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;


•	interest rate caps to hedge interest rate risk on certain variable rate debt; and


•	cross currency swaps to manage interest rate and foreign currency exchange rates on existing variable rate debt.

The partnership also designates Canadian Dollar financial liabilities of certain of its operating entities as hedges of its net investments in its Canadian operations.

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 December 31, 2019 and 2018:



(US$ Millions)	Hedging item	Notional		Rates	Maturity dates	Fair value
Dec. 31, 2019⁽¹⁾	Interest rate caps of US$ LIBOR debt	$	7,774	2.7% - 6.0%	May. 2020 - Sep. 2023	$	—
	Interest rate swaps of US$ LIBOR debt	2,877		1.4% - 2.7%	Feb. 2020 - Feb. 2024	(57		)
	Interest rate caps of £ LIBOR debt	3,096		2.0% - 2.5%	Jan. 2021 - Jan. 2022	—
	Interest rate swaps of £ LIBOR debt	74		1.5%	Apr. 2020	—
	Interest rate caps of € EURIBOR debt	109		1.3%	Apr. 2021	—
	Interest rate caps of C$ LIBOR debt	184		3.0%	Oct. 2020 - Oct. 2022	—
	Cross currency swaps of C$ LIBOR Debt	600		4.3% - 5.0%	Oct. 2021 - Mar. 2024	(95		)
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⁾	The IBOR Amendments disclosed in Note 2(m), Summary of Significant Accounting Policies - Financial instruments and hedge accounting, have been applied to all outstanding hedging items as of December 31, 2019

For the year ended December 31, 2019, the amount of hedge ineffectiveness recorded in earnings in connection with the partnership’s interest rate hedging activities totaled $22 million (December 31, 2018 - $37 million).

Foreign Currency Hedging

The following table presents the partnership’s outstanding derivatives that are designated as net investment hedges in foreign subsidiaries or cash flow hedges as of December 31, 2019 and 2018:



(US$ Millions)	Hedging item	Net Notional		Rates	Maturity dates	Fair value
Dec. 31, 2019	Net investment hedges	€	245	€0.85/$ - €0.91/$	Mar. 2020 - Jul. 2020	7
	Net investment hedges	£	2,444	£0.74/$ - £0.85/$	Jan. 2020 - Sep. 2021	(247		)
	Net investment hedges	A$	238	A$1.38/$ - A$1.48/$	Mar. 2020 - Mar. 2021	(5		)
	Net investment hedges	C¥	962	C¥6.75/$ - C¥7.16/$	Apr. 2020 - Jun. 2021	—
	Net investment hedges	C$	355	C$1.31/$ - C$1.33/$	Jun. 2020 - Sep. 2021	—
	Net investment hedges	R$	1,582	R$4.16/$ - R$4.16/$	Jun. 2020 - Jun. 2020	(10		)
	Net investment hedges	₩	720,095	₩1,149.50/$ - ₩1,174.30/$	Mar. 2020 - Mar. 2021	(7		)
	Net investment hedges	Rs	—	Rs71.78/$ - Rs73.01/$	Mar. 2020 - Apr. 2020	—
	Net investment hedges	£	77	£0.88/€ - £0.93/€	Jan. 2020 - Apr. 2021	—
	Cross currency swaps of C$ LIBOR debt	C$	800	C$1.29/$ - C$1.33/$	Oct. 2021 - Jul. 2023	(8		)
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 years ended December 31, 2019 and 2018, the amount of hedge ineffectiveness recorded in earnings in connection with the partnership’s foreign currency hedging activities was not significant.

Other Derivatives

The following tables provide detail of the partnership’s other derivatives, not designated as hedges for accounting purposes, that have been entered into to manage financial risks as of December 31, 2019 and 2018:



(US$ millions)	Derivative type	Notional		Rates	Maturity dates	Fair value
Dec. 31, 2019	Interest rate caps	$	5,663	2.5% - 5.0%	Mar. 2020 - Nov. 2021	$	—
	Interest rate swaps on forecasted fixed rate debt	1,285		1.1% - 6.4%	Jun. 2020 - Sep. 2031	(149		)
	Interest rate swaps of US$ debt	2,003		1.7% - 4.6%	Nov. 2020 - Sep. 2023	(14		)
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

The partnership recognized fair value gains (losses), net of approximately $(70) million (December 31, 2018 - $29 million) 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

Fair value is the amount that willing parties would accept to exchange a financial instrument based on the current market for instruments with the same risk, principal and remaining maturity. The fair value of interest bearing financial assets and liabilities is determined by discounting the contractual principal and interest payments at estimated current market interest rates for the instrument. Current market rates are determined by reference to current benchmark rates for a similar term and current credit spreads for debt with similar terms and risk.

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 consolidated financial statements:



		Dec. 31, 2019				Dec. 31, 2018
(US$ Millions)	Classification and measurement basis	Carrying value		Fair value		Carrying value		Fair value
Financial assets
Participating loan interests	FVTPL	$	—	$	—	$	268	$	268
Loans and notes receivable	Amortized cost	329		329		1,055		1,055
Other non-current assets
Securities - FVTPL	FVTPL	1,250		1,250		239		239
Derivative assets	FVTPL	10		10		13		13
Securities - FVTOCI	FVTOCI	121		121		260		260
Restricted cash	Amortized cost	154		154		161		161
Current assets
Derivative assets	FVTPL	80		80		234		234
Accounts receivable⁽¹⁾	Amortized cost	514		514		808		808
Restricted cash	Amortized cost	239		239		631		631
Cash and cash equivalents	Amortized cost	1,438		1,438		3,288		3,288
Total financial assets		$	4,135	$	4,135	$	6,957	$	6,957
Financial liabilities
Debt obligations⁽²⁾	Amortized cost	$	55,528	$	56,112	$	63,964	$	64,561
Capital securities	Amortized cost	2,153		2,160		2,572		2,578
Capital securities - fund subsidiaries	FVTPL	922		922		813		813
Other non-current liabilities
Loan payable	FVTPL	—		—		24		24
Accounts payable	Amortized cost	778		778		1,770		1,770
Derivative liabilities	FVTPL	413		413		159		159
Accounts payable and other liabilities
Accounts payable and other⁽³⁾	Amortized cost	2,711		2,711		3,255		3,255
Derivative liabilities	FVTPL	289		289		181		181
Total financial liabilities		$	62,794	$	63,385	$	72,738	$	73,341


⁽¹⁾	Includes other receivables associated with assets classified as held for sale on the consolidated balance sheets in the amounts of $4 million and $14 million as of December 31, 2019 and December 31, 2018, respectively.


⁽²⁾	Includes debt obligations associated with assets classified as held for sale on the consolidated balance sheets in the amount of $138 million and $153 million as of December 31, 2019 and December 31, 2018, respectively.


⁽³⁾	Includes accounts payable and other liabilities associated with assets classified as held for sale on the consolidated balance sheets in the amount of $2 million and $10 million as of December 31, 2019 and December 31, 2018, respectively.

The following table outlines financial assets and liabilities measured at fair value in the financial statements and the level of the inputs used to determine those fair values in the context of the hierarchy as defined above:



	Dec. 31, 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	$	—	$	—	$	—	$	—	$	—	$	—	$	268	$	268
Securities designated as FVTPL	—		—		1,250		1,250		—		—		239		239
Securities designated as FVTOCI	—		—		121		121		—		—		260		260
Derivative assets	—		90		—		90		—		247		—		247
Total financial assets	$	—	$	90	$	1,371	$	1,461	$	—	$	247	$	767	$	1,014

Financial liabilities
Capital securities - fund subsidiaries	$	—	$	—	$	922	$	922	$	—	$	—	$	813	$	813
Derivative liabilities	—		702		—		702		—		340		—		340
Loan payable	—		—		—		—		—		—		24		24
Total financial liabilities	$	—	$	702	$	922	$	1,624	$	—	$	340	$	837	$	1,177

There were no transfers between levels during the years ended December 31, 2019 and 2018. The following table presents the valuation techniques and inputs of the partnership’s Level 2 assets and liabilities:



Type of asset/liability		Valuation technique
Foreign currency forward contracts		Discounted cash flow model - forward exchange rates (from observable forward exchange rates at the end of the reporting period) and discounted at a credit adjusted rate
Interest rate contracts		Discounted cash flow model - forward interest rates (from observable yield curves) and applicable credit spreads discounted at a credit adjusted rate

The table below presents the valuation techniques and inputs of Level 3 assets:



Type of asset/liability	Valuation techniques	Significant unobservable input(s)	Relationship of unobservable input(s) to fair value
Participating loan interests	Discounted cash flow model	(a) Discount rate (b) Terminal capitalization rate	(a) Decreases (increases) in the discount rate would increase (decrease) fair value (b) Increases (decreases) in the terminal capitalization rate would (decrease) increase fair value
Securities - FVTPL/FVTOCI	Net asset valuation	(a) Forward exchange rates (from observable forward exchange rates at the end of the reporting period) (b) Discount rate	(a) Increases (decreases) in the forward exchange rate would increase (decrease) fair value (b) Decreases (increases) in the discount rate would increase (decrease) fair value

The following table presents the change in the balance of financial assets and financial liabilities classified as Level 3 as of December 31, 2019 and 2018:



	Dec. 31, 2019					Dec. 31, 2018
(US$ Millions)	Financial assets			Financial liabilities		Financial assets			Financial liabilities
Balance, beginning of year	$	767		$	838	$	835		$	836
Additions	950			—		201			—
Dispositions	(125		)	—		(7		)	(2		)
Fair value gains, net and OCI	206			8		(14		)	4
Other	(427		)	76		(248		)	—
Balance, end of year	$	1,371		$	922	$	767		$	838


c)	Market Risk

Interest rate risk

The partnership faces interest rate risk on its variable rate financial assets and liabilities. In addition, there is interest rate risk associated with the partnership’s fixed rate debt due to the expected requirement to refinance such debt in the year of maturity. The following table outlines the impact on interest expense of a 100 basis point increase or decrease in interest rates on the partnership’s variable rate liabilities and fixed rate debt maturing within one year:



(US$ Millions)	Dec. 31, 2019		Dec. 31, 2018
Variable rate property debt	$	250	$	382
Fixed rate property debt due within one year	7		5
Total	$	257	$	387

The partnership manages interest rate risk by primarily entering into fixed rate operating property debt and staggering the maturities of its mortgage portfolio over a 10-year horizon when the market permits. The partnership also makes use of interest rate derivatives to manage interest rate risk on specific variable rate debts and on anticipated refinancing of fixed rate debt.

Foreign currency risk

The partnership is structured such that its foreign operations are primarily conducted by entities with a functional currency which is the same as the economic environment in which the operations take place. As a result, the net income impact of currency risk associated with financial instruments is limited as its financial assets and liabilities are generally denominated in the functional currency of the subsidiary that holds the financial instrument. However, the partnership is exposed to foreign currency risk on the net assets of its foreign currency denominated operations.

The partnership’s exposures to foreign currencies and the sensitivity of net income and other comprehensive income, on a pre-tax basis, to a 10% change in the exchange rates relative to the U.S. dollar is summarized below:



	Dec. 31, 2019
(Millions)	Equity attributable to Unitholders		OCI			Net income
Canadian Dollar⁽¹⁾	C$	377	$	(29	)	$	—
Australian Dollar	A$	2,154	(151		)	—
British Pound	£	3,275	(434		)	—
Euro	€	339	(38		)	—
Brazilian Real	R$	3,310	(82		)	—
Indian Rupee	Rs	26,628	(37		)	—
Chinese Yuan	C¥	933	(13		)	—
South Korean Won	₩	160,969	(14		)	—
United Arab Emirates Dirham	AED	683	(19		)	—
Czech Koruna	CZK	10	—			—
Hungarian Forint	HUF	314	—			—
Poland Zloty	PLN	3	—			—
Total			$	(817	)	$	—


⁽¹⁾	Net of Canadian Dollar denominated loans.



	Dec. 31, 2018
(Millions)	Equity attributable to Unitholders			OCI			Net income
Canadian Dollar⁽¹⁾	C$	58		$	(4	)	$	—
Australian Dollar	A$	2,977		(210		)	—
British Pound	£	3,965		(506		)	—
Euro	€	505		(58		)	—
Brazilian Real	R$	2,823		(73		)	—
Indian Rupee	Rs	25,022		(36		)	—
Hong Kong Dollar	HK$	(75	)	1			—
Chinese Yuan	C¥	1,593		(23		)	—
South Korean Won	₩	245,507		(22		)	—
United Arab Emirates Dirham	AED	451		(12		)	—
Total				$	(943	)	$	—


⁽¹⁾	Net of Canadian Dollar denominated loans.



	Dec. 31, 2017
(Millions)	Equity attributable to Unitholders			OCI			Net income
Canadian Dollar⁽¹⁾	C$	4		$	—		$	—
Australian Dollar	A$	2,679		(209		)	—
British Pound	£	3,719		(503		)	—
Euro	€	213		(26		)	—
Brazilian Real	R$	2,591		(78		)	—
Indian Rupee	Rs	15,904		(25		)	—
Hong Kong Dollar	HK$	(75	)	1			—
Chinese Yuan	C¥	1,207		(19		)	—
South Korean Won	₩	232,345		(22		)	—
United Arab Emirates Dirham	AED	451		(12		)	—
Total				$	(893	)	$	—


⁽¹⁾	Net of Canadian Dollar denominated loans.


d)	Credit risk

The partnership’s maximum exposure to credit risk associated with financial assets is equivalent to the carrying value of each class of financial asset as separately presented in loans and notes receivable, certain other non-current assets, accounts receivables and other, and cash and cash equivalents.

Credit risk arises on loans and notes receivables in the event that borrowers default on the repayment to the partnership. The partnership mitigates this risk by attempting to ensure that adequate security has been provided in support of such loans and notes.

Credit risk related to accounts receivable arises from the possibility that tenants may be unable to fulfill their lease commitments. The partnership mitigates this risk through diversification, ensuring that tenants meet minimum credit quality requirements and by ensuring that its tenant mix is diversified and by limiting its exposure to any one tenant. The partnership maintains a portfolio that is diversified by property type so that exposure to a business sector is lessened.

Currently no one tenant represents more than 10% of operating property revenue.

The majority of the partnership’s trade receivables are collected within 30 days. The balance of accounts receivable and loans and notes receivable past due is not significant.