EX-99.2 3 bpyex992q32019.htm EXHIBIT 99.2 Exhibit
Brookfield Property Partners L.P.

Condensed consolidated financial statements (unaudited)
As at September 30, 2019 and December 31, 2018 and
for the three and nine months ended September 30, 2019 and 2018

1             

Brookfield Property Partners L.P.
Condensed Consolidated Balance Sheets
Unaudited
 
 
As at
(US$ Millions)
Note
 
Sep. 30, 2019

Dec. 31, 2018

Assets
 
 
 
 
Non-current assets
 
 
 
 
Investment properties
4
 
$
70,786

$
80,196

Equity accounted investments
5
 
21,617

22,698

Participating loan interests
6
 
—

268

Property, plant and equipment
7
 
6,769

7,506

Goodwill
8
 
974

1,109

Intangible assets
9
 
1,095

1,179

Other non-current assets
10
 
2,184

1,856

Loans and notes receivable
 
 
248

594

Total non-current assets
 
 
103,673

115,406

Current assets
 
 
 
 
Loans and notes receivable
 
 
73

461

Accounts receivable and other
11
 
1,389

2,361

Cash and cash equivalents
 
 
2,141

3,288

Total current assets
 
 
3,603

6,110

Assets held for sale
12
 
1,780

1,004

Total assets
 
 
$
109,056

$
122,520

 
 
 
 
 
Liabilities and equity
 
 
 
 
Non-current liabilities
 
 
 
 
Debt obligations
13
 
$
45,707

$
57,937

Capital securities
14
 
2,955

2,865

Other non-current liabilities
16
 
1,411

2,294

Deferred tax liabilities
 
 
2,548

2,378

Total non-current liabilities
 
 
52,621

65,474

Current liabilities
 
 
 
 
Debt obligations
13
 
6,695

5,874

Capital securities
14
 
74

520

Accounts payable and other liabilities
17
 
3,585

3,749

Total current liabilities
 
 
10,354

10,143

Liabilities associated with assets held for sale
12
 
1,118

163

Total liabilities
 
 
64,093

75,780

Equity
 
 
 
 
Limited partners
18
 
12,799

12,353

General partner
18
 
4

4

Preferred equity
18
 
421

—

Non-controlling interests attributable to:
 
 
 
 
Redeemable/exchangeable and special limited partnership units
18,19
 
12,684

12,740

Limited partnership units of Brookfield Office Properties Exchange LP
18,19
 
84

96

FV LTIP units of the Operating Partnership
18,19
 
33

—

Class A shares of Brookfield Property REIT Inc. (“BPR”)
18,19
 
1,914

3,091

Interests of others in operating subsidiaries and properties
19
 
17,024

18,456

Total equity
 
 
44,963

46,740

Total liabilities and equity
 
 
$
109,056

$
122,520


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
2019

2018

2019

2018

Commercial property revenue
20
$
1,380

$
1,251

$
4,240

$
3,478

Hospitality revenue
21
472

502

1,466

1,460

Investment and other revenue
22
165

75

410

161

Total revenue
 
2,017

1,828

6,116

5,099

Direct commercial property expense
23
481

478

1,482

1,308

Direct hospitality expense
24
295

315

921

942

Investment and other expense
 
—

17

10

17

Interest expense
 
738

632

2,194

1,689

Depreciation and amortization
25
86

81

256

229

General and administrative expense
26
214

241

656

593

Total expenses
 
1,814

1,764

5,519

4,778

Fair value (losses) gains, net
27
449

556

(273
)
1,943

Share of net earnings from equity accounted investments
5
409

65

1,499

581

Income before income taxes
 
1,061

685

1,823

2,845

Income tax expense (benefit)
15
191

(37
)
217

49

Net income
 
$
870

$
722

$
1,606

$
2,796

 
 
 
 
 
 
Net income attributable to:
 
 
 
 
 
Limited partners
 
$
218

$
144

$
418

$
532

General partner
 
—

—

—

—

Non-controlling interests attributable to:
 
 
 
 
 
Redeemable/exchangeable and special limited partnership units
 
218

206

427

857

Limited partnership units of Brookfield Office Properties Exchange LP
 
2

2

3

16

FV LTIP units of the Operating Partnership
 
—

—

—

—

Class A shares of Brookfield Property REIT Inc.
 
36

28

86

39

Interests of others in operating subsidiaries and properties
 
396

342

672

1,352

Total
 
$
870

$
722

$
1,606

$
2,796

 
 
 
 
 
 
Net income per LP Unit:
 
 
 
 
 
Basic
18
$
0.46

$
0.44

$
0.90

$
1.79

Diluted
18
$
0.46

$
0.43

$
0.90

$
1.77


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
2019

2018

2019

2018

Net income
 
$
870

$
722

$
1,606

$
2,796

Other comprehensive income (loss)
29
 
 
 
 
Items that may be reclassified to net income:
 
 
 
 
 
Foreign currency translation
 
(308
)
(189
)
(231
)
(690
)
Cash flow hedges
 
17

9

(23
)
62

Equity accounted investments
 
(16
)
8

(67
)
29

Items that will not be reclassified to net income:
 
 
 
 
 
Securities - fair value through other comprehensive income ("FVTOCI")
 
(6
)
(1
)
(5
)
(5
)
Remeasurement of defined benefit obligations
 
—

—

(1
)
2

Revaluation surplus
 
—

1

—

3

Total other comprehensive income (loss)
 
(313
)
(172
)
(327
)
(599
)
Total comprehensive income (loss)
 
$
557

$
550

$
1,279

$
2,197

 
 
 
 
 
 
Comprehensive income attributable to:
 
 
 
 
 
Limited partners
 
 
 
 
 
Net income
 
$
218

$
144

$
418

$
532

Other comprehensive income (loss)
 
(103
)
(37
)
(114
)
(136
)
 
 
115

107

304

396

Non-controlling interests
 
 
 
 
 
Redeemable/exchangeable and special limited partnership units
 
 
 
 
 
Net income
 
218

206

427

857

Other comprehensive income (loss)
 
(106
)
(49
)
(117
)
(219
)
 
 
112

157

310

638

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

2

3

16

Other comprehensive income (loss)
 
(1
)
—

(1
)
(4
)
 
 
1

2

2

12

FV LTIP units of the Operating Partnership
 
 
 
 
 
Net income
 
—

—

—

—

Other comprehensive income (loss)
 
—

—

—

—

 
 
—

—

$
—

$
—

Class A shares of Brookfield Property REIT Inc.
 
 
 
 
 
Net income
 
36

28

86

39

Other comprehensive income (loss)
 
(22
)
(10
)
(24
)
(10
)
 
 
14

18

$
62

$
29

Interests of others in operating subsidiaries and properties
 
 
 
 
 
Net income (loss)
 
396

342

672

1,352

Other comprehensive income (loss)
 
(81
)
(76
)
(71
)
(230
)
 
 
315

266

601

1,122

Total comprehensive income (loss)
 
$
557

$
550

$
1,279

$
2,197


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
 
Preferred Equity
 
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
 
Total preferred equity
 
Redeemable /
exchangeable and special limited partnership units
Limited partnership units of Brookfield Office Properties Exchange LP
FV LTIP units of the Operating Partnership
Class A shares of Brookfield Property REIT Inc.
Interests of others in operating subsidiaries and properties
Total equity
Balance as at Dec 31, 2018
$
8,987

$
2,234

$
1,657

$
(525
)
$
12,353

 
$
4

$
2

$
(2
)
$
—

$
4

 
$
—

 
$
12,740

$
96

$
—

$
3,091

$
18,456

$
46,740

Net income
—

418

—

 
418

 
—

—

—

—

—

 
—

 
427

3

—

86

672

1,606

Other comprehensive income (loss)
—

—

—

(114
)
(114
)
 
—

—

—

—

—

 
—

 
(117
)
(1
)
—

(24
)
(71
)
(327
)
Total comprehensive income (loss)
—

418

—

(114
)
304

 
—

—

—

—

—

 
—

 
310

2

—

62

601

1,279

Distributions
—

(427
)
—

—

(427
)
 
—

—

—

—

—

 
—

 
(435
)
(3
)
—

(86
)
(1,814
)
(2,765
)
Preferred distributions
—

(6
)
—

—

(6
)
 
—

—

—

—

—

 
—

 
—

—

—

—

—

(6
)
Issuance / repurchase of interests in operating subsidiaries
(369
)
29

(45
)
—

(385
)
 
—

—

—

—

—

 
421

 
(3
)
—

4

(103
)
(219
)
(285
)
Exchange of exchangeable units
8

—

2

(1
)
9

 
—

—

—

—

—

 
—

 
2

(11
)
—

—

—

—

Conversion of Class A shares of Brookfield Property REIT Inc.
663

—

343

—

1,006

 
—

—

 
—

—

 
—

 
—

—

—

(1,006
)
—

—

Change in relative interests of non-controlling interests
—

—

(18
)
(37
)
(55
)
 
—

—

—

—

—

 
—

 
70

—

29

(44
)
—

—

Balance as at Sep. 30, 2019
$
9,289

$
2,248

$
1,939

$
(677
)
$
12,799

 
$
4

$
2

$
(2
)
$
—

$
4

 
$
421

 
$
12,684

$
84

$
33

$
1,914

$
17,024

$
44,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (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 interest 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 interest 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


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
 
2019

2018

Operating activities
 
 
 
 
Net income
 
 
$
1,606

$
2,796

Share of equity accounted earnings, net of distributions
 
 
(1,170
)
(219
)
Fair value (gains), net
27
 
273

(1,943
)
Deferred income tax expense (benefit)
15
 
128

(57
)
Depreciation and amortization
25
 
256

229

Working capital and other
 
 
(462
)
342

 
 
 
631

1,148

Financing activities
 
 
 
 
Debt obligations, issuance
 
 
14,757

16,704

Debt obligations, repayments
 
 
(12,799
)
(12,933
)
Capital securities redeemed
 
 
(420
)
(555
)
Preferred equity issued
 
 
421

—

Non-controlling interests, issued
 
 
1,423

1,643

Non-controlling interests, purchased
 
 
(15
)
—

Repayment of lease liabilities
 
 
(11
)
—

Limited partnership units, issued
 
 
13

500

Limited partnership units, repurchased
 
 
(381
)
(14
)
Class A shares of Brookfield Property REIT Inc., repurchased
 
 
(102
)
—

Distributions to non-controlling interests in operating subsidiaries
 
 
(1,781
)
(765
)
Distributions to limited partnership unitholders
 
 
(427
)
(278
)
Distributions to redeemable/exchangeable and special limited partnership unitholders
 
 
(435
)
(413
)
Distributions to holders of Brookfield Office Properties Exchange LP units
 
 
(3
)
(8
)
Distributions to holders of Class A shares of Brookfield Property REIT Inc.
 
 
(86
)
(51
)
 
 
 
154

3,830

Investing activities
 
 
 
 
Acquisitions
 
 
 
 
Investment properties
 
 
(2,902
)
(1,457
)
Property, plant and equipment
 
 
(296
)
(314
)
Equity accounted investments
 
 
(523
)
(424
)
Financial assets and other
 
 
(1,560
)
(1,716
)
Acquisition of subsidiaries
 
 
—

(4,749
)
Dispositions
 
 
 
 
Investment properties
 
 
2,210

1,926

Property, plant and equipment
 
 
11

500

Equity accounted investments
 
 
967

571

Financial assets and other
 
 
1,278

1,644

Disposition of subsidiaries
 
 
43

(12
)
Cash impact of deconsolidation
 
 
(1,132
)
102

Restricted cash and deposits
 
 
(15
)
(55
)
 
 
 
(1,919
)
(3,984
)
Cash and cash equivalents
 
 
 
 
Net change in cash and cash equivalents during the period
 
 
(1,134
)
994

Effect of exchange rate fluctuations on cash and cash equivalents held in foreign currencies
 
 
(13
)
(41
)
Balance, beginning of period
 
 
3,288

1,491

Balance, end of period
 
 
$
2,141

$
2,444

 
 
 
 
 
Supplemental cash flow information
 
 
 
 
Cash paid for:
 
 
 
 
Income taxes
 
 
$
205

$
106

Interest (excluding dividends on capital securities)
 
 
$
2,293

$
1,449

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 direct investments are a 50% managing general partnership units (“GP Units” or “GP”) interest in Brookfield Property L.P. (the “operating partnership”) and an interest in BP US REIT LLC, which hold the partnership’s interest in commercial and other income producing property operations. 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, 2019 were approved and authorized for issue by the Board of Directors of the partnership on November 4, 2019.
 
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, 2018, except for accounting standards adopted as identified in Note 2c) 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, 2018.

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)
Adoption of Accounting Standards
IFRS 16, Leases (“IFRS 16”)

The partnership adopted IFRS 16, Leases (“IFRS 16”) effective January 1, 2019. It supersedes IAS 17, Leases (“IAS 17”) and related interpretations. IFRS 16 brings most leases on-balance sheet as right-of-use (“ROU”) assets and lease liabilities 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 applied IFRS 16 using the modified retrospective approach and comparative periods are not restated. The adoption of IFRS 16 resulted in the recognition of lease liabilities for operating leases of $873 million, ROU assets of $721 million that are classified as investment properties, $122 million that are classified as property, plant and equipment, $22 million that are classified as inventory and an immaterial impact to equity. These amounts do not include the lease liabilities and ROU assets of certain investments that were deconsolidated by the partnership on January 31, 2019. See Note 4, Investment Properties for further information.

In applying IFRS 16 for the first time, the partnership has applied the following practical expedients permitted by the standard on a lease-by-lease basis. These practical expedients are only available upon adoption and cannot be applied for any new lease executed after adoption:
•
the accounting for operating leases with a remaining lease term of less than 12 months as of January 1, 2019 as short-term leases;
•
the exclusion of initial direct costs for the measurement of the ROU assets;
•
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
•
adjusting the measurement of the ROU assets by the amount of any provision for onerous leases recognized under IAS 37.

The partnership has also elected not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains a Lease (“IFRIC 4”) will continue to be applied to leases entered or modified before January 1, 2019.


7             


Lease obligations at December 31, 2018 are as follows, as disclosed in the partnership’s annual report on Form 20-F for the year-ended December 31, 2018:

(US$ Millions)
Dec. 31, 2018

Less than 1 year
$
104

1-5 years
401

More than 5 years
5,631

Total
$
6,136


The lease obligations as disclosed in the table above included leases that are classified as finance leases, short-term leases and low-value leases, which are immaterial. It also included operating leases held by certain investments that were deconsolidated as of January 31, 2019. The partnership calculated the lease liabilities for the operating leases by discounting the future lease obligations at the respective incremental borrowing rates at the date of initial adoption. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities recognized at the date of initial adoption was 6.8%. Total lease liabilities for the nine months ended September 30, 2019 consists of $37 million current lease liabilities and $799 million non-current lease liabilities.

Significant accounting policies
The partnership determines at the inception of a contract if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The criteria specified in IFRS 16 apply to contracts entered into, or changed, on or after January 1, 2019. Lease components and non-lease components are separated on a relative stand-alone selling price basis for the partnership’s leases as lessor. For the partnership’s leases as lessee, the partnership applies the practical expedient which is available by asset class not to allocate contract consideration between lease and non-lease components. The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration.

The partnership as lessee
The partnership recognizes a ROU asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for leases with a lease term of 12 months or less (“short-term leases”) and leases of low value assets (“low-value leases”). For these leases, the partnership recognizes the lease payments as an expense on a straight-line basis over the term of the lease.

Lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease if that rate can be readily determined. If the rate cannot be readily determined, the partnership uses its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment. This rate is expected to be similar to the interest rate implicit in the lease. Where a lease contains a parental guarantee, the incremental borrowing rate may be determined with reference to the parent rather than the lessee. The partnership uses a single discount rate to account for portfolios of leases with similar characteristics. Lease payments included in the measurement of the lease liability is comprised of i) fixed lease payments, less any lease incentives; ii) variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; iii) the amount expected to be payable by the lessee under residual value guarantees; iv) the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and v) payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. Lease liability is presented in Accounts payable and other liabilities (current) and Other non-current liabilities (non-current) on the consolidated balance sheets. Lease liability is subsequently measured under the effective interest method that is increased by the interest expense on the lease liability recognized on the consolidated statements of income and reduced by lease payments made that is recognized on the consolidated statements of cash flows. Lease payments not included in the measurement of lease liabilities continue to be recognized in direct commercial property expense, direct hospitality expense or general and administrative expense lines on the consolidated statements of income.

ROU asset comprises the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. ROU assets classified as investment properties are subsequently measured at fair value. ROU assets classified as property, plant and equipment are subsequently measured at depreciated cost basis over the lease term. If such lease transfers ownership of the underlying asset or the cost of the ROU asset reflects that the partnership expects to exercise a purchase option, the related ROU asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. ROU assets classified as inventory are subsequently carried at cost subject to impairment. ROU assets are presented in the respective lines based on their classification on the consolidated balance sheets. Whenever the partnership incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. The costs are included in the related ROU asset.

The partnership remeasures lease liabilities and makes a corresponding adjustment to the related ROU assets when i) the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; ii) the lease payments have changed due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); or iii) a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

8             



The partnership as lessor
IFRS 16 does not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently. Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the head lease.

Critical judgments and estimates in applying IFRS 16
The partnership has applied critical judgments in the application of IFRS 16, including: i) identifying whether a contract (or part of a contract) includes a lease; ii) determining whether it is reasonably certain that a lease extension or termination option will be exercised in determining lease term; iii) determining the classification of lease agreements for lessor leases; iv) determining whether variable payments are in-substance fixed; v) establishing whether there are multiple leases in an arrangement; and vi) determining the fair value method of ROU assets classified as investment properties. The partnership also makes judgments in determining whether certain leases are operating or finance leases.

The partnership uses critical estimates in the application of IFRS 16, including the estimation of lease term and determination of the appropriate rate to discount the lease payments.

Amendments to IFRS 3, Business Combination
    
The partnership adopted the Amendments to IFRS 3, Business Combinations (“IFRS 3 Amendments”) effective January 1, 2019 in advance of its mandatory effective date. IFRS 3 Amendments clarifies the definition of a business in determining whether an acquisition is a business combination or an asset acquisition. It has removed the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs and the reference to an ability to reduce costs, and requires, at a minimum, the acquired set of activities and assets to include an input and a substantive process to meet the definition of a business. IFRS 3 Amendments also provides for an optional concentration test to assess whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The partnership has adopted the standard prospectively.

After the adoption of the IFRS 3 Amendments, the partnership continues to account for business combinations in which control is acquired under the acquisition method. When an acquisition is made, the partnership considers the inputs, processes and outputs of the acquiree in assessing whether it meets the definition of a business. When the acquired set of activities and assets lack a substantive process in place but will be integrated into the partnership’s existing operations, the acquisition ceases to meet the definition of a business and is accounted for as asset acquisition. Assets acquired through asset acquisitions are initially measured at cost, which includes the transaction costs incurred for the acquisitions.

d)
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, 2018 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, 2019, except for the adopted accounting policies as disclosed in Note 2c) above.

NOTE 3. BUSINESS COMBINATIONS
The partnership did not complete any business combinations in the nine months ended September 30, 2019.

The partnership completed the following significant business combinations (prior to the adoption of IFRS 3 Amendments) during 2018 that were accounted for on a provisional basis in Note 4, Acquisition of GGP and Note 5, Acquisitions and Business Combinations of the partnership’s annual report on Form 20-F for the year ended December 31, 2018:

•
On August 3, 2018, the partnership acquired a 100% leasehold interest in 660 Fifth Avenue, a commercial office asset in New York, for consideration of $1,299 million. In the first quarter of 2019, the partnership completed the purchase price allocation for 660 Fifth Avenue. No material changes were made to the provisional purchase price allocation. This asset was deconsolidated by the partnership on January 31, 2019. See Note 4, Investment Properties for further information.

•
On August 28, 2018, the partnership acquired all of the outstanding shares of common stock of GGP Inc. (“GGP”) (“GGP acquisition”) other than those shares previously held by the partnership and its affiliates, which represented a 34% interest in GGP prior to the acquisition. In the transaction, former GGP shareholders elected to receive, for each GGP common share, subject to proration, either $23.50 in cash or either one LP Unit or one Class A stock of Brookfield Property REIT Inc. (“BPR Unit”). As a result of the GGP acquisition, 161 million BPR Units and 88 million LP Units were issued to former GGP shareholders. In the second quarter of 2019, the partnership completed the purchase price allocation for GGP. No material changes were made to the provisional purchase price allocation.

•
On December 7, 2018, the partnership acquired all of the outstanding common shares of Forest City Realty Trust Inc. (“Forest City”), a publicly traded company which owned a portfolio of office, multifamily and mixed-use assets across the U.S, for consideration of $6,948 million. During 2019, the partnership finalized the review over the fair value of the investment properties and property debt obligations as at the acquisition date and recognized an opening equity adjustment of $500 million that mostly consisted of a bargain purchase gain. The bargain purchase gain was reflecting the discount to net asset value of the previously publicly traded shares of Forest City. The

9             

partnership is currently reviewing the deferred tax asset and deferred tax liability as part of the provisional purchase price allocation. This portfolio was deconsolidated by the partnership on January 31, 2019. See Note 4, Investment Properties for further information.

NOTE 4. 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, 2019 and the year ended December 31, 2018:

 
Nine months ended Sep. 30, 2019
Year ended Dec. 31, 2018
(US$ Millions)
Commercial properties

Commercial developments

Total

Commercial properties

Commercial developments

Total

Balance, beginning of period
$
76,014

$
4,182

$
80,196

$
48,780

$
2,577

$
51,357

Changes resulting from:
 
 
 
 
 
 
  Property acquisitions(1)
2,957

195

3,152

31,783

1,658

33,441

  Capital expenditures
1,074

910

1,984

1,098

1,185

2,283

Accounting policy change(2)
699

22

721

—

—

—

Property dispositions(3)
(461
)
(25
)
(486
)
(4,115
)
(451
)
(4,566
)
Fair value gains (losses), net
(361
)
457

96

784

462

1,246

Foreign currency translation
(466
)
(97
)
(563
)
(1,387
)
(121
)
(1,508
)
Transfer between commercial properties and commercial developments
289

(289
)
—

1,123

(1,123
)
—

Impact of deconsolidation due to loss of control(4)
(10,701
)
(798
)
(11,499
)
—

—

—

Reclassifications to assets held for sale and other changes
(2,748
)
(67
)
(2,815
)
(2,052
)
(5
)
(2,057
)
Balance, end of period(5)
$
66,296

$
4,490

$
70,786

$
76,014

$
4,182

$
80,196

(1) 
The prior year primarily includes the commercial properties and developments from the GGP acquisition in 2018.
(2) 
Includes the impact of the adoption of IFRS 16 through the recognition of right-of-use assets. See Note 2, Summary of Significant Accounting Policies for further information.
(3) 
Property dispositions represent the carrying value on date of sale.
(4) 
Includes the impact of the deconsolidation of Brookfield Strategic Real Estate Partners III (“BSREP III”) investments. See below for further information.
(5) 
Includes right-of-use commercial properties and commercial developments of $650 million and $29 million, respectively, as of September 30, 2019. Current lease liabilities of $33 million has been included in accounts payable and other liabilities and non-current lease liabilities of $646 million have been included in other non-current liabilities.

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 generally completed by undertaking one of two accepted income approach methods, which include either: i) discounting the expected future cash flows, generally over a term of 10 years including a terminal value based on the application of a capitalization rate to estimated year 11 cash flows; or ii) undertaking a direct capitalization approach whereby a capitalization rate is applied to estimated current year cash flows. Where there has been a recent market transaction for a specific property, such as an acquisition or sale of a partial interest, the partnership values the property on that basis. 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 this report. 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 subsidiaries, the partnership relies on quarterly valuations prepared by external valuation professionals. Management compares the external valuations to the partnership’s internal valuations to review the work performed by the 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.

10             

(a)2019 Transactions
BSREP III deconsolidation
In the first quarter of 2019, BSREP III held its final close with total equity commitments of $15 billion. Prior to final close, the partnership had committed to 25%, or a controlling interest in the fund and as a result, had previously consolidated the investments made to date. Upon final close, on January 31, 2019, the partnership reduced its commitment to $1.0 billion, representing a 7% non-voting position. As a result, the partnership lost control and deconsolidated its investment in the fund, which primarily consists of Forest City and 666 Fifth Avenue. The partnership recognizes its investment in BSREP III as a financial asset, initially recognized at fair value and remeasured on each reporting date through fair value gain or loss. As a result of the deconsolidation, investment properties decreased by $11,499 million, equity accounted investments decreased by $1,434 million, property, plant and equipment decreased by $789 million and debt obligations decreased by $13,601 million.

Adoption of IFRS 16
The impact of the January 1, 2019 adoption of IFRS 16 resulted in the recognition of ROU investment properties of $721 million. Fair value loss related to IFRS 16 ROU assets for the nine months ended September 30, 2019 was $1 million. As of September 30, 2019, ROU investment properties was $679 million.

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

 
 
Sep. 30, 2019
Dec. 31, 2018
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
6.8
%
5.5
%
12
6.9
%
5.6
%
12
    Canada
Discounted cash flow
5.9
%
5.4
%
10
6.0
%
5.4
%
10
    Australia
Discounted cash flow
6.8
%
5.9
%
10
7.0
%
6.2
%
10
    Brazil
Discounted cash flow
7.9
%
7.4
%
6
9.6
%
7.7
%
6
Core Retail
Discounted cash flow
7.0
%
5.6
%
10
7.1
%
6.0
%
12
LP Investments- Office
Discounted cash flow
10.1
%
7.2
%
6
10.2
%
7.0
%
6
LP Investments- Retail
Discounted cash flow
8.8
%
7.3
%
10
8.9
%
7.8
%
9
Mixed-use
Discounted cash flow
7.6
%
5.4
%
10
7.8
%
5.4
%
10
Logistics(1)
Direct capitalization
5.8
%
n/a

n/a
9.3
%
8.3
%
10
Multifamily(1)
Direct capitalization
5.1
%
n/a

n/a
4.8
%
n/a

n/a
Triple Net Lease(1)
Direct capitalization
6.4
%
n/a

n/a
6.3
%
n/a

n/a
Self-storage(1)
Direct capitalization
5.6
%
n/a

n/a
5.7
%
n/a

n/a
Student Housing(1)
Direct capitalization
5.6
%
n/a

n/a
5.6
%
n/a

n/a
Manufactured Housing(1)
Direct capitalization
5.4
%
n/a

n/a
5.4
%
n/a

n/a
(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.

11             


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, 2018:

 
Sep. 30, 2019
Dec. 31, 2018
 
 
 
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
$
—

$
—

$
15,004

$
949

$
—

$
—

$
14,415

$
822

Canada
—

—

4,404

156

—

—

4,127

118

Australia
—

—

1,798

370

—

—

2,342

49

Europe
—

—

18

1,729

—

—

137

1,194

Brazil
—

—

342

—

—

—

329

—

Core Retail
—

—

18,268

521

—

—

17,224

383

LP Investments
 
 
 
 
 
 
 
 
LP Investments- Office(1)
—

—

8,101

685

—

—

7,861

577

LP Investments- Retail
—

—

2,766

—

—

—

3,408

6

Logistics
—

—

81

9

—

—

183

—

Multifamily
—

—

2,900

—

—

—

4,151

—

Triple Net Lease
—

—

4,454

—

—

—

5,067

—

Self-storage
—

—

961

11

—

—

847

84

Student Housing
—

—

2,235

60

—

—

2,031

386

Manufactured Housing
—

—

2,410

—

—

—

2,369

—

Mixed-Use(1)
—

—

2,554

—

—

—

11,523

563

Total
$
—

$
—

$
66,296

$
4,490

$
—

$
—

$
76,014

$
4,182

(1)
Includes the impact of the deconsolidation of BSREP III investments. See above for further information.

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, 2019, for properties valued using the discounted cash flow or direct capitalization method, respectively:

 
Sep. 30, 2019
(US$ Millions)
Impact on fair value of commercial properties

Core Office
 
United States
$
939

Canada
492

Australia
189

Brazil
10

Core Retail
911

LP Investments
 
LP Investments- Office
308

LP Investments- Retail
164

Logistics
3

Mixed-use
118

Multifamily
191

Triple Net Lease
128

Self-storage
35

Student Housing
95

Manufactured Housing
106

Total
$
3,689


 

12             

NOTE 5. 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. 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, 2019

Dec. 31, 2018

Sep. 30, 2019

Dec. 31, 2018

Joint Ventures
 
 
 
 
 
 
Canary Wharf Joint Venture(1)
Property holding company
United Kingdom
50
%
50
%
$
3,206

$
3,270

BPR JV Pool A
Property holding company
United States
50
%
50
%
1,903

1,791

Manhattan West, New York
Property holding company
United States
56
%
56
%
1,849

1,619

Ala Moana Center, Hawaii
Property holding company
United States
50
%
50
%
2,052

1,611

Forest City Joint Ventures(2)
Property holding company
United States
—
%
—
%
—

1,390

BPR JV Pool B
Property holding company
United States
51
%
51
%
1,361

1,217

Fashion Show, Las Vegas
Property holding company
United States
50
%
50
%
860

881

BPR JV Pool C
Property holding company
United States
50
%
50
%
744

756

BPR JV Pool D
Property holding company
United States
48
%
48
%
696

693

BPR JV Pool E
Property holding company
United States
35
%
35
%
581

629

The Grand Canal Shoppes, Las Vegas
Property holding company
United States
50
%
50
%
457

608

Grace Building, New York
Property holding company
United States
50
%
50
%
688

581

One Liberty Plaza, New York
Property holding company
United States
51
%
51
%
392

425

Southern Cross East, Melbourne(3)
Property holding company
Australia
50
%
50
%
431

402

680 George Street, Sydney
Property holding company
Australia
50
%
50
%
323

319

Brookfield Brazil Retail Fundo de Investimento em Participaçõe
Holding company
Brazil
46
%
46
%
284

309

Brookfield D.C. Office Partners LLC ("D.C. Fund"), Washington, D.C.
Property holding company
United States
51
%
51
%
289

295

Miami Design District, Florida
Property holding company
United States
22
%
22
%
272

286

The Mall in Columbia, Maryland
Property holding company
United States
50
%
50
%
288

268

Shops at Merrick Park, Florida
Property holding company
United States
55
%
55
%
294

266

Other(4)
Various
Various
14% - 68%

12% - 70%

4,091

4,237

 
 
 
 
 
21,061

21,853

Associates
 
 
 
 
 
 
Diplomat Resort and Spa
Property holding company
United States
90
%
90
%
234

390

Brookfield Premier Real Estate Partners Pooling LLC ("BPREP")(5)
Property holding company
United States
—
%
7
%
—

106

Other
Various
Various
23% - 31%

23% - 31%

322

349

 
 
 
 
 
556

845

Total
 
 
 
 
$
21,617

$
22,698

(1) 
Stork Holdco LP is the joint venture through which the partnership acquired Canary Wharf Group plc in London.
(2) 
Includes the impact of the deconsolidation of BSREP III investments, primarily Forest City. See below 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 46 joint ventures.
(5) 
In the first quarter of 2019, the partnership accounted for its interest in BPREP as a financial asset and is no longer an equity accounted investment.

(a)2019 Transactions
The deconsolidation of BSREP III resulted in a decrease to equity accounted investments of $1,434 million. Please see Note 4, Investment Properties for further information.

(b)2018 Transactions
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 and its affiliates. 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, Business Combinations, for further information.

The partnership obtained control of Forest City during the fourth quarter of 2018 following the acquisition. The partnership was consolidating the financial results of Forest City, including its interests in properties held through joint ventures. Forest City has since been deconsolidated as mentioned above.

13             


The following table presents the change in the balance of the partnership’s equity accounted investments as of September 30, 2019 and December 31, 2018:

 
Nine months ended

Year ended

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Equity accounted investments, beginning of period
$
22,698

$
19,761

GGP joint ventures acquired from business acquisition(1)
—

10,829

Deconsolidation of pre-acquisition GGP equity interest(1)
—

(8,345
)
Additions
522

2,174

Disposals and return of capital distributions
(463
)
(1,304
)
Share of net earnings from equity accounted investments
1,499

947

Distributions received
(329
)
(518
)
Foreign currency translation
(211
)
(395
)
Reclassification to assets held for sale(2)
34

(567
)
Impact of deconsolidation due to loss of control(3)
(1,434
)
—

Other comprehensive income and other
(699
)
116

Equity accounted investments, end of period
$
21,617

$
22,698

(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 and its affiliates. As a result of the acquisition, GGP’s interest in joint ventures of $10,829 million was added to the balance of equity accounted investments, offset by the deconsolidation of the partnership’s 34% interest of $7,843 million and fair value loss of $502 million from adjusting the partnership’s interest in GGP to its fair value immediately prior to acquiring control.
(2) 
The partnership’s interest in CXTD was reclassified to assets held for sale in the fourth quarter of 2018 and sold in the first quarter in 2019.
(3) 
Includes the impact of the deconsolidation of BSREP III investments, primarily Forest City. See above for further information.

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, 2019
Dec. 31, 2018
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
6.8
%
4.9
%
11
6.6
%
5.1
%
10
    Australia
Discounted cash flow
6.5
%
5.2
%
10
6.7
%
5.7
%
10
    Europe
Discounted cash flow
4.6
%
5.0
%
10
4.7
%
4.9
%
10
Core Retail
 
 
 
 
 
 
 
    United States
Discounted cash flow
6.3
%
4.9
%
10
6.6
%
5.3
%
11
LP Investments - Office
Discounted cash flow
6.0
%
5.3
%
10
6.9
%
5.2
%
9
LP Investments - Retail
Discounted cash flow
8.3
%
7.0
%
10
8.4
%
7.1
%
10
Multifamily(1)
Direct capitalization
5.3
%
n/a

n/a
5.2
%
n/a

n/a
(1) 
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.

14             

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

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Non-current assets
$
79,214

$
90,031

Current assets
4,314

4,395

Total assets
83,528

94,426

Non-current liabilities
30,546

37,900

Current liabilities
6,916

4,778

Total liabilities
37,462

42,678

Net assets
46,066

51,748

Partnership’s share of net assets
$
21,617

$
22,698


 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Revenue
$
1,241

$
1,290

$
3,783

$
3,904

Expenses
789

1,101

2,474

1,579

Income from equity accounted investments(1)
53

61

115

323

Income before fair value gains, net
505

250

1,424

2,648

Fair value (losses) gains, net
361

(522
)
1,543

(1,663
)
Net income
866

(272
)
2,967

985

Partnership’s share of net earnings
$
409

$
65

$
1,499

$
581

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

NOTE 6. 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, are 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 property:

(US$ Millions)
Participation interest
Carrying value
Name of property
Sep. 30, 2019

Dec. 31, 2018

Sep. 30, 2019

Dec. 31, 2018

Darling Park Complex, Sydney(1)
—
%
30
%
$
—

$
268

Total participating loan interests
 
 
$
—

$
268

(1) 
The partnership sold the Darling Park Complex in the third quarter of 2019.

For the three and nine months ended September 30, 2019, the partnership recognized interest income on the participating loan interests of $1 million (2018 - $2 million) and $8 million (2018 - $15 million), respectively, and fair value gains of nil (2018 - $9 million) and $41 million (2018 - $29 million), respectively. The partnership sold the Darling Park Complex in the third quarter of 2019.

NOTE 7. 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 Seoul.

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

15             

The following table presents the change to the components of the partnership’s hotel assets for the nine months ended September 30, 2019 and for the year ended December 31, 2018:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Cost:
 
 
Balance at the beginning of period
$
7,461

$
5,451

Acquisitions through business acquisitions
—

1,748

Accounting policy change(1)
122

—

Additions
302

490

Disposals
(40
)
(21
)
Foreign currency translation
(124
)
(207
)
Impact of deconsolidation due to loss of control and other(2)
(789
)
—

 
6,932

7,461

Accumulated fair value changes:
 
 
Balance at the beginning of period
1,049

756

Revaluation (loss) gains, net
—

293

Impact of deconsolidation due to loss of control and other(2)
(9
)
—

 
1,040

1,049

Accumulated depreciation:
 
 
Balance at the beginning of period
(1,004
)
(750
)
Depreciation
(245
)
(291
)
Disposals
24

18

Foreign currency translation
15

19

Impact of deconsolidation due to loss of control and other(2)
7

—

 
(1,203
)
(1,004
)
Total property, plant and equipment
$
6,769

$
7,506

(1) 
Includes the impact of the adoption of IFRS 16 through the recognition of right-of-use assets. See Note 2, Summary of Significant Accounting Policies for further information.
(2) 
Includes the impact of the deconsolidation of BSREP III investments. See Note 4, Investment Properties for further information.

NOTE 8. GOODWILL
Goodwill of $974 million at September 30, 2019 (December 31, 2018 - $1,109 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.

NOTE 9. INTANGIBLE ASSETS
The partnership’s intangible assets are presented on a cost basis, net of accumulated amortization and accumulated impairment losses in the condensed consolidated balance sheets. These intangible assets primarily represent the trademark assets related to Center Parcs UK and Atlantis.

The trademark assets of Center Parcs UK had a carrying amount of $888 million as of September 30, 2019 (December 31, 2018 - $921 million). They have been determined to have an indefinite useful life as the partnership has the legal right to operate these trademarks exclusively in certain territories and in perpetuity. The business model of Center Parcs UK is not subject to technological obsolescence or commercial innovations in any material way.

In addition, intangible assets include the trademark and licensing assets relating to Atlantis. At September 30, 2019, intangible assets of the Atlantis had a carrying value of $205 million (December 31, 2018 - $207 million). They have been determined to have an indefinite useful life as the partnership has the legal right to operate these intangible assets granted under perpetual licenses. The business model of Atlantis is not subject to technological obsolescence or commercial innovations in any material way.

Intangible assets by class
Useful life (in years)

Trademarks
Indefinite

Management contracts
40

Customer relationships
9

Other
4 to 7


Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Intangible assets with finite useful lives are amortized over their respective useful lives as listed above. Amortization expense is recorded as part of depreciation and amortization of non-real estate assets expense.

16             


The following table presents the components of the partnership’s intangible assets as of September 30, 2019 and December 31, 2018:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Cost
$
1,194

$
1,273

Accumulated amortization
(51
)
(46
)
Accumulated impairment losses
(48
)
(48
)
Balance, end of period
$
1,095

$
1,179


The following table presents a roll forward of the partnership’s intangible assets for the nine months ended September 30, 2019 and the year ended December 31, 2018:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Balance, beginning of period
$
1,179

$
1,188

Acquisitions
9

67

Disposals
—

2

Amortization
(10
)
(17
)
Foreign currency translation
(34
)
(58
)
Reclassification to assets held for sale and other(1)
(49
)
(3
)
Balance, end of period
$
1,095

$
1,179

(1) 
Includes the impact of the deconsolidation of BSREP III investments. See Note 4, Investment Properties for further information.

NOTE 10. OTHER NON-CURRENT ASSETS
The components of other non-current assets are as follows:
(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Securities - FVTPL
$
1,081

$
239

Derivative assets
7

13

Securities - FVTOCI
117

260

Restricted cash
160

161

Inventory
573

435

Other
246

748

Total other non-current assets
$
2,184

$
1,856


Securities - FVTPL
Securities - FVTPL consists primarily of the partnership’s investment in convertible preferred units of a U.S. hospitality operating company. The preferred units earn a fixed cumulative dividend of 7.5% per annum compounding quarterly. Additionally, the partnership receives distributions in additional convertible preferred units of the U.S. hospitality operating company at 5.0% per annum compounding quarterly. In the first quarter of 2019, the partnership purchased an additional $222 million of convertible preferred units of a U.S. hospitality operating company. The carrying value of these convertible preferred units at September 30, 2019 was $413 million (December 31, 2018 - $175 million).

Also included in Securities - FVTPL is the partnership’s investment in BSREP III, which is accounted for as a financial asset following the deconsolidation of its investments in the first quarter of 2019. The carrying value of the BSREP III financial asset at September 30, 2019 was $379 million (December 31, 2018 - nil).

Securities - FVTOCI
Securities - FVTOCI represented the partnership’s retained equity interests in 1625 Eye Street in Washington, D.C. and Heritage Plaza in Houston, both property holding companies, that it previously controlled and in which it retained a non-controlling interest following disposition of these properties to third parties. The partnership managed these properties on behalf of the acquirer but did not exercise significant influence over the relevant activities of the properties. The interest in 1625 Eye Street was sold as of September 30, 2019.


17             

NOTE 11. ACCOUNTS RECEIVABLE AND OTHER
The components of accounts receivable and other are as follows:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Derivative assets
$
116

$
234

Accounts receivable(1)
488

794

Restricted cash and deposits
294

631

Prepaid expenses
256

317

Other current assets
235

385

Total accounts receivable and other
$
1,389

$
2,361

(1) 
See Note 32, Related Parties, for further discussion.

NOTE 12. HELD FOR SALE
Non-current assets and groups of assets and liabilities which comprise disposal groups are presented as assets held for sale where the asset or disposal group is available for immediate sale in its present condition, and the sale is highly probable.

The following is a summary of the assets and liabilities that were classified as held for sale as of September 30, 2019 and December 31, 2018:
(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Investment properties
$
1,745

$
422

Equity accounted investments
—

568

Accounts receivable and other assets
35

14

Assets held for sale
1,780

1,004

Debt obligations
1,069

153

Accounts payable and other liabilities
49

10

Liabilities associated with assets held for sale
$
1,118

$
163


The following table presents the change to the components of the assets held for sale for the nine months ended September 30, 2019 and the year ended December 31, 2018:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Balance, beginning of period
$
1,004

$
1,433

Reclassification to assets held for sale, net
3,031

2,382

Disposals
(2,306
)
(2,819
)
Fair value adjustments
62

81

Foreign currency translation
(11
)
(32
)
Other
—

(41
)
Balance, end of period
$
1,780

$
1,004


At December 31, 2018, assets held for sale included ten office assets in the U.S., three office assets in Brazil, two triple-net lease assets in the U.S. and an equity accounted investment within the LP Investments portfolio.

In the first quarter of 2019, the partnership sold nine office assets in the U.S., three office assets in Brazil, one triple-net lease asset in the U.S and an equity accounted investment within the LP Investments portfolio for net proceeds of approximately $844 million.

In the second quarter of 2019, the partnership sold a portfolio of office assets in California and three triple-net lease assets in the U.S. within the LP Investments portfolio for net proceeds of approximately $129 million.

In the third quarter of 2019, the partnership sold two office assets in Australia in the Core Office segment and a portfolio of triple-net lease assets in the U.S. and one office asset in the U.S. in the LP Investments segment for net proceeds of approximately $541 million.

At September 30, 2019, assets held for sale included nine triple-net lease assets in the U.S., a portfolio of multifamily assets in the U.S. and one office asset in the U.S. in our LP Investments segment, and one office asset in Australia in our Core Office portfolio.

18             

NOTE 13. DEBT OBLIGATIONS
The partnership’s debt obligations include the following:
 
Sep. 30, 2019
Dec. 31, 2018
(US$ Millions)
Weighted-average rate

Debt balance

Weighted-average rate

Debt balance

Unsecured facilities:
 
 
 
 
Brookfield Property Partners’ credit facilities
3.64 %

1,311

4.08
%
1,586

Brookfield Property Partners’ corporate bonds
4.25 %

1,061

4.23
%
586

Brookfield Property REIT Inc. term debt
4.41 %

4,392

4.88
%
4,726

Brookfield Property REIT Inc. senior secured notes
5.75 %

1,000

—
%
—

Brookfield Property REIT Inc. corporate facility
4.29 %

315

4.76
%
387

Brookfield Property REIT Inc. junior subordinated notes
3.72 %

206

3.97
%
206

Forest City Realty Trust Inc. term debt(1)
—
%
—

6.38
%
1,247

Subsidiary borrowings
3.59 %

90

5.62
%
495

 
 
 
 
 
Secured debt obligations:
 
 
 
 
Funds subscription credit facilities(1)(2)
3.33
%
17

3.85
%
4,517

Fixed rate
4.43
%
26,679

4.41
%
25,545

Variable rate
4.99
%
18,700

4.97
%
25,131

Deferred financing costs
 
(300
)
 
(462
)
Total debt obligations
 
$
53,471

 
$
63,964

 
 
 
 
 
Current
 
6,695

 
5,874

Non-current
 
45,707

 
57,937

Debt associated with assets held for sale
 
1,069

 
153

Total debt obligations
 
$
53,471

 
$
63,964

(1) 
In the first quarter of 2019, the partnership deconsolidated BSREP III due to loss of control. The Forest City term debt and the BSREP III credit facilities are no longer being consolidated. See Note 4, Investment Properties for further information.
(2) 
Funds subscription credit facilities are secured by co-investors’ capital commitments.

Debt obligations include foreign currency denominated debt in the functional currencies of the borrowing subsidiaries. Debt obligations by currency are as follows:
 
Sep. 30, 2019
Dec. 31, 2018
(Millions)
U.S. Dollars

 
Local
currency

U.S. Dollars

 
Local
currency

U.S. Dollars
$
38,980

$
38,980

$
50,682

$
50,682

British Pounds
5,354

£
4,356

5,172

£
4,053

Canadian Dollars
3,371

C$
4,463

2,688

C$
3,666

South Korean Won
1,505

₩
1,805,000

1,617

₩
1,805,000

Australian Dollars
1,338

A$
1,982

1,401

A$
1,988

Indian Rupee
2,217

Rs
156,105

1,469

Rs
102,016

Brazilian Reais
718

R$
2,992

684

R$
2,651

Chinese Yuan
11

C¥
79

70

C¥
484

Euros
277

€
254

643

€
561

Deferred financing costs
(300
)
 
 
(462
)
 
 
Total debt obligations
$
53,471

 
 
$
63,964

 
 

The components of changes in debt obligations, including changes related to cash flows from financing activities, are summarized in the table below:

 
 
 
Non-cash changes in debt obligations
 
(US$ Millions)
Dec. 31, 2018

Debt obligation issuance, net of repayments

Derecognized from loss of control of subsidiaries

Assumed by purchaser

Amortization of deferred financing costs and (premium) discount

Foreign currency translation

Other

Sep. 30, 2019

Debt obligations
$
63,964

1,958

(13,601
)
1,465

86

(395
)
(6
)
$
53,471



19             

NOTE 14. CAPITAL SECURITIES
The partnership has the following capital securities outstanding as of September 30, 2019 and December 31, 2018:

(US$ Millions)
Shares outstanding

Cumulative dividend rate

Sep. 30, 2019

Dec. 31, 2018

Operating Partnership Class A Preferred Equity Units:
 
 
 
 
Series 1
24,000,000

6.25
%
$
571

$
562

Series 2
24,000,000

6.50
%
543

537

Series 3
24,000,000

6.75
%
529

523

Brookfield BPY Holdings Inc. Junior Preferred Shares:
 
 
 
 
Class B Junior Preferred Shares(1)
—

7.64
%
—

420

Brookfield Office Properties Inc. (“BPO”) Class B Preferred Shares:
 
 
 
 
Series 1(2)
3,600,000

70% of bank prime

—

—

Series 2(2)
3,000,000

70% of bank prime

—

—

Brookfield Property Split Corp. (“BOP Split”) Senior Preferred Shares:
 
 
 
Series 1
924,390

5.25
%
23

23

Series 2
699,165

5.75
%
13

13

Series 3
909,814

5.00
%
17

17

Series 4
940,486

5.20
%
18

17

BSREP II RH B LLC (“Manufactured Housing”) Preferred Capital
—

9.00
%
249

249

Rouse Series A Preferred Shares
5,600,000

5.00
%
142

142

BSREP II Vintage Estate Partners LLC ("Vintage Estate") Preferred Shares
10,000

5.00
%
40

40

Forest City Enterprises L.P. (“Forest City”) Preferred Capital(3)
—

—
%
—

29

Capital Securities – Fund Subsidiaries
 
 
884

813

Total capital securities
 
 
$
3,029

$
3,385

 
 
 
 
 
Current
 
 
74

520

Non-current
 
 
2,955

2,865

Total capital securities
 
 
$
3,029

$
3,385

(1) 
During the nine months ended September 30, 2019, $420 million of the Brookfield BPY Holdings Inc. Class B Junior Preferred Shares, held by Brookfield Asset Management, were redeemed.
(2) 
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.
(3) 
Includes the impact of the deconsolidation of BSREP III investments, primarily Forest City. Note 4, Investment Properties for further information.
 
Cumulative preferred dividends on the BOP Split Senior Preferred Shares are payable quarterly, as and when declared by BOP Split. On September 29, 2019, BOP Split declared quarterly dividends payable for the BOP Split Senior Preferred Shares.

Capital securities includes $249 million at September 30, 2019 (December 31, 2018 - $249 million) of preferred equity interests held by a third party investor in Manufactured Housing which have been classified as a liability, rather than as a non-controlling interest, due to the fact the holders are entitled to distributions equal to their capital balance plus 9% annual return payable in monthly distributions until maturity in December 2025.

Capital securities also includes $142 million at September 30, 2019 (December 31, 2018 - $142 million) of preferred equity interests held by a third party investor in Rouse Properties, L.P. (“Rouse”) which have been classified as a liability, rather than as a non-controlling interest, due to the fact that the interests are mandatorily redeemable on or after November 12, 2025 for a set price per unit plus any accrued but unpaid distributions; distributions are capped and accrue regardless of available cash generated.

Capital securities also includes $40 million at September 30, 2019 (December 31, 2018 - $40 million) of preferred equity interests held by the partnership’s co-investor in Vintage Estate which have been classified as a liability, rather than as non-controlling interest, due to the fact that the preferred equity interests are mandatorily redeemable on April 26, 2023 for cash at an amount equal to the outstanding principal balance of the preferred equity plus any accrued but unpaid dividend.

The Capital Securities – Fund Subsidiaries includes $820 million at September 30, 2019 (December 31, 2018 - $775 million) of equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by co-investors in DTLA 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. Capital Securities – Fund Subsidiaries are measured at FVTPL.

Capital Securities – Fund Subsidiaries also includes $64 million at September 30, 2019 (December 31, 2018 - $38 million) which represents the equity interests held by the partnership’s co-investor in the D.C. Fund which have been classified as a liability, rather than as non-controlling interest, due to the fact that on June 18, 2023, and on every second anniversary thereafter, the holders of these interests can redeem their interests in the D.C. Fund for cash equivalent to the fair value of the interests.


20             

At September 30, 2019, capital securities includes $48 million (December 31, 2018 - $47 million) repayable in Canadian Dollars of C$64 million (December 31, 2018 - C$64 million).

Reconciliation of cash flows from financing activities from capital securities is shown in the table below:
 
 
 
Non-cash changes on capital securities
 
(US$ Millions)
Dec. 31, 2018

Capital securities redeemed

Derecognized from loss of control of subsidiaries

Fair value changes

Other

Sep. 30, 2019

Capital securities
$
3,385

$
(420
)
$
(29
)
$
92

$
1

$
3,029


NOTE 15. INCOME TAXES
The partnership is a flow-through entity for tax purposes and as such is not subject to Bermudian taxation. However, income taxes are recognized for the amount of taxes payable by the primary holding subsidiaries of the partnership (“Holding Entities”), any direct or indirect corporate subsidiaries of the Holding Entities and for the impact of deferred tax assets and liabilities related to such entities.

The components of income tax expense include the following:
 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Current income tax
$
59

$
14

$
89

$
106

Deferred income tax
132

(51
)
128

(57
)
Income tax expense (benefit)
$
191

$
(37
)
$
217

$
49


The partnership’s income tax expense increased for the three and nine months ended September 30, 2019 as compared to the same period in the prior year primarily due the reversal of deferred tax liabilities relating to legislative and entity status change, an internal restructuring of the ownership of certain retail investments and the recognition of previously unrecognized net operating losses.

NOTE 16. OTHER NON-CURRENT LIABILITIES
The components of other non-current liabilities are as follows:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Accounts payable and accrued liabilities
$
413

$
1,770

Lease liabilities(1)
799

—

Derivative liabilities
103

159

Provisions
92

352

Loans and notes payables
1

5

Deferred revenue
3

8

Total other non-current liabilities
$
1,411

$
2,294

(1) 
The impact of the adoption of IFRS 16 requires the recognition of lease liabilities. See Note 2, Summary of Significant Accounting Policies for further information. For the three and nine months ended September 30, 2019, interest expense relating to total lease liabilities (see Note 17, Accounts Payable And Other Liabilities for the current portion) was $14 million and $44 million, respectively.

NOTE 17. ACCOUNTS PAYABLE AND OTHER LIABILITIES
The components of accounts payable and other liabilities are as follows:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Accounts payable and accrued liabilities
$
2,343

$
2,466

Loans and notes payable
392

779

Derivative liabilities
447

181

Deferred revenue
342

302

Lease liabilities(1)
37

—

Other liabilities
24

21

Total accounts payable and other liabilities
$
3,585

$
3,749

(1) 
The impact of the adoption of IFRS 16 requires the recognition of lease liabilities. See Note 2, Summary of Significant Accounting Policies for further information. See Note 16, Other Non-Current Liabilities for further information on the interest expense related to these liabilities.

At September 30, 2019, loans and notes payable includes nil (December 31, 2018 - $733 million) of on-demand deposits from Brookfield Asset Management to the partnership and $190 million (December 31, 2018 - nil) of promissory note from a fund managed by Brookfield Asset Management. See Note 32, Related Parties, for further information.

21             

NOTE 18. EQUITY
The partnership’s capital structure is comprised of seven classes of partnership units: GP 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”), limited partnership units of Brookfield Office Properties Exchange LP (“Exchange LP Units”), FV LTIP units of the Operating Partnership and BPR Units. In addition, the partnership issued Class A Cumulative Redeemable Perpetual Preferred Units, Series 1 in the first quarter of 2019 and Class A Cumulative Redeemable Perpetual Preferred Units, Series 2 in the third quarter of 2019 (“Preferred Equity Units”).

a)
General and limited partnership equity
GP Units entitle the holder to the right to govern the financial and operating policies of the partnership. The GP Units are entitled to a 1% general partnership interest.

LP Units entitle the holder to their proportionate share of distributions and are listed and publicly traded on the Nasdaq and the TSX. Each LP Unit entitles the holder thereof to one vote for the purposes of any approval at a meeting of limited partners, provided that holders of the Redeemable/Exchangeable Partnership Units that are exchanged for LP Units will only be entitled to a maximum number of votes in respect of the Redeemable/Exchangeable Partnership Units equal to 49% of the total voting power of all outstanding units.

The following table presents changes to the GP Units and LP Units from the beginning of the year:
 
General partnership units
Limited partnership units
(Thousands of units)
Sep. 30, 2019

Dec. 31, 2018

Sep. 30, 2019

Dec. 31, 2018

Outstanding, beginning of period
139

139

424,198

254,989

Issued on August 28, 2018 for the acquisition of GGP
—

—

—

109,702

Exchange LP Units exchanged
—

—

403

7,770

BPR Units exchanged
—

—

34,288

56,166

Distribution Reinvestment Program
—

—

163

175

Issued under unit-based compensation plan
—

—

836

57

Repurchase of LP Units
—

—

(18,511
)
(4,661
)
Outstanding, end of period
139

139

441,377

424,198


b)
Units of the operating partnership held by Brookfield Asset Management

Redeemable/Exchangeable Partnership Units
There were 432,649,105 Redeemable/Exchangeable Partnership Units outstanding at September 30, 2019 and December 31, 2018.

Special limited partnership units
Brookfield Property Special L.P. is entitled to receive equity enhancement distributions and incentive distributions from the operating partnership as a result of its ownership of the Special LP Units.

There were 4,759,997 Special LP Units outstanding at September 30, 2019 and December 31, 2018.

c)
Limited partnership units of Brookfield Office Properties Exchange LP (“Exchange LP”)
The Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, subject to their terms and applicable law, for LP Units. An Exchange LP Unit provides a holder thereof with economic terms that are substantially equivalent to those of a LP Unit. Subject to certain conditions and applicable law, Exchange LP will have the right, commencing on the seventh anniversary of June 9, 2014, the completion of the acquisition of the remaining common shares of BPO, to redeem all of the then outstanding Exchange LP Units at a price equal to the 20-day volume-weighted average trading price of an LP Unit plus all declared, payable, and unpaid distributions on such units.

The following table presents changes to the Exchange LP Units from the beginning of the year:

 
Limited Partnership Units of Brookfield Office Properties Exchange LP
(Thousands of units)
Sep. 30, 2019

Dec. 31, 2018

Outstanding, beginning of period
3,308

11,078

Exchange LP Units exchanged(1)
(403
)
(7,770
)
Outstanding, end of period
2,905

3,308

(1) 
Exchange LP Units that have been exchanged are held by an indirect subsidiary of the partnership. Refer to the Condensed Consolidated Statements of Changes in Equity for the impact of such exchanges on the carrying value of Exchange LP Units.

22             


d)
FV LTIP units of the Operating Partnership
The partnership issued Brookfield Property Partners BPY FV LTIP Unit Plan (“FV LTIP”) to certain participants. Each FV LTIP unit will vest over a period of five years and is redeemable for LP Units, BPR Units or a cash payment subject to a conversion adjustment. There were 1,156,427 FV LTIP Units outstanding at September 30, 2019.

e)
Class A shares of Brookfield Property REIT Inc.
BPR Units were issued to former GGP common shareholders who elected to receive BPR Units as consideration. Each BPR Unit is structured to provide an economic return equivalent to an 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 an 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 an LP Unit rather than cash. As a result, BPR Units participate in earnings and distribution on a per unit basis equivalent to the per unit participation of LP Units. The partnership presents BPR Units as a component of non-controlling interest.

The following table presents changes to the BPR Units from the beginning of the year:

 
Class A shares of Brookfield Property REIT Inc.
(Thousands of units)
Sep. 30, 2019

Dec. 31, 2018

Outstanding, beginning of period
106,090

—

Issued on August 28, 2018 for the acquisition of GGP
—

162,324

BPR Units exchanged(1)
(34,288
)
(56,166
)
Repurchases of BPR Units
(5,724
)
—

Forfeitures
(40
)
(68
)
Outstanding, end of period
66,038

106,090

(1) 
BPR Units issued for the acquisition of GGP that have been exchanged for LP Units. Refer to the Condensed Consolidated Statements of Changes in Equity for the impact of such exchanges on the carrying value of BPR Units.

f)
Class A Cumulative Redeemable Perpetual Preferred Units, Series 1 and 2 (“Preferred Equity Units”)
During the nine months ended September 30, 2019, the partnership issued 7,360,000 Class A Cumulative Redeemable Perpetual Preferred Units, Series 1 at $25.00 per unit at a coupon rate of 6.5% and 10,000,000 Class A Cumulative Redeemable Perpetual Preferred Units, Series 2 at $25.00 per unit at a coupon rate of 6.375%. In total $434 million of gross proceeds were raised and $13 million in underwriting and issuance costs were incurred. At September 30, 2019, Preferred Equity Units had a total carrying value of $421 million.

g)
Distributions
Distributions made to each class of partnership units, including units of subsidiaries that are exchangeable into LP Units, are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions, except per unit information)
2019

2018

2019

2018

Limited Partners
$
146

$
116

$
427

$
278

Holders of:
 
 
 
 
Redeemable/Exchangeable Partnership Units
144

166

430

409

Special LP Units
2

1

5

4

Exchange LP Units
1

2

3

8

FV LTIP units of the Operating Partnership
—

—

—

—

BPR Units
23

22

86

51

Total
$
316

$
307

$
951

$
750

Per unit(1)
$
0.330

$
0.315

$
0.990

$
0.945

(1) 
Per unit outstanding on the distribution record date.

23             

h)
Earnings per unit
The partnership’s net income per LP Unit and weighted average units outstanding are calculated as follows:
 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions, except unit information)
2019

2018

2019

2018

Net income attributable to limited partners
$
218

$
144

$
418

$
532

Income reallocation related to mandatorily convertible preferred shares
21

19

39

80

Less: Preferred unit dividends
(5
)
—

(8
)
—

Net income attributable to limited partners – basic
234

163

449

612

Dilutive effect of conversion of preferred shares and options
—

8

8

27

Net income attributable to limited partners – diluted
$
234

$
171

$
457

$
639

 
 
 
 
 
(in millions of units/shares)
 
 
 
 
Weighted average number of LP Units outstanding
437.1

303.8

428.2

271.8

Mandatorily convertible preferred shares
70.1

70.0

70.1

70.0

Weighted average number of LP Units - basic
507.2

373.8

498.3

341.8

Dilutive effect of the conversion of preferred shares and options
—

19.9

8.7

18.4

Weighted average number of LP units outstanding - diluted
507.2

393.7

507.0

360.2


NOTE 19. NON-CONTROLLING INTERESTS
Non-controlling interests consists of the following:

(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Redeemable/Exchangeable Partnership Units and Special LP Units(1) 
$
12,684

$
12,740

Exchange LP Units(1)
84

96

FV LTIP units of the Operating Partnership(1)
33

—

BPR Units(1)
1,914

3,091

Interests of others in operating subsidiaries and properties:
 
 
Preferred shares held by Brookfield Asset Management
15

16

Preferred equity of subsidiaries
3,014

2,830

Non-controlling interests in subsidiaries and properties
13,995

15,610

Total interests of others in operating subsidiaries and properties
17,024

18,456

Total non-controlling interests
$
31,739

$
34,383

(1)  
Each unit within these classes of non-controlling interest has economic terms substantially equivalent to those of an LP unit. As such, income attributed to each unit or share of non-controlling interest is equivalent to that allocated to an LP unit. The proportion of interests held by holders of the Redeemable/Exchangeable Units and Exchange LP Units changes as a result of issuances, repurchases and exchanges. Consequently, the partnership adjusted the relative carrying amounts of the interests held by Limited Partners and non-controlling interests based on their relative share of the equivalent LP Units. The difference between the adjusted value and the previous carrying amounts was attributed to current LP Units as ownership changes in the Condensed Consolidated Statement of Changes in Equity.

24             

Non-controlling interests of others in operating subsidiaries and properties consist of the following:



Proportion of economic interests held by non-controlling interests
 
 
(US$ Millions)
Jurisdiction of formation
Sep. 30, 2019

Dec. 31, 2018

Sep. 30, 2019

Dec. 31, 2018

BPO(1)
Canada
—
%
—
%
$
5,068

$
4,757

Forest City Realty Trust, Inc.(2)(3)
United States
—
%
85
%
—

3,437

BPR Retail Holdings LLC(4)
United States
—
%
—
%
1,918

1,773

BSREP CARS Sub-Pooling LLC(2)
United States
71
%
71
%
965

957

Center Parcs UK(2)
United Kingdom
73
%
73
%
575

863

BSREP II Korea Office Holdings Pte. Ltd.
South Korea
78
%
78
%
738

766

BSREP II MH Holdings LLC(2)
United States
74
%
74
%
747

700

BSREP II PBSA Ltd.
Bermuda
75
%
75
%
678

687

BSREP India Office Holdings Pte. Ltd.
United States
67
%
67
%
452

612

BSREP II Aries Pooling LLC(2)
United States
74
%
74
%
601

603

BSREP II Retail Upper Pooling LLC(2)
United States
50
%
50
%
515

552

BSREP UA Holdings LLC(2)
Cayman Islands
70
%
70
%
413

507

Other
Various
18% - 76%

18% - 92%

4,354

2,242

Total
 
 
 
$
17,024

$
18,456

(1) 
Includes non-controlling interests in BPO subsidiaries which vary from 1% - 100%.
(2) 
Includes non-controlling interests representing interests held by other investors in Brookfield-sponsored real estate funds and holding entities through which the partnership participates in such funds. Also includes non-controlling interests in underlying operating entities owned by these funds.
(3) 
In the first quarter of 2019, the partnership deconsolidated BSREP III due to loss of control. Forest City is an investment in BSREP III and therefore no longer being consolidated. See Note 4, Investment Properties for further information.
(4) 
Includes non-controlling interests in BPR subsidiaries.

NOTE 20. COMMERCIAL PROPERTY REVENUE
The components of commercial property revenue are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Base rent
$
890

$
857

$
2,861

$
2,394

Straight-line rent
24

27

87

77

Lease termination
7

6

28

32

Other lease income(1)
131

161

455

427

Other revenue from tenants(2)
328

200

809

548

Total commercial property revenue
$
1,380

$
1,251

$
4,240

$
3,478

(1) 
Other lease income includes parking revenue and recovery of property tax and insurance expenses from tenants.
(2) 
Consists of recovery of certain operating expenses from tenants which are accounted for in accordance with IFRS 15, Revenue from Contracts with Customers.

NOTE 21. HOSPITALITY REVENUE
The components of hospitality revenue are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Room, food and beverage
$
354

$
357

$
1,092

$
1,032

Gaming, and other leisure activities
88

114

283

336

Other hospitality revenue
30

31

91

92

Total hospitality revenue
$
472

$
502

$
1,466

$
1,460



25             

NOTE 22. INVESTMENT AND OTHER REVENUE
The components of investment and other revenue are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Investment income
$
66

$
19

$
134

$
40

Fee revenue
67

38

189

71

Dividend income
—

2

3

8

Interest income and other
31

14

76

27

Participating loan notes
1

2

8

15

Total investment and other revenue
$
165

$
75

$
410

$
161


NOTE 23. DIRECT COMMERCIAL PROPERTY EXPENSE
The components of direct commercial property expense are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Property maintenance
$
180

$
196

$
558

$
544

Real estate taxes
156

138

480

374

Employee compensation and benefits
40

51

128

149

Lease expense(1)
4

14

12

43

Other
101

79

304

198

Total direct commercial property expense
$
481

$
478

$
1,482

$
1,308

(1) 
For the three and nine months ended September 30, 2019, operating expenses relating to variable lease payments not included in the measurement of the lease liability was $4 million and $11 million, respectively.

NOTE 24. DIRECT HOSPITALITY EXPENSE
The components of direct hospitality expense are as follows:
 
 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Employee compensation and benefits
$
92

$
77

$
286

$
239

Cost of food, beverage, and retail goods sold
72

66

216

203

Maintenance and utilities
37

46

116

130

Marketing and advertising
14

15

53

57

Other
80

111

250

313

Total direct hospitality expense
$
295

$
315

$
921

$
942


NOTE 25. DEPRECIATION AND AMORTIZATION
The components of depreciation and amortization expense are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Depreciation and amortization of real estate assets
$
72

$
70

$
211

$
201

Depreciation and amortization of non-real estate assets(1)
14

11

45

28

Total depreciation and amortization
$
86

$
81

$
256

$
229

(1) 
For the three and nine months ended September 30, 2019, included $2 million and $6 million, respectively, of depreciation expense relating to right-of-use property, plant and equipment.


26             

NOTE 26. GENERAL AND ADMINISTRATIVE EXPENSE
The components of general and administrative expense are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Employee compensation and benefits
$
90

$
72

$
272

$
167

Management fees
40

40

112

114

Transaction costs
11

69

53

147

Other
73

60

219

165

Total general and administrative expense
$
214

$
241

$
656

$
593


NOTE 27. FAIR VALUE GAINS (LOSSES), NET
The components of fair value gains (losses), net, are as follows:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Commercial properties
$
476

$
217

$
(361
)
$
626

Commercial developments
170

70

457

454

Incentive fees(1)
(13
)
—

(65
)
—

Financial instruments and other(2)
(184
)
269

(304
)
863

Total fair values gains (losses), net
$
449

$
556

$
(273
)
$
1,943

(1) 
Represents incentive fees the partnership is obligated to pay to the general partner of the partnership’s various fund investments.
(2) 
For the three and nine months ended September 30, 2019, primarily includes fair value losses on financial instruments and fair value loss on right-of-use investment properties of $1 million and $5 million, respectively. The prior year primarily includes a gain on bargain purchase.

NOTE 28. UNIT-BASED COMPENSATION
The partnership grants options to certain employees under its amended and restated BPY Unit Option Plan (“BPY Plan”). Pursuant to the BPY Plan, options may be settled for the in-the-money amount of the option in LP Units upon exercise. Consequently, options granted to employees under the BPY Plan are accounted for as an equity-based compensation agreement.

During the three and nine months ended September 30, 2019, the partnership incurred $8 million (2018 - $4 million) and $19 million (2018 - $3 million), respectively, of expense in connection with its unit-based compensation plans.

a)
BPY Unit Option Plan
Awards under the BPY Plan (“BPY Awards”) generally vest 20% per year over a period of five years and expire 10 years after the grant date, with the exercise price set at the time such options were granted. Upon exercise of a vested BPY Award, the participant is entitled to receive LP Units or a cash payment equal to the amount by which the fair market value of an LP Unit at the date of exercise exceeds the exercise price of the BPY Award. Subject to a separate adjustment arising from forfeitures, the estimated expense is revalued every reporting period using the Black-Scholes model as a result of the cash settlement provisions of the plan for certain employees. In terms of measuring expected life of the BPY Awards with various term lengths and vesting periods, BPY will segregate each set of similar BPY Awards and, if different, exercise price, into subgroups and apply a weighted average within each group.

There were no BPY Awards granted during the period ended September 30, 2019.

27             


i.
Equity-settled BPY Awards
The change in the number of options outstanding under the equity-settled BPY Awards at September 30, 2019 and December 31, 2018 is as follows:

 
Sep. 30, 2019
Dec. 31, 2018
 
Number of
options

Weighted average
exercise price

Number of
options

Weighted average
exercise price

Outstanding, beginning of period
13,836,213

20.56

13,801,795

20.54

Granted
—

—

800,000

22.50

Exercised
(304,171
)
15.84

(36,806
)
17.71

Expired/forfeited
(52,829
)
20.59

(291,625
)
22.18

Reclassified(1)
6,703,725

20.21

(437,151
)
22.48

Outstanding, end of period
20,182,938

20.55

13,836,213

20.56

Exercisable, end of period
10,618,025

20.37

9,628,246

20.26

(1)  
Relates to the reclassification of cash-settled options for employees in Canada to equity-settled options subsequent to the amendment of the BPY Plan, which was amended on September 30, 2019. The prior year relates to the reclassification of equity-settled options for employees in Brazil to cash-settled options subsequent to the amendment of the BPY Plan, which was amended on February 7, 2018.

The following table sets out details of options issued and outstanding at September 30, 2019 and December 31, 2018 under the equity-settled BPY Awards by expiry date:

 
Sep. 30, 2019
Dec. 31, 2018
Expiry date
Number of
options
Weighted average
exercise price

Number of
options

Weighted average
exercise price

2020
110,600
$
13.07

226,800

$
13.07

2021
389,800
17.44

246,400

17.44

2022
987,700
18.09

508,300

18.07

2023
1,114,420
16.80

656,220

16.80

2024
11,888,570
20.59

7,878,998

20.59

2025
1,995,091
25.18

1,376,295

25.18

2026
2,803,007
19.51

2,049,450

19.51

2027
93,750
22.92

93,750

22.92

2028
800,000
22.50

800,000

22.50

Total
20,182,938
$
20.55

13,836,213

$
20.56


ii.
Cash-settled BPY Awards
The change in the number of options outstanding under the cash-settled BPY Awards at September 30, 2019 and December 31, 2018 is as follows:

 
Sep. 30, 2019
Dec. 31, 2018
 
Number of options

Weighted average
exercise price

Number of options

Weighted average
exercise price

Outstanding, beginning of period
7,331,416

$
20.38

7,144,871

$
20.30

Granted
—

—

—

—

Exercised
(19,400
)
12.63

(3,770)

19.51

Expired/forfeited
—

—

(246,836
)
21.87

Reclassified(1)
(6,703,725
)
20.21

437,151

22.48

Outstanding, end of period
608,291

$
21.49

7,331,416

$
20.38

Exercisable, end of period
486,872

$
21.44

5,627,610

$
20.17

(1)  
Relates to the reclassification of cash-settled options for employees in Canada to equity-settled options subsequent to the amendment of the BPY Plan, which was amended on September 30, 2019. The prior year relates to the reclassification of equity-settled options for employees in Brazil to cash-settled options subsequent to the amendment of the BPY Plan, which was amended on February 7, 2018.

28             

The following table sets out details of options issued and outstanding at September 30, 2019 and December 31, 2018 under the cash-settled BPY Awards by expiry date:

 
Sep. 30, 2019
Dec. 31, 2018
Expiry date
Number of
options

Weighted average
exercise price

Number of
options

Weighted average
exercise price

2020
4,400

$
13.07

69,000

$
13.07

2021
24,000

17.44

172,800

17.44

2022
22,200

17.93

515,800

18.09

2023
28,800

16.80

519,000

16.80

2024
175,416

20.59

4,278,663

20.59

2025
213,038

25.18

831,834

25.18

2026
140,437

19.51

944,319

19.51

Total
608,291

$
21.49

7,331,416

$
20.38


b)
Restricted BPY LP Unit Plan
The Restricted BPY LP Unit Plan provides for awards to participants of LP Units purchased on the Nasdaq (“Restricted Units”). Under the Restricted BPY LP Unit Plan, units awarded generally vest over a period of five years, except as otherwise determined or for Restricted Units awarded in lieu of a cash bonus as elected by the participant, which may vest immediately. The estimated total compensation cost measured at grant date is evenly recognized over the vesting period of five years.

During the nine months ended September 30, 2019, the partnership granted 895,744 Restricted Units with a weighted average exercise price of $19.24. As of September 30, 2019, the total number of Restricted Units outstanding was 797,434 (December 31, 2018 - 150,835) with a weighted average exercise price of $19.54 (December 31, 2018 - $20.97).

c)
Restricted BPY LP Unit Plan (Canada)
The Restricted BPY LP Unit Plan (Canada) is substantially similar to the Restricted BPY LP Unit Plan described above, except that it is for Canadian employees, there is a five-year hold period, and purchases of units are made on the TSX instead of the Nasdaq.

As of September 30, 2019, the total number of Canadian Restricted Units outstanding was 25,058 (December 31, 2018 - 21,624) with a weighted average exercise price of C$23.06 (December 31, 2018 - C$22.88).

d)
Restricted BPR Unit Plan
The Restricted BPR Unit Plan provides for awards to participants of BPR Units purchased on the Nasdaq (“Restricted BPR Units”). Under the Restricted BPR Unit Plan, units awarded generally vest over a period of five years, except as otherwise determined or for Restricted BPR Units awarded in lieu of a cash bonus as elected by the participant, which may vest immediately. The estimated total compensation cost measured at grant date is evenly recognized over the vesting period of five years.

During the nine months ended September 30, 2019, the partnership granted 357,313 Restricted BPR Units with a weighted average exercise price of $19.22.

e)
BPY Fair Value LTIP Unit Plan
The partnership issued units of the operating partnership pursuant to the Brookfield Property Partners BPY FV LTIP Unit Plan (“BPY FV LTIP Unit”) to certain participants. Each BPY FV LTIP Unit will vest over a period of five years and is redeemable for LP Units, BPR Units or a cash payment subject to a conversion adjustment.

During the nine months ended September 30, 2019, the partnership granted 895,099 BPY FV LTIP Units with a weighted average exercise price of $19.51 to employees.

f)
Deferred Share Unit Plan
In addition to the above, BPO has a deferred share unit plan. At September 30, 2019, BPO has 1,486,976 deferred share units (December 31, 2018 - 1,458,667) outstanding and vested.

g)
GGP LTIP Plans
In connection with the GGP acquisition, the partnership issued options under the Brookfield Property Partners BPY Unit Option Plan (GGP) (“GGP Options”) and BPY AO LTIP Units of the operating partnership (“AO LTIP Options”) to certain participants.  Each GGP Option will vest within ten years following the original grant date and is redeemable for LP Units or a cash payment equal to the amount by which the fair market value of an LP Unit at the date exceeds the exercise price of the BPY Option. Each AO LTIP will vest within ten years of its original grant date and is redeemable for LP Units or a cash payment subject to a conversion adjustment.

As of September 30, 2019, the total number of GGP Options outstanding was 237,881 (December 31, 2018 - 1,011,523) with a weighted average exercise price of $25.39 (December 31, 2018 - $19.71).


29             

As of September 30, 2019, the total number of AO LTIP Options outstanding was 1,657,948 (December 31, 2018 - 1,387,289) with a weighted average exercise price of $22.51 (December 31, 2018 - $22.51).

NOTE 29. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) consists of the following:
 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Items that may be reclassified to net income:
 
 
 
 
Foreign currency translation
 
 
 
 
Net unrealized foreign currency translation (losses) gains in respect of foreign operations
$
(487
)
$
(280
)
$
(487
)
$
(989
)
Reclassification of realized foreign currency translation gains to net income on dispositions of foreign operations
1

—

27

—

Gains (losses) on hedges of net investments in foreign operations, net of income taxes for the three and nine months ended Sep. 30, 2019 of ($3) million and ($3) million (2018 – ($2) million and ($7) million)(1)
174

91

223

299

Reclassification gains from hedges of net investment in foreign operation to net income on disposition of foreign operations
4

—

6

—


(308
)
(189
)
(231
)
(690
)
Cash flow hedges
 
 
 
 
Gains (losses) on derivatives designated as cash flow hedges, net of income taxes for the three and nine months ended Sep. 30, 2019 of ($1) million and ($6) million (2018 – ($3) million and ($15) million)
17

9

(23
)
62


17

9

(23
)
62

Equity accounted investments
 
 
 
 
Share of unrealized foreign currency translation (losses) gains in respect of foreign operations
(1
)
(1
)
(2
)
(2
)
Reclassification gains from hedges of net investment in foreign operation to net income on disposition of foreign operations
—

—

1

—

Gains (losses) on derivatives designated as cash flow hedges
(15
)
9

(66
)
31


(16
)
8

(67
)
29

Items that will not be reclassified to net income:
 
 
 
 
Unrealized (losses) on securities - FVTOCI, net of income taxes for the three and nine months ended Sep. 30, 2019 of nil and nil (2018 – nil and $2 million)
(6
)
(1
)
(5
)
(5
)
Net remeasurement (losses) on defined benefit obligations
—

—

(1
)
2

Revaluation surplus
—

1

—

3

 
(6
)
—

(6
)
—

Total other comprehensive income (loss)
$
(313
)
$
(172
)
$
(327
)
$
(599
)
(1) 
Unrealized gains (losses) on a number of hedges of net investments in foreign operations are with a related party.

NOTE 30. OBLIGATIONS, GUARANTEES, CONTINGENCIES AND OTHER
In the normal course of operations, the partnership and its consolidated entities execute agreements that provide for indemnification and guarantees to third parties in transactions such as business dispositions, business acquisitions, sales of assets and sales of services.
 
Certain of the partnership’s operating subsidiaries have also agreed to indemnify their directors and certain of their officers and employees. The nature of substantially all of the indemnification undertakings prevent the partnership from making a reasonable estimate of the maximum potential amount that it could be required to pay third parties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, neither the partnership nor its consolidated subsidiaries have made significant payments under such indemnification agreements.
 
The partnership and its operating subsidiaries may be contingently liable with respect to litigation and claims that arise from time to time in the normal course of business or otherwise.

At September 30, 2019, the partnership has commitments totaling:
•
approximately $1,594 million for the development of Manhattan West in Midtown New York, Greenpoint Landing in Brooklyn, as well as the redevelopment of One Allen Center, Two Allen Center, and Three Allen Center in Houston;


30             


•
approximately A$232 million ($157 million) for the development of 388 George Street and 680 George Street in Sydney; Southern Cross West Tower in Melbourne; 235 St Georges Terrace, 108 St George Terrace, Brookfield Place Tower 1 and Brookfield Place Tower 2 in Perth;

•
approximately £50 million ($61 million) for the development of 100 Bishopsgate and Principal Place Residential in London; and

•
approximately AED 239 million ($65 million) for the development of ICD Brookfield Place in Dubai.

During 2013, Brookfield Asset Management announced the final close on the $4.4 billion Brookfield Strategic Real Estate Partners (“BSREP”) fund, a global private fund focused on making opportunistic investments in commercial property. The partnership, as lead investor, committed approximately $1.3 billion to the fund. As of September 30, 2019, there remained approximately $170 million of uncontributed capital commitments.

In April 2016, Brookfield Asset Management announced the final close on the $9.0 billion second BSREP fund to which the partnership had committed $2.3 billion as lead investor. As of September 30, 2019, there remained approximately $680 million of uncontributed capital commitments.

In November 2017, Brookfield Asset Management announced the final close on the $2.9 billion fifth Brookfield Real Estate Finance Fund (“BREF”) to which the partnership had committed $400 million. As of September 30, 2019, there remained approximately $220 million of uncontributed capital commitments.

In September 2018, Brookfield Asset Management announced the final close on the $1.0 billion third Brookfield Fairfield U.S. Multifamily Value Add Fund (“VAMF”) to which the partnership had committed $300 million. As of September 30, 2019, there remained approximately $200 million of uncontributed capital commitments.

In January 2019, Brookfield Asset Management announced the final close on the $15.0 billion third BSREP fund to which the partnership has committed $1.0 billion. As of September 30, 2019, there remained approximately $765 million of uncontributed capital commitments.

The partnership maintains insurance on its properties in amounts and with deductibles that it believes are in line with what owners of similar properties carry. The partnership maintains all risk property insurance and rental value coverage (including coverage for the perils of flood, earthquake and named windstorm). The partnership does not conduct its operations, other than those of equity accounted investments, through entities that are not fully or proportionately consolidated in these financial statements, and has not guaranteed or otherwise contractually committed to support any material financial obligations not reflected in these financial statements.

NOTE 31. FINANCIAL INSTRUMENTS
a)
Derivatives and hedging activities
The partnership and its operating entities use derivative and non-derivative instruments to manage financial risks, including interest rate, commodity, equity price and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approved limits. The partnership does not use derivatives for speculative purposes. The partnership and its operating entities use the following derivative instruments to manage these risks:
 
•
foreign currency forward contracts to hedge exposures to Canadian Dollar, Australian Dollar, British Pound, Euro, Chinese Yuan, Brazilian Real, Indian Rupee and South Korean Won denominated net investments in foreign subsidiaries and foreign currency denominated financial assets;
•
interest rate swaps to manage interest rate risk associated with planned refinancings and existing variable rate debt; and
•
interest rate caps to hedge interest rate risk on certain variable rate debt.
 

31             

Interest Rate Hedging
The following table provides the partnership’s outstanding derivatives that are designated as cash flow hedges of variability in interest rates associated with forecasted fixed rate financings and existing variable rate debt as of September 30, 2019 and December 31, 2018:

(US$ Millions)
Hedging item(1)
Notional

Rates

Maturity dates
Fair value

Sep. 30, 2019
Interest rate caps of US$ LIBOR debt
$
7,763

2.7% - 6.0%

Nov. 2019 - Sep. 2023
$
—

 
Interest rate swaps of US$ LIBOR debt
3,077

1.6% - 2.7%

Feb. 2020 - Feb. 2024
(78
)
 
Interest rate caps of £ LIBOR debt
1,650

2.0% - 2.5%

Jan. 2021 - Jan. 2022
—

 
Interest rate swaps of £ LIBOR debt
65

1.5%

Apr. 2020
—

 
Interest rate caps of € EURIBOR debt
106

1.3%

Apr. 2021
—

 
Interest rate caps of C$ LIBOR debt
181

3.0%

Oct. 2020 - Oct. 2022
—

 
Cross currency swaps of C$ LIBOR Debt
600

4.30% - 4.85%

Mar. 2024
(8
)
 
Cross currency swaps of US$ LIBOR Debt
508

4.74% - 4.97%

Oct. 2021 - Jul. 2023
(8
)
Dec. 31, 2018
Interest rate caps of US$ LIBOR debt
$
8,180

2.3% - 6.0%

Jan. 2019 - Sep. 2023
$
2

 
Interest rate swaps of US$ LIBOR debt
1,731

1.6% - 2.8%

Feb. 2020 - May 2024
(2
)
 
Interest rate caps of £ LIBOR debt
486

2.0%

Apr. 2020 - Jan. 2021
—

 
Interest rate swaps of £ LIBOR debt
67

1.5%

Apr. 2020
—

 
Interest rate caps of € EURIBOR debt
115

1.0% - 1.3%

Apr. 2020 - Apr. 2021
—

 
Interest rate caps of C$ LIBOR debt
176

3.0%

Oct. 2020 - Oct. 2022
—

 
Interest rate swaps of C$ LIBOR debt
56

4.6
%
Sep. 2023
—

 
Interest rate swaps on forecasted fixed rate debt
100

4.0%

Jun. 2019
(114
)
(1) 
As of September 30, 2019, included in derivative liabilities is $83 million of fair value loss relating to settled interest rate swaps that are being amortized over the term of the associated debt.

For the three and nine months ended September 30, 2019, the amount of hedge ineffectiveness recorded in earnings in connection with the partnership’s interest rate hedging activities was nil and $2 million (2018 - nil and $17 million).

Foreign Currency Hedging
The following table provides the partnership’s outstanding derivatives that are designated as net investments of foreign subsidiaries or foreign currency cash flow hedges as of September 30, 2019 and December 31, 2018:

(US$ Millions)
Hedging item
 
Notional

Rates
Maturity dates
Fair value

Sep. 30, 2019
Net investment hedges
€
245

 €0.85/$ - €0.91/$
 Mar. 2020 - Jul. 2020
$
11

 
Net investment hedges
£
3,281

 £0.74/$ - £0.91/$
 Oct. 2019 - Sep. 2021
(38
)
 
Net investment hedges
A$
479

 A$1.38/$ - A$1.48/$
 Oct. 2019 - Mar. 2021
9

 
Net investment hedges
C¥
475

 C¥6.75/$ - C¥6.98/$
 Apr. 2020 - Dec. 2020
3

 
Net investment hedges
C$
355

 C$1.28/$ - C$1.34/$
 Oct. 2019 - Jun. 2020
2

 
Net investment hedges
₩
1,038,405

 ₩1,114.85/$ - ₩1,174.30/$
 Aug. 2019 - Jun. 2020
24

 
Net investment hedges
Rs
5,607

 Rs71.78/$ - Rs72.55/$
 Mar. 2020 - Apr. 2020
(1
)
 
Net investment hedges
£
77

 £0.88/€ - £0.93/€
 Jan. 2020 - Apr. 2020
—

 
Cross currency swap on C$ LIBOR debt
C$
800

 C$1.29/$ - C$1.33/$
 Oct. 2021 - Jul. 2023
(20
)
Dec. 31, 2018
Net investment hedges
€
649

€0.78/$ - €0.88/$
Jan. 2019 - May 2020
$
13

 
Net investment hedges
£
3,175

£0.70/$ - £0.79/$
Feb. 2019 - Mar. 2020
104

 
Net investment hedges
A$
1,038

A$1.28/$ - A$1.42/$
Jan. 2019 - Mar. 2020
20

 
Net investment hedges
C¥
2,672

C¥6.35/$ - C¥6.91/$
Jan. 2019 - Nov. 2019
6

 
Net investment hedges
C$
118

C$1.29/$ - C$1.34/$
Oct. 2019 - Nov 2019
4

 
Net investment hedges
R$
158

R$3.90/$ - R$4.24/$
Jan. 2019 - Jun. 2019
(9
)
 
Net investment hedges
₩
618,589

 ₩1,087.00/$ - ₩1,130.90/$
Jan. 2019 - Nov. 2019
1

 
Net investment hedges
Rs
31,422

Rs67.44/$ - Rs70.39/$
Feb. 2019 - May 2019
3

 
Net investment hedges
£
77

£0.88/€ - £0.92/€
Jan. 2019 - Feb. 2020
(1
)
 
Cross currency swaps of C$ LIBOR debt
C$
800

C$1.29/$ - C$1.33/$
Oct. 2021 - Jul. 2023
(31
)

For the three and nine months ended September 30, 2019 and 2018, the amount of hedge ineffectiveness recorded in earnings in connection with the partnership’s foreign currency hedging activities was not significant.

32             

Other Derivatives
The following table presents details of the partnership’s other derivatives, not designated as hedges for accounting purposes, that have been entered into to manage financial risks as of September 30, 2019 and December 31, 2018:

(US$ Millions)
Derivative type
Notional


Rates
Maturity
dates
Fair value

Sep. 30, 2019
Interest rate caps
$
6,492

3.0% - 5.8%
Oct. 2019 - Sep. 2024
$
—

 
Interest rate swaps on forecasted fixed rate debt
1,610

2.7% - 6.4%
Nov. 2019 - Sep. 2031
(226
)
 
Interest rate swaps of US$ LIBOR debt
1,803

1.7% - 4.6%
Nov. 2020 - Sep. 2023
(12
)
Dec. 31, 2018
Interest rate caps
$
9,750

3.0% - 7.0%
Mar. 2019 - Jan. 2022
$
1

 
Interest rate swaps on forecasted fixed rate debt
1,660

2.3% - 6.1%
Jun. 2019 - Nov. 2030
(67
)
 
Interest rate swaps of US$ debt
835

2.4% - 5.8%
Jul. 2019 - Oct. 2039
(14
)
 
Interest rate swaps on fixed rate debt
180

4.5% - 7.3%
Feb. 2019 - Jul. 2023
2


For the three and nine months ended September 30, 2019, the partnership recognized fair value losses, net of approximately $(29) million and $(122) million (2018 - gains of $18 million and $71 million), respectively, related to the settlement of certain forward starting interest rate swaps that have not been designated as hedges.

b)
Measurement and classification of financial instruments

Classification and Measurement
The following table outlines the classification and measurement basis, and related fair value for disclosures, of the financial assets and liabilities in the interim condensed consolidated financial statements:

 
 
Sep. 30, 2019
Dec. 31, 2018
(US$ Millions)
Classification and measurement basis
Carrying value

Fair value

Carrying value

Fair value

Financial assets
 
 
 
 
 
Participating loan interests(1)
FVTPL
$
—

$
—

$
268

$
268

Loans and notes receivable
Amortized cost
321

321

1,055

1,055

Other non-current assets
 
 
 
 
 
Securities - FVTPL
FVTPL
1,081

1,081

239

239

Derivative assets
FVTPL
7

7

13

13

Securities - FVTOCI
FVTOCI
117

117

260

260

Restricted cash
Amortized cost
160

160

161

161

Current assets
 
 
 
 
 
  Derivative assets
FVTPL
116

116

234

234

Accounts receivable(2)
Amortized cost
523

523

808

808

Restricted cash
Amortized cost
294

294

631

631

Cash and cash equivalents
Amortized cost
2,141

2,141

3,288

3,288

Total financial assets
 
$
4,760

$
4,760

$
6,957

$
6,957

Financial liabilities
 
 
 
 
 
Debt obligations(3)
Amortized cost
$
53,471

$
54,219

$
63,964

$
64,561

Capital securities
Amortized cost
2,145

2,152

2,572

2,578

Capital securities - fund subsidiaries
FVTPL
884

884

813

813

Other non-current liabilities
 
 
 
 
 
Loan payable
FVTPL
66

66

24

24

Accounts payable
Amortized cost
413

413

1,770

1,770

Derivative liabilities
FVTPL
103

103

159

159

Accounts payable and other liabilities
 
 
 
 
 
Accounts payable and other(4)
Amortized cost
2,784

2,784

3,255

3,255

Derivative liabilities
FVTPL
447

447

181

181

Total financial liabilities
 
$
60,313

$
61,068

$
72,738

$
73,341

(1) 
In the third quarter of 2019, the partnership sold its participating loan interests.
(2) 
Includes other receivables associated with assets classified as held for sale on the condensed consolidated balance sheet in the amount of $35 million and $14 million as of September 30, 2019 and December 31, 2018, respectively.
(3) 
Includes debt obligations associated with assets classified as held for sale on the condensed consolidated balance sheet in the amount of $1,069 million and $153 million as of September 30, 2019 and December 31, 2018, respectively.
(4) 
Includes accounts payable and other liabilities associated with assets classified as held for sale on the condensed consolidated balance sheet in the amount of $49 million and $10 million as of September 30, 2019 and December 31, 2018, respectively.
 

33             

Fair Value Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Fair value measurement establishes a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Quoted market prices (unadjusted) in active markets represent a Level 1 valuation. When quoted market prices in active markets are not available, the partnership maximizes the use of observable inputs within valuation models. When all significant inputs are observable, either directly or indirectly, the valuation is classified as Level 2. Valuations that require the significant use of unobservable inputs are considered Level 3, which reflect the partnership’s market assumptions and are noted below. This hierarchy requires the use of observable market data when available.

The following table outlines financial assets and liabilities measured at fair value in the consolidated financial statements and the level of the inputs used to determine those fair values in the context of the hierarchy as defined above:
 
Sep. 30, 2019
Dec. 31, 2018
 (US$ Millions)
 Level 1
Level 2
Level 3
 Total
 Level 1
Level 2
Level 3
 Total
Financial assets
 
 
 
 
 
 
 
 
Participating loan interests(1)
$
—

$
—

$
—

$
—

$
—

$
—

$
268

$
268

Securities - FVTPL
—

—

1,081

1,081

—

—

239

239

Securities - FVTOCI
—

—

117

117

—

—

260

260

Derivative assets
—

123

—

123

—

247

—

247

Total financial assets
$
—

$
123

$
1,198

$
1,321

$
—

$
247

$
767

$
1,014

 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
 
 
Capital securities - fund subsidiaries
$
—

$
—

$
884

$
884

$
—

$
—

$
813

$
813

Derivative liabilities
—

550

—

550

—

340

—

340

Loan payable
—

—

66

66

—

—

24

24

Total financial liabilities
$
—

$
550

$
950

$
1,500

$
—

$
340

$
837

$
1,177

(1) 
In the second quarter of 2019, the partnership reclassified its participating loan interests to assets held for sale.

There were no transfers between levels during the three and nine months ended September 30, 2019 and the year ended December 31, 2018.

The following table presents the change in the balance of financial assets and financial liabilities accounted for at fair value categorized as Level 3 as of September 30, 2019 and December 31, 2018:

 
Sep. 30, 2019
Dec. 31, 2018

(US$ Millions)
Financial
assets
 
Financial
liabilities
 
Financial
assets
 
Financial
liabilities
 
Balance, beginning of period
$
767

$
837

$
835

$
836

Acquisitions
 
870

 
—

 
201

 
—

Dispositions
 
(124
)
 
—

 
(7
)
 
(2
)
Fair value gains, net and OCI
 
108

 
113

 
(14
)
 
4

Other
 
(423
)
 
—

 
(248
)
 
—

Balance, end of period
$
1,198

$
950

$
767

$
838


NOTE 32. RELATED PARTIES
In the normal course of operations, the partnership enters into transactions with related parties. These transactions have been measured at exchange value and are recognized in the consolidated financial statements. The immediate parent of the partnership is Brookfield Property Partners Limited. The ultimate parent of the partnership is Brookfield Asset Management. Other related parties of the partnership include Brookfield Asset Management’s subsidiaries and operating entities, certain joint ventures and associates accounted for under the equity method, as well as officers of such entities and their spouses.

The partnership has a management agreement with its service providers, wholly-owned subsidiaries of Brookfield Asset Management. Pursuant to a Master Services Agreement, the partnership pays a base management fee (“base management fee”), to the service providers equal to 0.5% of the total capitalization of the partnership, subject to an annual minimum of $50 million plus annual inflation adjustments. The amount of the equity enhancement distribution is reduced by the amount by which the base management fee is greater than $50 million per annum, plus annual inflation adjustments.

The base management fee for the three and nine months ended September 30, 2019 was $25 million (2018 - $25 million) and $73 million (2018 - $73 million), respectively. The equity enhancement distribution for the three and nine months ended September 30, 2019 was $6 million (2018 - $1 million) and $20 million (2018 - $1 million), respectively.

In connection with the issuance of preferred equity units of the operating partnership to a third party in the fourth quarter of 2014, Brookfield Asset Management contingently agreed to acquire the seven-year and ten-year tranches of preferred equity units from the unitholder for the initial issuance

34             

price plus accrued and unpaid distributions and to exchange such units for Preferred Equity Units with terms and conditions substantially similar to the twelve-year tranche to the extent that the market price of the LP Units is less than 80% of the exchange price at maturity.

The following table summarizes transactions with related parties:
(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Balances outstanding with related parties:
 
 
Participating loan interests(1)
$
—

$
268

Net (payables)/receivables within equity accounted investments
(98
)
(26
)
Loans and notes receivable(2)
125

54

Receivables and other assets
26

50

Deposit and promissory note from Brookfield Asset Management
—

(733
)
Promissory note from a fund managed by Brookfield Asset Management
(190
)
—

Property-specific debt obligations
(325
)
(231
)
Loans and notes payable and other liabilities
(204
)
(50
)
Capital securities held by Brookfield Asset Management(3)
—

(420
)
Preferred shares held by Brookfield Asset Management
(15
)
(15
)
(1) 
In the third quarter of 2019, the partnership sold its participating loan interest.
(2) 
At September 30, 2019, includes $39 million (December 31, 2018 - $54 million) receivable from Brookfield Asset Management upon the earlier of the partnership’s exercise of its option to convert its participating loan interests into direct ownership of the Australian portfolio or the maturity of the participating loan interests.
(3) 
During the nine months ended September 30, 2019, $420 million of the Brookfield BPY Holdings Inc. Class B Junior Preferred shares, held by Brookfield Asset Management, were redeemed.

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

Transactions with related parties:
 
 
 
 
Commercial property revenue(1)
$
6

$
4

$
19

$
14

Management fee income
7

1

23

4

Participating loan interests (including fair value gains, net)
1

13

49

45

Interest expense on debt obligations
18

9

47

29

Interest on capital securities held by Brookfield Asset Management
—

16

8

54

General and administrative expense(2)
55

57

142

153

Construction costs(3)
81

64

343

289

Incentive fees
13

—

65

—

(1) 
Amounts received from Brookfield Asset Management and its subsidiaries for the rental of office premises.
(2) 
Includes amounts paid to Brookfield Asset Management and its subsidiaries for management fees, management fees associated with the partnership’s investments in private funds, and administrative services.
(3) 
Includes amounts paid to Brookfield Asset Management and its subsidiaries for construction costs of development properties.

During the third quarter of 2019, the partnership sold an approximate 81% interest in a retail asset and an approximate 77% interest in a multifamily development to a Brookfield-sponsored fund. The partnership retains control over and will continue to consolidate these assets after the sale.
NOTE 33. SUBSIDIARY PUBLIC ISSUERS
BOP Split was incorporated for the purpose of being an issuer of preferred shares and owning a portion of the partnership’s investment in BPO common shares. Pursuant to the terms of a Plan of Arrangement, holders of outstanding BPO Class AAA Preferred Shares Series G, H, J and K, which were convertible into BPO common shares, were able to exchange their shares for BOP Split Senior Preferred Shares, subject to certain conditions. The BOP Split Senior Preferred shares are listed on the TSX and began trading on June 11, 2014. All shares issued by BOP Split are retractable by the holders at any time for cash.

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

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

35             

The following table provides consolidated summary financial information for the partnership, BOP Split, BPO, Brookfield Property Finance ULC, Brookfield Property Preferred Equity Inc. and the holding entities:

(US$ Millions)
For the three months ended Sep. 30, 2019
Brookfield Property Partners L.P.

BOP Split

BPO

Brookfield Property Preferred Equity Inc.

Brookfield Property Finance ULC

Holding entities(2)

Additional holding entities and eliminations(3)

Consolidating
adjustments(4)

Brookfield Property Partners L.P consolidated

Revenue
$
—

$
4

$
30

$
—

$
12

$
439

$
33

$
1,499

$
2,017

Net income attributable to unitholders(1)
235

67

(178
)
—

12

474

4

(140
)
474

For the three months ended Sep. 30, 2018
 
 
 
 
 
 
 
 
 
Revenue
$
—

$
4

$
28

$
—

$
3

$
344

$
15

$
1,434

$
1,828

Net income attributable to unitholders(1)
155

299

(980
)
—

—

380

(5
)
531

380

(1) 
Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units and BPR Units.
(2) 
Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3) 
Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4) 
Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

(US$ Millions)
For the nine months ended Sep. 30, 2019
Brookfield Property Partners L.P.

BOP Split

BPO

Brookfield Property Preferred Equity Inc.

Brookfield Property Finance ULC

Holding entities(2)

Additional holding entities and eliminations(3)

Consolidating
adjustments(4)

Brookfield Property Partners L.P consolidated

Revenue
$
—

$
27

$
90

$
—

$
31

$
1,711

$
311

$
3,946

$
6,116

Net income attributable to unitholders(1)
459

230

420

—

(20
)
934

520

(1,609
)
934

For the nine months ended Sep. 30, 2018
 
 
 
 
 
 
 
 
 
Revenue
$
—

$
18

$
103

$
—

$
3

$
807

$
30

$
4,138

$
5,099

Net income attributable to unitholders(1)
549

409

(1,307
)
—

—

1,444

(25
)
374

1,444

(1) 
Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units and BPR Units.
(2) 
Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3) 
Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4) 
Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

(US$ Millions)
As of Sep. 30, 2019
Brookfield Property Partners L.P.

BOP Split

BPO

Brookfield Property Preferred Equity Inc.

Brookfield Property Finance ULC

Holding entities(2)

Additional holding entities and eliminations(3)

Consolidating
adjustments(4)

Brookfield Property Partners L.P consolidated

Current assets
$
—

$
4

$
84

$
—

$
849

$
8,539

$
150

$
(6,023
)
$
3,603

Non-current assets
14,035

11,722

23,188

—

421

27,729

2,033

24,545

103,673

Assets held for sale
—

—

—

—

—

—

—

1,780

1,780

Current liabilities
—

1,331

231

—

10

5,637

1,043

2,102

10,354

Non-current liabilities
—

3,814

5,975

—

1,057

2,693

663

38,419

52,621

Liabilities associated with assets held for sale
—

—

—

—

—

—

—

1,118

1,118

Preferred equity
421

—

—

—

—

—

—

—

421

Equity attributable to interests of others in operating subsidiaries and properties
—

—

2,284

—

—

—

—

14,740

17,024

Equity attributable to unitholders(1)
$
13,614

$
6,581

$
14,782

$
—

$
203

$
27,938

$
477

$
(36,077
)
$
27,518

(1) 
Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units and BPR Units.
(2) 
Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.

36             

(3) 
Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4) 
Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.
(US$ Millions)
As of Dec. 31, 2018
Brookfield Property Partners L.P.

BOP Split

BPO

Brookfield Property Preferred Equity Inc.

Brookfield Property Finance ULC

Holding entities(2)

Additional holding entities and eliminations(3)

Consolidating
adjustments(4)

Brookfield Property Partners L.P consolidated

Current assets
$
—

$
52

$
151

$
—

$
596

$
6,144

$
330

$
(1,163
)
$
6,110

Non-current assets
13,273

11,748

20,359

—

—

30,277

1,775

37,974

115,406

Assets held for sale
—

—

—

—

—

—

—

1,004

1,004

Current liabilities
—

2,806

678

—

593

5,731

1,834

(1,499
)
10,143

Non-current liabilities
—

3,053

4,738

—

—

2,406

5

55,272

65,474

Liabilities associated with assets held for sale
—

—

—

—

—

—

—

163

163

Equity attributable to interests of others in operating subsidiaries and properties
—

—

2,284

—

—

—

—

16,172

18,456

Equity attributable to unitholders(1)
$
13,273

$
5,941

$
12,810

$
—

$
3

$
28,284

$
266

$
(32,293
)
$
28,284

(1) 
Includes net income attributable to LP Units, GP Units, Redeemable/Exchangeable Partnership Units, Special LP Units, Exchange LP Units and BPR Units.
(2) 
Includes the operating partnership, Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited, and BPY Bermuda Holdings II Limited.
(3) 
Includes BPY Bermuda Holdings IV Limited, BPY Bermuda Holdings V Limited and BPY Bermuda Holdings VI Limited, which serve as guarantors for BPO but not BOP Split, net of intercompany balances and transactions with other holding entities.
(4) 
Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

NOTE 34. SEGMENT INFORMATION
a)
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 how the partnership now presents financial information to the CODM and investors. The partnership’s operating segments are organized into four reportable segments: i) Core Office, ii) Core Retail, iii) LP Investments and iv) Corporate. All prior period segment disclosures have been recast to reflect the changes in the partnership’s operating segments. These segments are independently and regularly reviewed and managed by the Chief Executive Officer, who is considered the CODM.

b)
Basis of measurement
The CODM measures and evaluates the performance of the partnership’s operating segments based on funds from operations (“FFO”). This performance metric does not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies and organizations. Management believes that while not an IFRS measure, FFO is the most consistent metric to measure the partnership’s financial statements and for the purpose of allocating resources and assessing its performance.

The partnership defines FFO as 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 share of these items. When determining FFO, the partnership also includes its proportionate share of the FFO of unconsolidated partnerships and joint ventures and associates.

c)
Reportable segment measures
The following summaries present certain financial information regarding the partnership’s operating segments for the three and nine months ended September 30, 2019 and 2018:

(US$ Millions)
Total revenue
FFO
Three months ended Sep. 30,
2019

2018

2019

2018

Core Office
$
520

$
526

$
130

$
114

Core Retail
431

145

169

71

LP Investments
1,064

1,157

65

45

Corporate
2

—

(103
)
(107
)
Total
$
2,017

$
1,828

$
261

$
123



37             


(US$ Millions)
Total revenue
FFO
Nine months ended Sep. 30,
2019

2018

2019

2018

Core Office
$
1,591

$
1,577

$
419

$
374

Core Retail
1,173

145

497

300

LP Investments
3,344

3,374

210

200

Corporate
8

3

(316
)
(313
)
Total
$
6,116

$
5,099

$
810

$
561


The following summaries presents the detail of total revenue from the partnership’s operating segments for the three and nine months ended September 30, 2019 and 2018:
(US$ Millions)
Lease revenue

Other revenue from tenants

Hospitality revenue

Investment and other revenue

Total revenue

Three months ended Sep. 30, 2019
Core Office
$
292

$
171

$
2

$
55

$
520

Core Retail
267

75

—

89

431

LP Investments
493

82

470

19

1,064

Corporate
—

—

—

2

2

Total
$
1,052

$
328

$
472

$
165

$
2,017


(US$ Millions)
Lease revenue

Other revenue from tenants

Hospitality revenue

Investment and other revenue

Total revenue

Three months ended Sep. 30, 2018
Core Office
$
406

$
86

$
5

$
29

$
526

Core Retail
100

29

—

16

145

LP Investments
545

85

497

28

1,155

Corporate
—

—

—

2

2

Total
$
1,051

$
200

$
502

$
75

$
1,828


(US$ Millions)
Lease revenue

Other revenue from tenants

Hospitality revenue

Investment and other revenue

Total revenue

Nine months ended Sep. 30, 2019
Core Office
$
1,063

$
349

$
8

$
171

$
1,591

Core Retail
785

221

—

167

1,173

LP Investments
1,583

239

1,458

64

3,344

Corporate
—

—

—

8

8

Total
$
3,431

$
809

$
1,466

$
410

$
6,116


(US$ Millions)
Lease revenue

Other revenue from tenants

Hospitality revenue

Investment and other revenue

Total revenue

Nine months ended Sep. 30, 2018
Core Office
$
1,207

$
265

$
14

$
91

$
1,577

Core Retail
100

29

—

16

145

LP Investments
1,623

254

1,446

51

3,374

Corporate
—

—

—

3

3

Total
$
2,930

$
548

$
1,460

$
161

$
5,099


The following summary presents information about certain consolidated balance sheet items of the partnership, on a segmented basis, as of September 30, 2019 and December 31, 2018:

 

Total assets

Total liabilities
(US$ Millions)
Sep. 30, 2019

Dec. 31, 2018

Sep. 30, 2019

Dec. 31, 2018

Core Office
$
35,199

$
34,095

$
16,329

$
15,033

Core Retail
31,197

29,658

15,582

13,749

LP Investments
42,580

58,610

27,432

41,604

Corporate
80

157

4,750

5,394

Total
$
109,056

$
122,520

$
64,093

$
75,780


38             



The following summary presents a reconciliation of FFO to net income for the three and nine months ended September 30, 2019 and 2018:

 
Three months ended Sep. 30,
 
Nine months ended Sep. 30,
 
(US$ Millions)
2019

2018

2019

2018

FFO(1)
$
261

$
123

$
810

$
561

Depreciation and amortization of real estate assets
(72
)
(70
)
(211
)
(201
)
Fair value gains, net
449

556

(273
)
1,943

Share of equity accounted income - non-FFO
232

(52
)
877

33

Income tax expense
(191
)
37

(217
)
(49
)
Non-controlling interests of others in operating subsidiaries and properties – non-FFO
(205
)
(214
)
(52
)
(843
)
Net income attributable to unitholders(2)
474

380

934

1,444

Non-controlling interests of others in operating subsidiaries and properties
396

342

672

1,352

Net income
$
870

$
722

$
1,606

$
2,796

(1)  
FFO represents interests attributable to GP Units, LP Units, Exchange LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and BPR Units. The interests attributable to Exchange LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and BPR Units are presented as non-controlling interests in the consolidated statements of income.
(2)  
Includes net income attributable to GP Units, LP Units, Exchange LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and BPR Units. The interests attributable to Exchange LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and BPR Units are presented as non-controlling interests in the consolidated statements of income.

NOTE 35. SUBSEQUENT EVENTS

On October 23, 2019, the partnership sold the majority of its Manhattan multifamily portfolio for approximately $1.2 billion which was presented in assets held for sale at September 30, 2019.

On November 1, 2019 the partnership purchased the remaining interests it didn’t previously own in four retail assets in the U.S. from its joint venture partner. This resulted in the partnership obtaining 100% ownership in the entities. Concurrently the partnership sold all of its interest in another retail asset to the same joint venture partner.

On November 5, 2019, the partnership exercised the option to convert its participating loan interests into direct ownership of a portfolio of properties in Australia that were directly owned by Brookfield Asset Management. The partnership will continue to account for its interests in these properties as a controlling interest in a subsidiary or an equity accounted interest in a jointly controlled entity.


39