon (yrs)

Discount rate

Terminal capitalization rate

Investment horizon (yrs)
Core Office
 
 
 
 
 
 
 
    United States
Discounted cash flow
6.6
%
5.3
%
11

6.5
%
5.3
%
11
    Australia
Discounted cash flow
6.7
%
5.8
%
10

7.0
%
5.8
%
10
    Europe
Discounted cash flow
4.7
%
4.8
%
10

4.8
%
4.8
%
10
Core Retail
 
 
 
 
 
 
 
    United States(1)
Discounted cash flow
6.7
%
5.3
%
10

7.0
%
5.6
%
10
LP Investments - Office
Discounted cash flow
6.1
%
5.0
%
10

6.6
%
5.7
%
10
LP Investments - Retail
Discounted cash flow
11.3
%
7.1
%
10

11.5
%
7.2
%
11
Industrial
Discounted cash flow
6.2
%
5.4
%
10

6.4
%
5.8
%
10
Multifamily(2)
Direct capitalization
5.1
%
n/a

n/a

5.1
%
n/a

n/a
(1) 
The partnership obtained control of GGP during the third quarter of 2018 following the acquisition of the common shares not previously held by the partnership. Subsequent to this transaction, the partnership is consolidating the financial results of GGP. The period ended September 30, 2018 represents GGP’s joint ventures acquired from the acquisition. The prior period represents the partnership’s 34% interest in GGP prior to the acquisition. Please see Note 3, Acquisition of GGP Inc., for further information.
(2) 
The valuation method used to value multifamily investments 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.

15             


Summarized financial information in respect of the partnership’s equity accounted investments is presented below:

(US$ Millions)
Sep. 30, 2018

Dec. 31, 2017

Non-current assets
$
87,248

$
83,176

Current assets
13,577

3,679

Total assets
100,825

86,855

Non-current liabilities
35,863

31,913

Current liabilities
4,744

4,446

Total liabilities
40,607

36,359

Net assets
60,218

50,496

Partnership’s share of net assets
$
21,940

$
19,761


 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2018

2017

2018

2017

Revenue
$
1,290

$
1,236

$
3,904

$
3,634

Expenses
1,101

738

1,579

2,144

Income from equity accounted investments(1)
61

129

323

375

Income before fair value gains, net
250

627

2,648

1,865

Fair value (losses) gains, net
(522
)
535

(1,663
)
750

Net income
(272
)
1,162

985

2,615

Partnership’s share of net earnings
$
65

$
371

$
581

$
897

(1) 
Share of net earnings from equity accounted investments recorded by the partnership’s joint ventures and associates.

NOTE 7. PARTICIPATING LOAN INTERESTS
Participating loan interests represent interests in certain properties in Australia that do not provide the partnership with control over the entity that owns the underlying property and are held at fair value through profit or loss ("FVTPL") on the condensed consolidated balance sheets. The instruments, which are receivable from a wholly-owned subsidiary of Brookfield Asset Management, have contractual maturity dates of September 26, 2020 and February 1, 2023, subject to the partnership’s prior right to convert into direct ownership interests in the underlying commercial properties, and have contractual interest rates that vary with the results of operations of those properties.

The outstanding principal of the participating loan interests relates to the following properties:

(US$ Millions)
Participation interest
Carrying value
Name of property
Sep. 30, 2018

Dec. 31, 2017

Sep. 30, 2018

Dec. 31, 2017

Darling Park Complex, Sydney
30
%
30
%
$
266

$
251

IAG House, Sydney(1)
%
50
%

111

Jessie Street, Sydney(1)
%
100
%

155

Total participating loan interests
 
 
$
266

$
517

(1) 
In the third quarter of 2018, the partnership amended its agreements to allow the partnership to acquire the trust that holds these underlying properties instead of acquiring the properties directly. This amendment resulted in a change of control, which results in the partnership consolidating the results of these entities.

For the three and nine months ended September 30, 2018, the partnership recognized interest income on the participating loan interests of $2 million (2017 - $7 million) and $15 million (2017 - $21 million), respectively, and fair value gains of $9 million (2017 - $27 million) and $29 million (2017 - $57 million), respectively.

NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment primarily consists of hospitality assets such as Center Parcs UK, Paradise Island Holdings Limited (“Atlantis”), a portfolio of extended-stay hotels in the U.S. and a hotel at IFC.

The following table presents the useful lives of each hospitality asset by class:

Hospitality assets by class
Useful life (in years)
Building and building improvements
5 to 50+
Land improvements
13 to 15
Furniture, fixtures and equipment
2 to 15

16             


The following table presents the change to the components of the partnership’s hotel assets for the nine months ended September 30, 2018 and for the year ended December 31, 2017:

(US$ Millions)
Sep. 30, 2018

Dec. 31, 2017

Cost:
 
 
Balance at the beginning of period
$
5,451

$
5,417

Acquisitions through business combinations(1)
1,426

281

Additions
323

271

Disposals
(14
)
(34
)
Foreign currency translation
(133
)
262

Reclassification to assets held for sale(2)

(746
)
 
7,053

5,451

Accumulated fair value changes:
 
 
Balance at the beginning of period
756

659

Revaluation (loss) gains, net
(2
)
55

Reclassification to assets held for sale(2)

42

 
754

756

Accumulated depreciation:
 
 
Balance at the beginning of period
(750
)
(719
)
Depreciation
(216
)
(267
)
Disposals
9

22

Foreign currency translation
13

(8
)
Reclassification to assets held for sale(2)

222

 
(944
)
(750
)
Total property, plant and equipment
$
6,863

$
5,457

(1) 
In the first quarter of 2018, the partnership acquired the Extended-Stay Hotel portfolio. See Note 4, Business Acquisitions and Combinations, for more information.
(2) 
In the fourth quarter of 2017, the Hard Rock Hotel and Casino was reclassified to assets held for sale, and was sold to a third party in the first quarter of 2018.

NOTE 9. GOODWILL
Goodwill of $1,124 million at September 30, 2018 (December 31, 2017 - $1,079 million) is primarily attributable to Center Parcs UK and IFC Seoul. The partnership performs a goodwill impairment test annually by assessing if the carrying value of the cash-generating unit, including the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value less costs to sell or the value in use.