| | | | | | | | | | | | | | |
(4)Tenant | This loan bears interest at LIBOR plus 5.00%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.25%. Brookfield DTLA has three options to extend the maturity date of this loan, each for a period of one year, as long as the maturity date of the other mezzanine loan is extended when the maturity date of the mortgage loan is extended. As of December 31, 2019 and through the date of this report, we meet the criteria specified in the loan agreement to extend the mortgage loan. On September 30, 2019, BAM acquired a significant interest in a company whose subsidiary is the lender of this loan. See “Related Party Transactions.” | Property | | Leased Square Feet |
| | | | |
(5)Wells Fargo Bank National Association (1) | This loan bears interest at LIBOR plus 1.80%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.50%. Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of one year. As of December 31, 2019, a future advance amount of $29.2 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreement), including tenant improvements and inducements, leasing commissions, and common area improvements. | Wells Fargo Center–North Tower, BOA Plaza | | 293,383 | |
Orrick, Herrington & Sutcliffe | | 777 Tower | | 75,627 | |
The Capital Group Companies | | Wells Fargo Center–South Tower | | 53,316 | |
City Storage Systems (2) | | 777 Tower | | 44,958 | |
HSBC Bank USA National Association | | EY Plaza | | 20,523 | |
| | | | |
(6) | This loan bears interest at LIBOR plus 1.60%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.00%. As of December 31, 2019, a future advance amount of $36.8 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreement), including tenant improvements and inducements, and leasing commissions. The Company can draw against this future advance amount as long as a pro rata draw is made against the mezzanine loan future advance amount. |
| | |
(7) | This loan bears interest at LIBOR plus 4.15%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.00%. As of December 31, 2019, a future advance amount of $6.8 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreement), including tenant improvements and inducements, and leasing commissions. The Company can draw against this future advance amount as long as a pro rata draw is made against the mortgage loan future advance amount. |
| | |
(8) | This loan bears interest at LIBOR plus 4.55%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 3.50%.
|
| | |
(9) | This loan bears interest at LIBOR plus 1.65%. As required by the loan agreement, we have entered into interest rate swap contracts to hedge this loan, which effectively fix the LIBOR portion of the interest rate at 2.28%. The effective interest rate of 3.88% includes interest on the swaps. | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total | | | | 487,807 | |
(1) Out of the expired 293,383 square feet, 242,003 square feet were renewed during the year ended December 31, 2022.
(2) Out of the expired 44,958 square feet, 39,291 square feet were renewed during the year ended December 31, 2022.
Occupancy remained stable during the year ended December 31, 2022. Office tenants are still active in the leasing markets but are being more selective in making real estate decisions. LACBD remained tenant favorable. Lease concessions, particularly tenant improvement allowances, continue to remain high as landlords continued to market increased vacant space in the slow-recovering LACBD leasing market.
Rental rates. The following table presents leasing information for executed leases at Brookfield DTLA’s properties as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Square Feet | | |
Property | | | | | | | | Net Building Rentable | | % of Net Rentable | | % Leased | | Annualized Rent (1) | | Annualized Rent $/RSF (2) |
| | | | | | | | | | | | | | | | |
BOA Plaza | | | | | | | | 1,405,428 | | | 18.5 | % | | 90.5 | % | | $ | 37,221,739 | | | $ | 29.27 | |
Wells Fargo Center–North Tower | | | | | | | | 1,399,795 | | | 18.5 | % | | 80.4 | % | | 34,455,904 | | | 30.61 | |
Gas Company Tower | | | | | | | | 1,345,163 | | | 17.8 | % | | 72.8 | % | | 27,735,956 | | | 28.31 | |
EY Plaza | | | | | | | | 963,682 | | | 12.7 | % | | 76.6 | % | | 21,567,786 | | | 29.21 | |
FIGat7th | | | | | | | | 316,250 | | | 4.2 | % | | 89.8 | % | | 7,268,181 | | | 25.60 | |
Wells Fargo Center–South Tower | | | | | | | | 1,124,960 | | | 14.8 | % | | 63.0 | % | | 21,751,783 | | | 30.68 | |
777 Tower | | | | | | | | 1,024,835 | | | 13.5 | % | | 73.1 | % | | 20,612,460 | | | 27.51 | |
| | | | | | | | 7,580,113 | | | 100.0 | % | | 77.3 | % | | $ | 170,613,809 | | | $ | 29.13 | |
__________
(1)Annualized rent represents the annualized monthly contractual rent under executed leases as of December 31, 2022. This amount reflects total base rent before any rent abatements as of December 31, 2022. Total abatements for executed leases as of December 31, 2022 for the twelve months ending December 31, 2023 are approximately $15.4 million, or $2.62 per leased square foot.
(2)Annualized rent per rentable square foot represents annualized rent as computed above, divided by leased square feet as of December 31, 2022.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Discussion of Results of Operations
Comparison ofAverage asking net effective rents in the Year Ended December 31, 2019 to December 31, 2018
Consolidated Statements of Operations Information
(In millions, except percentage amounts)
|
| | | | | | | | | | | | | | |
| For the Year Ended December 31, | | Increase/ (Decrease) | | % Change |
| 2019 | | 2018 | | |
Revenue: | | | | | | | |
Lease income | $ | 276.9 |
| | $ | 268.1 |
| | $ | 8.8 |
| | 3 | % |
Parking | 39.7 |
| | 37.3 |
| | 2.4 |
| | 6 | % |
Interest and other | 1.2 |
| | 10.3 |
| | (9.1 | ) | | (88 | )% |
Total revenue | 317.8 |
| | 315.7 |
| | 2.1 |
| | 1 | % |
| | | | | | | |
Expenses: | | | | | | | |
Rental property operating and maintenance | 105.7 |
| | 99.0 |
| | 6.7 |
| | 7 | % |
Real estate taxes | 37.7 |
| | 40.0 |
| | (2.3 | ) | | (6 | )% |
Parking | 10.4 |
| | 10.2 |
| | 0.2 |
| | 2 | % |
Other expense | 9.0 |
| | 9.9 |
| | (0.9 | ) | | (9 | )% |
Depreciation and amortization | 105.5 |
| | 96.2 |
| | 9.3 |
| | 10 | % |
Interest | 98.9 |
| | 105.0 |
| | (6.1 | ) | | (6 | )% |
Total expenses | 367.2 |
| | 360.3 |
| | 6.9 |
| | 2 | % |
Other Income: | | | | | | | |
Gain from derecognition of assets | 24.8 |
| | — |
| | 24.8 |
| | |
Equity in loss of unconsolidated real estate joint venture | (2.1 | ) | | — |
| | (2.1 | ) | | |
Total other income | 22.7 |
| | — |
| | 22.7 |
| | |
Net loss | $ | (26.7 | ) | | $ | (44.6 | ) | | $ | 17.9 |
| | |
Lease Income
Lease income increased $8.8 million, or 3%, forLACBD declined during the year ended December 31, 20192022, mainly attributable to increased leasing concessions granted in the tenant-favorable LACBD office leasing market. Management believes that on average our current rents approximate market in the LACBD.
The following table presents a summary of lease expirations at Brookfield DTLA’s properties for executed leases as compared to the year endedof December 31, 2018, largely as a result2022, plus currently available space, for future periods. This table assumes that none of our tenants will exercise renewal options or early termination rights, if any, at or prior to their scheduled expirations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | | | | Total Area in Square Feet Covered by Expiring Leases | | Percentage of Leased Square Feet | | Annualized Rent (1) | | Percentage of Annualized Rent | | Current Rent per Leased Square Foot (2) | | Rent per Leased Square Foot at Expiration (3) |
| | | | | | | | | | | | | | |
2023 | | | | 643,135 | | | 11.0 | % | | $ | 18,818,130 | | | 11.0 | % | | $ | 29.26 | | | $ | 29.41 | |
2024 | | | | 681,570 | | | 11.6 | % | | 18,300,155 | | | 10.7 | % | | 26.85 | | | 27.98 | |
2025 | | | | 743,895 | | | 12.7 | % | | 22,725,992 | | | 13.3 | % | | 30.55 | | | 32.23 | |
2026 | | | | 795,918 | | | 13.6 | % | | 20,765,501 | | | 12.2 | % | | 26.09 | | | 28.61 | |
2027 | | | | 299,580 | | | 5.1 | % | | 9,307,951 | | | 5.5 | % | | 31.07 | | | 35.74 | |
2028 | | | | 126,016 | | | 2.2 | % | | 4,172,390 | | | 2.4 | % | | 33.11 | | | 40.05 | |
2029 | | | | 302,989 | | | 5.2 | % | | 10,068,324 | | | 5.9 | % | | 33.23 | | | 42.05 | |
2030 | | | | 330,076 | | | 5.6 | % | | 10,390,792 | | | 6.1 | % | | 31.48 | | | 39.73 | |
2031 | | | | 358,684 | | | 6.1 | % | | 10,721,065 | | | 6.3 | % | | 29.89 | | | 39.40 | |
2032 | | | | 200,448 | | | 3.4 | % | | 5,648,625 | | | 3.3 | % | | 28.18 | | | 40.43 | |
Thereafter | | | | 1,375,383 | | | 23.5 | % | | 39,694,884 | | | 23.3 | % | | 28.86 | | | 42.10 | |
Total expiring leases | | | | 5,857,694 | | | 100.0 | % | | $ | 170,613,809 | | | 100.0 | % | | $ | 29.13 | | | $ | 35.25 | |
Currently available | | | | 1,722,419 | | | | | | | | | | | |
Total rentable square feet | | 7,580,113 | | | | | | | | | | | |
__________
(1)Annualized rent represents the annualized monthly contractual rent increases and recoverabilityunder executed leases as of higher operating expenses, partially offset by a 3.4% reduction in occupancy.
Interest and Other Revenue
Interest and other revenue decreased $9.1 millionDecember 31, 2022. This amount reflects total base rent before any rent abatements as of December 31, 2022. Total abatements for executed leases as of December 31, 2022 for the year endedtwelve months ending December 31, 20192023 are approximately $15.4 million, or $2.62 per leased square foot.
(2)Current rent per leased square foot represents base rent for executed leases, divided by total leased square feet as compared to the year endedof December 31, 2018, primarily due to a $9.3 million gain on2022.
(3)Rent per leased square foot at expiration represents base rent, including any future rent steps, and thus represents the sale of artwork no longer on displaybase rent that will be in place at our Wells Fargo Center office properties due to renovation activities during 2018, for which there was no comparable activity during 2019.lease expiration.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Discussion of Consolidated Cash Flows
The following discussion of Brookfield DTLA’s cash flows is based on the consolidated statements of cash flows in Item 8. “Financial Statements and Supplementary Data” and is not meant to be an all‑inclusive discussion of the changes in its cash flows for the periods presented below.
A summary of changes in Brookfield DTLA’s cash flows is as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | Dollar Change |
| 2022 | | 2021 | |
| | | | | |
Net cash provided by operating activities | $ | 39,827 | | | $ | 61,652 | | | $ | (21,825) | |
Net cash used in investing activities | $ | (64,660) | | | $ | (23,836) | | | $ | (40,824) | |
Net cash used in financing activities | $ | (4,661) | | | $ | (33,076) | | | $ | 28,415 | |
Operating Activities
Brookfield DTLA’s cash flows from operating activities are primarily dependent upon (1) the leasing activity of its portfolio, (2) the rental rates achieved on its leases, (3) the collectibility of rent and other amounts billed to tenants, (4) changes in working capital, and (5) interest payments. The decrease in cash provided by operating activities is primarily attributable to increases in interest payments on secured debt of $23.6 million due to the rising interest rate environment in 2022, as well as increases in rental property operating and maintenance expense by $11.3 million as a result of increased physical occupancy. The decrease in cash provided by operating activities was partially offset by cash inflows from working capital changes of $8.7 million, as well as increases in lease income by $3.8 million and net parking income by $2.7 million. Working capital changes are subject to variability period over period as a result of timing differences, including with respect to the collection of tenant receivables and payments of accounts and tenant payables.
Investing Activities
Brookfield DTLA’s cash flows from investing activities are generally impacted by the amount of capital expenditures and tenant improvement activities for its properties. The increase in net cash used in investing activities was mainly due to increases in tenant improvement expenditures at Wells Fargo Center and 777 Tower.
Financing Activities
Brookfield DTLA’s cash flows from financing activities are generally impacted by its loan activity, and contributions from and distributions to its equity holders, if any. During the year ended December 31, 2022, proceeds from drawings on loans secured by 777 Tower and Wells Fargo Center–South Tower of $13.9 million and $4.7 million, respectively, as well as net proceeds from the issuance of Series B preferred interest of $47.6 million was the main source of cash provided by financing activities. Cash outflows were mainly driven by repurchases of and distributions to Series B preferred interest of $47.0 million and $9.8 million, respectively, using the excess operating cash flows generated from properties. In addition, as required by various mortgage and mezzanine loan agreements, the Company paid $12.0 million related to purchases of interest rate protection agreements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In comparison, during the same period in 2021, net proceeds from the refinancing of the loans secured by the Gas Company Tower and the issuance of Series B preferred interest of $25.5 million were the main source of cash provided by financing activities. All proceeds from the new secured loans were used to pay off the original $450.0 million encumbrance and to satisfy the new loans’ required reserves. As Brookfield DTLA had excess cash from operating activities generated from properties, it repurchased $45.3 million of the Series B preferred interest and made distributions of $17.8 million to the Series B preferred interest.
Comparison of the Year Ended December 31, 2021 to December 31, 2020
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Discussion of Results of Operations
Comparison of the Year Ended December 31, 2022 to December 31, 2021
Consolidated Statements of Operations Information
(In millions, except percentage amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | Increase/ (Decrease) | | % Change |
| 2022 | | 2021 | | |
Revenue: | | | | | | | |
Lease income | $ | 264.1 | | | $ | 257.4 | | | $ | 6.7 | | | 3 | % |
Parking | 30.7 | | | 25.4 | | | 5.3 | | | 21 | % |
Interest and other | 1.1 | | | 1.0 | | | 0.1 | | | 10 | % |
Total revenue | 295.9 | | | 283.8 | | | 12.1 | | | 4 | % |
| | | | | | | |
Expenses: | | | | | | | |
Rental property operating and maintenance | 108.7 | | | 97.4 | | | 11.3 | | | 12 | % |
Real estate taxes | 39.7 | | | 39.7 | | | — | | | — | % |
Parking | 11.1 | | | 8.6 | | | 2.5 | | | 29 | % |
Other expenses | 10.5 | | | 8.6 | | | 1.9 | | | 22 | % |
Depreciation and amortization | 101.3 | | | 104.0 | | | (2.7) | | | (3) | % |
Interest | 101.8 | | | 79.7 | | | 22.1 | | | 28 | % |
Impairment of real estate and intangible assets | 112.1 | | | — | | | 112.1 | | | 100 | % |
Total expenses | 485.2 | | | 338.0 | | | 147.2 | | | 44 | % |
Other Income: | | | | | | | |
| | | | | | | |
Equity in earning of unconsolidated real estate joint venture | 1.2 | | | 0.8 | | | 0.4 | | | 50 | % |
Total other income | 1.2 | | | 0.8 | | | 0.4 | | | 50 | % |
Net loss | $ | (188.1) | | | $ | (53.4) | | | $ | (134.7) | | | 252 | % |
Lease income and parking revenue
The increase in lease income during the year ended December 31, 2022 was mainly due to higher recoveries, driven by increased operating and maintenance expenses as a result of higher physical occupancy as discussed in “Current Year Highlights”. The increase in parking revenue was also due to higher physical occupancy.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Rental Property Operating and Maintenance Expense
Rental property operating and maintenance expense increased $6.7 million, or 7%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018, largely due to higher insurance, administrative and repairmainly includes janitorial, repairs and maintenance, costs.utilities, insurance, and various other recurring expenses. With the higher physical occupancy since the Reopening in June 2021, rental property operating and maintenance expense increased.
Depreciation and AmortizationInterest Expense
Depreciation and amortizationAn increase in interest expense increased $9.3on secured debt by $22.1 million or 10%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018,was primarily due to increased investmentsthe rise in tenant improvements year over year.
Interest Expense
Interest expense decreased $6.1 million, or 6%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018, mainly due to lower LIBORinterest rates on our variable-rate debt that wereduring 2022. Such an increase was partially offset by an increase in debt outstanding as a resultthe $4.6 million nonrecurring loss on early extinguishment of the refinancingdebt secured by Gas Company Tower in February 2021.
Impairment of the 777 Tower mortgage loan in October 2019.
Gain from Derecognition ofReal Estate and Intangible Assets
During the year ended December 31, 2019, New OP entered into an agreement2022, upon our review of the current market conditions, the Company recognized impairment charges on Wells Fargo Center – South Tower’s investments in real estate of $111.1 million and intangible assets associated with this property of $1.0 million to contributereduce their carrying amounts to their estimated fair value. Wells Fargo Center – South Tower’s estimated fair value and impairment charges reflect the impact of the 5.5% transfer all of its wholly-owned intereststax that will be levied on real estate sales transactions in the Property Owner,City of Los Angeles valued at $10.0 million and above effective April 1, 2023. While there were no impairment charges on other properties in our portfolio during the year ended December 31, 2022, in light of the indirectevolving office rental business environment and the slowdown in economic growth in the near term because of rising interest rates, decreases in our property ownervaluations may lead to additional impairment charges in our portfolio in the near future. No impairment loss was recorded in the same period in 2021 on any of 755 South Figueroa, a residential development property, in exchange for noncontrolling interests in a newly formed joint venture and recognized a $24.8 million gain. See Item 8. “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 4—Investment in Unconsolidated Real Estate Joint Venture.”the Company’s properties.
Comparison of the Year Ended December 31, 20182021 to December 31, 20172020
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Related Party Transactions
Discussion of Consolidated Cash Flows
Litigation
Critical Accounting Estimates
Impairment of Long-lived Assets
Impairment of investments in real estate
Investments in long-lived assets, including our investments in real estate, are individually reviewed for impairment quarterly or if events or changes in circumstances indicate that the carrying amount of the long-lived assets might not be recoverable, which is not meantreferred to as a “triggering event” or an “impairment indicator.” Indicators of potential impairment include the following:
•Change in strategy resulting in an increased or decreased holding period;
•Lower stabilized occupancy levels;
•Deterioration of the rental market as evidenced by rent decreases, record-high capital expense obligations, and/or elevated concessions such as tenant improvement, over numerous quarters;
•Properties with recent impairment issues that are adjacent to or located in the same submarket;
•Significant decrease in properties’ market price;
•Tenant financial problems; and/or
•Comparable market barriers of competitors in the same submarket.
The carrying amount of long-lived assets to be an all‑inclusive discussionheld and used is deemed not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. Triggering events or impairment indicators for long-lived assets to be held and used are assessed by property and include significant fluctuations in estimated net operating income, changes in itsleasing activity, significant near-term lease expirations, current and historical operating and/or cash flows for the periods presented below.
A summary of changes in Brookfield DTLA’s cash flows is as follows (in thousands):
|
| | | | | | | | | | | |
| For the Year Ended December 31, | | Dollar Change |
| 2019 | | 2018 | |
| |
Net cash provided by operating activities | $ | 39,785 |
| | $ | 17,389 |
| | $ | 22,396 |
|
Net cash used in investing activities | (127,775 | ) | | (90,065 | ) | | (37,710 | ) |
Net cash provided by financing activities | 41,208 |
| | 110,941 |
| | (69,733 | ) |
Operating Activities
Brookfield DTLA’s cash flows from operating activities are primarily dependent upon (1) the occupancy level of its portfolio, (2) theflow losses, rental rates, achieved on its leases, and (3) the collectability of rent and other amounts billed to tenants and is also tied to the level of operating expenses. Net cash provided by operating activities during the year ended December 31, 2019 totaled $39.8 million compared to net cash provided by operating activities of $17.4 million during the year ended December 31, 2018. The $22.4 million increase in cash provided by operating activities is primarily due to increases in working capital year over year.market factors.
Investing Activities
Brookfield DTLA’s cash flows from investing activities are generally impacted by the amount of capital expenditures for its properties. Net cash used in investing activities totaled $127.8 million during the year ended December 31, 2019, compared to net cash used in investing activities of $90.1 million during the year ended December 31, 2018. During the year ended December 31, 2019, the Company spent $59.1 million for tenant improvements at BOA Plaza, EY Plaza, 777 Tower and Wells Fargo Center–North Tower in connection with lease renewals by major tenants along with continued atrium renovations and elevator upgrades at Wells Fargo Center totaling $37.9 million. During the year ended December 31, 2018, the Company spent $21.3 million for tenant improvements at 777 Tower, Wells Fargo Center–South Tower and Wells Fargo Center–North Tower in connection with lease renewals by major tenants along with continued the atrium renovations and elevator upgrades at Wells Fargo Center totaling $23.8 million.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Activities
Brookfield DTLA’sWhen conducting the impairment review of our investments in real estate, we assessed the expected undiscounted cash flows from financing activitiesbased upon numerous factors. These factors include, but are generally impacted by its loan activity, and contributions from and distributions to its mezzanine equity holders, and distributions to its stockholders, if any. Net cash provided by financing activities totaled $41.2 million during the year ended December 31, 2019, compared to net cash provided by financing activities of $110.9 million during the year ended December 31, 2018. Net proceeds from the refinancing of the mortgage loan secured by the 777 Tower office property and cash received from the lender for approved leasing costs under the future advance portion of the Wells Fargo Center–South Tower mortgage loan, partially offset by net distributions to the Series B and senior participating preferred interests, were the primary source of net cash provided by financing activities during the year ended December 31, 2019. Net proceeds from the refinancing of the Wells Fargo Center–North Tower, EY Plaza and FIGgat7th mortgage loans, partially offset by distributions to the Series B and senior participating preferred interests, were the main source of net cash provided by financing activities during the year ended December 31, 2018.
Off-Balance Sheet Arrangements
Brookfield DTLA did not have any off-balance sheet transactions, arrangements or obligations as of the date this report was filed, December 31, 2019 and 2018, respectively.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Contractual Obligations
The following table provides information with respect to Brookfield DTLA’s commitments as of December 31, 2019, including any guaranteed or minimum commitments under contractual obligations (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
| | | | | | | | | | | | | |
Principal payments on secured debt (1) | $ | 765,000 |
| | $ | 710,796 |
| | $ | — |
| | $ | 58,500 |
| | $ | 675,000 |
| | $ | — |
| | $ | 2,209,296 |
|
Interest payments – | | | | | | | | | | | | | |
Fixed-rate debt (2) | 38,697 |
| | 30,590 |
| | 18,726 |
| | 16,803 |
| | 11,025 |
| | — |
| | 115,841 |
|
Variable-rate swapped to fixed-rate debt | 8,875 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,875 |
|
Variable-rate debt (3) | 37,105 |
| | 18,148 |
| | 10,359 |
| | 10,359 |
| | 8,656 |
| | — |
| | 84,627 |
|
Tenant-related commitments (4) | 23,608 |
| | 2,700 |
| | 5,407 |
| | 1,081 |
| | 931 |
| | 1,634 |
| | 35,361 |
|
Construction-related commitments (5) | 10,318 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,318 |
|
| $ | 883,603 |
| | $ | 762,234 |
| | $ | 34,492 |
| | $ | 86,743 |
| | $ | 695,612 |
| | $ | 1,634 |
| | $ | 2,464,318 |
|
__________
| |
(1) | On September 30, 2019, BAM acquired a significant interest in a company whose subsidiary is the lender of the $35.0 million mezzanine loan due from Wells Fargo Center–North Tower, which matures in October 2020. See “Related Party Transactions.” |
| |
(2) | Interest payments on fixed-rate debt are calculated based on contractual interest rates and scheduled maturity dates. |
| |
(3) | Interest payments on variable-rate debt are calculated based on scheduled maturity dates and the one-month LIBOR rate in place on the debt as of December 31, 2019 plus the contractual spread per the loan agreements. Interest payments due to the related-party lender of the $35.0 million mezzanine loan due from Wells Fargo Center–North Tower total $1.9 million during the year ending December 31, 2020. |
| |
(4) | Tenant-related commitments include tenant improvements and leasing commissions and are based on executed leases as of December 31, 2019. Tenant-related commitments due to the related-party lender of the $35.0 million mezzanine loan due from Wells Fargo Center–North Tower total $623 thousand during the year ending December 31, 2020. |
| |
(5) | Construction-related commitments include amounts due to contractors related to the atrium renovation project at Wells Fargo Center based on executed contracts as of December 31, 2019. |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Related Party Transactions
Management Agreements
Certain subsidiaries of Brookfield DTLA have entered into arrangements with the Manager, pursuant to which the Manager provides property management and various other services. Property management fees under the management agreements entered into in connection with these arrangements are calculated based on 2.75% of rents collected (as defined in the management agreements). In addition, the Company pays an asset management fee to BPY and BAM, which is calculated based on 0.75% of the capital invested by DTLA Holdings in Brookfield DTLA’s properties. Leasing management fees paid to the Manager range from 1.00%��to 4.00% of expected rents, depending on the terms of the lease and whether a third-party broker was paid a commission for the transaction. Construction management fees are paid to the Manager based on 3.00% of hard and soft construction costs. Development management fees are paid to the Manager and Brookfield affiliates by the unconsolidated real estate joint venture based on 3.00% of hard and soft construction costs.
A summary of costs incurred by the applicable Brookfield DTLA subsidiaries under these arrangements is as follows (in thousands):
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Property management fee expense | $ | 8,479 |
| | $ | 8,111 |
| | $ | 8,136 |
|
Asset management fee expense | 6,161 |
| | 6,330 |
| | 6,330 |
|
Leasing and construction management fees | 5,051 |
| | 3,209 |
| | 5,198 |
|
Development management fees (1) | 991 |
| | — |
| | — |
|
General, administrative and reimbursable expenses | 2,865 |
| | 3,007 |
| | 2,613 |
|
__________
| |
(1) | Amount presented is calculated by applying the Company’s ownership interest percentage in the unconsolidated real estate joint venture as of period end to the amounts capitalized during the period. Amounts capitalized prior to May 31, 2019 (the date our wholly‑owned interests in the Property Owner were transferred to the joint venture) are reported at 100%. |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Insurance Agreements
Properties held by certain Brookfield DTLA subsidiaries and affiliates are covered under insurance policies entered into by the Manager that provide, among other things, all risk property and business interruption coverage for BPY’s commercial portfolio with an aggregate limit of $2.5 billion per occurrence as well as an aggregate limit of $437.5 million of earthquake insurance for California, and $372.5 million of flood and weather catastrophe insurance. In addition, Brookfield DTLA’s properties are covered by a terrorism insurance policy that provides a maximum of $4.0 billion per occurrence for all of BPY’s U.S. properties. Brookfield DTLA is in compliance with the contractual obligations regarding terrorism insurance contained in such policies. Insurance premiums for Brookfield DTLA’s properties are paid by the Manager. Brookfield DTLA reimburses the Manager for the amount of fees and expenses related to such policies that have been allocated to the Company’s properties as determined by the Manager in its reasonable discretion taking into consideration certain facts and circumstances, including the value of the Company’s properties.
A summary of costs incurred by the applicable Brookfield DTLA subsidiaries and affiliates under this arrangement is as follows (in thousands):
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Insurance expense | $ | 9,286 |
| | $ | 8,026 |
| | $ | 7,795 |
|
Other Related Party Transactions with BAM Affiliates
A summary of the impact of other related party transactions with BAM affiliates on the Company’s consolidated statement of operations is as follows (in thousands):
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Lease income | $ | 5,916 |
| | $ | 1,928 |
| | $ | — |
|
Interest and other revenue | 208 |
| | — |
| | — |
|
Rental property operating and maintenance expense (1) | 676 |
| | 862 |
| | 579 |
|
Other expense | 142 |
| | — |
| | — |
|
Interest expense (2) | 613 |
| | — |
| | — |
|
__________
| |
(1) | Amounts presented are for purchases of chilled water for air conditioning at one of the Company’s properties. |
| |
(2) | On September 30, 2019, BAM acquired a significant interest in Oaktree Capital Management, L.P., whose subsidiary is the lender of the $35.0 million mezzanine loan due from Wells Fargo Center–North Tower. Interest payable to the lender totals $112 thousand as of December 31, 2019. See “Indebtedness.” |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Litigation
Critical Accounting Policies
Critical accounting policies are those that are both significant to the overall presentation of Brookfield DTLA’s financial condition and results of operations and require management to make difficult, complex or subjective judgments. The Company considers the following to be its critical accounting policies:
Determination of Controlling Financial Interest
The Company consolidates entities in which it has a controlling financial interest. In determining whether Brookfield DTLA has a controlling financial interest in an entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and Brookfield DTLA is the primary beneficiary.
A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb the losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Brookfield DTLA qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE.
Consideration of various factors includes, but is not limited to, Brookfield DTLA’s ability to direct the activitiescredit quality of our tenants, available market information, known trends, current market/economic conditions that most significantly impactmay affect the VIE’s economic performance, its form of ownership interest, its representation on the VIE’s governing body, the sizeasset, and seniority of its investment, its abilityhistorical and the rights of other investors to participate in policy making decisionsforecasted financial and its ability to replace the manager of and/or liquidate the entity. Brookfield DTLA is required to continually evaluate its VIE relationships and consolidation conclusion.
Brookfield DTLA Fund Properties II LLC. The Company earns a return through an indirect investment in New OP. DTLA Holdings, the parent of Brookfield DTLA, owns all of the common interest in New OP. Brookfield DTLA has an indirect preferred stock interest in New OP and its wholly owned subsidiary is the managing member of New OP. The Company determined that New OP is a VIE and as a result of having the power to direct the significant activities of New OP and exposureoperating information relating to the economic performance of New OP, Brookfield DTLA meets the two conditions for being the primary beneficiary.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Investment in Unconsolidated Real Estate Joint Venture. New OP has noncontrolling interests in a joint venture with DTLA FP IV Holdings. The Company determined that the joint venture is a VIE mainly because its equity investment at risk is insufficient to finance the joint venture’s activities without additional subordinated financial support. While the joint venture meets the definition of a VIE, Brookfield DTLA is not its primary beneficiaryproperty, such as the Company lacks the power through voting or similar rights to direct the activities that most significantly impact the joint venture’s economic performance. Therefore, the Company accounts for its ownership interest in the joint venture under the equity method.
Impairment Evaluation
Investments in real estate are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the real estate may not be recoverable. In such an event, a comparison is made between (i) the currentnet operating income, leasing activity statistics, vacancy projections, renewal percentage, and projected operating cash flows of the property into the foreseeable future on an undiscounted basis and (ii) the carrying amount of the property.rent collection rates. If the undiscounted cash flows expected to be generated by a property are less than its carrying amount, the Company determines the fair value of the property and an impairment provisionloss would be recorded to write down the carrying amount of such property to its fair value. Brookfield DTLA assesses
As of December 31, 2022, the carrying amounts of our investments in real estate aggregated $2.2 billion, or approximately 87% of our total assets. During the year ended December 31, 2022, the Company recognized impairment charges on Wells Fargo Center–South Tower’s investments in real estate of $111.1 million and intangible assets associated with this property of $1.0 million to reduce their carrying amounts to their estimated fair value basedvalue. There were no impairment charges on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information. Projections of future cash flows take into accountother properties in our portfolio during the specific business plan forsame period. In comparison, during the property and management’s best estimate of the most probable set of economic conditions expected to prevail in the market. Management believes no impairmentyear ended December 31, 2021, none of Brookfield DTLA’s real estate properties existed at December 31, 2019 and 2018.were impaired.
RecognitionImpairment of Lease Income
Brookfield DTLA’s lease income primarily represents revenue related to agreements for rental of our investmentsan investment in unconsolidated real estate subject to Accounting Standards Codification Topic 842, Leases. All ofjoint venture
Our investment in the leases in which the Company is the lessor are classified as operating leases. The Company’s leases do not have guarantees of residual value of the underlying assets. We manage risk associated with the residual value of our leased assets by carefully selecting our tenants and monitoring their credit quality throughout their respective lease terms. Upon the expiration or termination of a lease, the Company often has the ability to re-lease the space with an existing tenant or to a new tenant within a reasonable amount of time.
The Company’s lease income is comprised of variable payments including fixed and contingent rental payments and tenant recoveries. Fixed contractual payments from the Company’s leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of lease income recognized during the period. Straight-line rental revenue is commenced when the customer assumes control of the leased premises.
Certain leases with retail tenants also provide for the payment by the lessee of additional rent based on a percentage of the tenant’s sales. Percentage rents are recognized as lease income only after the tenant sales thresholds have been achieved.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Tenant recoveries, including reimbursements of utilities, repairs and maintenance, common area expenses,unconsolidated real estate taxes and insurance, and other operating expenses, are recognized as lease incomejoint venture, Brookfield DTLA Fund Properties IV LLC, is reviewed for impairment quarterly or when conditions exist that may indicate that the decrease in the period when the applicable expenses are incurred and the tenant’s obligation to reimburse us arises.
Some of the Company’s leases have termination options that allow the tenant to terminate the lease prior to the end of the lease term under certain circumstances. Termination options generally become effective half way or further into the original lease term and require advance notification from the tenant and payment of a termination fee that reimburses the Company for a portion of the remaining rent under the original lease term and the undepreciated lease inception costs such as commissions, tenant improvements and lease incentives. Termination fees are recognized as lease income at the later of when the tenant has vacated the space or the lease has expired, a fully executed lease termination agreement has been delivered to the Company, thecarrying amount of the feeinvestment has occurred and is determinableother than temporary. Triggering events or impairment indicators for the Company’s unconsolidated real estate joint venture include its recurring operating losses, and collectabilityother events such as significant changes in construction costs, estimated completion dates, intended holding periods, and other factors related to the development property owned by the real estate joint venture. Upon determination that an other-than-temporary impairment has occurred, a write-down is recognized to reduce the carrying amount of the fee is reasonably assured.investment to its estimated fair value.
In addition, under Topic 842, Brookfield DTLA must assess on an individual lease basis whether it is probable thatAs of December 31, 2022, the Company will collectcarrying amount of our investment in the future lease payments throughout the lease term. The Company considers the tenant’s payment history and current credit status when assessing collectability. If the collectability of the lease payments is probable at lease commencement, the Company recognizes lease income over the lease term on a straight-line basis. When collectability is not deemed probable at the commencement date, the Company’s lease income is constrained to the lesser of (1) the income that would have been recognized if collection were probable, and (2) the lease payments that have been collected from the lessee. If the collectability assessment changes to probable after the commencement date, any difference between the lease income that would have been recognized if collectability had always been assessed as probable and the lease income recognized to date is recognized as a current-period adjustment to lease income. If the collectability assessment changes to not probable after the commencement date, lease income is reversed to the extent that the lease payments that have been collected from the lessee are less than the lease income recognized to date.
Effects of Inflation
Substantially all of Brookfield DTLA’s office leases provide for separateunconsolidated real estate taxjoint venture was $44.4 million, or approximately 2% of our total assets. During the years ended December 31, 2022 and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. Brookfield DTLA believes that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.2021, no other-than-temporary impairments related to our unconsolidated real estate joint venture were identified.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
Recently Issued Accounting Literature
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Recent Accounting Pronouncements
Accounting Pronouncements Adopted in 2019
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Targeted Improvements to Accounting for Hedging Activities. This update introduced amendments to Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, intended to make targeted improvements to simplify the application of the hedgenew accounting guidance in current GAAP. The objective of this update is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. Brookfield DTLA adopted the guidance in ASU 2017-12 on January 1, 2019. The adoption of this guidance did not have a material impact on Brookfield DTLA’s consolidated financial statements.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 amends Topic 815 by expanding the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an eligible benchmark interest rate. Brookfield DTLA adopted this update effective January 1, 2019. Upon adoption on January 1, 2019 andpronouncements during the year ended December 31, 2019, the Company had no hedges based on SOFR, and hence, the adoption of this update did not have a material impact on Brookfield DTLA’s consolidated financial statements. Should the Company issue variable interest rate debt in the future, including SOFR-based debt, and enter into related interest rate hedge agreements to manage the Company’s exposure to variable interest rates, the Company will continue applying the interest rate hedge accounting policy that has been applied to the Company’s interest rate hedge agreements based on LIBOR.2022.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Accounting Pronouncements Effective January 1, 2020
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. In November 2018, the FASB released ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. This amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Subtopic 842-30, Leases—Lessor. ASU 2016-13 and ASU 2018-19 are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019, with early adoption permitted as of the fiscal year beginning after December 15, 2018, including adoption in an interim period. The majority of the Company’s receivables arise in the ordinary course of business under operating leases with its tenants and are therefore not subject to the guidance in Subtopic 326-20. Brookfield DTLA does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement(Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 amends Topic 820 by adding new fair value measurement disclosure requirements, as well as modifying and removing certain disclosure requirements. This guidance is effective for interim and annual periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for any eliminated or modified disclosures. Brookfield DTLA does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which amends the related-party guidance in Topic 810. Specifically, ASU 2018-17 removes a sentence in ASC 810-10-55-37D regarding the evaluation of fees paid to decision makers to conform with the amendments in ASU 2016-17. ASU 2018-17 is effective for interim and annual periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Brookfield DTLA does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Subsequent Event
Coronavirus Disease 2019 (“COVID–19”)
Brookfield DTLA owns, operates and manages commercial office and retail properties in the LACBD and receives its income primarily from lease income generated from tenants of those properties. Our business may be vulnerable to damages from a number of sources, including major health issues and pandemics, such as COVID–19, commerce and travel, which may adversely affect trade and global and local economic conditions. Such adverse developments could include oversupply of or reduced demand for office and retail space; business layoffs; downsizings; relocations; increased telecommuting; or industry slowdowns affecting the tenants of our properties.
Tenants of our properties may experience a downturn in their business from the effects of COVID–19, which could cause the loss of tenants or weaken their financial condition and result in the tenants’ inability to make lease payments when due or require rent concessions. In the event of a significant number of lease defaults and/or tenant bankruptcies, it may be difficult, costly and time consuming to attract new tenants and lease the space for the rent and on terms as favorable as the previous leases or at all. The loss of lease payments from tenants and costs of re-leasing would adversely affect our operating results and financial condition, and our cash flows may not be sufficient to meet all of our obligations and liabilities.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID–19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID–19.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Interest rate fluctuations may impact Brookfield DTLA’s results of operationsExcluding the debt in default secured by the 777 Tower and cash flows. As of December 31, 2019, $1,070.8 million,Gas Company Tower, $1.1 billion, or 49%47%, of Brookfield DTLA’s debt bears interest at variable rates based on one‑month LIBOR.LIBOR or SOFR as of December 31, 2022. Brookfield DTLA does not trade in financial instruments for speculative purposes. The primary market risk to which we believe we may be exposed is interest rate risk, which results from many factors, including government monetary and tax policies, economic considerations, and other factors that are beyond our control.
We utilize interest rate cap contracts to manage the interest rate risk of our outstanding debt and to limit the effects of interest rate risks on our operations. The use of interest rate cap contracts to hedge a portion of our exposure to changes in interest rates may carry additional risks, such as counterparty credit risk.
Brookfield DTLA’s interest rate swap and cap contractsprotection agreements in place as of December 31, 20192022 are as follows (in thousands, exceptfollows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional Value | | Strike Rate (1) | | | Effective Date | | Expiration Date | | |
| | | | | | | | | | | |
Wells Fargo Center–North Tower | | $ | 400,000 | | | 3.40 | % | (1) | | 10/15/2022 | | 10/15/2023 | | |
Wells Fargo Center–North Tower | | 65,000 | | | 3.40 | % | (1) | | 10/15/2022 | | 10/15/2023 | | |
Wells Fargo Center–North Tower | | 35,000 | | | 3.40 | % | (1) | | 10/15/2022 | | 10/15/2023 | | |
Wells Fargo Center–South Tower | | 263,219 | | | 2.87 | % | (1) | | 11/4/2022 | | 11/4/2023 | | |
EY Plaza | | 275,000 | | | 6.02 | % | (2) | | 10/15/2022 | | 10/15/2023 | | |
EY Plaza | | 30,000 | | | 6.02 | % | (2) | | 10/15/2022 | | 10/15/2023 | | |
Gas Company Tower (3) | | 350,000 | | | 4.00 | % | (2) | | 2/3/2021 | | 2/15/2023 | | |
Gas Company Tower (3) | | 65,000 | | | 4.00 | % | (2) | | 2/3/2021 | | 2/15/2023 | | |
Gas Company Tower (3) | | 50,000 | | | 4.00 | % | (2) | | 2/3/2021 | | 2/15/2023 | | |
Total | | $ | 1,533,219 | | | | | | | | | | |
__________
(1)The index used for these derivative financial instruments is 1-Month SOFR.
(2)The index used for these derivative financial instruments is 1-Month LIBOR.
(3)As of the issuance date of this Annual Report, debt secured by Gas Company Tower is in maturity default and the related interest rate and date information):cap contracts expired.
|
| | | | | | | | | | | | | | | |
| | Notional Value | | Strike Rate | | Effective Date | | Expiration Date | | Fair Value |
| | | | | | | | | | |
Interest rate swap | | $ | 168,151 |
| | 2.18 | % | | 11/27/2013 | | 11/2/2020 | | $ | (763 | ) |
Interest rate swap | | 54,206 |
| | 2.47 | % | | 3/29/2018 | | 11/2/2020 | | (380 | ) |
Interest rate cap | | 400,000 |
| | 4.25 | % | | 9/21/2018 | | 10/15/2020 | | — |
|
Interest rate cap | | 65,000 |
| | 4.25 | % | | 9/21/2018 | | 10/15/2020 | | — |
|
Interest rate cap | | 35,000 |
| | 4.25 | % | | 9/21/2018 | | 10/15/2020 | | — |
|
Interest rate cap | | 290,000 |
| | 4.50 | % | | 11/5/2018 | | 11/4/2020 | | — |
|
Interest rate cap | | 268,600 |
| | 4.00 | % | | 10/31/2019 | | 11/10/2021 | | 1 |
|
Interest rate cap | | 50,000 |
| | 4.00 | % | | 10/31/2019 | | 11/10/2021 | | — |
|
Interest rate cap | | 35,000 |
| | 3.50 | % | | 10/1/2019 | | 11/27/2020 | | — |
|
| | | | | | | | | | $ | (1,142 | ) |
Interest Rate Sensitivity
Our future earnings and fair value relating to our outstanding debt are primarily dependent upon prevalent market interest rates. The impactfollowing table illustrates the effect of an assumed 50 basis point movementa 1% change in interest rates would have had the following impact on Brookfield DTLA’s consolidated statements of operationsour fixed- and financial position during the year ended December 31, 2019 (in thousands):
|
| | | | | | | | | | | |
| | | Fair Value of |
| Interest Expense | | Secured Debt | | Interest Rate Swaps |
| | | | | |
50 basis point increase | $ | 5,467 |
| | $ | (10,817 | ) | | $ | 825 |
|
50 basis point decrease | (5,467 | ) | | 5,715 |
| | (830 | ) |
The impact of a 50 basis point increase or decrease in interest rates would have an immaterial effect on the fair value of Brookfield DTLA’s interest rate cap contractsvariable-rate debt as of December 31, 2019.2022:
| | | | | | | | | | | | | |
| | | Fair Value of |
| Effect on Future Interest Expense due to Variable-rate Debt: | | Secured Debt | | |
| | | | | |
Rate increase of 1% | $ | 3,092 | | | $ | (9,914) | | | |
Rate decrease of 1% | $ | (7,807) | | | $ | 9,824 | | | |
These amounts were determined considering the impact of hypothetical interest rates on Brookfield DTLA’s financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Furthermore, in the event of a change of the magnitude discussed above, management may take actions to further mitigate Brookfield DTLA’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in Brookfield DTLA’s financial structure.
| |
Item 8. | Financial Statements and Supplementary Data. |
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Brookfield DTLA Fund Office Trust Investor Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brookfield DTLA Fund Office Trust Investor Inc. and subsidiaries (the “Company”) as of December 31, 20192022 and 2018,2021, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows, for each of the three years in the period ended December 31, 2019,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Liquidity and Going Concern — Refer to Note 2 to the financial statements
Critical Audit Matter Description
As of December 31, 2022, the Company had $2.3 billion of total consolidated debt, including $1,128.9 million and $400.0 million maturing in 2023 and 2024, respectively. The Company’s substantial indebtedness requires the Company to use a material portion of cash flow to service interest on the debt outstanding. Additionally, the consolidated debt also included $288.9 million of mortgage and mezzanine debt secured by 777 Tower and $465.0 million of mortgage and mezzanine debt secured by Gas Company Tower that is in default. Additionally, in order to attract or retain tenants needed to increase occupancy and sustain operations, the Company will need to spend a substantial amount on capital leasing costs (such as tenant improvements), however, the Company has limited amounts of liquidity to make these capital commitments. The Company may be unable to extend or refinance the upcoming loan maturities at current terms and may be required to paydown a portion of the maturing debt in order to extend or refinance the loans. With the Company’s limited amount of unrestricted cash on hand the Company’s ability to make any loan paydowns is limited. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.
We identified the Company’s liquidity and going concern disclosure as a critical audit matter because of the significant judgments in management’s plans to fund its debt in default, upcoming debt maturities and future tenant improvements within one year after the date the financial statements are issued. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s conclusion that it is probable the Company’s plan will be effectively implemented within one year after the date the financial statements are issued and will provide the necessary cash flows to fund the Company’s debt maturities and future tenant improvements.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s liquidity and going concern disclosure included the following, among others:
•We evaluated conditions and events that raise substantial doubt regarding the Company’s ability to continue as a going concern.
•We tested management’s plan and its key assumptions including, but not limited to:
◦Projected revenues and property operating expenses by comparing such assumptions to underlying lease agreements and historical operating costs.
◦Estimates relating to future tenant improvements by comparing to underlying lease agreements.
•We engaged in discussions with management and evaluated the Company’s intent and ability to exercise extensions of its debt where available, foreclose certain properties collateralizing its loans, etc. and addressed the feasibility of the plan.
•We evaluated management’s disclosure in the notes to the financial statements to ensure it is in accordance with the appropriate guidance.
•We evaluated management’s plans in the context of other audit evidence and analyzed external filings and press releases to determine whether it supported or contradicted the conclusion reached by management.
Impairment Review — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company’s investments in long-lived assets, including investments in real estate, are individually reviewed for impairment quarterly or if events or changes in circumstances indicate that the carrying amount of the long-lived assets might not be recoverable, which is referred to as a "triggering event" or an "impairment indicator." The carrying amount of long-lived assets to be held and used is deemed not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. Triggering events or impairment indicators for long-lived assets to be held and used are assessed by property and include significant fluctuations in estimated net operating income, changes in occupancy, significant near-term lease expirations, current and historical operating and/or cash flow losses, rental rates, and other market factors.
When conducting the impairment review of the investments in real estate, the Company assessed the expected undiscounted cash flows based on numerous factors, but are not limited to, the credit quality of their tenants, available market information, known trends, current market/economic conditions that may affect the asset, and historical and forecasted financial and operating information relating to the property, such as net operating income, occupancy statistics, vacancy projections, renewal percentage, and rent collection rates. If the undiscounted cash flows expected to be generated by a property are less than its carrying amount, the Company determines the fair value of the property and an impairment loss would be recorded to write down the carrying amount of such property to its fair value.
During the year 2022, the Company recognized impairment charges on investments in real estate and intangible assets of $112.1 million, which are included in “Impairment of real estate and intangible assets” within the consolidated statements of operations.
We identified the impairment of investments in real estate properties as a critical audit matter because of the significant estimates and assumptions related to future market rental rates, capitalization rates and discount rates. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of investments in real estate for possible indicators of impairment included the following, among others:
•We evaluated the Company’s assessment of impairment indicators and estimate of future operating performance of the assets by evaluating the following:
◦Inquired with management, read minutes of executive committee and Board of Directors meetings and identified any indicators that it is likely a long-lived investment in real estate will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
◦Tested investments in real estate for possible indicators of impairment, including searching for adverse real-estate-specific and/or market conditions.
•Compared the carrying value of the assets to their respective fair values to assess whether any properties had a carrying value in excess of the fair value which could be an indicator of impairment. Further, we evaluated the reasonableness of the cash flow assumptions (future market rental rates, capitalization rates, and discount rates) utilized in the fair value analysis by testing management’s ability to forecast future cash flows by comparing actual results to management’s historical forecasts. In addition, we utilized independent market data focusing on geographical location and property type to test management’s assumption.
•With the assistance of our fair value specialists, on a sample basis, we evaluated certain key assumptions utilized by management to determine the fair value of the investments in real estate such as the (1) valuation methodology utilized by management; (2) the discount rate, rental rates, growth rates, and capitalization rates; and (3) mathematical accuracy of the calculation by developing a range of independent estimates and comparing our estimates to those used by management.
•We evaluated whether the assumptions were consistent with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
New York, NYNew York
March 26, 202031, 2023
We have served as the Company’s auditor since 2013.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
ASSETS | | | |
Investments in Real Estate: | | | |
Land | $ | 216,982 | | | $ | 222,555 | |
Buildings and improvements | 2,145,830 | | | 2,308,836 | |
Tenant improvements | 420,010 | | | 418,460 | |
Investments in real estate, gross | 2,782,822 | | | 2,949,851 | |
Less: accumulated depreciation | 561,382 | | | 580,403 | |
Investments in real estate, net | 2,221,440 | | | 2,369,448 | |
Investment in unconsolidated real estate joint venture | 44,421 | | | 43,191 | |
Cash and cash equivalents | 23,523 | | | 38,901 | |
Restricted cash | 35,206 | | | 49,322 | |
Rents, deferred rents and other receivables, net | 135,447 | | | 125,625 | |
Intangible assets, net | 10,067 | | | 16,023 | |
Deferred charges, net | 54,877 | | | 57,529 | |
Due from affiliates | 6,823 | | | 10,062 | |
Prepaid and other assets, net | 12,365 | | | 12,377 | |
Total assets | $ | 2,544,169 | | | $ | 2,722,478 | |
| | | |
LIABILITIES AND DEFICIT | | | |
Liabilities: | | | |
Secured debt, net | $ | 2,279,573 | | | $ | 2,255,921 | |
Accounts payable and other liabilities | 71,029 | | | 77,612 | |
Due to affiliates | 5,553 | | | 1,782 | |
Intangible liabilities, net | 2,905 | | | 4,455 | |
Total liabilities | 2,359,060 | | | 2,339,770 | |
| | | |
| | | |
|
| | | | | | | |
| As of December 31, |
| 2019 | | 2018 |
ASSETS | | | |
Investments in Real Estate: | | | |
Land | $ | 222,555 |
| | $ | 227,555 |
|
Buildings and improvements | 2,283,350 |
| | 2,245,818 |
|
Tenant improvements | 419,670 |
| | 361,077 |
|
Investments in real estate, gross | 2,925,575 |
| | 2,834,450 |
|
Less: accumulated depreciation | 466,405 |
| | 418,205 |
|
Investments in real estate, net | 2,459,170 |
| | 2,416,245 |
|
Investment in unconsolidated real estate joint venture | 42,920 |
| | — |
|
Cash and cash equivalents | 33,964 |
| | 80,421 |
|
Restricted cash | 25,024 |
| | 25,349 |
|
Rents, deferred rents and other receivables, net | 138,010 |
| | 151,509 |
|
Intangible assets, net | 31,895 |
| | 44,640 |
|
Deferred charges, net | 68,290 |
| | 67,731 |
|
Due from affiliates | 18,359 |
| | — |
|
Prepaid and other assets, net | 9,340 |
| | 9,763 |
|
Total assets | $ | 2,826,972 |
| | $ | 2,795,658 |
|
| | | |
LIABILITIES AND DEFICIT | | | |
Liabilities: | | | |
Secured debt, net | $ | 2,199,980 |
| | $ | 2,140,724 |
|
Accounts payable and other liabilities | 79,845 |
| | 63,678 |
|
Due to affiliates | 5,400 |
| | 3,834 |
|
Intangible liabilities, net | 8,306 |
| | 12,454 |
|
Total liabilities | 2,293,531 |
| | 2,220,690 |
|
| | | |
|
| |
|
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands, except share amounts)
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
LIABILITIES AND DEFICIT (continued) | | | |
Mezzanine Equity: | | | |
7.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value, 9,730,370 shares issued and outstanding as of December 31, 2022 and 2021 | $ | 484,126 | | | $ | 465,577 | |
Noncontrolling Interests: | | | |
Series A-1 preferred interest | 469,666 | | | 452,454 | |
Senior participating preferred interest | 11,677 | | | 21,191 | |
Series B preferred interest | 182,486 | | | 177,290 | |
Total mezzanine equity | 1,147,955 | | | 1,116,512 | |
| | | |
Stockholders’ Deficit: | | | |
Common stock, $0.01 par value, 1,000 shares issued and outstanding as of December 31, 2022 and 2021 | — | | | — | |
Additional paid-in capital | 204,369 | | | 203,369 | |
Accumulated deficit | (1,167,270) | | | (865,927) | |
| | | |
Noncontrolling interests | 55 | | | (71,246) | |
Total stockholders’ deficit | (962,846) | | | (733,804) | |
Total liabilities and deficit | $ | 2,544,169 | | | $ | 2,722,478 | |
|
| | | | | | | |
| As of December 31, |
| 2019 | | 2018 |
LIABILITIES AND DEFICIT (continued) | | | |
Mezzanine Equity: | | | |
7.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value, 9,730,370 shares issued and outstanding as of December 31, 2019 and 2018 | $ | 428,480 |
| | $ | 409,932 |
|
Noncontrolling Interests: | | | |
Series A-1 preferred interest | 418,029 |
| | 400,816 |
|
Senior participating preferred interest | 22,362 |
| | 23,443 |
|
Series B preferred interest | 185,352 |
| | 181,698 |
|
Total mezzanine equity | 1,054,223 |
| | 1,015,889 |
|
| | | |
Stockholders’ Deficit: | | | |
Common stock, $0.01 par value, 1,000 shares issued and outstanding as of December 31, 2019 and 2018 | — |
| | — |
|
Additional paid-in capital | 197,535 |
| | 195,825 |
|
Accumulated deficit | (499,793 | ) | | (385,158 | ) |
Accumulated other comprehensive loss | (2,341 | ) | | (107 | ) |
Noncontrolling interests | (216,183 | ) | | (251,481 | ) |
Total stockholders’ deficit | (520,782 | ) | | (440,921 | ) |
Total liabilities and deficit | $ | 2,826,972 |
| | $ | 2,795,658 |
|
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Revenue: | | | | | |
Lease income | $ | 264,090 | | | $ | 257,352 | | | $ | 256,733 | |
Parking | 30,725 | | | 25,426 | | | 27,775 | |
Interest and other | 1,085 | | | 1,020 | | | 1,040 | |
Total revenue | 295,900 | | | 283,798 | | | 285,548 | |
Expenses: | | | | | |
Rental property operating and maintenance | 108,719 | | | 97,444 | | | 96,347 | |
Real estate taxes | 39,719 | | | 39,702 | | | 39,292 | |
Parking | 11,128 | | | 8,570 | | | 10,648 | |
Other expenses | 10,535 | | | 8,604 | | | 13,952 | |
Depreciation and amortization | 101,252 | | | 104,047 | | | 104,920 | |
Interest | 101,801 | | | 79,739 | | | 82,808 | |
Impairment of real estate and intangible assets | 112,073 | | | — | | | — | |
Total expenses | 485,227 | | | 338,106 | | | 347,967 | |
Other Income (Expense): | | | | | |
| | | | | |
Equity in earning (loss) of unconsolidated real estate joint venture | 1,230 | | | 796 | | | (525) | |
Total other income (expense) | 1,230 | | | 796 | | | (525) | |
Net loss | (188,097) | | | (53,512) | | | (62,944) | |
Net income (loss) attributable to noncontrolling interests: | | | | | |
Series A-1 preferred interest returns | 17,212 | | | 17,212 | | | 17,213 | |
Senior participating preferred interest redemption measurement adjustments | (8,248) | | | 1,028 | | | (1,580) | |
Series B preferred interest returns | 14,432 | | | 16,063 | | | 17,708 | |
Series B common interest – allocation of net income | 71,301 | | | 33,194 | | | 111,743 | |
Net loss attributable to Brookfield DTLA | (282,794) | | | (121,009) | | | (208,028) | |
Series A preferred stock dividends | 18,549 | | | 18,549 | | | 18,548 | |
Net loss attributable to common interest holders of Brookfield DTLA | $ | (301,343) | | | $ | (139,558) | | | $ | (226,576) | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| |
Revenue: | | | | | |
Lease income | $ | 276,895 |
| | $ | 268,133 |
| | $ | 262,207 |
|
Parking | 39,715 |
| | 37,252 |
| | 37,093 |
|
Interest and other | 1,235 |
| | 10,295 |
| | 7,022 |
|
Total revenue | 317,845 |
| | 315,680 |
| | 306,322 |
|
Expenses: | | | | | |
Rental property operating and maintenance | 105,738 |
| | 98,940 |
| | 93,945 |
|
Real estate taxes | 37,657 |
| | 40,013 |
| | 37,758 |
|
Parking | 10,373 |
| | 10,165 |
| | 9,374 |
|
Other expense | 9,031 |
| | 9,920 |
| | 11,508 |
|
Depreciation and amortization | 105,529 |
| | 96,264 |
| | 97,808 |
|
Interest | 98,875 |
| | 105,035 |
| | 93,566 |
|
Total expenses | 367,203 |
| | 360,337 |
| | 343,959 |
|
Other Income: | | | | | |
Gain from derecognition of assets | 24,777 |
| | — |
| | — |
|
Equity in loss of unconsolidated real estate joint venture | (2,080 | ) | | — |
| | — |
|
Total other income | 22,697 |
| | — |
| | — |
|
Net loss | (26,661 | ) | | (44,657 | ) | | (37,637 | ) |
Net loss (income) attributable to noncontrolling interests: | | | | | |
Series A-1 preferred interest returns | 17,213 |
| | 17,306 |
| | 17,213 |
|
Senior participating preferred interest redemption measurement adjustments | (1,017 | ) | | 1,482 |
| | 479 |
|
Series B preferred interest returns | 18,049 |
| | 17,961 |
| | 13,435 |
|
Series B common interest – allocation of net income (loss) | 35,181 |
| | 28,343 |
| | (45,699 | ) |
Net loss attributable to Brookfield DTLA | (96,087 | ) | | (109,749 | ) | | (23,065 | ) |
Series A preferred stock dividends | 18,548 |
| | 18,532 |
| | 18,548 |
|
Net loss attributable to common interest holders of Brookfield DTLA | $ | (114,635 | ) | | $ | (128,281 | ) | | $ | (41,613 | ) |
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
Net loss | $ | (188,097) | | | $ | (53,512) | | | $ | (62,944) | |
| | | | | |
Other comprehensive income: | | | | | |
Interest rate swap contracts designated as cash flow hedges: | | | | | |
Unrealized derivative holding gains | — | | | — | | | 562 | |
Reclassification adjustment for realized loss included in net loss | — | | | — | | | 1,779 | |
Total other comprehensive income | — | | | — | | | 2,341 | |
| | | | | |
Comprehensive loss | (188,097) | | | (53,512) | | | (60,603) | |
Less: comprehensive income attributable to noncontrolling interests | 94,697 | | | 67,497 | | | 145,084 | |
Comprehensive loss attributable to common interest holders of Brookfield DTLA | $ | (282,794) | | | $ | (121,009) | | | $ | (205,687) | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| |
| | | | | |
Net loss | $ | (26,661 | ) | | $ | (44,657 | ) | | $ | (37,637 | ) |
| | | | | |
Other comprehensive (loss) income: | | | | | |
Derivative transactions: | | | | | |
Unrealized derivative holding (losses) gains | (2,117 | ) | | 1,548 |
| | 2,799 |
|
Less: reclassification adjustment for realized gain included in net loss | — |
| | 1,198 |
| | — |
|
Total other comprehensive (loss) income | (2,117 | ) | | 350 |
| | 2,799 |
|
| | | | | |
Comprehensive loss | (28,778 | ) | | (44,307 | ) | | (34,838 | ) |
Less: comprehensive income (loss) attributable to noncontrolling interests | 69,543 |
| | 65,276 |
| | (13,107 | ) |
Comprehensive loss attributable to common interest holders of Brookfield DTLA | $ | (98,321 | ) | | $ | (109,583 | ) | | $ | (21,731 | ) |
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Non- controlling Interests | | Total Stockholders’ Deficit |
| | Common Stock | | | | | | |
| | |
Balance, December 31, 2019 | | 1,000 | | | $ | — | | | $ | 197,535 | | | $ | (499,793) | | | $ | (2,341) | | | $ | (216,183) | | | $ | (520,782) | |
Net (loss) income | | | | | | | | (208,028) | | | | | 145,084 | | | (62,944) | |
Other comprehensive income | | | | | | | | | | 2,341 | | | — | | | 2,341 | |
Contributions | | | | | | 4,834 | | | | | | | | | 4,834 | |
Dividends, preferred returns and redemption measurement adjustments on mezzanine equity | | | | | | | | (18,548) | | | | | (33,341) | | | (51,889) | |
Balance, December 31, 2020 | | 1,000 | | | — | | | 202,369 | | | (726,369) | | | — | | | (104,440) | | | (628,440) | |
Net (loss) income | | | | | | | | (121,009) | | | | | 67,497 | | | (53,512) | |
Other comprehensive income | | | | | | | | | | — | | | — | | | — | |
Contributions | | | | | | 1,000 | | | | | | | | | 1,000 | |
Dividends, preferred returns and redemption measurement adjustments on mezzanine equity | | | | | | | | (18,549) | | | | | (34,303) | | | (52,852) | |
Balance, December 31, 2021 | | 1,000 | | | — | | | 203,369 | | | (865,927) | | | — | | | (71,246) | | | (733,804) | |
Net (loss) income | | | | | | | | (282,794) | | | | | 94,697 | | | (188,097) | |
Other comprehensive income | | | | | | | | | | — | | | — | | | — | |
Contributions | | | | | | 1,000 | | | | | | | | | 1,000 | |
Dividends, preferred returns and redemption measurement adjustments on mezzanine equity | | | | | | | | (18,549) | | | | | (23,396) | | | (41,945) | |
Balance, December 31, 2022 | | 1,000 | | | $ | — | | | $ | 204,369 | | | $ | (1,167,270) | | | $ | — | | | $ | 55 | | | $ | (962,846) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Non- controlling Interest | | Total Stockholders’ Deficit |
| | Common Stock | | | | | | |
| | |
Balance, December 31, 2016 | | 1,000 |
| | $ | — |
| | $ | 194,210 |
| | $ | (215,264 | ) | | $ | (1,607 | ) | | $ | (235,774 | ) | | $ | (258,435 | ) |
Net loss | | | | | | | | (23,065 | ) | | | | (14,572 | ) | | (37,637 | ) |
Other comprehensive income | | | | | | | | | | 1,334 |
| | 1,465 |
| | 2,799 |
|
Contributions | | | | | | — |
| | | | | | | | — |
|
Dividends, preferred returns and redemption measurement adjustments on mezzanine equity | | | | | | | | (18,548 | ) | | | | (31,127 | ) | | (49,675 | ) |
Balance, December 31, 2017 | | 1,000 |
| | — |
| | 194,210 |
| | (256,877 | ) | | (273 | ) | | (280,008 | ) | | (342,948 | ) |
Net (loss) income | | | | | | | | (109,749 | ) | | | | 65,092 |
| | (44,657 | ) |
Other comprehensive income | | | | | | | | | | 166 |
| | 184 |
| | 350 |
|
Contributions | | | | | | 1,615 |
| | | | | | | | 1,615 |
|
Dividends, preferred returns and redemption measurement adjustments on mezzanine equity | | | | | | | | (18,532 | ) | | | | (36,749 | ) | | (55,281 | ) |
Balance, December 31, 2018 | | 1,000 |
| | — |
| | 195,825 |
| | (385,158 | ) | | (107 | ) | | (251,481 | ) | | (440,921 | ) |
Net (loss) income | | | | | | | | (96,087 | ) | | | | 69,426 |
| | (26,661 | ) |
Other comprehensive (loss) income | | | | | | | | | | (2,234 | ) | | 117 |
| | (2,117 | ) |
Contributions | | | | | | 1,710 |
| | | | | | | | 1,710 |
|
Dividends, preferred returns and redemption measurement adjustments on mezzanine equity | | | | | | | | (18,548 | ) | | | | (34,245 | ) | | (52,793 | ) |
Balance, December 31, 2019 | | 1,000 |
| | $ | — |
| | $ | 197,535 |
| | $ | (499,793 | ) | | $ | (2,341 | ) | | $ | (216,183 | ) | | $ | (520,782 | ) |
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Cash flows from operating activities: | | | | | |
Net loss | $ | (188,097) | | | $ | (53,512) | | | $ | (62,944) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 101,252 | | | 104,047 | | | 104,920 | |
| | | | | |
Equity in (earning) loss of unconsolidated real estate joint venture | (1,230) | | | (796) | | | 525 | |
(Recovery) write-off of lease receivables previously deemed uncollectible | (196) | | | (1,136) | | | 8,400 | |
Provision for loan losses | — | | | — | | | 2,653 | |
Amortization of acquired below-market leases, net of acquired above-market leases | (141) | | | 206 | | | 1,331 | |
Straight-line rent amortization | (3,655) | | | (1,413) | | | 1,441 | |
Amortization of tenant inducements | 2,529 | | | 3,803 | | | 3,897 | |
Amortization and write-off of debt financing costs | 6,763 | | | 7,825 | | | 5,471 | |
Impairment of real estate and intangible assets | 112,073 | | | — | | | — | |
Loss on early extinguishment of debt | — | | | 4,575 | | | — | |
Unrealized loss (gain) on interest rate cap contracts | 1,832 | | | (41) | | | 127 | |
Realized loss on interest rate swap contracts | — | | | — | | | 1,779 | |
Changes in assets and liabilities: | | | | | |
Rents, deferred rents and other receivables, net | (6,282) | | | 6,383 | | | (4,496) | |
Deferred charges, net | (8,965) | | | (9,446) | | | (7,053) | |
Due from affiliates, net | 1,324 | | | 1,043 | | | (647) | |
Prepaid and other assets, net | 10,157 | | | (1,726) | | | (1,019) | |
Accounts payable and other liabilities | 8,692 | | | 1,758 | | | (1,570) | |
Due to affiliates | 3,771 | | | 82 | | | 134 | |
Net cash provided by operating activities | 39,827 | | | 61,652 | | | 52,949 | |
Cash flows from investing activities: | | | | | |
Expenditures for real estate improvements | (64,660) | | | (23,836) | | | (58,062) | |
Net cash used in investing activities | (64,660) | | | (23,836) | | | (58,062) | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| |
Cash flows from operating activities: | | | | | |
Net loss | $ | (26,661 | ) | | $ | (44,657 | ) | | $ | (37,637 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 105,529 |
| | 96,264 |
| | 97,808 |
|
Gain from derecognition of assets | (24,777 | ) | | — |
| | — |
|
Equity in loss of unconsolidated real estate joint venture | 2,080 |
| | — |
| | — |
|
Provision for (recovery of) doubtful accounts | 165 |
| | 190 |
| | (7 | ) |
Amortization of acquired below-market leases, net of acquired above-market leases | (195 | ) | | 222 |
| | (2,219 | ) |
Straight-line rent amortization | (10,083 | ) | | (11,399 | ) | | (11,237 | ) |
Amortization of tenant inducements | 3,852 |
| | 4,228 |
| | 3,816 |
|
Amortization of debt financing costs and discounts | 5,264 |
| | 9,565 |
| | 6,400 |
|
Unrealized loss on interest rate cap contracts | 44 |
| | — |
| | — |
|
Realized gain on interest rate swap contract | — |
| | (1,198 | ) | | — |
|
Changes in assets and liabilities: | | | | | |
Rents, deferred rents and other receivables, net | 299 |
| | (12,179 | ) | | (3,850 | ) |
Deferred charges, net | (8,497 | ) | | (22,209 | ) | | (15,336 | ) |
Due from affiliates | (2,690 | ) | | — |
| | — |
|
Prepaid and other assets, net | (570 | ) | | (82 | ) | | 139 |
|
Accounts payable and other liabilities | (5,541 | ) | | 6,083 |
| | (3,037 | ) |
Due to affiliates | 1,566 |
| | (7,439 | ) | | (3,054 | ) |
Net cash provided by operating activities | 39,785 |
| | 17,389 |
| | 31,786 |
|
Cash flows from investing activities: | | | | | |
Expenditures for real estate improvements | (127,775 | ) | | (90,065 | ) | | (74,696 | ) |
Net cash used in investing activities | (127,775 | ) | | (90,065 | ) | | (74,696 | ) |
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Cash flows from financing activities: | | | | | |
Proceeds from secured debt | $ | 18,590 | | | $ | 465,000 | | | $ | 305,000 | |
Principal payments on secured debt | — | | | (450,000) | | | (265,000) | |
Proceeds from Series B preferred interest | 47,564 | | | 25,500 | | | 47,850 | |
Proceeds from senior participating preferred interest | 288 | | | 629 | | | 777 | |
Distributions to Series B preferred interest | (9,825) | | | (17,794) | | | (17,865) | |
Repurchases of Series B preferred interest | (46,975) | | | (45,306) | | | (34,218) | |
Distributions to senior participating preferred interest | (1,554) | | | (879) | | | (1,146) | |
Contributions to additional paid-in capital | 1,000 | | | 1,000 | | | 1,000 | |
Purchase of interest rate cap contracts | (12,048) | | | (107) | | | (130) | |
Payment for early extinguishment of debt and termination of interest rate swap contracts | — | | | (4,575) | | | (849) | |
Debt financing costs paid | (1,701) | | | (6,544) | | | (5,811) | |
Net cash (used in) provided by financing activities | (4,661) | | | (33,076) | | | 29,608 | |
Net change in cash, cash equivalents and restricted cash | (29,494) | | | 4,740 | | | 24,495 | |
Cash, cash equivalents and restricted cash at beginning of year | 88,223 | | | 83,483 | | | 58,988 | |
Cash, cash equivalents and restricted cash at end of year | $ | 58,729 | | | $ | 88,223 | | | $ | 83,483 | |
| | | | | |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid for interest | $ | 91,596 | | | $ | 67,976 | | | $ | 76,873 | |
Cash paid for income taxes | $ | 473 | | | $ | 1,723 | | | $ | 792 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| |
Cash flows from financing activities: | | | | | |
Proceeds from secured debt | $ | 277,610 |
| | $ | 1,081,686 |
| | $ | 470,000 |
|
Principal payments on secured debt | (220,000 | ) | | (931,831 | ) | | (554,028 | ) |
Proceeds from Series B preferred interest | 40,700 |
| | — |
| | 111,492 |
|
Proceeds from senior participating preferred interest | 538 |
| | — |
| | 520 |
|
Distributions to Series B preferred interest | (20,574 | ) | | (26,554 | ) | | — |
|
Repurchases of Series B preferred interest | (34,521 | ) | | — |
| | — |
|
Distributions to senior participating preferred interest | (602 | ) | | (3,587 | ) | | (470 | ) |
Contributions to additional paid-in capital | 1,710 |
| | 1,615 |
| | — |
|
Purchase of interest rate cap contracts | (35 | ) | | — |
| | — |
|
Debt financing costs paid | (3,618 | ) | | (10,388 | ) | | (7,484 | ) |
Net cash provided by financing activities | 41,208 |
| | 110,941 |
| | 20,030 |
|
Net change in cash, cash equivalents and restricted cash | (46,782 | ) | | 38,265 |
| | (22,880 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 105,770 |
| | 67,505 |
| | 90,385 |
|
Cash, cash equivalents and restricted cash at end of year | $ | 58,988 |
| | $ | 105,770 |
| | $ | 67,505 |
|
| | | | | |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid for interest | $ | 93,020 |
| | $ | 96,074 |
| | $ | 88,160 |
|
Cash paid for income taxes | 59 |
| | 1,127 |
| | 214 |
|
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Supplemental disclosure of non-cash investing and financing activities: | | | | | |
Accrual for current-year additions to real estate investments | $ | 15,946 | | | $ | 12,818 | | | $ | 53,760 | |
| | | | | |
Increase in fair value of interest rate swaps | $ | — | | | $ | — | | | $ | 562 | |
Writeoff of fully depreciated investments in real estate | $ | 24,008 | | | $ | 24,233 | | | $ | 36,613 | |
Writeoff of fully amortized intangible assets | $ | 6,322 | | | $ | 8,634 | | | $ | 14,414 | |
Writeoff of fully amortized intangible liabilities | $ | 14,746 | | | $ | 13,529 | | | $ | 6,850 | |
Noncash contributions to additional paid-in capital | $ | — | | | $ | — | | | $ | 3,834 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| |
Supplemental disclosure of non-cash investing and financing activities: | | | | | |
Accrual for real estate improvements | $ | 33,812 |
| | $ | 17,179 |
| | $ | 25,616 |
|
Contribution of investments in real estate, net to unconsolidated real estate joint venture | 20,139 |
| | — |
| | — |
|
(Decrease) increase in fair value of interest rate swaps | (2,117 | ) | | 1,548 |
| | 2,799 |
|
Writeoff of fully depreciated investments in real estate | 37,373 |
| | — |
| | 60,298 |
|
Writeoff of fully amortized intangible assets | 40,077 |
| | — |
| | 68,990 |
|
Writeoff of fully amortized intangible liabilities | 5,766 |
| | — |
| | 16,783 |
|
The following is a reconciliation of Brookfield DTLA’s cash, cash equivalents and restricted cash at the beginning and end of the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Cash and cash equivalents at beginning of year | $ | 38,901 | | | $ | 37,394 | | | $ | 33,964 | |
Restricted cash at beginning of year | 49,322 | | | 46,089 | | | 25,024 | |
Cash, cash equivalents and restricted cash at beginning of year | $ | 88,223 | | | $ | 83,483 | | | $ | 58,988 | |
| | | | | |
Cash and cash equivalents at end of year | $ | 23,523 | | | $ | 38,901 | | | $ | 37,394 | |
Restricted cash at end of year | 35,206 | | | 49,322 | | | 46,089 | |
Cash, cash equivalents and restricted cash at end of year | $ | 58,729 | | | $ | 88,223 | | | $ | 83,483 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| |
Cash and cash equivalents at beginning of year | $ | 80,421 |
| | $ | 31,958 |
| | $ | 30,301 |
|
Restricted cash at beginning of year | 25,349 |
| | 35,547 |
| | 60,084 |
|
Cash, cash equivalents and restricted cash at beginning of year | $ | 105,770 |
| | $ | 67,505 |
| | $ | 90,385 |
|
| | | | | |
Cash and cash equivalents at end of year | $ | 33,964 |
| | $ | 80,421 |
| | $ | 31,958 |
|
Restricted cash at end of year | 25,024 |
| | 25,349 |
| | 35,547 |
|
Cash, cash equivalents and restricted cash at end of year | $ | 58,988 |
| | $ | 105,770 |
| | $ | 67,505 |
|
See accompanying notes to consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Organization and Description of Business
Brookfield DTLA Fund Office Trust Investor Inc. (“Brookfield DTLA” or the “Company”) is a Maryland corporation and was incorporated on April 19, 2013. Brookfield DTLA was formed for the purpose of consummating the transactions contemplated in the Agreement and Plan of Merger dated as of April 24, 2013, as amended, (the “Merger Agreement”), and the issuance of shares of 7.625% Series A Cumulative Redeemable Preferred Stock (the “Series A preferred stock”) in connection with the acquisition of MPG Office Trust, Inc. and MPG Office, L.P. (together, “MPG”). Brookfield DTLA is a direct subsidiary of Brookfield DTLA Holdings LLC, a Delaware limited liability company (“DTLA Holdings”, and together with its affiliates excluding the Company and its subsidiaries, the “Manager”). DTLA Holdings is an indirect partially-owned subsidiary of Brookfield Property Partners L.P. (“BPY”), an exempted limited partnership under the Laws of Bermuda, which in turn is the flagship commercial property entity wholly-owned by Brookfield Corporation, a corporation under the laws of Ontario, and the primary vehicle through which Brookfield Asset Management Inc. (“BAM”), a corporation under the Laws of Canada,Corporation invests in real estate on a global basis. On December 9, 2022, Brookfield Asset Management Inc. (“BAM”) completed a distribution and listing of 25% of its asset management business — Brookfield Asset Management Ltd. The global alternative asset management business is now owned and operated through Brookfield Asset Management ULC. BAM is now known as Brookfield Corporation.
As of December 31, 20192022 and 2018,2021, Brookfield DTLA owned Bank of America Plaza (“BOA Plaza”), EY Plaza, Wells Fargo Center–North Tower, Wells Fargo Center–South Tower, Gas Company Tower and 777 Tower, which are Class A office properties, and FIGat7th, a retail center nestled between EY Plaza and 777 Tower, allTower. Additionally, Brookfield DTLA Fund Properties II LLC (“Fund II”) has a noncontrolling interest in an unconsolidated real estate joint venture with Brookfield DTLA FP IV Holdings LLC (“DTLA FP IV Holdings”), a wholly‑owned subsidiary of DTLA Holdings, which owns Beaudry (previously known as 755 South Figueroa), a residential development property. All of these properties are located in the Los Angeles Central Business District (the “LACBD”“LACBD”). in Downtown Los Angeles, which has long been a major office district for law firms, accounting firms and government agencies.
On May 31, 2019, Brookfield DTLA Fund Properties II LLC (“New OP”), a wholly-owned subsidiary of the Company, entered into an agreement to contribute and transfer all of its wholly-owned interests in Brookfield DTLA 4050/755 Inc. (the “Property Owner”), the indirect property owner of 755 South Figueroa, a residential development property, in exchange for noncontrolling interests in a newly formed joint venture with Brookfield DTLA FP IV Holdings, LLC (“DTLA FP IV Holdings”), a wholly-owned subsidiary of DTLA Holdings. See Note 4—“Investment in Unconsolidated Real Estate Joint Venture.”
Brookfield DTLA primarily receives its income primarily from lease income, including tenant reimbursements, generated from the operations of its office and retail properties, and to a lesser extent, revenue from its parking garages.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2—2—Basis of Presentation and Summary of Significant Accounting Policies
As used in these consolidated financial statements and related notes, unless the context requires otherwise, the terms “Brookfield DTLA,” the “Company,” “us,” “we” and “our” refer to Brookfield DTLA Fund Office Trust Investor Inc. together with its direct and indirect subsidiaries.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”). The consolidated balance sheets as of December 31, 20192022 and 20182021 include the accounts of Brookfield DTLA and subsidiaries in which it has a controlling financial interest. All material intercompany transactions have been eliminated in consolidation as of and for the years ended December 31, 2019, 20182022, 2021 and 2017.2020.
Liquidity and Going Concern
The consolidated financial statements have been prepared in accordance with GAAP on the basis that the Company will continue as a going concern. The going concern basis assumes that the Company will be able to meet its obligations and continue its operations one year from the date of the issuance of the Annual Report, which is dependent upon the Company’s ability to effectively implement plans related to the secured debt currently in default and the secured debt that matures within one year after the date of the issuance of the Annual Report, as discussed below (together, the “Maturing Loans”).
As of the issuance date of this Annual Report, the Company had $2.3 billion of total consolidated debt, including $1,128.9 million and $400.0 million maturing in 2023 and 2024, respectively. Our substantial indebtedness requires us to use a material portion of our cash flow to service interest on our debt. Additionally, our consolidated debt also includes $288.9 million of mortgage and mezzanine debt secured by 777 Tower and $465.0 million of mortgage and mezzanine debt secured by Gas Company Tower that is in default. The Company has experienced a decline in occupancy since the onset of the COVID-19 pandemic as tenant leases expire which has resulted in a decrease in cash flow from operations and has negatively impacted the market values of the properties. Additionally, in order to attract or retain tenants needed to increase occupancy and sustain operations, the Company will need to spend a substantial amount on capital leasing costs (such as tenant improvements), however, the Company has limited amounts of liquidity to make these capital commitments. Furthermore, since the second quarter of 2022, uncertainty in the overall economy has increased due to the Federal Reserve materially raising interest rates to fight inflation. The increase and volatility in interest rates, not only increase the cost of our floating rate debt and the rates or spread on any refinancing we may seek, but it also materially increased the cost of interest rate protection agreements and interest rate risk hedging. We are required to obtain interest rate protection agreements with respect to the Company’s existing floating rate secured loans (and which we expect will be required to obtain for refinancing our maturing debt).
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company may be unable to extend or refinance the upcoming loan maturities at current terms and may be required to paydown a portion of the maturing debt in order to extend or refinance the loans. With the Company’s limited amount of unrestricted cash on hand, the Company’s ability to make any loan paydowns is limited without the sale of real estate assets, and we do not have any contracts to sell our properties as of the issuance date of this Annual Report. Nevertheless, if one or more of the properties securing our Maturing Loans were to be foreclosed upon by the lenders, as these secured debt obligations are not cross-collateralized with other properties in the portfolio, we believe we will have sufficient cash from our remaining properties and our Series B financings to meet our obligations to continue our operations within one year after the date of the issuance of the Annual Report. While these conditions and events raise substantial doubt about the Company’s ability to continue as a going concern, for the reasons stated in this paragraph and the further discussion below, management has determined that it is probable that the conditions and events raising substantial doubt about the entity’s ability to continue as a going concern have been alleviated, and that the Company will continue as a going concern during one year from the date of the issuance of the Annual Report.
The Company’s ability to continue as a going concern is dependent upon the Company’s ability to effectively implement plans related to the Maturing Loans.
Debt Maturing within One Year From the Date of the Issuance of the Annual Report:
FIGat7th — In March 2023, the lender granted a short-term extension of the maturity date from March 1, 2023 to April 3, 2023. Brookfield DTLA is currently engaged in discussions with the lender to extend the debt secured by FIGat7th for three years.As of the issuance date of this Annual Report, we currently do not have a commitment from the lenders to extend the maturity dates of this loan for three years. If we are unable to extend the FIGat7th loan, then the lender would have the right to exercise its remedies under the FIGat7th loan, including, but not limited to, declaring the debt to be immediately payable and foreclosing on FIGat7th.
Wells Fargo Center — South Tower — As of December 31, 2022, and the issuance date of this Annual Report, wholly-owned subsidiaries of the Company had and continue to have a secured mortgage loan of $265.4 million on Wells Fargo Center—South Tower (the “Wells Fargo Center South Loan”) that matures on November 4, 2023. We currently plan to operate the property and pay debt service on the loan through maturity. We will attempt to extend the Wells Fargo Center South Loan with the current lenders or refinance the loan with different lenders. As of the issuance date of this Annual Report, we currently do not have a commitment from the lenders to extend the maturity dates of this loan. Additionally, we do not know what paydown may be required upon any refinancing of this loan, and therefore are not certain if we will have sufficient unrestricted cash on hand to make any such paydown. We do not currently have any commitment for additional capital to the extent any paydown requires cash in excess of the unrestricted cash on hand that we would be able or willing to allocate to such paydown. If we are unable to negotiate a loan modification with the current lenders or refinance the Well Fargo Center South Loan, then the lenders would have the right to exercise the remedies under the WFC South Loan, including, but not limited to, declaring the debt to be immediately payable and foreclosing on Wells Fargo Center – South Tower.
Wells Fargo Center — North Tower Loans — As of December 31, 2022, and the issuance date of this Annual Report, wholly-owned subsidiaries of the Company (the “WFC North Borrowers”) had and continue to have secured loans of $500.0 million on Wells Fargo Center — North Tower, comprised of a $400.0 million mortgage loan, a $65.0 million mezzanine loan, and a $35.0 million junior mezzanine loan (collectively, the “WFC North Loans”). The maturity date of the WFC North Loans is October 9, 2023.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In March 2023, the lender of the junior mezzanine loan agreed, subject to certain conditions, to forbear from exercising any remedy as a result of non-payment of the monthly debt service payment for March due on the junior mezzanine loan. The amount of cash the property currently generates from its operations is not sufficient to cover the upcoming debt obligations, leasing costs and capital expenditures with respect to Wells Fargo Center – North Tower. The WFC North Borrowers will not have sufficient available cash to make the interest payments on the WFC North Loans. The WFC North Borrowers will attempt to negotiate favorable amendments to the WFC North Loans and/or interest payment forbearances from the current lenders. If WFC North Borrowers are unsuccessful, the forbearance agreement with any lender lapses, and the interest payments are not made on the due date or if the mechanics liens currently existing on the asset are not timely discharged, then the lenders would have the right to exercise the remedies under the WFC North Loans, including, but not limited to, declaring the debt to be immediately payable and foreclosing on Wells Fargo Center – North Tower.
EY Plaza — As of December 31, 2022, and the issuance date of this Annual Report, wholly-owned subsidiaries of the Company (the “EY Borrowers”) have secured loans of $305.0 million on EY Plaza, comprised of a $275.0 million mortgage loan and a $30.0 million mezzanine loan (collectively, the “EY Plaza Loans”). The maturity date of the EY Plaza Loans is October 9, 2023, with two one-year extension options. The EY Borrowers have received notices from certain tenants of EY Plaza stating that they are not in compliance with the terms of their respective lease agreements. The amount of cash the EY Borrowers currently generate from operations is not sufficient to cover its upcoming debt obligations, leasing costs and capital expenditures with respect to EY Plaza. It is unlikely that they will be able to obtain additional sources of liquidity or negotiate favorable amendments to the EY Plaza Loans or interest payment forbearances from the lenders in time. In this case, the EY Borrowers will not have sufficient operating cash flow to cure the non-compliance with the leases or discharge mechanics liens currently existing on the asset or make the April 2023 interest payments on the EY Plaza Loans. If the lenders send the EY Borrowers a notice of default to cure the non-compliance with the leases and the EY Borrowers are unsuccessful in curing the defaults during the available cure period or discharging the mechanics liens within the time required under the EY Plaza Loans, or the interest payment is not made on the due date of April 7, 2023, then the lenders would have the right to exercise the remedies under the EY Plaza Loans, including, but not limited to, declaring the debt to be immediately payable and foreclosing on EY Plaza.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Debt in Default:
777 Tower Loans — As previously disclosed in our public filings, wholly-owned subsidiaries of the Company (the “777 Borrowers”) have secured loans of $318.6 million on 777 Tower, comprised of a $268.6 million mortgage loan and a $50.0 million mezzanine loan (collectively, the “777 Tower Loans”). There was $288.9 million outstanding under the 777 Tower Loans as of December 31, 2022 and the issuance date of this Annual Report. In November 2022, the 777 Borrowers did not obtain an Interest Rate Protection Agreement (as defined in the underlying loan agreements) which constitutes an Event of Default (as defined in the underlying loan agreements). Wells Fargo Bank, National Association, as Administrative Agent for the lenders under the mortgage loan, and Mesa West Core Lending Fund, LLC, have notified the 777 Borrowers that defaults and potential defaults have occurred under the loan and that the lenders have the right to exercise their remedies under the 777 Tower Loans, including, without limitation, declaring the debt to be immediately due and payable and foreclosing on 777 Tower. As a result of the default under the mortgage loan, an Event of Default (as defined in the underlying loan agreements) has occurred and is continuing under the mezzanine loan. As of the issuance date of this Annual Report, the lenders have not exercised any of their remedies under the 777 Tower Loans. In addition, as of the issuance date of this Annual Report, the 777 Borrowers have not paid the March 2023 interest expense accrued on the mezzanine loan and currently do not intend to pay this or the future interest expense accrued on the 777 Tower Loans. Certain mechanics’ liens have also been filed against the asset, and if the 777 Borrowers do not discharge such liens within the time required under the 777 Tower Loans, an additional Event of Default on these loans will occur.
Gas Company Tower Loans — As previously disclosed in our public filings, wholly-owned subsidiaries of the Company (the “Gas Company Borrowers”) have secured loans of $465.0 million on Gas Company Tower, comprised of a $350.0 million mortgage loan, a $65.0 million mezzanine loan and a $50.0 million junior mezzanine loan (collectively, the “Gas Company Tower Loans”). There was $465.0 million outstanding under the Gas Company Tower Loans as of December 31, 2022 and the issuance date of this Annual Report. The initial maturity date of the Gas Company Tower Loans was February 9, 2023, with three one-year extension options. Gas Company Borrowers did not exercise the option to extend the maturity of the loans and therefore, subsequent to the current year-end period, on February 9, 2023, the Gas Company Tower Loans matured, and an Event of Default (as defined in the underlying loan agreements) has occurred and is continuing. The lenders may exercise their remedies under the loans, including foreclosing on Gas Company Tower. As of the issuance date of this Annual Report, the lenders have not exercised any of their remedies under the Gas Company Tower Loans, and have transferred these loans to a special servicer. In addition, as of the issuance date of this Annual Report, the Gas Company Borrowers have not paid the March 2023 interest expense accrued on the mezzanine loan and currently do not intend to pay this or the future interest expense accrued on the Gas Company Tower Loans.
There are several potential outcomes with respect to 777 Tower Loans and Gas Company Tower Loans, including negotiating a modification to the loans, refinancing the loans, or consensual short sales. However, there is no assurance that we will be successful in achieving any of these potential outcomes. If unsuccessful, the lenders would retain their right to exercise the remedies under the loans including, but not limited to, declaring the debt to be immediately payable and foreclosing on the assets.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Determination of Controlling Financial Interest
In determining whetherWe consolidate entities in which Brookfield DTLA has a controlling financial interest in an entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity (“VIE”) and Brookfield DTLA is the primary beneficiary.
A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.
A variable interest holder is considered to be the primary beneficiary of a variable interest entity (“VIE”) or has a majority of the voting interest in the entity. We are deemed to be the primary beneficiary of a VIE if it haswhen we have (i) the power to direct the activities of athe VIE that most significantly impact the entity’sits economic performance, and has(ii) the obligation to absorb the losses of, or the right to receive benefits from, the entityVIE that could potentially be significant to the VIE. Brookfield DTLA qualitatively assesses whether it is (or is not)We do not consolidate entities in which the primary beneficiary of a VIE.
Consideration of various factors includes, but is not limitedother parties have substantive kick-out rights to Brookfield DTLA’s abilityremove the Company’s power to direct the activities, thatand most significantly impactimpacting the VIE’s economic performance, its form of the VIE. In determining whether we are the primary beneficiary, we consider factors such as ownership interest, itsmanagement representation, on the VIE’s governing body, the sizeauthority to control decisions, and seniority of its investment, its abilitycontractual and thesubstantive participating rights of other investors to participate in policy making decisions, and its ability to replace the manager of and/or liquidate the entity. Brookfield DTLA is required to continually evaluate its VIE relationships and consolidation conclusion.each party.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Brookfield DTLA Fund Properties II LLC. The Company earns a return through an indirect investment in New OP.Fund II. DTLA Holdings, the parent of Brookfield DTLA, owns all of the common interest in New OP.Fund II. Brookfield DTLA has an indirect preferred stock interest in New OPFund II and its wholly ownedwholly-owned subsidiary is the managing member of New OP.Fund II. The Company determined that New OPFund II is a VIE and asVIE. As a result of having the power to direct the significant activities of New OPFund II that impact Fund II’s economic performance, and exposurethe obligation to absorb losses of, or the right to receive benefits from, Fund II that could potentially be significant to the economic performance of New OP,Fund II, Brookfield DTLA meets the two conditions for being the primary beneficiary.beneficiary of Fund II.
We consolidate entities through which we conduct substantially all of our business, and own, directly and through subsidiaries, substantially all of our assets. As of December 31, 2022, these consolidated VIEs had in aggregate total consolidated assets of $2.5 billion(of which $2.2 billion is related to investments in real estate) and total consolidated liabilities of $2.4 billion(of which $2.3 billion is related to non-recourse debt secured by our office and retail properties). The Company is obligated to repay substantially all of the liabilities of our consolidated VIEs, except for the non-recourse secured debt.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investment in Unconsolidated Real Estate Joint Venture. New OP Fund II has a noncontrolling interestsinterest in a joint venture, Brookfield DTLA Fund Properties IV LLC (“Fund IV”), with DTLA FP IV Holdings. The Company determined that the joint venture is a VIE mainly because its equity investment at risk is insufficient to finance the joint venture’s activities without additional subordinated financial support. While the joint venture meets the definition of a VIE, Brookfield DTLA is not its primary beneficiary as the Company lacks the power through voting or similar rights to direct the activities that most significantly impact the joint venture’s economic performance. Therefore, the Company accounts for its ownership interest in the joint venture under the equity method. Under the equity method of accounting, we initially recognize Fund II’s investment in the joint venture at the fair value of the assets contributed, and subsequently adjust the joint venture’s carrying amount for Fund II’s share of the joint venture’s redemption value and other-than-temporary impairments (if any). The redemption value represents the amount to be distributed to Fund II in the event of termination or liquidation of the joint venture. Adjustments to the joint venture’s carrying amount to its redemption value are recorded in the consolidated statements of operations as equity in earning (loss) of unconsolidated real estate joint venture. As of December 31, 2022, the Company’s ownership interest in the unconsolidated real estate joint venture was 22.1%, a decrease from 33.6% as of December 31, 2021 as a result of additional capital contributed by DTLA FP IV Holdings during the year ended December 31, 2022.
The liabilities of the joint venture may only be settled using the Beaudry assets and are not recourse to the Company. Brookfield DTLA’s exposure to its investment in the joint venture is limited to its investment balance and the Company has no obligation to make future contributions to the joint venture. Pursuant to the operating agreement of the joint venture, DTLA FP IV Holdings may be required to fund additional amounts for the Beaudry development, routine operating costs, and guaranties or commitments of the joint venture.
Impact of COVID-19 pandemic
Leasing activity and occupancy in the LACBD has not caught up to pre-pandemic levels as businesses consider how to best implement return-to-office plans and transition to hybrid or remote work policies. Office tenants are still active in the leasing markets but are more selective in making real estate decisions. Relocating and renewing tenants are pursuing space efficiencies which are often accompanied by size reduction and a focus on highest quality assets. Retail tenants have continued to benefit from higher visitor traffic since COVID mandates throughout California were lifted in June 2021 (the “Reopening”) but short of pre-pandemic levels. During the years ended December 31, 2022 and 2021, the Company recorded favorable lease income adjustments of $0.2 million and $1.1 million, respectively, as a result of the Reopening with various retail tenants benefited from higher visitor traffic, as well as office employees returning to offices. In contrast, during the year ended December 31, 2020, due to the uncertainties posed to our retail and office tenants by the restrictions implemented to combat the spread of COVID-19 pandemic, adjustments of $8.4 million were recognized to lower our lease income related to certain leases where we determined that the collection of future lease payments was not probable.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. The Company bases its estimates on historical experience and on various other assumptions that it considers to be reasonable under the circumstances, including the impact of events such as COVID-19 pandemic and the measures taken to combat the spread of the pandemic. For example, estimates and assumptions have been made with respect to the fair value of assets and liabilities for purposes of the contribution of its wholly-owned interests in exchange for noncontrolling interests in a joint venture, the useful lives of assets, recoverable amounts of receivables, impairment of long‑livedlong-lived assets and the fair value of debt. Actual results could ultimately differ from such estimates.
Restatements
In January 2018, Brookfield DTLA adopted, on a retrospective basis, the guidance in Accounting Standards Update (“ASU”) 2016-18, Restricted Cash, which requires entities to include restricted cash with cash and cash equivalents when reconciling the beginning and end of period total amounts shown in the statement of cash flows. Therefore, the change in restricted cash is no longer presented as a separate line item within cash flows from investing activities in the Company’s consolidated statement of cash flows since such balances are now combined with cash and cash equivalents at both the beginning and end of the reporting period. We have retroactively restated the consolidated statement of cash flows for the year ended December 31, 2017 by reclassifying the decrease in restricted cash of $24.5 million from cash flows used in investing activities to net change in cash, cash equivalents and restricted cash.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reclassifications
On January 1, 2019, Brookfield DTLA adopted Accounting Standards Codification (“ASC”) Topic 842, Leases, using the modified retrospective transition method. Please refer to Note 3—“Leases” for a discussion of the reclassification of rental income and tenant reimbursements in the consolidated statements of operations for the years ended December 31, 2018 and 2017.
During the year ended December 31, 2018, the Company reclassified asset management fees earned by BPY and BAM from rental property operating and maintenance expense to other expense in the consolidated statement of operations. Management does not include asset management fees as an input when evaluating the operating performance of Brookfield DTLA’s properties and created a new category within other expense during 2018 to capture such fees. For the year ended December 31, 2017, the Company reported rental property operating and maintenance expense totaling $100.3 million and other expense totaling $5.2 million in the consolidated statement of operations. After the reclassification, rental property operating and maintenance expense now totals $94.0 million and other expense now totals $11.5 million in the consolidated statement of operations for the year ended December 31, 2017. This reclassification had no effect on the Company’s financial position, results of operations or cash flows.
During the year ended December 31, 2018, the Company also reclassified lease termination fees from interest and other income to rental income in the consolidated statement of operations in anticipation of adopting ASU 2016-02, Leases (Topic 842). For the year ended December 31, 2017, the Company reported interest and other income totaling $10.3 million and rental income totaling $162.4 million in the consolidated statement of operations. After the reclassification, interest and other income now totals $7.0 million and rental income now totals $165.7 million in the consolidated statement of operations for the year ended December 31, 2017. See Note 3—“Leases” for reconciliation of lease income reported for the year ended December 31, 2017 in the current year’s consolidated statement of operations after the adoption of Topic 842. This reclassification had no effect on the Company’s financial position, results of operations or cash flows.
Significant Accounting Policies
Investments in Real Estate, Net—
Land is carried at cost. Buildings are recorded at historical cost and are depreciated on a straight‑line basis over their estimated useful lives of 60 years. Building improvements are recorded at historical cost and are depreciated on a straight-line basis over their estimated useful lives, which rangeranging from 5 years to 25 years. Land improvements are combined with building improvements for financial reporting purposes and are carried at cost. Tenant improvements that are determined to be assets of Brookfield DTLA are recorded at cost and amortized on a straight‑line basis over the shorter of their estimated useful life or the applicable lease term, with the related amortization reported as part of depreciation and amortization expense in the consolidated statementstatements of operations.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Depreciation expense related to investments in real estate during the years ended December 31, 2019, 20182022, 2021 and 20172020 totaled $85.6$87.3 million, $75.7$87.3 million and $73.6$87.5 million, respectively, and is reported as part of depreciation and amortization expense in the consolidated statements of operations.
The Company capitalizes costs associated with capital expenditures and tenant improvements. Capitalization of costs is required while activities are ongoing to prepare an asset for their intended use. Costs incurred after the capital expenditures and tenant improvement projects are substantially complete and ready for its intended use are expensed as incurred. Expenditures for repairs and maintenance, real estate taxes and insurance are expensed as incurred.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Impairment Review—
Investments in long-lived assets, including our investments in real estate, are individually reviewed for impairment quarterly or if events or changes in circumstances indicate that the carrying amount of the real estate maylong-lived assets might not be recoverable. In suchrecoverable, which is referred to as a “triggering event” or an event, a comparison is made between (i)“impairment indicator.” Indicators of potential impairment include the current and projected operating cash flowsfollowing:
•Change in strategy resulting in an increased or decreased holding period;
•Lower stabilized occupancy levels;
•Deterioration of the property intorental market as evidenced by rent decreases, record-high capital expense obligations, and/or elevated concessions such as tenant improvement, over numerous quarters;
•Properties with recent impairment issues that are adjacent to or located in the foreseeable future on an undiscounted basis and (ii)same submarket;
•Significant decrease in properties’ market price;
•Tenant financial problems; and/or
•Comparable market barriers of competitors in the same submarket.
The carrying amount of long-lived assets to be held and used is deemed not recoverable if it exceeds the property.sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. Triggering events or impairment indicators for long-lived assets to be held and used are assessed by property and include significant fluctuations in estimated net operating income, changes in leasing activity, significant near-term lease expirations, current and historical operating and/or cash flow losses, rental rates, and other market factors.
When conducting the impairment review of our investments in real estate, we assessed the expected undiscounted cash flows based upon numerous factors. These factors include, but are not limited to, the credit quality of our tenants, available market information, known trends, current market/economic conditions that may affect the asset, and historical and forecasted financial and operating information relating to the property, such as net operating income, leasing activity statistics, vacancy projections, renewal percentage, and rent collection rates. If the undiscounted cash flows expected to be generated by a property are less than its carrying amount, the Company determines the fair value of the property and an impairment provisionloss would be recorded to write down the carrying amount of such property to its fair value. Brookfield DTLA assessesDuring the year ended December 31, 2022, the Company recognized impairment charges on Wells Fargo Center–South Tower’s investments in real estate of $111.1 million and intangible assets associated with this property of $1.0 million to reduce their carrying amounts to their estimated fair value basedvalue. While there were no impairment charges on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information. Projections of future cash flows take into account other properties in our portfolio during the specific business plan for the property and management’s best estimate year ended December 31, 2022, in light of the most probable set ofevolving office rental business environment and the slowdown in economic conditions expected to prevailgrowth in the market. Management believes nonear term because of rising interest rates, decreases in our property valuations may lead to additional impairment charges in our portfolio in the near future. In comparison, during the same period in 2021, none of Brookfield DTLA’s real estate properties existed at December 31, 2019 and 2018.
Investment in Unconsolidated Real Estate Joint Venture—
The liabilitiesdetailed discussion of the joint venture may only be settled using the assets of 755 South Figueroa and are not recourse to the Company. Brookfield DTLA’s exposure to its investment in the joint venture is limited to its investment balance and the Company has no obligation to future contributions to the joint venture. Pursuant to the operating agreement of the joint venture, DTLA FP IV Holdings may be required to fund additional amounts for the development of 755 South Figueroa, routine operating costs, and guaranties or commitments of the joint venture.
Our noncontrolling interests in the joint venturefactors that were initially recorded atconsidered when determining the fair value of Wells Fargo Center–South Tower.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company’s investment in its unconsolidated real estate joint venture is also reviewed for impairment quarterly or when conditions exist that may indicate that the assets contributeddecrease in the carrying amount of the investment has occurred and have been adjustedis other than temporary. Triggering events or impairment indicators for the Company’s unconsolidated real estate joint venture include its recurring operating losses, and other events such as significant changes in construction costs, estimated completion dates, intended holding periods, and other factors related to redemption valuethe Beaudry development. Upon determination that an other-than-temporary impairment has occurred, a write-down is recognized to reduce the carrying amount of the investment to its estimated fair value. Based on its review, management concluded that Brookfield DTLA’s investment in its unconsolidated real estate joint venture was not impaired as of December 31, 2019. Adjustments to increase or decrease the carrying amount to redemption value are recorded in the consolidated statement of operations as equity in loss of unconsolidated real estate joint venture.2022 and 2021.
Cash and Cash Equivalents—
Cash and cash equivalents include cash, deposits with major commercial banks, and short-term investments with an original maturity of three months or less.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Cash—
Restricted cash consists primarily of deposits for leasing costs, tenant improvements and leasing commissions, reserves forcapital expenditures; real estate taxes and insurance reserves, debt service reserves and other items as required by certain of the Company’s secured debt agreements. It also includes cash accounts controlled by loan administrative agents or lenders pursuant to cash sweep events associated with the loans secured by certain properties. See Note 5 — Secured Debts, Netfor details.
Rents, Deferred Rents and Other Receivables, Net—Net —
Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Rents,The Company offers various types of lease incentives to induce tenants to sign a lease, including free rent lease periods, and various allowances such as cash paid to tenants and for tenant improvements that are the assets of the tenants. The Company records these allowances as tenant inducements, which are included in rents, deferred rents and other receivables net also includes amounts paid to a tenant for improvements owned or costs incurred by the tenant. Such amounts are treated as tenant inducements and are presented in the consolidated balance sheet net of accumulated amortization. Amortization of tenant inducements is recordedsheets and amortized as a reduction to lease income on a straight-line basis over the term of the related lease as a reduction of lease income in the consolidated statement of operations. lease.See Note 5—3—“Rents, Deferred Rents and Other Receivables, Net.”
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under ASC Topic 842,Leases, Brookfield DTLA must assess on an individual lease basis whether it is probable that the Company will collect the future lease payments throughout the lease term.term of the lease. The Company considers the tenant’s payment history and current credit status when assessing collectability.collectibility. If the collectabilitycollectibility of the lease payments is probable at lease commencement, the Company recognizes lease income over the term of the lease term on a straight-line basis. During the term of the lease, Brookfield DTLA monitors the credit quality and any related material changes of our tenants by (i) reviewing financial statements of the tenants that are publicly available or that are required to be delivered to us pursuant to the applicable lease, (ii) monitoring news reports regarding our tenants and their respective businesses, (iii) monitoring the tenant’s payment history and current credit status, and (iv) analyzing current economic trends, and reasonable and supportable forecasts of future economic conditions. When collectabilitycollectibility is not deemed probable at the lease commencement date, the Company’s lease income is constrained to the lesser of (1)(i) the income that would have been recognized if collection were probable, and (2)or (ii) the lease payments that have been collected from the lessee. If the collectabilitycollectibility assessment changes to probable after the lease commencement date, any difference between the lease income that would have been recognized if collectabilitycollectibility had always been assessed as probable and the lease income recognized to date is recognized as a current-period adjustment to lease income. If the collectabilitycollectibility assessment changes to not probable after the lease commencement date, lease income is reversed to the extent that the lease payments that have been collected from the lessee are less than the lease income recognized to date. Changes to the collectabilitycollectibility of operating leases are recorded as adjustments to lease income in the consolidated statementstatements of operations.
During As the result of our assessment of the collectibility of amounts due under leases with our tenants, the Company recognized a recovery (reduction) of lease income totaling $0.2 million, $1.1 million and $(8.4) million, respectively, during the years ended December 31, 2019, 20182022, 2021 and 2017, Brookfield DTLA recorded provisions for doubtful accounts of $165 thousand and $190 thousand, and a recovery of doubtful accounts of $7 thousand, respectively. The Company wrote off rents, deferred rents and other receivables totaling $478 thousand during the year ended December 31, 2019.2020.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
IntangiblesIntangible Assets and Liabilities, Net—
Brookfield DTLA evaluates each acquisition of real estate to determine whether the integrated set of assets and activities meets the definition of a business and needs to be accounted for as a business combination. An acquisition of an integrated set of assets and activities that does not meet the definition of a business is accounted for as an asset acquisition. For an acquisitionacquisitions of real estateestates that is accountingare accounted for as a business combination,combinations, the Company allocates the acquisition consideration (excluding acquisition costs) to the assets acquired, liabilities assumed, noncontrolling interests, and any previously existing ownership interests at fair value as of the acquisition date. Acquired assets include tangible real estate assets consisting primarily of land, buildings, and tenant improvements, as well as identifiable intangible assets and liabilities, includingconsisting primarily of acquired above- and below-market leases, in-place leases and tenant relationships.
The principal valuation technique employed by Brookfield DTLA in determining the fair value of identified assets acquired and liabilities assumed is the income approach, which is then compared to the cost approach. Tangible values for investments in real estate are calculated based on replacement costs for like-type quality assets. Above- and below-market lease values are determined by comparing in-place rents with current market rents. In‑place lease amounts are determined by calculating the potential lost revenue during the replacement of the current leases in place. Leasing commissions and legal/marketing fees are determined based upon market allowances pro-rated over the remaining lease terms. Loans assumed in an acquisition are analyzed using current market terms for similar debt.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The value of the acquired above- and below-market leases are amortized and recorded as either a decrease (in the case of above-market leases) or an increase (in the case of below-market leases) to lease income in the consolidated statementstatements of operations over the remaining termterms of the associated lease.leases. The value of tenant relationships is amortized as an expense over the expected term of the relationship, which includes an estimated probability of lease renewal. The value of in-place leases is amortized as an expense over the remaining life of the leases. Amortization of tenant relationships and in‑place leases is included as part of depreciation and amortization in the consolidated statementstatements of operations.
Deferred Charges, Net—
Deferred charges mainly include initial direct costs, primarily commissions related to the leasing of the Company’s office properties, and are presented as deferred charges in the consolidated balance sheetstated net of accumulated amortization totaling $43.6 million and $50.3of $52.0 million as of both December 31, 20192022 and 2018, respectively.2021.
All leasing commissions paid for new or renewed leases are capitalized and deferred. Deferred leasing costs are amortized on a straight‑line basis over the initial fixed terms of the related leases as part of depreciation and amortization expense in the consolidated statementstatements of operations. Costs to negotiate or arrange a lease, regardless of its outcome, such as fixed employee compensation, tax or legal advice to negotiate lease terms, and lessor costs related to advertising or soliciting potential tenants, are expensed as incurred.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Due From/To Affiliates—
Amounts due from/to affiliates consist of related party receivables from and payables due to affiliates of BPY and BAM,Brookfield Corporation, primarily related to lease income, parking revenue, and fees for property, development and asset management and other services. See Note 15—13—“Related Party Transactions.”
Prepaid and Other Assets, Net—
Prepaid and other assets, net, mainly include prepaid insurance, real estate taxes and interest fair value of derivative financial instruments and refundable deposits.rate cap contracts.
Secured Debt, Net—
Debt secured by our properties areis presented in the consolidated balance sheetsheets net of unamortized debt financing costs.
Debt financing costs and discounts totaling $5.3$6.8 million, $9.6$7.5 million and $6.4$5.4 million were amortized during the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively, over the terms of the related loans using the effective interest method and are included as part of interest expense in the consolidated statements of operations. Any unamortized amounts remaining upon the early repayment of debt are written off, and the related costs and accumulated amortization are removed from the consolidated balance sheet.sheets.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Mezzanine Equity—
Mezzanine equity in the consolidated balance sheetsheets is comprised of the Series A preferred stock, a Series A-1 preferred interest, a senior participating preferred interest, and a Series B preferred interest (collectively, the “Preferred Interests”). The Series A-1 preferred interest, senior participating preferred interest and Series B preferred interest are held by a noncontrolling interest holder. The Preferred Interests are classified inas mezzanine equity because they are callable, and the holder of the Series A-1 preferred interest, senior participating preferred interest, Series B preferred interest, and some of the Series A preferred stock indirectly controls the ability to elect to redeem such instruments, through its controlling interest in the Company and its subsidiaries. There is no commitment or obligation on the part of Brookfield DTLA or DTLA Holdings to redeem the Preferred Interests.
The Preferred Interests included within mezzanine equity were recorded at fair value on the date of issuance and have been adjusted to the greater of their carrying amount or redemption value as of December 31, 2019 and 2018.each reporting period. Adjustments to increase or decrease the carrying amount to redemption value are recorded in the consolidated statementstatements of operations as redemption measurement adjustments.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue Recognition—
Lease Income—
Brookfield DTLA’s lease income primarily represents revenue related to agreements for rental of our investments in real estate, subject to ASC Topic 842, Leases. All of the leases in which the Company is the lessor are classified as operating leases. The Company’s leases do not have guarantees of residual value of the underlying assets. We manage risk associated with the residual value of our leased assets by carefully selecting our tenants and monitoring their credit quality throughout their respective lease terms. Upon the expiration or termination of a lease, the Company often has the ability to re-lease the space with an existing tenant or to a new tenant within a reasonable amount of time. None of our tenants accounted for more than 10% of our lease income for the year ended December 31, 2019.
As of December 31, 2019, Brookfield DTLA has six Class A office properties and one retail center aggregating 7.6 million net building rentable square feet located in the LACBD. We are susceptible to adverse developments in the markets for office space, particularly in Southern California. Such adverse developments could include oversupply of or reduced demand for office space; declines in property values; business layoffs, downsizings, relocations or industry slowdowns affecting tenants of the Company’s properties; changing demographics; increased telecommuting; terrorist targeting of or acts of war against high-rise structures; infrastructure quality; California state budgetary constraints and priorities; increases in real estate and other taxes; costs of complying with state, local and federal government regulations or increased regulation and other factors.
The Company’s lease income is comprised of variable payments including fixed and contingent rental payments and tenant recoveries. Fixed contractual payments from the Company’s leases are recognized on a straight-line basis over the terms of the respective leases. This means that, with respect to a particular lease, actual amounts billed in accordance with the lease during any given period may be higher or lower than the amount of lease income recognized during the period. Straight-line rental revenue is commenced when the customertenant assumes control of the leased premises. During the years ended December 31, 2019, 2018 and 2017, the Company recorded straight-line rental revenue totaling $10.1 million, $11.4 million and $11.2 million, respectively, as part of lease income in the consolidated statements of operations.
Certain leases with retail tenants also provide for the payment by the lessee of additional rent based on a percentage of the tenant’s sales. Percentage rents are recognized as lease income in the consolidated statementstatements of operations only after the tenant sales thresholds have been achieved. See Note 16—“Future Minimum Base Rents.”
Tenant recoveries, including reimbursements of utilities, repairs and maintenance, common area expenses, real estate taxes and insurance, and other operating expenses, are recognized as part of lease income in the consolidated statementstatements of operations in the period when the applicable expenses are incurred and the tenant’s obligation to reimburse us arises.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Some of the Company’s leases have termination options that allow the tenant to terminate the lease prior to the end of the lease term under certain circumstances. Termination options generally become effective half way or further into the original lease term and require advance notification from the tenant and payment of a termination fee that reimburses the Company for a portion of the remaining rent under the original lease term and the undepreciated lease inception costs such as commissions, tenant improvements and lease incentives. Termination fees are recognized as part of lease income in the consolidated statementstatements of operations at the later of when the tenant has vacated the space or the lease has expired, a fully executed lease termination agreement has been delivered to the Company, the amount of the fee is determinable and collectability of the fee is reasonably assured.
Parking Revenue—
Parking revenue is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers, when the services are provided and the performance obligations are satisfied, which normally occurs at a point in time.
Income Taxes—
Brookfield DTLA has elected to be taxed as a real estate investment trust (“REIT”) pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, (the “Code”), commencing with its tax period ended December 31, 2013. Brookfield DTLA conducts and intends to conduct its operations so aswith the intent to continue to qualify as a REIT. Accordingly, Brookfield DTLA is not subject to U.S. federal income tax, provided that it continues to qualify as a REIT and makes distributions to its stockholders, if any, that generally equal or exceed its taxable income.
Brookfield DTLA has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”). A TRS is permitted to engage in activities that a REIT cannot engage in directly, such as performing non‑customary services for the Company’s tenants, holding assets that the Company cannot hold directly and conducting certain affiliate transactions. A TRS is subject to both federal and state income taxes. The Company’s various TRS did not have significant tax provisions duringDuring the years ended December 31, 2019, 20182022, 2021 and 2017 or deferred2020, the Company’s various TRS recorded income tax items for the years ended December 31, 2019expenses of $0.4 million, $0.4 million and 2018.$0.8 million respectively.
As of December 31, 20192022 and 2018,2021, Brookfield DTLA had net operating loss carryforwards (“NOLs”) totaling $290.2$474.0 million and $281.5$406.4 million, respectively. The NOLs generated prior to January 1, 2018 will begin to expire in 2033, while NOLs generated in tax years beginning January 1, 2018 or later have an indefinite carryforward period. Brookfield DTLA does not expect to utilize these NOLs and as a result, no deferred tax assets have been established as of December 31, 2022 and 2021.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Uncertain Tax Positions—
Brookfield DTLA recognizes tax benefits from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition threshold. Brookfield DTLA has no unrecognized tax benefits as of December 31, 20192022 and 2018,2021, and does not expect its unrecognized tax benefits balance to change during the next 12 months. As of December 31, 2019,2022, Brookfield DTLA’s 2015, 2016, 20172018, 2019, 2020 and 20182021 tax years remain open under the normal statute of limitations and may be subject to examination by federal, state andand/or local authorities.
Derivative Financial Instruments—
Brookfield DTLA uses interest rate swap and cap contracts to manage interest rate fluctuation risk from fluctuationsby limiting the impact of changes in interest rates.LIBOR and SOFR on certain of its debt. Interest rate swaps involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps involve the receipt of variable-rate amounts beyond a specified strike price over the life of the agreements without exchange of the underlying principal amount. The Company believes these contracts are with counterparties who are creditworthy financial institutions.
At the inception of the contracts, Brookfield DTLA designates its interest rate swap contracts as cash flow hedges and documents the relationship of the hedge to the underlying transaction. Hedge effectiveness is assessed at inception and throughout the life of the hedge to ensure the hedge qualifies for hedge accounting. Changes in fair value associated with hedge ineffectiveness, if any, are recorded as part of interest expense in the consolidated statementstatements of operations. Changes in fair value of cash flow hedge derivative financial instruments are deferred and recorded as part of accumulated other comprehensive loss in the consolidated statementstatements of stockholders’ deficit until the underlying transaction affects earnings. In the event that an anticipated transaction is no longer likely to occur, the Company recognizes the change in fair value of the derivative financial instrument in the consolidated statement of operations in the period the determination is made. Interest rate swap assets are included in prepaid and other assets, net and interest rate swap liabilities are included in accounts payable and other liabilities in the consolidated balance sheet.sheets. In September 2020, in conjunction with the extinguishment of our loans that previously encumbered EY Plaza, the Company terminated the related LIBOR-based interest rate swap contracts.
Additionally, Brookfield DTLA uses interest rate cap contracts to limit impact of changes in the LIBOR rate on certain of its debt. The Company does not useelect hedge accounting for these contracts, and as such, changes in fair value are recorded in the period of change as part of other expenseexpenses in the consolidated statementstatements of operations.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Financial Instruments—
Brookfield DTLA’s other financial instruments that are exposed to concentrations of credit risk consist primarily of cash and accounts receivable. Management routinelylease receivables. Brookfield DTLA assesses collectibility of lease receivables by monitoring the credit quality and any related material changes of our tenants. This involves (i) reviewing financial strengthstatements of itsthe tenants that are publicly available or that are required to be delivered to us pursuant to the applicable lease, (ii) monitoring news reports regarding our tenants and astheir respective businesses, (iii) monitoring the tenant’s payment history and current credit status, and (iv) analyzing current economic trends. As a consequence, management believes that its accountslease receivable credit risk exposure is limited. Brookfield DTLA places its temporary cash investments with federally insured institutions. Cash balances with any one institution may at times be in excess of the federally insured limits.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair Value Measurements—
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis, such as interest rate swaps and cap contracts. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired long-lived assets such as investments in real estate and unconsolidated real estate joint venture). Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date and, in many cases, requires management to make a number of significant judgments. Based on the observable inputs used in the valuation techniques, Brookfield DTLA classifies its assets and liabilities measured and disclosed at fair value in accordance with a three-level hierarchy (i.e., Level 1, Level 2 and Level 3) established under ASC Topic 820, Fair Value MeasurementsMeasurement. Brookfield DTLA records certain financial instruments, such as interest rate swap and cap contracts, at fair value on a recurring basis. Certain financial instruments, such as accounts receivable, are not carried at fair value each period but may require nonrecurring fair value adjustments due to write-downs of individual assets.
The fair value of Brookfield DTLA’s derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivatives. These analyses reflect the contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities, which management considers to be Level 2 inputs. The Company has incorporated credit valuation adjustments to appropriately reflect both our own and the respective counterparty’s non-performance risk in the fair value measurements. See Note 13—“Fair Value Measurements.”
The Company estimates the fair value of its debt by calculating the credit-adjusted present value of principal and interest payments for each loan. The calculation incorporates observable market interest rates, which management considers to be Level 2 inputs, assumes that each loan will be outstanding until maturity, and excludes any options to extend the maturity date of the loan available per the terms of the loan agreement, if any. See Note 14—11—“Financial Instruments.”
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Recently Issued Accounting PronouncementsLiterature
New Accounting Pronouncements Adopted in 2019
Please refer to Note 3—“Leases” for a discussion of our adoption of Topic 842, Leases, on January 1, 2019.
In August 2017,March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. This update introduced amendments to Topic 815, Derivatives and Hedging, intended to make targeted improvements to simplify the applicationStandards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the hedgeEffects of Reference Rate Reform on Financial Reporting, which provides accounting guidance in current GAAP. The objectiverelief from the future impact of this update isthe cessation of LIBOR by, among other things, providing optional expedients to improvetreat contract modifications resulting from such reference rate reform as a continuation of the financial reporting ofexisting contract and for hedging relationships to better portraynot be de-designated resulting from such changes provided certain criteria are met. The guidance is effective beginning on March 12, 2020, and we may elect to apply the economic resultsamendments prospectively through December 31, 2022 (the “sunset date”). In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which amends the scope of ASU 2020-04 to include derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an entity’s risk management activities in its financial statements. Brookfield DTLAinterim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022 (the “sunset date”). The Company adopted the guidance in ASU 2017-122020-04 and ASU 2021-01 on a prospective basis on January 1, 2019. The2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of ASC 848, Reference Rate Reform, from December 31, 2022 to December 31, 2024. ASU 2022-06 is effective immediately for all entities. At the time of adoption, of thisthe guidance did not have a material impact on Brookfield DTLA’sthe Company’s consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 amends Topic 815 by expanding the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an eligible benchmark interest rate. Brookfield DTLA adopted this update effective January 1, 2019. Upon adoption on January 1, 2019 and during the year ended December 31, 2019, the Company had no hedges based on SOFR, and hence, the adoption of this update did not have a material impact on Brookfield DTLA’s consolidated financial statements. Should the Company issue variable interest rate debt in the future, including SOFR-based debt, and enter into related interest rate hedge agreements to manage the Company’s exposure to variable interest rates, the The Company will continue applyingto track the interestexposure as of each reporting period and to assess the impact as the reference rate hedge accounting policy that has been applied totransition occurs through the Company’s interest rate hedge agreements based oncessation of LIBOR.
Accounting Pronouncements Effective January 1, 2020Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. In November 2018, the FASB released ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. This amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Subtopic 842-30, Leases—Lessor. ASU 2016-13 and ASU 2018-19 are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019, with early adoption permitted as of the fiscal year beginning after December 15, 2018, including adoption in an interim period. The majority of the Company’s receivables arise in the ordinary course of business under operating leases with its tenants and are therefore not subject to the guidance in Subtopic 326-20. Brookfield DTLACompany does not expect the adoption of this guidanceanticipate any recently issued accounting standards pronouncements to have a material effectsignificant impact on itsthe consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 amends Topic 820 by adding new fair value measurement disclosure requirements, as well as modifying and removing certain disclosure requirements. This guidance is effective for interim and annual periodsposition or results of operations in fiscal years beginning after December 15, 2019. Early adoption is permitted for any eliminatedthese or modified disclosures. Brookfield DTLA does not expect the adoption of this guidance to have a material effect on itsfuture consolidated financial statements.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which amends the related-party guidance in Topic 810. Specifically, ASU 2018-17 removes a sentence in ASC 810-10-55-37D regarding the evaluation of fees paid to decision makers to conform with the amendments in ASU 2016-17. ASU 2018-17 is effective for interim and annual periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Brookfield DTLA does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.
Segment Reporting
Brookfield DTLA currently operates as one reportable segment, which includes the operation and management of its six commercial office properties and one retail property. Each of Brookfield DTLA’s properties is considered a separate operating segment, as each property earns revenues and incurs expenses, individual operating results are reviewed and discrete financial information is available. Management does not distinguish or group Brookfield DTLA’s consolidated operations based on geography, size or type. Brookfield DTLA’s properties have similar economic characteristics and provide similar products and services to tenants. As a result, Brookfield DTLA’s properties are aggregated into a single reportable segment.
Note 3—Leases
Brookfield DTLA’s properties are leased to tenants under operating leases. The Company adopted Topic 842, Leases, on January 1, 2019 using the modified retrospective transition method. Information in this Note 3 with respect to our leases and lease-related costs and receivables is presented under Topic 842 as of December 31, 2019 and for the years ended December 31, 2019, 2018 and 2017. Topic 842 sets out the principles for recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The primary impact of Topic 842 is the recognition of lease assets and liabilities on the balance sheet by lessees for leases classified as operating leases. The accounting applied by lessors is largely unchanged. As of January 1, 2019 and December 31, 2019, the Company had no material ground leases or finance leases where the Company was a lessee and therefore did not record any right‑of-use asset or liability in its consolidated balance sheet as of December 31, 2019.
On the date of adoption, Brookfield DTLA elected the package of practical expedients provided for in Topic 842, including:
No reassessment of whether any expired or existing contracts were or contained leases;
No reassessment of the lease classification for any expired or existing leases; and
No reassessment of initial direct costs for any existing leases.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The package of practical expedients was madeManagement also views the unconsolidated real estate joint venture, Fund IV, as a single election and was consistently applied to all existing leases as of January 1, 2019. The Company also electedseparate operating segment. This joint venture engages in the practical expedient provided to lessors in a subsequent amendment to Topic 842 that removed the requirement to separate lease and nonlease components, provided certain conditions were met.
Brookfield DTLA leases its office properties to lessees in exchange for payments from tenants comprised of monthly payments that cover rent, property taxes, insurance and certain cost recoveries. Payments from tenants for reimbursement are considered nonlease components that are separated from lease components and are generally accounted for in accordance with the revenue recognition standard. However, the Company qualified for and elected the practical expedient related to combining the components because the lease component is classified as an operating lease and the timing and pattern of transfer of tenant reimbursements, which is not the predominant component, is the same as the lease component. As such, consideration for tenant reimbursements is accounted for as partdevelopment of the overall consideration in the lease. Lease income relatedmultifamily residential real estate property, Beaudry, which has different economic characteristics compared to variable payments includes fixedcommercial office and contingent rental payments and tenant recoveries. Such payments from customers are considered nonlease componentsretail properties described above. The progress of the leasedevelopment project, funding requirements, projected returns and therefore no consideration is allocated to them because they do not transfer a good or service to the customer.
Parking revenue does not qualify for the single lease component practical expedient, discussed above, due to the difference in the timing and patternother discrete financial information of transfer of the Company’s parking service obligations and associated lease components within the same lease agreement.
Topic 842 requires lessors to capitalize and amortize only incremental direct leasing costs. All leasing commissions paid in connection with new leases or lease renewals are capitalized and amortized on a straight-line basis over the initial fixed terms of the respective leases as part of depreciation and amortization in the consolidated statement of operations. Initial direct costs, primarily commissions, related to the leasing of our office properties are deferred and are presented as deferred charges in the consolidated balance sheet net of accumulated amortization totaling $43.6 million and $50.3 million as of December 31, 2019 and 2018, respectively.
Beginning January 1, 2019, any costs incurred by the Company to negotiate or arrange a lease regardless of its outcome, such as fixed employee compensation, tax or legal advice to negotiate lease terms, and lessor costs related to advertising or soliciting potential tenants are required to be expensed as incurred. During the year ended December 31, 2019, Brookfield DTLA had no indirect leasing costs that would have been capitalized prior to the adoption of Topic 842.
The election of the package of practical expedients described above permits the Company to continue to account for its leases that commenced before January 1, 2019 under the previous lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases commencing or modified after January 1, 2019. The Company recorded no net cumulative effect adjustment to the accumulated deficit in the consolidated balance sheet on January 1, 2019 as a result of the adoption of this guidance as there were no indirect leasing costs that were required to be written off.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reclassification of Prior Period Presentation of Rental Income and Tenant Reimbursements
As described above, rental income and tenant reimbursements related to our operating leases for which Brookfield DTLA is the lessor qualified for the single component practical expedient and are classified as lease income in the consolidated statement of operations. Prior to the adoption of Topic 842, the Company reported rental income and tenant reimbursements separately in the consolidated statement of operations, in accordance with Topic 840. Upon adoption of the new lease accounting standard, the consolidated statements of operations for the years ended December 31, 2018 and 2017 have been reclassified to conform to the new single component presentation of rental income and tenant reimbursements, classified within lease income in the Company’s consolidated statement of operations.
A reconciliation of the revenue line items that were reclassified in Brookfield DTLA’s consolidated statement of operations to conform to the current period presentation pursuant to the adoption of Topic 842 and the election of the single component practical expedient is as follows (in thousands):
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Rental income (presentation prior to January 1, 2019) | $ | 169,625 |
| | $ | 162,203 |
| | $ | 165,689 |
|
Tenant reimbursements (presentation prior to January 1, 2019) | 107,270 |
| | 105,930 |
| | 96,518 |
|
Lease income (presentation effective January 1, 2019) | $ | 276,895 |
| | $ | 268,133 |
| | $ | 262,207 |
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4—Investment in Unconsolidated Real Estate Joint Venture
On May 31, 2019, New OP entered into an agreement to contribute and transfer all of its wholly‑owned interests in the Property Owner in exchange for noncontrolling interests in a newly formed joint venture with DTLA FP IV Holdings (the “Existing Agreement”).
During the year ended December 31, 2019, the Company recognized a gain from derecognition of assets in the consolidated statement of operations representing the difference between the amount of consideration measured and allocated to the assets and their carrying amount as follows (in thousands):
|
| | | | | | |
Consideration | | $ | 45,000 |
|
Investments in real estate, net | $ | 20,139 |
| |
Cash and cash equivalents | 73 |
| |
Prepaid and other assets, net | 11 |
| |
Carrying amount | | 20,223 |
|
Gain from derecognition of assets | | $ | 24,777 |
|
The consideration allocated to the assets contributed to the joint venture are regularly reviewed by New OP increased by $9.8 million during the three months ended December 31, 2019 as a result of an amendmentmanagement to assess performance. However, since this joint venture is not considered material to the Existing Agreement. Asoverall results of December 31, 2019, the Company’s ownership interest in the joint venture was 55.8%.Company, it is not a reportable segment.
Note 5—3—Rents, Deferred Rents and Other Receivables, Net
Brookfield DTLA’s rents, deferred rents and other receivables are comprised of the following (in thousands):following:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| | | |
Straight-line and other deferred rents | $ | 114,414 | | | $ | 108,913 | |
Tenant inducements receivable | 31,689 | | | 28,445 | |
Tenant receivables | 2,406 | | | 3,316 | |
Other receivables | 1,588 | | | 362 | |
Rents, deferred rents and other receivables, gross | 150,097 | | | 141,036 | |
Less: accumulated amortization of tenant inducements | 14,650 | | | 15,411 | |
| | | |
Rents, deferred rents and other receivables, net | $ | 135,447 | | | $ | 125,625 | |
|
| | | | | | | |
| As of December 31, |
| 2019 |
| 2018 |
| | | |
Straight-line and other deferred rents | $ | 109,859 |
| | $ | 115,445 |
|
Tenant inducements receivable | 33,304 |
| | 42,642 |
|
Other receivables | 7,881 |
| | 10,437 |
|
Rents, deferred rents and other receivables, gross | 151,044 |
| | 168,524 |
|
Less: accumulated amortization of tenant inducements | 13,034 |
| | 16,701 |
|
allowance for doubtful accounts | — |
| | 314 |
|
Rents, deferred rents and other receivables, net | $ | 138,010 |
| | $ | 151,509 |
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6—4—Intangible Assets and Liabilities
Brookfield DTLA’s intangible assets and liabilities are summarized as follows (in thousands):follows:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
Intangible Assets | | | |
In-place leases | $ | 32,678 | | | $ | 41,422 | |
Tenant relationships | 2,151 | | | 6,432 | |
Above-market leases | 8,231 | | | 16,734 | |
Intangible assets, gross | 43,060 | | | 64,588 | |
Less: accumulated amortization | 32,993 | | | 48,565 | |
Intangible assets, net | $ | 10,067 | | | $ | 16,023 | |
| | | |
Intangible Liabilities | | | |
Below-market leases | $ | 18,670 | | | $ | 33,416 | |
Less: accumulated amortization | 15,765 | | | 28,961 | |
Intangible liabilities, net | $ | 2,905 | | | $ | 4,455 | |
|
| | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 |
Intangible Assets | | | |
In-place leases | $ | 47,872 |
| | $ | 66,365 |
|
Tenant relationships | 15,397 |
| | 30,078 |
|
Above-market leases | 24,367 |
| | 31,270 |
|
Intangible assets, gross | 87,636 |
| | 127,713 |
|
Less: accumulated amortization | 55,741 |
| | 83,073 |
|
Intangible assets, net | $ | 31,895 |
| | $ | 44,640 |
|
| | | |
Intangible Liabilities | | | |
Below-market leases | $ | 53,795 |
| | $ | 59,561 |
|
Less: accumulated amortization | 45,489 |
| | 47,107 |
|
Intangible liabilities, net | $ | 8,306 |
| | $ | 12,454 |
|
The impactA summary of the amortizationeffect of acquired below-market leases, net of acquired above-market leases, on lease income and of acquired in-place leases and tenant relationships on depreciation and amortization expense is as follows (in thousands):
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Lease income | $ | 195 |
| | $ | (222 | ) | | $ | 2,219 |
|
Depreciation and amortization expense | 8,792 |
| | 9,642 |
| | 13,527 |
|
As of December 31, 2019, the estimate of the amortization/accretion of intangible assets and liabilities forreported in the consolidated financial statements is as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Lease income | $ | 141 | | | $ | (206) | | | $ | (1,331) | |
Depreciation and amortization expense | $ | 3,562 | | | $ | 4,267 | | | $ | 6,217 | |
As of December 31, 2022, the estimated amortization/accretion of intangible assets and liabilities in future periods is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | |
| In-Place Leases | | Other Intangible Assets | | Intangible Liabilities |
| | | | | |
2023 | $ | 1,546 | | | $ | 1,800 | | | $ | 730 | |
2024 | 920 | | | 1,752 | | | 280 | |
2025 | 840 | | | 1,112 | | | 265 | |
2026 | 585 | | | 443 | | | 246 | |
2027 | 115 | | | 3 | | | 154 | |
Thereafter | 918 | | | 33 | | | 1,229 | |
Total future amortization/accretion of intangibles | $ | 4,924 | | | $ | 5,143 | | | $ | 2,905 | |
|
| | | | | | | | | | | |
| In-Place Leases | | Other Intangible Assets | | Intangible Liabilities |
| | | | | |
2020 | $ | 4,879 |
| | $ | 3,471 |
| | $ | 2,910 |
|
2021 | 3,922 |
| | 2,775 |
| | 2,282 |
|
2022 | 3,428 |
| | 2,572 |
| | 2,149 |
|
2023 | 2,001 |
| | 2,209 |
| | 641 |
|
2024 | 1,134 |
| | 2,088 |
| | 124 |
|
Thereafter | 1,516 |
| | 1,900 |
| | 200 |
|
| $ | 16,880 |
| | $ | 15,015 |
| | $ | 8,306 |
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7—5—Secured Debt, Net
Brookfield DTLA’s secured debt is as follows (in thousands, except dates and percentage amounts):as of December 31, 2022:
|
| | | | | | | | | | | | |
| Contractual Maturity Date | | Interest Rate | | Principal Amount as of December 31, |
| | | 2019 | | 2018 |
Floating-Rate Debt | | | | | | | |
Variable-Rate Loans: | | | | | | | |
Wells Fargo Center–North Tower (1) | 10/9/2020 | | 3.39 | % | | $ | 400,000 |
| | $ | 400,000 |
|
Wells Fargo Center–North Tower (2) | 10/9/2020 | | 5.74 | % | | 65,000 |
| | 65,000 |
|
Wells Fargo Center–North Tower (3) | 10/9/2020 | | 6.74 | % | | 35,000 |
| | 35,000 |
|
Wells Fargo Center–South Tower (4) | 11/4/2021 | | 3.49 | % | | 260,796 |
| | 258,186 |
|
777 Tower (5) | 10/31/2024 | | 3.32 | % | | 231,842 |
| | — |
|
777 Tower (6) | 10/31/2024 | | 5.87 | % | | 43,158 |
| | — |
|
EY Plaza (7) | 11/27/2020 | | 6.24 | % | | 35,000 |
| | 35,000 |
|
Total variable-rate loans | | | | | 1,070,796 |
| | 793,186 |
|
| | | | | | | |
Variable-Rate Swapped to Fixed-Rate Loan: | | | | | | | |
EY Plaza (8) | 11/27/2020 | | 3.88 | % | | 230,000 |
| | 230,000 |
|
Total floating-rate debt | | | | | 1,300,796 |
| | 1,023,186 |
|
| | | | | | | |
Fixed-Rate Debt: | | | | | | | |
BOA Plaza | 9/1/2024 | | 4.05 | % | | 400,000 |
| | 400,000 |
|
Gas Company Tower | 8/6/2021 | | 3.47 | % | | 319,000 |
| | 319,000 |
|
Gas Company Tower | 8/6/2021 | | 6.50 | % | | 131,000 |
| | 131,000 |
|
FIGat7th | 3/1/2023 | | 3.88 | % | | 58,500 |
| | 58,500 |
|
Total fixed-rate debt | | | | | 908,500 |
| | 908,500 |
|
| | | | | | | |
Debt Refinanced: | | | | | | | |
777 Tower | | | | | — |
| | 220,000 |
|
Total debt refinanced | | | | | — |
| | 220,000 |
|
| | | | | | | |
Total secured debt | | | | | 2,209,296 |
| | 2,151,686 |
|
Less: unamortized debt financing costs | | | | 9,316 |
| | 10,962 |
|
Total secured debt, net | | | | | $ | 2,199,980 |
| | $ | 2,140,724 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity Date | | Contractual Interest Rates | | | | Principal Amount as of December 31, |
| | | | 2022 | | 2021 |
Variable-Rate Loans: | | | | | | | | | |
Wells Fargo Center–North Tower | 10/9/2023 | | SOFR + 1.76% | | | | $ | 400,000 | | | $ | 400,000 | |
Wells Fargo Center–North Tower | 10/9/2023 | | SOFR + 4.11% | | | | 65,000 | | | 65,000 | |
Wells Fargo Center–North Tower (1) | 10/9/2023 | | SOFR + 5.11% | | | | 35,000 | | | 35,000 | |
Wells Fargo Center–South Tower (2) | 11/4/2023 | | SOFR + 1.80% | | | | 265,447 | | | 260,796 | |
EY Plaza | 10/9/2023 | | LIBOR + 2.86% | | | | 275,000 | | | 275,000 | |
EY Plaza | 10/9/2023 | | LIBOR + 6.85% | | | | 30,000 | | | 30,000 | |
Gas Company Tower (4) | 2/9/2023 | | LIBOR + 1.89% | | | | 350,000 | | | 350,000 | |
Gas Company Tower (4) | 2/9/2023 | | LIBOR + 5.00% | | | | 65,000 | | | 65,000 | |
Gas Company Tower (4) | 2/9/2023 | | LIBOR + 7.75% | | | | 50,000 | | | 50,000 | |
Total variable-rate loans | | | | | | | 1,535,447 | | | 1,530,796 | |
| | | | | | | | | |
Fixed-Rate Debt: | | | | | | | | | |
BOA Plaza | 9/1/2024 | | 4.05% | | | | 400,000 | | | 400,000 | |
FIGat7th (5) | 3/1/2023 | | 3.88% | | | | 58,500 | | | 58,500 | |
Total fixed-rate debt | | | | | | | 458,500 | | | 458,500 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total secured debt, excluding debt in default | | | | | | | 1,993,947 | | | 1,989,296 | |
| | | | | | | | | |
Debt in Default: | | | | | | | | | |
777 Tower (3) | 12/30/2022 | | LIBOR + 1.60% | | | | 243,594 | | | 231,842 | |
777 Tower (3) | 12/30/2022 | | LIBOR + 4.15% | | | | 45,345 | | | 43,158 | |
Total debt in default | | | | | | | 288,939 | | | 275,000 | |
| | | | | | | | | |
Total secured debt | | | | | | | 2,282,886 | | | 2,264,296 | |
Less: unamortized debt financing costs | | | | | | 3,313 | | | 8,375 | |
Total secured debt, net | | | | | | | $ | 2,279,573 | | | $ | 2,255,921 | |
__________
| |
(1) | This loan bears interest at LIBOR plus 1.65%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.25%. Brookfield DTLA has three options to extend the maturity date of this loan, each for a period of one year, as long as the maturity dates of both of the mezzanine loans are extended when the maturity date of the mortgage loan is extended. As of December 31, 2019, we meet the criteria specified in the loan agreement to extend this loan. |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| |
(2) | This loan bears interest at LIBOR plus 4.00%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.25%. Brookfield DTLA has three options to extend the maturity date of this loan, each for a period of one year, as long as the maturity date of the other mezzanine loan is extended when the maturity date of the mortgage loan is extended. As of December 31, 2019, we meet the criteria specified in the loan agreement to extend the mortgage loan. |
| |
(3) | This loan bears interest at LIBOR plus 5.00%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.25%. Brookfield DTLA has three options to extend the maturity date of this loan, each for a period of one year, as long as the maturity date of the other mezzanine loan is extended when the maturity date of the mortgage loan is extended. As of December 31, 2019, we meet the criteria specified in the loan agreement to extend the mortgage loan. On September 30, 2019, BAM acquired a significant interest in a company whose subsidiary is the lender of this loan. See Note 15—“Related Party Transactions.” |
| |
(4) | This loan bears interest at LIBOR plus 1.80%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.50%. Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of one year. As of December 31, 2019, a future advance amount of $29.2 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreement), including tenant improvements and inducements, leasing commissions, and common area improvements. |
| |
(5) | This loan bears interest at LIBOR plus 1.60%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.00%. As of December 31, 2019, a future advance amount of $36.8 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreements), including tenant improvements and inducements, and leasing commissions. The Company can draw against this future advance amount as long as a pro rata draw is made against the mezzanine loan future advance amount. |
| |
(6) | This loan bears interest at LIBOR plus 4.15%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 4.00%. As of December 31, 2019, a future advance amount of $6.8 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreements), including tenant improvements and inducements, and leasing commissions. The Company can draw against this future advance amount as long as a pro rata draw is made against the mortgage loan future advance amount.
|
| |
(7) | This loan bears interest at LIBOR plus 4.55%. As required by the loan agreement, we have entered into an interest rate cap contract that limits the LIBOR portion of the interest rate to 3.50%. |
| |
(8) | This loan bears interest at LIBOR plus 1.65%. As required by the loan agreement, we have entered into interest rate swap contracts to hedge this loan, which effectively fix the LIBOR portion of the interest rate at 2.28%. The effective interest rate of 3.88% includes interest on the swaps. |
(2)As of December 31, 2022, a future advance amount of $24.6 million is available under this loan that can be drawn to fund approved leasing costs (as defined in the underlying loan agreement), including tenant improvements and inducements, leasing commissions, and common area improvements.
(3)Starting December 2022, the mortgage and mezzanine loans secured by 777 Tower were in default for failing to enter into interest rate cap contracts. The lender may accelerate the maturity date of the debt. See “Debt Compliance” below for details.
(4)The Company did not exercise the option to extend the maturity of the loans secured by Gas Company Tower and therefore on February 9, 2023, the Gas Company Tower Loans matured and, since this loan has not been repaid, an event of default has occurred and is continuing. See “Debt Compliance” below for details.
(5)In March 2023, the lender granted a short-term extension of the maturity date from March 1, 2023 to April 3, 2023.
The weighted average interest rate of ourthe Company’s secured debt was 3.99%5.82% and 4.34%2.91% as of December 31, 20192022 and 2018,2021, respectively. As of December 31, 2019,2022, the weighted average term to maturity of our debt (excluding debt in default as of December 31, 2022) was approximately two years.one year.
Proceeds from Wells Fargo Center–South Tower Mortgage LoanDebt Maturities
DuringThe following table provides information regarding the year endedCompany’s minimum future principal payments due on the Company’s secured debt as of December 31, 2019,2022:
| | | | | |
2023 (2) | $ | 1,593,947 | |
2024 | 400,000 | |
| |
| |
Total | $ | 1,993,947 | |
Principal loan balances with maturity date prior to December 31, 2022 (1) | 288,939 | |
Total secured debt | $ | 2,282,886 | |
(1) Represents the Company received $2.6 million from the lender for approved leasing costs under the future advance portionaggregate principal balance as of the Wells Fargo Center–South Tower mortgage loan.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Debt Refinanced
777 Tower—
On October 31, 2019, Brookfield DTLA refinanced the mortgage loan secured by the 777 Tower office property and received net proceeds totaling approximately $271.5 million, of which $220.0 million was used to repay the loan that previously encumbered the property, with the remainder to be used for capital and tenant improvements at the Company’s properties.
The new $318.6 million loan is comprised of a $268.6 million mortgage loan and a $50.0 million mezzanine loan, each of which bears interest at variable rates equal to LIBOR plus 1.60% and 4.15%, respectively, requires the payment of interest-only until maturity, and matures on October 31, 2024.
On October 31, 2019, initial loan advances under the mortgage and mezzanine loans of $231.8 million and $43.2 million, respectively, were disbursed to secured by 777 Tower, which are in default. See “Debt Compliance” below for details.
(2) Includes the Company. As aggregate principal balance of December 31, 2019, maximum future advance amounts of $36.8 million and $6.8 million are available under the mortgage and mezzanine loans respectively,secured by the Gas Company Tower of $465.0 million, which are in maturity default effective February 9, 2023. See “Debt Compliance” below for details.
Excluding the debt secured by 777 Tower that can be drawn to fund approved leasing costs (as definedare in the underlying loan agreements), including tenant improvements and inducements, and leasing commissions. The Company can draw against the mortgage loan future advance amountdefault, as long as a pro rata draw is made against the mezzanine loan future advance amount.
The mortgage and mezzanine loans can be prepaid, in whole or in part, with prepayment fees (as defined in the underlying loan agreements), as long as the mezzanine loan is repaid on a pro rata basis with the mortgage loan, until November 10, 2020, after which the loans may be repaid without penalty.
Debt Maturities
As Brookfield DTLA’s debt matures, principal payment obligations present significant future cash requirements. As of December 31, 2019, our debt to be repaid in future periods is as follows (in thousands):
|
| | | |
2020 | $ | 765,000 |
|
2021 | 710,796 |
|
2022 | — |
|
2023 | 58,500 |
|
2024 | 675,000 |
|
| $ | 2,209,296 |
|
As of December 31, 2019, $1,025.82022, $1,593.9 million of ourthe Company’s secured debt may be prepaid without penalty (including principal balance of the mortgage and mezzanine loans secured by the Gas Company Tower of $465.0 million, which are in maturity default effective February 9, 2023), and $400.0 million may be defeased (as defined in the underlying loan agreement), $725.0 million may be prepaidagreements).
Non-Recourse Carve Out Guarantees
All of our secured debt is subject to “non-recourse carve out” guarantees that expire upon elimination of the underlying loan obligations. In connection with prepayment penalties, and $58.5 million is locked out from prepayment until March 1, 2020.these loans, Brookfield DTLA entered into “non-recourse carve out” guarantees, which provide for these otherwise non-recourse loans to become partially or fully recourse against DTLA Holdings, if certain triggering events (as defined in the loan agreements) occur.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Debt Compliance
Mortgage and Mezzanine Debt in Default
Certain loan agreements held by Brookfield DTLA contain debt yield and debt service coverage ratios. As of December 31, 2022, excluding the secured debt that are in default as of the issuance date of this Annual Report (the 777 Tower Loans and Gas Company Tower Loans), Brookfield DTLA was meeting or exceeding these financial ratios, with the exception of the loans secured by Wells Fargo Center—South Tower and Wells Fargo Center—North Tower that did not meet their respective minimum debt yield ratio.
Wells Fargo Center–South Tower —
Pursuant to the terms of the Wells Fargo Center–South Tower mortgage loan agreement, effective September 2020, a cash sweep event commenced as the borrower’s debt yield ratio was under the minimum debt yield ratio. While this does not constitute an Event of Default under the terms of the mortgage loan agreement, any excess operating cash flows are currently swept to a cash account controlled by the loan administrative agent. Funds within this account shall be applied to the borrower's approved operating expenses, capital expenditures and leasing costs; property taxes and insurance; interest and any other amounts due and payable under the loan and interest rate cap contracts; and fees and expenses due to the loan administrative agent.
Wells Fargo Center–North Tower—Tower —
BrookfieldAs of December 31, 2022, the borrower’s debt yield ratio was under the minimum debt yield ratio. While this does not constitute an Event of Default under the terms of the mortgage loan agreement, following the occurrence of such debt yield event, any excess operating cash flows are to be swept to a cash account controlled by the loan administrative agent. Funds within this account shall be applied to the borrower's approved operating expenses; tenant improvement costs and leasing commissions (capped at the leasing reserve deposit amount as specified in the loan agreements); property taxes and insurance; interest and any other amounts due and payable under the loan and interest rate cap contracts; reserve accounts; and fees and expenses due to the loan administrative agent. The cash sweep started in January 2022.
BROOKFIELD DTLA currently intendsFUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
London Interbank Offered Rate (“LIBOR”) Transition
The chief executive of the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, previously announced that the FCA intended to extendstop compelling banks to submit rates for the calculation of LIBOR after 2021. In response, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”) which identified the SOFR as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. In November 2020, the Intercontinental Exchange (“ICE”) Benchmark Administration Limited, the benchmark administrator for USD-LIBOR rates, proposed extending the publication of certain commonly-used USD-LIBOR settings until June 30, 2023 and the FCA issued a statement supporting such proposal. In connection with this proposal, certain U.S. banking regulators issued guidance strongly encouraging banks to generally cease entering into new contracts referencing USD-LIBOR as soon as practicable and in any event by December 31, 2021.
As of December 31, 2022, we have outstanding variable debt and interest rate cap contracts that are indexed to LIBOR. All of the Company’s variable debt contracts contain fallback language that lay out the process through which a replacement rate can be identified or used when LIBOR is not available. The LIBOR interest rate index for the debt secured by Wells Fargo Center–North Tower on its scheduled maturityand Wells Fargo Center–South Tower was replaced by SOFR in October 2020. 2022 and November 2022, respectively.
The Company has three optionsdiscontinuation of LIBOR will not affect our ability to extendborrow or maintain already outstanding borrowings or interest rate caps, but if our contracts indexed to LIBOR are converted to SOFR, the maturity date of this debt, each for a period of one year, as long asdifferences between LIBOR and SOFR, plus the maturity dates of both of the mezzanine loansrecommended spread adjustment, could result in interest costs that are extended when the maturity date of the mortgage loan is extended. As of December 31, 2019, we meet the criteria specified in the loan agreements to extend these loans.higher than if LIBOR remained available.
EY Tower—
Brookfield DTLA currently intends to refinance the debt secured by EY Plaza on or about its scheduled maturity in November 2020. There can be no assurance that the refinancing of this debt can be accomplished, what terms will be available in the market for this type of financing at the time of any refinancing, and whether a principal paydown will be needed when the debt is refinanced (based on market conditions.)
Note 8—6—Accounts Payable and Other Liabilities
Brookfield DTLA’s accounts payable and other liabilities are comprised of the following (in thousands):following:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| | | |
Tenant improvements and inducements payable | $ | 23,644 | | | $ | 32,973 | |
Unearned rent and tenant payables | 27,136 | | | 31,249 | |
Accrued capital expenditures and leasing commissions | 6,162 | | | 7,422 | |
Accrued expenses and other liabilities | 14,087 | | | 5,968 | |
Accounts payable and other liabilities | $ | 71,029 | | | $ | 77,612 | |
|
| | | | | | | |
| As of December 31, |
| 2019 | | 2018 |
| | | |
Tenant improvements and inducements payable | $ | 29,140 |
| | $ | 27,862 |
|
Unearned rent and tenant payables | 23,817 |
| | 17,077 |
|
Accrued capital expenditures and leasing commissions | 18,205 |
| | 9,844 |
|
Accrued expenses and other liabilities | 8,683 |
| | 8,895 |
|
Accounts payable and other liabilities | $ | 79,845 |
| | $ | 63,678 |
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7—Noncontrolling Interests
Note 9—
Mezzanine Equity Component
Mezzanine equity in the consolidated balance sheets is comprised of the following:
Series A Preferred Stock
Stock.Brookfield DTLA is authorized to issue up to 10,000,000 shares of Series A preferred stock, $0.01 par value per share, with a liquidation preference of $25.00 per share. As of December 31, 20192022 and 2018,2021, 9,730,370 shares of Series A preferred stock were outstanding, of which 9,357,469 shares were issued to third parties and 372,901 shares were issued to DTLA Fund Holding Co., a subsidiary of DTLA Holdings.
No dividends were declared on the Series A preferred stock during the years ended December 31, 2019, 2018 and 2017. Dividends on the Series A preferred stock are cumulative, and therefore, will continue to accrue at an annual rate of $1.90625 per share.
Preferred Interest.The Series A preferred stock does not have a stated maturity andinterest in Fund II is not subjectindirectly held by the Company through wholly-owned subsidiaries (subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series Acertain REIT accommodation preferred stock will rank senior to our common stock with respect to the payment of distributions. We may, at our option, redeem the Series A preferred stock, in whole or in part, for cash at a redemption price of $25.00 per share, plus all accumulated and unpaid dividends on such Series A preferred stock up to and including the redemption date. The Series A preferred stock is not convertible into or exchangeable for any other property or securities of Brookfield DTLA.interests).
As of December 31, 2019, the Series A preferred stock is reported at its redemption value of $428.5 million calculated using the redemption price of $25.00 per share plus $185.2 million of accumulated and unpaid dividends on such Series A preferred stock through December 31, 2019.
Series A-1 Preferred Interest
Interest.The Series A-1 preferred interest is held by DTLA Holdings or wholly ownedwholly-owned subsidiaries of DTLA Holdings. Interest on the Series A-1 preferred interest is cumulative and accrues at an annual rate of 7.625%.
The Series A-1 preferred interest has mirror rights to the Series A preferred interests issued by New OP, which are held by a wholly owned subsidiary of Brookfield DTLA. Distributions will be made 47.66% to the common component of the Series A interest and 52.34% to the common component of the Series B interest, which is held by DTLA Holdings. The economic terms of the Series A preferred stock mirror those of the New OP Series A preferred interests, including distributions in respect of the preferred liquidation preference.
As of December 31, 2019, the Series A-1 preferred interest is reported at its redemption value of $418.0 million calculated using its liquidation value of $225.7 million plus $192.3 million of unpaid interest on such Series A-1 preferred interest through December 31, 2019.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Senior Participating Preferred Interest
Interest.Brookfield DTLA Fund Properties III LLC (“Fund III”), a wholly-owned subsidiary of DTLA OP”)Holdings, issued a senior participating preferred interest to DTLA Holdings in connection with the formation of Brookfield DTLA and the MPG acquisition. The senior participating preferred interest represents a 4.0% participating interest in the residual value of DTLA OP.
As of December 31, 2019, the senior participating preferred interest is reported at its redemption value of $22.4 million using the value of the participating interest.
Series B Preferred Interest
Interest.At the time of the merger with MPG, DTLA Holdings made a commitment to contribute up to $260.0 million in cash or property to New OP,Fund II, which directly or indirectly owns the Brookfield DTLA properties, for which it will be entitledproperties. Pursuant to receive a market ratethe amendments to the Limited Liability Company Agreement of return determined at the time ofFund II effective November 2020, May 2022 and November 2022, such contribution (“preferred return”). Ascommitment by DTLA Holdings increased by $50.0 million, $40.0 million and $75.0 million, respectively, to $425.0 million. As of December 31, 2019, $44.52022, $88.6 million is available to the Company under this commitment for future funding.
The Series B preferred interest in New OPFund II held by DTLA Holdings is effectively senior to the interest in New OPFund II indirectly held by Brookfield DTLAthe Company and has a priority on distributions senior to the equity securities of such subsidiaries held indirectly by Brookfield DTLAthe Company and, as a result, effectively rank senior to the Series A preferred stock. The Series B preferred interest in New OPFund II may limit the amount of funds available to Brookfield DTLAthe Company for any purpose, including for dividends or other distributions to holders of its capital stock, including the Series A preferred stock.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Series A-1 preferred interest, senior participating preferred interest and Series B preferred interest are held by a noncontrolling interest holder. Series A preferred stock, Series A-1 preferred interest, senior participating preferred interest and Series B preferred interest are classified as mezzanine equity because they are callable, and the holder of the Series A-1 preferred interest, senior participating preferred interest, Series B preferred interest, and some of the Series A preferred stock indirectly controls the ability to elect to redeem such instruments, through its controlling interest in the Company and its subsidiaries. See Note 8—“Mezzanine Equity.”
Stockholders’ Deficit Component
Common interests held by DTLA Holdings are presented as “noncontrolling interests” as part of Stockholders’ Deficit in the consolidated balance sheets.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8—Mezzanine Equity
A summary of the change in mezzanine equity is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares of Series A Preferred Stock | | Series A Preferred Stock | | Noncontrolling Interests | | Total Mezzanine Equity |
| | | | Series A-1 Preferred Interest | | Senior Participating Preferred Interest | | Series B Preferred Interest | |
| | | | | | | | | | | | |
Balance, December 31, 2019 | | 9,730,370 | | | $ | 428,480 | | | $ | 418,029 | | | $ | 22,362 | | | $ | 185,352 | | | $ | 1,054,223 | |
Issuance of Series B preferred interest | | | | | | | | | | 47,850 | | | 47,850 | |
Dividends | | | | 18,548 | | | | | | | | | 18,548 | |
Preferred returns | | | | | | 17,213 | | | | | 17,708 | | | 34,921 | |
Redemption measurement adjustments | | | | | | | | (1,580) | | | | | (1,580) | |
Contributions from noncontrolling interests | | | | | | | | 777 | | | | | 777 | |
Repurchases of noncontrolling interests | | | | | | | | | | (34,218) | | | (34,218) | |
Distributions to noncontrolling interests | | | | | | | | (1,146) | | | (17,865) | | | (19,011) | |
Balance, December 31, 2020 | | 9,730,370 | | | 447,028 | | | 435,242 | | | 20,413 | | | 198,827 | | | 1,101,510 | |
Issuance of Series B preferred interest | | | | | | | | | | 25,500 | | | 25,500 | |
Dividends | | | | 18,549 | | | | | | | | | 18,549 | |
Preferred returns | | | | | | 17,212 | | | | | 16,063 | | | 33,275 | |
Redemption measurement adjustments | | | | | | | | 1,028 | | | | | 1,028 | |
Contributions from noncontrolling interests | | | | | | | | 629 | | | | | 629 | |
Repurchases of noncontrolling interests | | | | | | | | | | (45,306) | | | (45,306) | |
Distributions to noncontrolling interests | | | | | | | | (879) | | | (17,794) | | | (18,673) | |
Balance, December 31, 2021 | | 9,730,370 | | | 465,577 | | | 452,454 | | | 21,191 | | | 177,290 | | | 1,116,512 | |
Issuance of Series B preferred interest | | | | | | | | | | 47,564 | | | 47,564 | |
Dividends | | | | 18,549 | | | | | | | | | 18,549 | |
Preferred returns | | | | | | 17,212 | | | | | 14,432 | | | 31,644 | |
Redemption measurement adjustments | | | | | | | | (8,248) | | | | | (8,248) | |
Contributions from noncontrolling interests | | | | | | | | 288 | | | | | 288 | |
Repurchases of noncontrolling interests | | | | | | | | | | (46,975) | | | (46,975) | |
Distributions to noncontrolling interests | | | | | | | | (1,554) | | | (9,825) | | | (11,379) | |
Balance, December 31, 2022 | | 9,730,370 | | | $ | 484,126 | | | $ | 469,666 | | | $ | 11,677 | | | $ | 182,486 | | | $ | 1,147,955 | |
Series A Preferred Stock
As of December 31, 2022, the Series A preferred stock is reported at its redemption value of $484.1 million calculated using the redemption price of $243.3 million plus $240.9 million of accumulated and unpaid dividends on such Series A preferred stock through December 31, 2022.
No dividends were declared on the Series A preferred stock during the years ended December 31, 2022, 2021 and 2020. Dividends on the Series A preferred stock are cumulative, and therefore, will continue to accrue at an annual rate of $1.90625 per share.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Series A preferred stock does not have a stated maturity and is not subject to any sinking fund or mandatory redemption provisions. We may, at our option, redeem the Series A preferred stock, in whole or in part, for $25.00 per share, plus all accumulated and unpaid dividends on such Series A preferred stock up to and including the redemption date. Other than as required under the “Distribution Waterfall” in this footnote, there is no commitment or obligation on the part of Brookfield DTLA or DTLA Holdings to redeem or make distributions tothe Series A preferred stock. The Series A preferred stock is not convertible into or exchangeable for any other property or securities of Brookfield DTLA.
Noncontrolling Interests
There is no commitment or obligation on the part of Brookfield DTLA or DTLA Holdings to redeem the Preferred Interests.
Series A-1 Preferred Interest
As of December 31, 2019,2022, the Series A-1 preferred interest is reported at its redemption value of $469.7 million calculated using its liquidation value of $225.7 million plus $243.9 million of unpaid interest through December 31, 2022. Interest earned on the Series A-1 preferred interest is cumulative and accrues at an annual rate of 7.625%.
Senior Participating Preferred Interest
As of December 31, 2022, the senior participating preferred interest is reported at its redemption value of $11.7 million using the 4.0% participating interest in the residual value of BOA Plaza, EY Plaza and FIGat7th upon disposition or liquidation.
Series B Preferred Interest
As of December 31, 2022, the Series B preferred interest is reported at its redemption value of $185.4$182.5 million calculated using its liquidation value of $181.0$175.4 million plus $4.4$7.1 million of unpaid preferred returns on such Series B preferred interest through December 31, 2019.
2022. Brookfield DTLA is entitled to receive a market rate of return on its contributions, currently 9.0% as of December 31, 2022.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Distribution Waterfall
Change
Brookfield DTLA may, at its discretion, distribute all or a portion of its available cash (as defined in Mezzanine Equitythe limited liability company agreement of Fund II) in the following priority: (1)
| | | | | | | | |
First to: | Series B preferred interest unpaid preferred return | | | |
Second to: | Series B preferred interest unreturned preferred capital | | | |
| | | | |
Third, proportionally in respect of unpaid preferred return to: | | | | |
| Series A preferred interest unpaid preferred return (2) | | | |
| Series A-1 preferred interest unpaid preferred return (3) | | | |
| | | | |
Fourth, proportionally in respect of unreturned capital to: (2) (4) | | | | |
| Series A preferred interest unreturned capital | | | |
| Series A-1 preferred interest unreturned capital (3) | | | |
| | | | |
And fifth to: | Common interests to Brookfield DTLA and DTLA Holdings (5) | | | |
A summary__________
(1)Cash available to Fund II arises from its interests in its investments. Fund II owns indirectly all of the changeinterests in mezzanine equityGas Company Tower, Wells Fargo Center–South Tower, Wells Fargo Center–North Tower, 777 Tower and an interest in the 755 South Figueroa development site which will decrease as capital is called to fund the development. See Note 1 “Organization and Description of Business”. In addition, Fund II owns 96% indirectly of the interests in EY Plaza, FIGat7th and BOA Plaza (the “Fund III Assets”). DTLA Holdings owns the remaining 4% interest in the Fund III Assets. The amounts due to DTLA Holdings on the senior participating preferred interest for its preferred return and unreturned capital in Fund III were fully paid as follows (in thousands, except share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares of Series A Preferred Stock | | Series A Preferred Stock | | Noncontrolling Interests | | Total Mezzanine Equity |
| | | | Series A-1 Preferred Interest | | Senior Participating Preferred Interest | | Series B Preferred Interest | |
| | | | | | | | | | | | |
Balance, December 31, 2016 | | 9,730,370 |
| | $ | 372,852 |
| | $ | 366,297 |
| | $ | 25,019 |
| | $ | 65,364 |
| | $ | 829,532 |
|
Issuance of Series B preferred interest | | | | | | | | | | 111,492 |
| | 111,492 |
|
Dividends | | | | 18,548 |
| | | | | | | | 18,548 |
|
Preferred returns | | | | | | 17,213 |
| | | | 13,435 |
| | 30,648 |
|
Redemption measurement adjustments | | | | | | | | 479 |
| | | | 479 |
|
Contributions from noncontrolling interests | | | | | | | | 520 |
| | | | 520 |
|
Distributions to noncontrolling interests | | | | | | | | (470 | ) | | — |
| | (470 | ) |
Balance, December 31, 2017 | | 9,730,370 |
| | 391,400 |
| | 383,510 |
| | 25,548 |
| | 190,291 |
| | 990,749 |
|
Issuance of Series B preferred interest | | | | | | | | | | — |
| | — |
|
Dividends | | | | 18,532 |
| | | | | | | | 18,532 |
|
Preferred returns | | | | | | 17,306 |
| | | | 17,961 |
| | 35,267 |
|
Redemption measurement adjustments | | | | | | | | 1,482 |
| | | | 1,482 |
|
Contributions from noncontrolling interests | | | | | | | | — |
| | | | — |
|
Distributions to noncontrolling interests | | | | | | | | (3,587 | ) | | (26,554 | ) | | (30,141 | ) |
Balance, December 31, 2018 | | 9,730,370 |
| | 409,932 |
| | 400,816 |
| | 23,443 |
| | 181,698 |
| | 1,015,889 |
|
Issuance of Series B preferred interest | | | | | | | | | | 40,700 |
| | 40,700 |
|
Dividends | | | | 18,548 |
| | | | | | | | 18,548 |
|
Preferred returns | | | | | | 17,213 |
| | | | 18,049 |
| | 35,262 |
|
Redemption measurement adjustments | | | | | | | | (1,017 | ) | | | | (1,017 | ) |
Contributions from noncontrolling interests | | | | | | | | 538 |
| | | | 538 |
|
Repurchases of noncontrolling interests | | | | | | | | | | (34,521 | ) | | (34,521 | ) |
Distributions to noncontrolling interests | | | | | | | | (602 | ) | | (20,574 | ) | | (21,176 | ) |
Balance, December 31, 2019 | | 9,730,370 |
| | $ | 428,480 |
| | $ | 418,029 |
| | $ | 22,362 |
| | $ | 185,352 |
| | $ | 1,054,223 |
|
During the year endedof December 31, 2019,2015. All of Fund II’s interests in these assets are subject to certain REIT accommodation preferred interests. This waterfall may be effected by future equity issuances in respect of Fund II, Fund III, Fund IV, or their subsidiaries, and are subject to all of the Company usedindebtedness of the cash received fromentities.
(2)The Fund II Series A preferred interest is comprised of two parts, one is a preferred component with the issuanceanalogous economic terms as the Company’s Series A Preferred Stock and a common component, which is junior to the preferred component of the Series A interest on analogous terms to the relationship between the Company’s Series A Preferred Stock and Common Stock. The Series A preferred interest is junior to the Fund II Series B preferred interest. See Note 7 “Noncontrolling Interests — Series B Preferred Interest”. Amounts paid in respect of the Fund II’s Series A preferred interest for capital expenditures and leasing costs while during the year ended December 31, 2017,are generally available upon distribution to the Company used the cash received to pay for costs associated with the refinancingfurther distribution in respect of the Wells Fargo Center–North Tower mortgage loan, includingCompany’s Series A Preferred Stock, and, when and if distributed in respect of the Series A Preferred Stock, will be distributed first to accumulated and unpaid dividends and to reduce its unreturned liquidation capital. (3)DTLA Holdings in its capacity as the holder of the Series A-1 preferred interest can waive receipt of distributions that would otherwise be made to it in respect of the Series A-1 preferred interest and such amounts shall be paid instead to the Series A preferred interest or as otherwise provided by the subsequent provisions of the waterfall. Any amounts waived by DTLA Holdings shall not reduce the Series A-1 unpaid preferred return or unreturned capital.
(4)Applicable if distribution is (a) in connection with a principal paydownliquidating event or redemption or (b) at the election of Brookfield DTLA.
(5)Based on the interests of the Series A and transaction costs, and for general corporate purposes. Contributions from noncontrollingSeries B interests were used for general corporate purposes. All distributionsof the Fund after repayment of the preferred capital portion of each of them, until the Senior A junior unreturned liquidation capital is reduced to and repurchases of noncontrolling interests were made using cash on hand.zero.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10—9—Stockholders’ Deficit
Common Stock
Brookfield DTLA is authorized to issue up to 1,000,000 shares of common stock, $0.01 par value per share. As of December 31, 20192022 and 2018,2021, 1,000 shares of common stock were issued and outstanding.outstanding. No dividends were declared on the Company’s common stock during the years ended December 31, 2019, 20182022, 2021 and 2017.2020.
Brookfield DTLA has not paid any cash dividends on its common stock in the past. Any future dividends declared would be at the discretion of Brookfield DTLA’s board of directors and would depend on its financial condition, results of operations, contractual obligations and the terms of its financing agreements at the time a dividend is considered, and other relevant factors.
Additional Paid-in Capital
During the years ended December 31, 20192022, 2021 and 2018,2020, Brookfield DTLA receivedrecorded contributions to additional paid-in capital totaling $1.7$1.0 million, $1.0 million and $1.6$4.8 million, respectively, from DTLA Holdings, which were used for general corporate purposes.
Note 11—Noncontrolling Interests
Mezzanine Equity Component
The Series A-1 preferred interest, senior participating preferred interest and Series B preferred interest consist of equity interests of New OP, DTLA OP and New OP, respectively, which are owned directly by DTLA Holdings. These noncontrolling interests are presented as mezzanine equity in the consolidated balance sheet. See Note 9—“Mezzanine Equity.”
Stockholders’ Deficit Component
The Series B common interest ranks junior to the Series A preferred stock as to dividends and upon liquidation and is presented in the consolidated balance sheet as noncontrolling interest.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 12—10—Accumulated Other Comprehensive Loss
A summary of the change in accumulated other comprehensive loss related to Brookfield DTLA’s derivative financial instruments designated as cash flow hedges is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Balance at beginning of year | $ | — | | | $ | — | | | $ | (2,341) | |
Net unrealized gains arising during the year | — | | | — | | | 562 | |
Reclassification of losses related to terminated interest rate swaps to other expenses included in net income | — | | | — | | | 1,779 | |
Net changes | — | | | — | | | 2,341 | |
Balance at end of year | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Balance at beginning of year | $ | (224 | ) | | $ | (574 | ) | | $ | (3,373 | ) |
Other comprehensive (loss) income before reclassifications | (2,117 | ) | | 1,548 |
| | 2,799 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | (1,198 | ) | | — |
|
Net current-year other comprehensive (loss) income | (2,117 | ) | | 350 |
| | 2,799 |
|
Balance at end of year | $ | (2,341 | ) | | $ | (224 | ) | | $ | (574 | ) |
Note 13—Fair Value Measurements
Brookfield DTLA’s (liabilities) assets measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, are as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements Using |
| | Total Fair Value | | Quoted Prices in Active Markets for Identical (Liabilities) Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Interest rate swaps at: | | | | | | | | |
December 31, 2019 | | $ | (1,143 | ) | | $ | — |
| | $ | (1,143 | ) | | $ | — |
|
December 31, 2018 | | 974 |
| | — |
| | 974 |
| | — |
|
December 31, 2017 | | (574 | ) | | — |
| | (574 | ) | | — |
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14—11—Financial Instruments
Derivative Financial Instruments
The following table presents the interest rate cap contracts pursuant to the terms of certain of its loan agreements as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional Amount | | Strike Rate (1) | | | | | | | Expiration Date |
| | | | | | | | | | | |
Interest Rate Caps: | | | | | | | | | | | |
Wells Fargo Center–North Tower | | $ | 400,000 | | | 3.40 | % | (1) | | | | | | 10/15/2023 |
Wells Fargo Center–North Tower | | 65,000 | | | 3.40 | % | (1) | | | | | | 10/15/2023 |
Wells Fargo Center–North Tower | | 35,000 | | | 3.40 | % | (1) | | | | | | 10/15/2023 |
Wells Fargo Center–South Tower | | 263,219 | | | 2.87 | % | (1) | | | | | | 11/4/2023 |
EY Plaza | | 275,000 | | | 6.02 | % | (2) | | | | | | 10/15/2023 |
EY Plaza | | 30,000 | | | 6.02 | % | (2) | | | | | | 10/15/2023 |
Gas Company Tower (3) | | 350,000 | | | 4.00 | % | (2) | | | | | | 2/15/2023 |
Gas Company Tower (3) | | 65,000 | | | 4.00 | % | (2) | | | | | | 2/15/2023 |
Gas Company Tower (3) | | 50,000 | | | 4.00 | % | (2) | | | | | | 2/15/2023 |
Total derivatives not designated as cash flow hedging instruments | | $ | 1,533,219 | | | | | | | | | | |
__________
(1)The index used for these derivative financial instruments is 1-Month SOFR.
(2)The index used for these derivative financial instruments is 1-Month LIBOR.
(3)As of the issuance date of this Annual Report, debt secured by Gas Company Tower is in maturity default, and the related interest rate cap contracts expired. See Note 18 “Subsequent Event” for details.
A summary of the fair value of Brookfield DTLA’s derivative financial instruments is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value as of December 31, |
| | Balance Sheet Location | | 2022 | | 2021 |
| | | | |
Derivatives not designated as hedging instruments: Interest rate caps | | Prepaid and other assets, net | | $ | 10,262 | | | $ | 46 | |
| | | | | | |
|
| | | | | | | |
| Fair Value as of December 31, |
| 2019 | | 2018 |
Derivatives designated as hedging instruments: | | | |
Interest rate swap assets | $ | — |
| | $ | 974 |
|
Interest rate swap liabilities | (1,143 | ) | | — |
|
A summary of the effect of derivative financial instruments reported in the consolidated financial statements is as follows (in thousands):
|
| | | | | | | |
| Amount of (Loss) Gain Recognized in AOCL | | Amount of Gain Reclassified from AOCL to Statement of Operations |
Derivatives designated as hedging instruments: | | | |
Interest rate swaps for the years ended: | | | |
December 31, 2019 | $ | (2,117 | ) | | $ | — |
|
December 31, 2018 | 1,548 |
| | 1,198 |
|
December 31, 2017 | 2,799 |
| | — |
|
The gain reclassified from accumulated other comprehensive loss during the year ended December 31, 2018 is included as part of interest and other revenue in the consolidated statement of operations.
Interest Rate Swaps—
As of December 31, 2019, Brookfield DTLA held the following interest rate swap contracts pursuant to the terms of the EY Plaza mortgage loan agreement (in thousands, except percentages and dates):
|
| | | | | | | | | | | | | | | |
| | Notional Amount | | Swap Rate | | LIBOR Spread | | Effective Interest Rate | | Expiration Date |
| | | | | | | | | | |
Interest rate swap | | $ | 168,151 |
| | 2.18 | % | | 1.65 | % | | 3.83 | % | | 11/2/2020 |
Interest rate swap | | 54,206 |
| | 2.47 | % | | 1.65 | % | | 4.12 | % | | 11/2/2020 |
| | $ | 222,357 |
| | 2.28 | % | | 1.65 | % | | 3.88 | % | | |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the gain recorded on interest rate swaps for the year ended December 31, 2020:
Interest Rate Caps— | | | | | | | | | | | | | | | | | | |
| Gain Recognized in OCL | | Loss Reclassified from AOCL to Consolidated Statements of Operations | | | | | |
| | | | | | | | |
Derivatives designated as cash flow hedging instruments: | | | | | | | | |
For the year ended: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
December 31, 2020 | $ | 562 | | | $ | (1,779) | | (1) | | | | |
__________
Brookfield DTLA holds(1)Included in other expenses in the consolidated statements of operations.
In September 2020, in conjunction with the extinguishment of our loans that previously encumbered EY Plaza, the Company terminated the related LIBOR-based interest rate swap contracts.
Unrealized (loss) gain on interest rate cap contracts pursuantrecognized in the consolidated statements of operations during the years ended December 31, 2022, 2021 and 2020 were $(1,832) thousand, $41 thousand and $(127) thousand, respectively.
Other Financial Instruments
Brookfield DTLA’s other financial instruments that are exposed to concentrations of credit risk consist primarily of bank deposits and rents receivable. Brookfield DTLA places its bank deposits with major commercial banks. Cash balances with any one institution may at times be in excess of the Federal Deposit Insurance Corporation-insured limit of $250,000.
Note 12—Fair Value Measurements and Disclosures
ASC Topic 820, Fair Value Measurement, defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”).
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASC Topic 820 established a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three categories:
| | | | | | | | | | | |
• | Level 1— | | Quoted prices (unadjusted) in active markets that are accessible at the measurement date. |
• | Level 2— | | Observable prices that are based on inputs not quoted in active markets but corroborated by market data. |
• | Level 3— | | Unobservable prices that are used when little or no market data is available. |
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Brookfield DTLA utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, as well as consider counterparty credit risk in its assessment of fair value.
Recurring Measurements—
The fair value of Brookfield DTLA’s interest rate swap contracts was determined using widely accepted valuation techniques, including discounted cash flow analyses on the expected cash flows of the derivatives. These analyses reflect the contractual terms of certainthe derivatives, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The Company has incorporated credit valuation adjustments to appropriately reflect both our and the respective counterparty’s non‑performance risk in the fair value measurements. The interest rate swap contracts were terminated in September 2020. See Note 11 “Financial Instruments.”
The fair value of its debt agreements with the following notional amounts (in thousands):
|
| | | | | | | |
| As of December 31, |
| 2019 | | 2018 |
| | | |
Wells Fargo Center–North Tower | $ | 400,000 |
| | $ | 400,000 |
|
Wells Fargo Center–North Tower | 65,000 |
| | 65,000 |
|
Wells Fargo Center–North Tower | 35,000 |
| | 35,000 |
|
Wells Fargo Center–South Tower | 290,000 |
| | 290,000 |
|
777 Tower | 268,600 |
| | 220,000 |
|
777 Tower | 50,000 |
| | — |
|
EY Plaza | 35,000 |
| | 35,000 |
|
| $ | 1,143,600 |
| | $ | 1,045,000 |
|
As required by the 777 Tower mortgage and mezzanine loan agreements, on October 31, 2019 the Company entered into interest rate cap contracts with notional amounts totaling $318.6 million that limitwas $10,262 thousand and $46 thousand as of December 31, 2022 and 2021, respectively. The Company classified them as Level 2 in the LIBOR portion of the interest rate to 4.00%. The contracts expire on November 10, 2021.fair value hierarchy.
Other Financial InstrumentsNonrecurring Measurements—
As of December 31, 20192022, assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consisted of real estate assets and 2018,their associated intangible assets that have been written down to estimated fair value for impairment losses. Such impairment losses of $112.1 million were related to Wells Fargo Center — South Tower. In comparison, as of December 31, 2021, the Company did not have any assets or liabilities that are measured at fair value on a nonrecurring basis. Refer to Note 2—“Basis of Presentation and Summary of Significant Accounting Policies—Impairment Review” for further discussion.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company uses the discounted cash flow method to assess the fair value of investments in real estate, including Wells Fargo Center — South Tower. All inputs used to value investments in real estate fall within Level 3 of the fair value hierarchy. Even if observable market data is available, such inputs are considered Level 3 if any significant data point used in the valuation process is not observable. When estimating the fair value of our investments in real estate, we assessed the expected undiscounted cash flows based upon numerous factors. These factors include, but are not limited to, available market information, known trends, current market/economic conditions that may affect the asset, and historical and forecasted financial and operating information relating to the property, such as net operating income, leasing activity statistics, vacancy projections, renewal percentage, and rent collection rates. Fair value is primarily determined by 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. The measurement of the fair value of the Company's investment is impacted by the discount rate and terminal capitalization rate utilized in the discounted cash flows model which are significant unobservable inputs. As of December 31, 2022, the discount and terminal capitalization rates used in the discounted cash flows model of Wells Fargo Center — South Tower, which was measured at fair value on a nonrecurring basis, were 9.3% and 5.8%, respectively.
The following table presents the carrying amounts of assets that were still held and had fair value adjustments measured on a nonrecurring basis as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
Investments in Real Estate Assets | | $ | 311,066 | | | $ | — | | | $ | — | | | $ | 311,066 | |
Disclosures about Fair Value of Financial Instruments—
Secured debt — The Company estimates the fair value of its debt by calculating the credit-adjusted present value of principal and interest payments for each loan. The calculation incorporates observable market interest rates (Level 2 inputs), assumes that each loan will be outstanding until maturity, and excludes any options to extend the maturity date of the loan available per the terms of the loan agreement, if any. The table below presents the estimated fair value and carrying value of the Company’s secured debt included in liabilities:
| | | | | | | | | | | | | | |
| | As of December 31, |
| | 2022 | | 2021 |
| | | |
Fair Value | | $ | 2,265,201 | | | $ | 2,263,160 | |
Carrying value | | $ | 2,279,573 | | | $ | 2,530,921 | |
Other financial instruments — As of December 31, 2022 and 2021, the carrying values of cash and cash equivalents, restricted cash, tenant and other receivables, other assets, accounts payable and other liabilities, and amounts due from or tobalances with affiliates approximate fair value.value because of the short-term nature of these instruments.
The estimated fair value and carrying amount of Brookfield DTLA’s secured debt is as follows (in thousands):
|
| | | | | | | |
| As of December 31, |
| 2019 | | 2018 |
| | | |
Estimated fair value | $ | 2,210,389 |
| | $ | 2,142,813 |
|
Carrying amount | 2,209,296 |
| | 2,151,686 |
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15—13—Related Party Transactions
Management Agreements
Certain subsidiaries of Brookfield DTLA have entered into arrangements with the Manager, pursuant to which the Manager provides property management and various other services. Property managementThe following table presents the basis of fees under the management agreements entered into in connection with these arrangements are calculated based on 2.75% of rents collected (as defined in the management agreements). In addition, the Company pays an asset management fee to BPY and BAM, which is calculated based on 0.75% of the capital invested by DTLA Holdings in Brookfield DTLA’s properties. Leasing management fees paid to the Manager range from 1.00% to 4.00% of expected rents, depending on the terms of the lease and whether a third-party broker was paid a commission for the transaction. Construction management fees are paid to the Manager based on 3.00% of hard and soft construction costs. Development management fees are paidincurred to the Manager and Brookfield affiliates byduring the unconsolidated real estate joint venture based on 3.00% of hardyears ended December 31, 2022, 2021 and soft construction costs.2020:
| | | | | | | | | | | | |
Fee Type | Affiliate | Fee Description | | | | |
Property management | The Manager | 2.75% of rents collected (as defined in the management agreements) | | | | |
Asset management | BPY and Brookfield Corporation | 0.75% of DTLA Holdings’ invested equity in Brookfield DTLA’s properties | | | | |
Leasing | The Manager and Brookfield affiliates | 1.00% to 4.00% of expected rents, depending on the terms of the lease and whether a third-party broker was paid a commission for the transaction | | | | |
Construction management | The Manager | 3.00% of hard and soft construction costs | | | | |
Development management | Affiliate of the Manager | 3.00% of hard and soft construction costs | | | | |
Entitlement | Affiliate of the Manager | 20.00% of the entitlement costs incurred by BOA Plaza, if the entitlement budget is less than $3,000,000 | | | | |
A summary of fees and costs incurred by the applicable Brookfield DTLA subsidiaries under these arrangements is as follows (in thousands):follows:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Property management fee expense | $ | 8,479 |
| | $ | 8,111 |
| | $ | 8,136 |
|
Asset management fee expense | 6,161 |
| | 6,330 |
| | 6,330 |
|
Leasing and construction management fees | 5,051 |
| | 3,209 |
| | 5,198 |
|
Development management fees (1) | 991 |
| | — |
| | — |
|
General, administrative and reimbursable expenses | 2,865 |
| | 3,007 |
| | 2,613 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Property management | $ | 8,045 | | | $ | 8,037 | | | $ | 8,035 | |
Asset management (2) | $ | 6,346 | | | $ | 6,166 | | | $ | 6,040 | |
Leasing | $ | 1,549 | | | $ | 1,607 | | | $ | 2,105 | |
Construction management | $ | 1,148 | | | $ | 400 | | | $ | 3,239 | |
Development management (1) | $ | 1,230 | | | $ | 1,881 | | | $ | 1,007 | |
Entitlement | $ | 111 | | | $ | 639 | | | $ | — | |
General, administrative and reimbursable expenses | $ | 3,904 | | | $ | 2,807 | | | $ | 2,492 | |
__________
| |
(1) | Amount presented is calculated by applying the Company’s ownership interest percentage in the unconsolidated real estate joint venture as of period end to the amounts capitalized during the period. Amounts capitalized prior to May 31, 2019 (the date our wholly‑owned interests in the Property Owner were transferred to the joint venture) are reported at 100%. |
(1)Amounts presented are calculated by applying the Company’s ownership interest percentage in the unconsolidated real estate joint venture as of year end to the costs incurred during the year.
(2)As of December 31, 2022 and 2021, asset management fee payables totaled $3.2 million and $0.0 million, respectively.
Expenses incurred under these arrangements are included in rental property operating and maintenance expense in the consolidated statementstatements of operations, with the exception of asset management fee expense which is included in other expense.expenses. Leasing management fees are capitalized as deferred charges, while construction management and entitlement fees are capitalized as part of investments in real estate, and development management fees are capitalized and included in the investment in unconsolidated real estate joint venture in the consolidated balance sheet.
sheets.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Insurance Agreements
Properties held by certain Brookfield DTLA subsidiaries and affiliates are covered under insurance policies entered into by the Manager that provide, among other things, all risk property and business interruption coverage for BPY’s commercial portfolio with ana portfolio shared aggregate limit of $2.5 billion per occurrence as well as an aggregate limit of $437.5$500.0 million of earthquake insurance for California, and $372.5$350.0 million of flood and weather catastrophe insurance. In addition, Brookfield DTLA’s properties are covered by a terrorism insurance policy that provides a maximum of $4.0 billion per occurrence for all of BPY’s U.S. properties.properties located in the United States. Brookfield DTLA is in compliance with the contractual obligations regarding terrorism insurance contained in such policies. Insurance premiums for Brookfield DTLA’s properties are paid by the Manager. Brookfield DTLA reimburses the Manager for the amount of fees and expenses related to such policies that have been allocated to the Company’s properties as determined by the Manager in its reasonable discretion taking into consideration certain facts and circumstances, including the value of the Company’s properties.
A summary of costs incurred by the applicable Brookfield DTLA subsidiaries and affiliates under this arrangement, which are included in rental property operating and maintenance expense in the consolidated statementstatements of operations, is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Insurance expense (1) | $ | 12,905 | | | $ | 12,473 | | | $ | 11,836 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Insurance expense | $ | 9,286 |
| | $ | 8,026 |
| | $ | 7,795 |
|
(1)An affiliate of Brookfield Corporation secures insurance policies for the Company through third-party brokers and insurance companies and charges the Company a fee for the services it provides. Fees charged vary but will not exceed 2.50% of the total net insurance premiums of the Company and its covered properties. Effective November 1, 2021, this affiliate of Brookfield Corporation ceased charging such fee. Fees incurred for these services totaled $244 thousand and $282 thousand during the years ended December 31, 2021 and 2020, respectively. Additionally, the Company’s terrorism insurance coverage is purchased through a captive facility that is an affiliate of BPY. Insurance premiums incurred totaled $127 thousand, $129 thousand and $149 thousand during the years ended December 31, 2022, 2021 and 2020, respectively.
Other Related Party Transactions with BAMBrookfield Corporation Affiliates
A summary of the impact of other related party transactions with BAMBrookfield Corporation affiliates on the Company’s consolidated statementstatements of operations is as follows (in thousands):follows:
| | | | | | | | | | For the Year Ended December 31, |
| For the Year Ended December 31, | | 2022 | | 2021 | | 2020 |
| 2019 | | 2018 | | 2017 | | | | | | |
| | | | | | |
Lease income | $ | 5,916 |
| | $ | 1,928 |
| | $ | — |
| |
Lease income (1) | | Lease income (1) | $ | 14,315 | | | $ | 13,343 | | | $ | 11,443 | |
Parking revenue (1) | | Parking revenue (1) | $ | 988 | | | $ | 1,001 | | | $ | 1,317 | |
Interest and other revenue | 208 |
| | — |
| | — |
| Interest and other revenue | $ | — | | | $ | — | | | $ | 51 | |
Rental property operating and maintenance expense (1)(2) | 676 |
|
| 862 |
|
| 579 |
| $ | — | | | $ | 318 | | | $ | 577 | |
Other expense | 142 |
| | — |
| | — |
| |
Other expenses | | Other expenses | $ | — | | | $ | — | | | $ | 90 | |
Interest expense (2)(4) | 613 |
| | — |
| | — |
| $ | 3,087 | | | $ | 2,201 | | | $ | 1,982 | |
__________
| |
(1) | Amounts presented are for purchases of chilled water for air conditioning at one of the Company’s properties. |
| |
(2) | On September 30, 2019, BAM acquired a significant interest in Oaktree Capital Management, L.P., whose subsidiary is the lender of the $35.0 million mezzanine loan due from Wells Fargo Center–North Tower. Interest payable to the lender totals $112 thousand and is presented as part of accounts payable and other liabilities in the consolidated balance sheet as of December 31, 2019. See Note 7—“Secured Debt, Net.” |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1)In September 2019, Brookfield Corporation acquired a significant interest in Oaktree Capital Group, LLC (“Oaktree”), an existing tenant at Wells Fargo Center–North Tower. Lease income and parking revenue from Oaktree and its subsidiaries have been reported as related party transactions since the date of acquisition by Brookfield Corporation.
(2)Amounts presented are for purchases of chilled water for air conditioning at one of the Company’s properties supplied by an affiliate of Brookfield Corporation. In July 2021, such supplier was acquired by third parties.
(3)A subsidiary of Oaktree is the lender of the $35.0 million mezzanine loan secured by Wells Fargo Center–North Tower. Interest payable to the lender totaled $146 thousand and $84 thousand as of December 31, 2022 and 2021, respectively, and is reported as part of accounts payable and other liabilities in the consolidated balance sheets. See Note 5—“Secured Debt, Net.” Interest expense on this loan has been reported as a related party transaction since the date of acquisition by Brookfield Corporation. (4)In February 2021, Brookfield Corporation purchased $18.2 million of commercial mortgage-backed securities (“CMBS”) secured by the Gas Company Tower loans in the open market. The CMBS are payable in monthly installments over a two-year period at a floating interest rate of one-month LIBOR + 2.35%. The transaction was conducted on an arm’s length basis at fair market value. In September 2021, this CMBS was sold to Brookfield Corporation Reinsurance Ltd., an affiliate of Brookfield Corporation. During the years ended December 31, 2022 and 2021, the Company incurred interest expense of $712 thousand and $391 thousand, respectively, on this CMBS to Brookfield Corporation.
The Manager or its affiliates may incur certain out-of-pocket expenses on behalf of the Company and pass through such expenses at cost to the Company.
Note 16—14—Future Minimum Base Rents
Brookfield DTLA’s properties are leasedDTLA leases space to tenants primarily under netnon-cancelable operating leases with initial expiration dates ranging from 2020 to 2035. Asthat generally contain provisions for payment of December 31, 2019,base rent plus reimbursement of certain operating expenses. The table below presents the undiscounted cash flows for future minimum base rents to be received from tenants under executed noncancelable operatingnon-cancelable office and retail leases for future periods are as follows (in thousands):
|
| | | |
2020 | $ | 164,816 |
|
2021 | 165,161 |
|
2022 | 152,236 |
|
2023 | 139,245 |
|
2024 | 121,143 |
|
Thereafter | 634,167 |
|
| $ | 1,376,768 |
|
The amounts shown in the table above do not include percentage rents. The Company recorded percentage rents totaling $0.8 million, $2.0 million and $3.1 million as part of lease income in the consolidated statements of operations during the years ended December 31, 2019, 2018 and 2017, respectively.2022:
| | | | | |
2023 | $ | 151,283 | |
2024 | 144,415 | |
2025 | 131,058 | |
2026 | 115,960 | |
2027 | 88,806 | |
Thereafter | 471,023 | |
Total future minimum base rents | $ | 1,102,545 | |
Note 17—15—Commitments and Contingencies
Concentration of Tenant Credit Risk
Brookfield DTLA generally does not require collateral or other security from its tenants, other than security deposits or letters of credit. Our credit risk is mitigated by the high quality of our existing tenant base, review of prospective tenants’ risk profiles prior to lease execution, and frequent monitoring of our tenant portfolio to identify problem tenants. However, since we have a significant concentration of lease income from certain tenants, the inability of those tenants to make payments under their leases could have a material adverse effect on our results of operations, cash flows or financial condition.
A significant portion of Brookfield DTLA’s lease income is generated by a small number of tenants. No tenant accounted for more than 10% of our consolidated lease income during the years ended December 31, 2019, 2018 and 2017.
Concentration of Property Revenue Risk
During the years ended December 31, 2019, 2018 and 2017, BOA Plaza, Wells Fargo Center–North Tower, Wells Fargo Center–South Tower, Gas Company Tower, EY Plaza and 777 Tower each contributed more than 10% of Brookfield DTLA’s consolidated revenue. The revenue generated by these six properties totaled 96%, 98% and 100% of Brookfield DTLA’s consolidated revenue during the years ended December 31, 2019, 2018 and 2017, respectively.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Litigation
Brookfield DTLA and its subsidiaries may be subject to pending legal proceedings and litigation incidental to its business. After consultation with legal counsel, management believes that any liability that may potentially result upon resolution of such matters is not expected to have a material adverse effect on the Company’s business, financial condition or consolidated financial statements as a whole.
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Concentration of Tenant Credit Risk
Credit risk arises from the possibility that tenants may be unable to fulfill their lease commitments. Brookfield DTLA’s properties are typically leased to high credit-rated tenants for lease terms ranging from five to ten years, although we also enter into some shorter or longer-term leases. As our entire portfolio is located in the LACBD, any specific economic changes within that location could affect our tenant base, and by extension, our profitability.
Brookfield DTLA generally does not require collateral or other security from its tenants, other than security deposits or letters of credit. Our credit risk is mitigated by the high quality of our existing tenant base, review of prospective tenants’ risk profiles prior to lease execution, and frequent monitoring of our tenant portfolio to identify problem tenants. However, since we may have a concentration of lease income from certain tenants within the concentration of the professional services sector, the inability of those tenants to make payments under their leases could have a material adverse effect on our results of operations, cash flows or financial condition.
Concentration of Lease Income Risk
During the years ended December 31, 2022, 2021 and 2020, BOA Plaza, Wells Fargo Center–North Tower, Wells Fargo Center–South Tower, Gas Company Tower, EY Plaza and 777 Tower each contributed more than 10% of Brookfield DTLA’s consolidated lease revenue. The revenue generated by these six properties totaled 96%, 95% and 97% of Brookfield DTLA’s consolidated revenue during the years ended December 31, 2022, 2021 and 2020, respectively.
Capital Commitments
As of December 31, 2019,2022, the Company had $35.4$25.4 million in tenant-related commitments, including tenant improvements, tenant inducements and leasing commissions, which are based on executed leases. Additionally, we had $10.3 million in construction-related commitments related to the atrium renovation project at Wells Fargo Center asAs of December 31, 2019.2022, $16.4 million of our tenant-related commitments were expected to be paid in 2023 and $6.7 million in 2024.
Note 18—Quarterly Financial Information (Unaudited)
|
| | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| (In thousands) |
Year Ended December 31, 2019 | | | | | | | |
Total revenue | $ | 76,207 |
| | $ | 79,166 |
| | $ | 79,612 |
| | $ | 82,860 |
|
Total expenses | 89,540 |
| | 90,383 |
| | 90,815 |
| | 96,465 |
|
Total other income (loss) (1) | — |
| | 14,688 |
| | (29 | ) | | 8,038 |
|
Net (loss) income | (13,333 | ) | | 3,471 |
| | (11,232 | ) | | (5,567 | ) |
Net loss (income) attributable to noncontrolling interests: | | | | | | | |
Series A-1 preferred interest returns | 4,303 |
| | 4,303 |
| | 4,303 |
| | 4,304 |
|
Senior participating preferred interest redemption measurement adjustments | (572 | ) | | (179 | ) | | 602 |
| | (868 | ) |
Series B preferred interest returns | 4,091 |
| | 4,591 |
| | 4,966 |
| | 4,401 |
|
Series B common interest – allocation of net loss | 9,925 |
| | 18,659 |
| | 5,260 |
| | 1,337 |
|
Net loss attributable to Brookfield DTLA | (31,080 | ) | | (23,903 | ) | | (26,363 | ) | | (14,741 | ) |
Series A preferred stock dividends | 4,637 |
| | 4,637 |
| | 4,637 |
| | 4,637 |
|
Net loss attributable to common interest holders of Brookfield DTLA | $ | (35,717 | ) | | $ | (28,540 | ) | | $ | (31,000 | ) | | $ | (19,378 | ) |
__________
| |
(1) | In May 2019, Brookfield DTLA Fund Properties II LLC, a wholly-owned subsidiary of Brookfield DTLA, entered into an agreement to contribute and transfer all of its wholly-owned interests in Brookfield DTLA 4050/755 Inc. in exchange for noncontrolling interests in a newly formed joint venture, which resulted in the derecognition of the assets of 755 South Figueroa, a residential development property. As a result of the derecognition of assets, the Company recognized a gain on representing the difference between the amount of consideration measured and allocated to the assets and their carrying amount as part of other income during the Second Quarter of 2019 consolidated statement of operations. The consideration allocated to the assets contributed to the joint venture by New OP increased by $9.8 million during the Fourth Quarter of 2019 as a result of an amendment to the Existing Agreement, and an additional gain was recognized in the consolidated statement of operations as part of other income.
|
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 16—Quarterly Financial Information (Unaudited)
The following is a summary of consolidated financial information on a quarterly basis for 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter |
| First | | Second | | Third | | Fourth |
2022 | | | | | | | |
Total revenue | $ | 72,021 | | | $ | 73,722 | | | $ | 74,531 | | | $ | 75,626 | |
Total expenses | 82,631 | | | 86,611 | | | 191,050 | | | 124,935 | |
Total other income | 213 | | | 378 | | | 395 | | | 244 | |
Net loss | (10,397) | | | (12,511) | | | (116,124) | | | (49,065) | |
Net income (loss) attributable to noncontrolling interests: | | | | | | | |
Series A-1 preferred interest returns | 4,303 | | | 4,303 | | | 4,303 | | | 4,303 | |
Senior participating preferred interest redemption measurement adjustments | (201) | | | 142 | | | (4,016) | | | (4,173) | |
Series B preferred interest returns | 3,750 | | | 3,562 | | | 3,401 | | | 3,719 | |
Series B common interest – allocation of net (loss) income | (3,064) | | | (12,196) | | | 86,545 | | | 16 | |
Net loss attributable to Brookfield DTLA | (15,185) | | | (8,322) | | | (206,357) | | | (52,930) | |
Series A preferred stock dividends | 4,637 | | | 4,637 | | | 4,637 | | | 4,638 | |
Net loss attributable to common interest holders of Brookfield DTLA | $ | (19,822) | | | $ | (12,959) | | | $ | (210,994) | | | $ | (57,568) | |
|
| | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| (In thousands) |
Year Ended December 31, 2018 | | | | | | | |
Total revenue | $ | 75,211 |
| | $ | 84,194 |
| | $ | 77,151 |
| | $ | 79,124 |
|
Total expenses | 84,990 |
| | 89,458 |
| | 91,789 |
| | 94,100 |
|
Net loss | (9,779 | ) | | (5,264 | ) | | (14,638 | ) | | (14,976 | ) |
Net loss (income) attributable to noncontrolling interests: | | | | | | | |
Series A-1 preferred interest returns | 4,303 |
| | 4,303 |
| | 4,303 |
| | 4,397 |
|
Senior participating preferred interest redemption measurement adjustments | 1,657 |
| | 768 |
| | 220 |
| | (1,163 | ) |
Series B preferred interest returns | 3,879 |
| | 3,921 |
| | 3,965 |
| | 6,196 |
|
Series B common interest – allocation of net (loss) income | (12,695 | ) | | (9,889 | ) | | (14,531 | ) | | 65,458 |
|
Net loss attributable to Brookfield DTLA | (6,923 | ) | | (4,367 | ) | | (8,595 | ) | | (89,864 | ) |
Series A preferred stock dividends | 4,637 |
| | 4,637 |
| | 4,637 |
| | 4,621 |
|
Net loss attributable to common interest holders of Brookfield DTLA | $ | (11,560 | ) | | $ | (9,004 | ) | | $ | (13,232 | ) | | $ | (94,485 | ) |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter |
| First | | Second | | Third | | Fourth |
2021 | | | | | | | |
Total revenue | $ | 69,692 | | | $ | 69,210 | | | $ | 68,820 | | | $ | 76,076 | |
Total expenses | 87,625 | | | 82,925 | | | 83,486 | | | 84,070 | |
Total other income | 199 | | | 97 | | | 268 | | | 232 | |
Net loss | (17,734) | | | (13,618) | | | (14,398) | | | (7,762) | |
Net income (loss) attributable to noncontrolling interests: | | | | | | | |
Series A-1 preferred interest returns | 4,303 | | | 4,302 | | | 4,303 | | | 4,304 | |
Senior participating preferred interest redemption measurement adjustments | 601 | | | 299 | | | (325) | | | 453 | |
Series B preferred interest returns | 4,282 | | | 4,146 | | | 3,896 | | | 3,739 | |
Series B common interest – allocation of net income (loss) | 15,204 | | | (6,669) | | | 27,222 | | | (2,563) | |
Net loss attributable to Brookfield DTLA | (42,124) | | | (15,696) | | | (49,494) | | | (13,695) | |
Series A preferred stock dividends | 4,637 | | | 4,638 | | | 4,637 | | | 4,637 | |
Net loss attributable to common interest holders of Brookfield DTLA | $ | (46,761) | | | $ | (20,334) | | | $ | (54,131) | | | $ | (18,332) | |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 19—17—Investments in Real Estate
A summary of information related to Brookfield DTLA’s investments in real estate as of December 31, 20192022 is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Encum- brances | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried at Close of Period | | Accum- ulated Depre- ciation (4) | | Year Acquired or Con- structed (5) |
| Land | | Buildings and Improve- ments | Buildings and Improve- ments | | | Land | | Buildings and Improve- ments (1)(2) | | Total (3) |
Los Angeles, CA | | | | | | | | | | | | | | | | | | | | |
Wells Fargo Center– North Tower 333 S. Grand Avenue | | $ | 500,000 | | | $ | 41,024 | | | $ | 448,562 | | | $ | 167,437 | | | | | $ | 41,024 | | | $ | 615,999 | | | $ | 657,023 | | | $ | 134,932 | | | 2013 A |
BOA Plaza 333 S. Hope Street | | 400,000 | | | 54,163 | | | 342,164 | | | 80,610 | | | | | 54,163 | | | 422,775 | | | 476,938 | | | 132,187 | | | 2006 A |
Wells Fargo Center– South Tower 355 S. Grand Avenue | | 265,447 | | | 21,231 | | | 388,761 | | | (93,353) | | | | (6) | 15,658 | | (6) | 295,408 | | (6) | 311,066 | | | — | | (7) | 2013 A |
Gas Company Tower 525-555 W. Fifth Street | | 465,000 | | | 20,742 | | | 392,650 | | | 76,249 | | | | | 20,742 | | | 468,898 | | | 489,640 | | | 102,965 | | | 2013 A |
EY Plaza 725 S. Figueroa Street | | 305,000 | | | 47,385 | | | 242,108 | | | 97,083 | | | | | 47,385 | | | 339,189 | | | 386,574 | | | 98,129 | | | 2006 A |
777 Tower 777 S. Figueroa Street | | 288,939 | | | 38,010 | | | 293,958 | | | 54,625 | | | | | 38,010 | | | 348,583 | | | 386,593 | | | 67,168 | | | 2013 A |
FIGat7th 735 S. Figueroa Street | | 58,500 | | | — | | | 44,743 | | | 30,244 | | | | | — | | | 74,988 | | | 74,988 | | | 26,001 | | | 2013 C |
| | $ | 2,282,886 | | | $ | 222,555 | | | $ | 2,152,946 | | | $ | 412,895 | | | | | $ | 216,982 | | | $ | 2,565,840 | | | $ | 2,782,822 | | | $ | 561,382 | | | |
__________
(1)Land improvements are combined with building improvements for financial reporting purposes and are carried at cost.
(2)Includes tenant improvements.
(3)The aggregate gross cost of Brookfield DTLA’s investments in real estate for federal income tax purposes approximated $3.0 billion as of December 31, 2022.
(4)Depreciation in the consolidated statements of operations is computed on a straight-line basis over the following estimated useful lives: buildings (60 years), building improvements (ranging from 5 years to 25 years), and tenant improvements (the shorter of the useful life or the applicable lease term).
(5)Year represents either the year the property was acquired by the Company (“A”) or the year the property was placed in service by the Company after construction was completed (“C”).
(6)Includes reductions in costs of $187.8 million and $5.6 million related to Wells Fargo Center — South Tower’s buildings and improvements, and land, respectively, during the year ended December 31, 2022, due to impairment. See the table below for the cost rollforward of Brookfield DTLA’s investments in real estate.
(7)Includes reductions in accumulated depreciation of $82.3 million related to Wells Fargo Center — South Tower’s buildings and improvements during the year ended December 31, 2022 due to impairment. See the table below for the accumulated deprecation rollforward of Brookfield DTLA’s investments in real estate.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Encum- brances | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried at Close of Period | | Accum- ulated Depre- ciation (3) | | Year Acquired or Con- structed (4) |
| Land | | Buildings and Improve- ments | Improve- ments | | Carrying Costs | Land | | Buildings and Improve- ments (1) | | Total (2) |
Los Angeles, CA | | | | | | | | | | | | | | | | | | | | |
Wells Fargo Center– North Tower 333 S. Grand Avenue | | $ | 500,000 |
| | $ | 41,024 |
| | $ | 455,741 |
| | $ | 125,794 |
| | $ | — |
| | $ | 41,024 |
| | $ | 581,535 |
| | $ | 622,559 |
| | $ | 89,600 |
| | 2013 A |
BOA Plaza 333 S. Hope Street | | 400,000 |
| | 54,163 |
| | 343,976 |
| | 78,322 |
| | — |
| | 54,163 |
| | 422,298 |
| | 476,461 |
| | 103,525 |
| | 2006 A |
Wells Fargo Center– South Tower 355 S. Grand Avenue | | 260,796 |
| | 21,231 |
| | 398,238 |
| | 75,237 |
| | — |
| | 21,231 |
| | 473,475 |
| | 494,706 |
| | 59,288 |
| | 2013 A |
Gas Company Tower 525-555 W. Fifth Street | | 450,000 |
| | 20,742 |
| | 394,378 |
| | 77,489 |
| | — |
| | 20,742 |
| | 471,867 |
| | 492,609 |
| | 63,914 |
| | 2013 A |
EY Plaza 725 S. Figueroa Street | | 265,000 |
| | 47,385 |
| | 242,557 |
| | 97,124 |
| | — |
| | 47,385 |
| | 339,681 |
| | 387,066 |
| | 87,597 |
| | 2006 A |
777 Tower 777 S. Figueroa Street | | 275,000 |
| | 38,010 |
| | 296,964 |
| | 41,113 |
| | — |
| | 38,010 |
| | 338,077 |
| | 376,087 |
| | 43,560 |
| | 2013 A |
FIGat7th 735 S. Figueroa Street | | 58,500 |
| | — |
| | 44,743 |
| | 31,344 |
| | — |
| | — |
| | 76,087 |
| | 76,087 |
| | 18,921 |
| | 2013 C |
| | $ | 2,209,296 |
| | $ | 222,555 |
| | $ | 2,176,597 |
| | $ | 526,423 |
| | $ | — |
| | $ | 222,555 |
| | $ | 2,703,020 |
| | $ | 2,925,575 |
| | $ | 466,405 |
| | |
104
__________ | |
(1) | Land improvements are combined with building improvements for financial reporting purposes and are carried at cost. |
| |
(2) | The aggregate gross cost of Brookfield DTLA’s investments in real estate for federal income tax purposes approximated $2.7 billion as of December 31, 2019. |
| |
(3) | Depreciation in the consolidated statement of operations is computed on a straight-line basis over the following estimated useful lives: buildings (60 years), building improvements (ranging from 5 years to 25 years), and tenant improvements (the shorter of the useful life or the applicable lease term). |
| |
(4) | Year represents either the year the property was acquired by the Company (“A”) or the year the property was placed in service by the Company after construction was completed (“C”). |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a reconciliation of Brookfield DTLA’s investments in real estate (in thousands):estate:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Investments in Real Estate | | | | | |
Balance at beginning of year | $ | 2,949,851 | | | $ | 2,967,431 | | | $ | 2,925,575 | |
Additions during the year: | | | | | |
Improvements | 50,394 | | | 6,653 | | | 78,469 | |
Deductions during the year: | | | | | |
Dispositions | — | | | — | | | — | |
Writeoff of fully depreciated investments in real estate | 24,008 | | | 24,233 | | | 36,613 | |
Impairment charges related to Wells Fargo Center — South Tower | 193,415 | | | — | | | — | |
Balance at end of year | $ | 2,782,822 | | | $ | 2,949,851 | | | $ | 2,967,431 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Investments in Real Estate | | | | | |
Balance at beginning of year | $ | 2,834,450 |
| | $ | 2,756,322 |
| | $ | 2,740,773 |
|
Additions during the year: | | | | | |
Improvements | 148,637 |
| | 78,128 |
| | 75,847 |
|
Deductions during the year: | | | | | |
Dispositions | 20,139 |
| | — |
| | — |
|
Other (1) | 37,373 |
| | — |
| | 60,298 |
|
Balance at end of year | $ | 2,925,575 |
| | $ | 2,834,450 |
| | $ | 2,756,322 |
|
__________
| |
(1) | During the years ended December 31, 2019 and 2017, the amount reported represents the cost of fully depreciated buildings and improvements and tenant improvements written off during the period. |
The following is a reconciliation of Brookfield DTLA’s accumulated depreciation on its investments in real estate (in thousands):estate:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Accumulated Depreciation | | | | | |
Balance at beginning of year | $ | 580,403 | | | $ | 517,329 | | | $ | 466,405 | |
Additions during the year: | | | | | |
Depreciation expense | 87,314 | | | 87,307 | | | 87,537 | |
Deductions during the year: | | | | | |
Writeoff of fully depreciated investments in real estate | 24,008 | | | 24,233 | | | 36,613 | |
Impairment charges related to Wells Fargo Center — South Tower | 82,327 | | | — | | | — | |
Balance at end of year | $ | 561,382 | | | $ | 580,403 | | | $ | 517,329 | |
.y
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Accumulated Depreciation | | | | | |
Balance at beginning of year | $ | 418,205 |
| | $ | 342,465 |
| | $ | 329,149 |
|
Additions during the year: | | | | | |
Depreciation expense | 85,573 |
| | 75,740 |
| | 73,614 |
|
Deductions during the year: | | | | | |
Other (1) | 37,373 |
| | — |
| | 60,298 |
|
Balance at end of year | $ | 466,405 |
| | $ | 418,205 |
| | $ | 342,465 |
|
__________
| |
(1) | During the years ended December 31, 2019 and 2017, the amount reported represents the accumulated depreciation of fully depreciated buildings and improvements and tenant improvements written off during the period. |
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 20—18—Subsequent Event
Voluntary Delisting of Series A Preferred Stock — On March 31, 2023, Brookfield DTLA owns, operates and manages commercial office and retail properties innotified the LACBD and receivesNew York Stock Exchange of its income primarily from lease income generated from tenants of those properties. Our business may be vulnerableintention to damages from a number of sources, including major health issues and pandemics, such as COVID–19, commerce and travel, which may adversely affect trade and global and local economic conditions. Such adverse developments could include oversupply of or reduced demand for office and retail space; business layoffs; downsizings; relocations; increased telecommuting; or industry slowdowns affecting the tenants of our properties.
Tenants of our properties may experience a downturn in their businessvoluntarily delist its Series A preferred stock from the
effects of COVID–19, which could cause the loss of tenants or weaken their financial condition and result in the tenants’ inability to make lease payments when due or require rent concessions. In the event of a significant number of lease defaults and/or tenant bankruptcies, it may be difficult, costly and time consuming to attract new tenants and lease the spaceNew York Stock Exchange. See Part II, Item 9B. “Other Information.” for the rent and on terms as favorable as the previous leases or at all. The loss of lease payments from tenants and costs of re-leasing would adversely affect our operating results and financial condition, and our cash flows may not be sufficient to meet all of our obligations and liabilities.detailed discussion.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID–19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID–19.
|
| | | | | | | | | | | | | |
Item 9. | Changes in and Disagreements With Accountants on Accounting |
| and Financial Disclosure. |
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Brookfield DTLA maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), Brookfield DTLA carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and its principal financial officer, of the effectiveness of the design and operation of Brookfield DTLA’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, G. Mark Brown, our principal executive officer, and Bryan D. Smith, our principal financial officer, concluded that these disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.2022.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our management, including Messrs. Brown and Smith, evaluated the effectiveness of Brookfield DTLA’s internal control over financial reporting using the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2019.2022.
Changes in Internal Control over Financial Reporting
There have been no changes in Brookfield DTLA’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarterthree months ended December 31, 20192022 that have materially affected, or that are reasonable likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting due to the measures taken to combat the spread of the COVID-19 pandemic. We are continually monitoring and assessing the impact of the measures taken to combat the spread of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.
Item 9B.Other Information.
None.On March 31, 2023, Brookfield DTLA notified the New York Stock Exchange of its intention to voluntarily delist its Series A preferred stock from the New York Stock Exchange (the “NYSE”).
On or about April 10, 2023, the Company intends to file with the SEC a Form 25 Notification of Removal from Listing to delist and deregister the Series A preferred stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The delisting of the Series A preferred stock is expected to become effective on or about April 21, 2023. In connection with the foregoing, the Company also intends to file a Form 15 with the SEC to suspend its reporting obligations under the Exchange Act. It is expected that the last day of trading of the Series A preferred stock on the NYSE will be on or about April 20, 2023 and that the Company’s Series A preferred stock will be removed from listing and registration on the NYSE at the opening of the next business day. After the delisting and deregistration of the Series A preferred stock, Brookfield DTLA intends to continue to make unaudited annual and quarterly financial statements available to investors. Brookfield DTLA also will seek to have the Series A preferred stock quoted on the Pink Sheets Electronic Quotation Service (the “Pink Sheets”) in the OTC Pink Limited Information marketplace, although it cannot provide any assurance that any broker-dealer will make a market in the Series A preferred stock, which is a requirement for Pink Sheet quotation.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
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Item 10. | Directors, Executive Officers and Corporate Governance. |
Item 10.Directors, Executive Officers and Corporate Governance.
Information about our Executive Officers
Brookfield DTLA Fund Office Trust Investor Inc., a Maryland Corporation (“Brookfield DTLA,” the “Company,” “us,” “we” and “our”), does not directly employ any of the persons responsible for managing its business. Brookfield DTLA is a direct subsidiary of Brookfield DTLA Holdings LLC, a Delaware limited liability company (“DTLA Holdings”, and together with its affiliates excluding the Company and its subsidiaries, the “Manager”), manages our operations and activities, and it, together with the board of directors and officers, makes decisions on our behalf. Our executive officers are employed by the Manager and the Company does not directly or indirectly pay any compensation to them. The compensation of the executive officers is set by the Manager and the Company has no control over the determination of their compensation. Our executive officers participate in employee benefit plans and arrangements sponsored by the Manager. The Company has not established any employee benefit plans or entered into any employment agreements with any of our executive officers. In determining the total compensation paid to the Company’s executive officers, the Manager considers, among other things, its business, results of operations and financial condition taken as a whole.
Our current executive officers are as follows:
| | | | | | | | | | | | | | | | | | | | |
Name | | Age | | Position | | Executive Officer Since |
| | | | | | |
G. Mark Brown | | 58 | | Chairman of the Board and Principal Executive Officer of Brookfield DTLA (also a Managing Partner in Brookfield Corporation’s real estate group) | | 2017 |
Bryan D. Smith | | 52 | | Chief Financial Officer of Brookfield DTLA (also a Managing Director in Brookfield Corporation’s real estate group) | | 2018 |
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| | | | | | |
Name | | Age | | Position | | Executive Officer Since |
| | | | | | |
G. Mark Brown | | 55 | | Chairman of the Board and Principal Executive Officer of Brookfield DTLA (also a Managing Partner in Brookfield Asset Management’s real estate group) | | 2017 |
Bryan D. Smith | | 49 | | Chief Financial Officer of Brookfield DTLA (also a Senior Vice President in Brookfield Asset Management’s real estate group) | | 2018 |
G. Mark Brown was appointed Chairman of the Board and Principal Executive Officer of Brookfield DTLA in 2017. He has served on the board of directors since the Company was formed in 2013. Mr. Brown is a Managing Partner in Brookfield Asset Management Inc. (“BAM”)BAM” or Brookfield Corporation effective December 2022)’s real estate group. He has been employed by the Manager since 2000, and has held various senior executive roles, including Global Chief Investment Officer. The board of directors appointed Mr. Brown as Chairman of the Board and Principal Executive Officer based on, among other factors, his knowledge of the Company and his experience in commercial real estate.
Bryan D. Smith was appointed Chief Financial Officer of Brookfield DTLA in August 2018. HeMr. Smith is a Managing Director in Brookfield Corporation’s real estate group, and has been employed by the Manager as Senior Vice President since March 2018. Prior to joining Brookfield, Mr. Smith was the Chief Financial Officer of US Real Estatethe U.S. real estate business at The Carlyle Group since June 2013.a global private equity firm and also held various accounting roles in global accounting and financial services firms. The board of directors appointed Mr. Smith as Chief Financial Officer based on, among other factors, his experience in finance and commercial real estate.
Directors of the Registrant
Our current board of directors is as follows:
| | | | | | | | | | | | | | | | | | | | |
Name | | Age | | Position | | Director Since |
| | | | | | |
G. Mark Brown | | 58 | | Director (also Chairman of the Board and Principal Executive Officer of Brookfield DTLA, and a Managing Partner in Brookfield Corporation’s real estate group) | | 2013 |
Michelle L. Campbell | | 52 | | Director (also Senior Vice President, Secretary of Brookfield DTLA and Senior Vice President in Brookfield Corporation’s real estate group) | | 2014 |
Andrew Dakos | | 57 | | Director | | 2017 |
Murray Goldfarb | | 48 | | Director (also a Managing Partner in Brookfield Corporation’s real estate group) | | 2018 |
Phillip Goldstein | | 78 | | Director | | 2017 |
Ian Parker | | 58 | | Director | | 2017 |
Robert L. Stelzl | | 77 | | Director | | 2014 |
|
| | | | | | |
Name | | Age | | Position | | Director Since |
| | | | | | |
G. Mark Brown | | 55 | | Director (also Chairman of the Board and Principal Executive Officer of Brookfield DTLA, and a Managing Partner in Brookfield Asset Management’s real estate group) | | 2013 |
Michelle L. Campbell | | 49 | | Director (also Senior Vice President, Secretary of Brookfield DTLA and Senior Vice President in Brookfield Asset Management’s real estate group) | | 2014 |
Andrew Dakos | | 54 | | Director | | 2017 |
Murray Goldfarb | | 45 | | Director (also a Managing Partner in Brookfield Asset Management’s real estate group) | | 2018 |
Phillip Goldstein | | 75 | | Director | | 2017 |
Ian Parker | | 55 | | Director (also Chief Operating Officer of Brookfield DTLA and Chief Operating Officer for Brookfield Properties in the Western US and Canada) | | 2017 |
Robert L. Stelzl | | 74 | | Director | | 2014 |
Messrs. Brown Goldfarb and ParkerGoldfarb and Ms. Campbell are employed by the Manager. The Manager manages the Company’s operations and activities, and it, together with the board of directors and officers, makes decisions on the Company’s behalf. Certain subsidiaries of the Company have entered into arrangements with the Manager, pursuant to which the Manager provides property management and various other services to the Company.
Pursuant to Brookfield DTLA’s charter, holders of the Company’s Series A preferred stock are entitled to elect two directors (“Preferred Directors”) until the full payment (or setting aside for payment) of all dividends on the Series A preferred stock that are in arrears, as well as dividends for the then-current period. Messrs. Dakos and Goldstein are the incumbent Preferred Directors and will continue to serve on the board of directors until their successors are duly elected and qualified or, if earlier, until the full payment (or setting aside for payment) of all dividends on the Series A preferred stock that are in arrears, as well as dividends for the then-current period in accordance with Maryland law, the Company’s charter and the Second Amended and Restated Bylaws of the Company, dated August 11, 2014 (the “Amended Bylaws”).
G. Mark Brown has served on the board of directors since Brookfield DTLA was formed in 2013 and has served as Chairman of the Board and the Company’s Principal Executive Officer since 2017. He is a Managing Partner in BAM’sBrookfield Corporation’s real estate group. He has been employed by the Manager since 2000 in various senior executive roles, including Global Chief Investment Officer. The board of directors nominated Mr. Brown to serve as a director based on, among other factors, his knowledge of the Company and his experience in commercial real estate.
Michelle L. Campbell has served on the board of directors since 2014 and has served as Senior Vice President and Secretary of Brookfield DTLA since 2016 and as Vice President and Secretary of the Company since it was formed in 2013. Ms. Campbell is a Senior Vice President in BAM’sBrookfield Corporation’s real estate group and has been employed by the Manager in various legal positions since 2007. The board of directors nominated Ms. Campbell to serve as a director based on, among other factors, her knowledge of the Company and her experience in legal matters and commercial real estate.
Andrew Dakos has served on the board of directors since December 2017, following his election at a Special Meeting of holders of the Company’s Series A preferred stock. Mr. Dakos is a Principal of Bulldog Investors, LLCLLP (“Bulldog Investors”), a U.S. Securities and Exchange Commission (the “SEC”)‑registered investment adviser to certain private funds, (currently being liquidated), separately-managed accounts and Special Opportunities Fund, Inc., a New York Stock Exchange (the “NYSE”)‑listed registered closed-end investment company (“Special Opportunities Fund”). He co‑manages Bulldog Investor’s Investors’ investment strategy. He also serves as President and Director of Special Opportunities Fund, CEO, President and Chairman of Swiss Helvetia Fund, Inc., and Trustee and President of the High Income Securities Fund. He previously served as Trustee of Crossroads Liquidating Trust and President and Trustee of High Income Securities Fund.(2015-2020).
Murray Goldfarb has served on the board of directors since August 2018. Mr. Goldfarb is a Managing Partner in BAM’sBrookfield Corporation’s real estate group. He has been employed by the Manager since 2012. The board of directors nominated Mr. Goldfarb to serve as a director based on, among other factors, his knowledge of the Company and its affiliates and his experience in legal matters and commercial real estate.
Phillip Goldstein has served on the board of directors since December 2017, following his election at a Special Meeting of holders of the Company’s Series A preferred stock. Mr. Goldstein is a co‑founder and Principal of Bulldog Investors, a SEC-registered investment adviser.Investors. He is the lead investment strategist for Bulldog Investors. He also serves as Chairman of The Mexico Equity and Income Fund, Inc., Secretary and Chairman of Special Opportunities Fund, Director of MVC Capital, Inc., Director of Swiss Helvetia Fund, Inc., and Chairman and Secretary of the High Income Securities Fund. He previously served as Director of MVC Capital (2012-2020), and as Trustee of Crossroads Liquidating Trust and Chairman and Trustee of High Income Securities Fund.(2016-2020).
Ian Parker has served on the board of directors since 2017. Prior to his retirement in July 2020, Mr. Parker isserved as the Chief Operating Officer of Brookfield DTLA and is also Chief Operating Officer forof Brookfield Properties in the Western USU.S. and Canada. He has beenwas employed by the Manager in various senior operational roles since 2005.1996. The board of directors nominated Mr. Parker to serve as a director based on, among other factors, his knowledge of the Company’s affiliates and his experience in commercial real estate.
Robert L. Stelzlhas served on the board of directors since 2014. Mr. Stelzl also has served as a member of the board of directors of Brookfield Real Estate Income Trust Inc. since 2021 and Brookfield Residential Properties Inc. since 2011. Mr. Stelzl served on the Van Eck family of mutual funds’ board of trustees and chair of its Governance Committee from 2007 through 2021. Mr. Stelzl is a private real estate investor and investment manager. He currently serves as trustee of several private trusts which hold substantial real estate and other assets. In 2003 he retired from Colony Capital, LLC, a private, global real estate private equity investor,fund manager after 14 years as a principal and member of the Investment Committee. The board of directors nominated Mr. Stelzl to serve as a director based on, among other factors, his experience in commercial real estate.estate and finance.
Board Leadership Structure and Risk Oversight
The Amended Bylaws give the board of directors the flexibility to determine whether the roles of principal executive officer and Chairman of the Board should be held by the same person or two separate individuals. In connection with the listing of the Series A preferred stock on the NYSE, the board of directors determined that having one person serve as both principal executive officer and Chairman of the Board is in the best interest of the Company’s stockholders. We believe this structure makes the best use of the principal executive officer’s extensive knowledge of the Company and fosters real-time communication between management and the board of directors. Since 2017, Mr. Brown has served as Chairman of the Board and Principal Executive Officer of Brookfield DTLA.
The board of directors is actively involved in overseeing Brookfield DTLA’s risk management. Under our Corporate Governance Guidelines, the board of directors is responsible for assessing the major risks facing the Company and its business and approving and monitoring appropriate systems to manage those risks. Under its charter, the Audit Committee is responsible for reviewing and approving the Company’s policies with respect to risk assessment and management, particularly financial risk exposure, and discussing with management the steps taken to monitor and control risks.
Changes to Nominating Procedures for Use by Security Holders
There were no material changes to the procedures by which stockholders may recommend nominees to the board of directors during the fiscal year ended December 31, 2019.2022.
Board Governance Documents
The board of directors maintains a charter for its Audit Committee, has adopted written policies regarding the Approval of Audit and Non-Audit Services Provided by the External Auditor and has adopted Corporate Governance Guidelines. The board of directors has also adopted the Code of Business Conduct and Ethics and Personal Trading Policy of BAM,Brookfield Corporation, each applicable to the directors, officers and employees of BAMBrookfield Corporation and its subsidiaries. The Company is an indirect subsidiary of BAM.Brookfield Corporation.
The Audit Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics are available free of charge on the Company’s website at http://www.dtlaofficefund.com under the heading “Reports & Filings–Governance Documents” and are also available in print to any person who sends a written request to that effect to the attention of Michelle L. Campbell, Senior Vice President, Secretary, and Director, Brookfield DTLA Fund Office Trust Investor Inc., 250 Vesey Street, 15th Floor, New York, NY 10281.
We intend to disclose on the Company’s website, http://www.dtlaofficefund.com, under “Reports & Filings—Governance Documents” any amendment to, or waiver of, any provisions of BAM’sBrookfield Corporation’s Code of Business Conduct and Ethics applicable to the directors and/or officers of the Company that would otherwise be required to be disclosed under the rules of the SEC or the NYSE.
Audit Committee
The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Mr. Stelzl is currently Chairman of the Audit Committee and Mr. Dakos is a member of the Audit Committee. Each of Messrs. Stelzl and Dakos is an independent director. Mr. Stelzl has served on the Audit Committee since his election to the board of directors in 2014, and was also appointed as Chair of the Audit Committee in 2014. Mr. Dakos has served on the Audit Committee since March 2018. Based on his experience and expertise,The composition of Audit Committee meets NYSE requirements for a special entity. As a special entity under the boardNYSE Rules, the Board is not required to determine whether any members of directors has determined that Mr. Stelzl isthe Audit Committee qualify as an “audit committee financial expert” as defined by the SEC. The independent members of Brookfield DTLA’sthe Audit Committee also satisfy the enhanced independence standards applicable to audit committees set forth in Rule 10A‑3(b)(i) under the Exchange Act.
Certifications
Item 11.Executive Compensation.
Compensation Discussion and Analysis
Brookfield DTLA does not directly employ any of the persons responsible for managing its business. The Manager, through DTLA Holdings, manages our operations and activities, and it, together with the board of directors and officers, makes decisions on our behalf. Our executive officers are employed by the Manager and we do not directly or indirectly pay any compensation to them. The compensation of the executive officers is set by the Manager and we have no control over the determination of their compensation. Our executive officers participate in employee benefit plans and arrangements sponsored by the Manager. We have not established any employee benefit plans or entered into employment agreements with any of our executive officers. In determining the total compensation paid to our executive officers, the Manager considers, among other things, its business, results of operations and financial condition taken as a whole.
Compensation of Directors
The following table summarizes the compensation earned by each of our independentnon-management directors, Messrs. Dakos, Goldstein, Parker and Stelzl during the fiscal year ended December 31, 2019:2022. Directors, Messrs. Brown, Goldfarb, and Ms. Campbell do not receive any additional compensation from the Company for his or her services as a director.
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| | | | | | |
Name (1) | | Fees Earned or Paid in Cash ($) (2) | | Total ($) |
(a) | | (b) | | (h) |
Andrew Dakos | | 65,000 |
| | 65,000 |
|
Phillip Goldstein | | 55,000 |
| | 55,000 |
|
Robert L. Stelzl | | 65,000 |
| | 65,000 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation ($) | | Total ($) |
(a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) |
Andrew Dakos (1) | | $ | 70,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 70,000 | |
Phillip Goldstein (1) | | $ | 60,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 60,000 | |
Robert L. Stelzl (1) | | $ | 70,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 70,000 | |
Ian Parker (1) | | $ | 60,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 60,000 | |
__________
| |
(1) | Each non-independent member of the board of directors does not receive any additional compensation from the Company for his or her services as a director. |
| |
(2) | Amounts shown in Column (b) are those earned during the fiscal year ended December 31, 2019 by independent members of the board of directors consisting of an annual retainer fee of $55,000 and, in the case of Messrs. Dakos and Stelzl, an annual Audit Committee fee of $10,000. |
(1) Consists of an annual retainer fee of $60,000 and, in case of Messrs. Dakos and Stelzl, an additional $10,000 annual Audit Committee fee.
Compensation Risk Assessment
Brookfield DTLA believes that the compensation policies and practices of the Company, and of the Manager with respect to the executive officers of the Company, appropriately balance risk in connection with the achievement of annual and long-term goals and that they do not encourage unnecessary or excessive risk taking. Brookfield DTLA believes that the compensation policies and practices of the Company, and of the Manager with respect to the executive officers of the Company, are not reasonably likely to have a material adverse effect on its financial position or results of operations.
COMPENSATION COMMITTEE REPORT
The board of directors of Brookfield DTLA Fund Office Trust Investor Inc. has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) (§229.402(b)) with management; and based on the review and discussions referred to in paragraph (e)(5)(i)(A) of this Item, the board of directors recommended that the Compensation Discussion and Analysis be included in the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2022.
The Board of Directors
G. Mark Brown, Chairman
Michelle L. Campbell
Andrew Dakos
Murray Goldfarb
Phillip Goldstein
Ian Parker
Robert L. Stelzl
The information required by paragraph (e)(5) of this Item shall not be deemed to be “soliciting material,” or to be “filed” with the Commission or subject to Regulation 14A or 14C (17 CFR 240.14a-1 through 240.14b-2 or 240.14c-1 through 240.14c-101), other than as provided in this Item, or to the liabilities of section 18 of the Exchange Act (15 U.S.C. 78r), except to the extent that the registrant specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management |
| and Related Stockholder Matters. |
Principal Stockholders
Common Stock
As of March 20, 2020,24, 2023, DTLA Holdings owns 100% of the issued and outstanding shares of Brookfield DTLA’s common stock.
Series A Preferred Stock
Based on the Company’s review of all forms filed with the SEC by holders of the Series A preferred stock with respect to ownership of shares of Series A preferred stock and other information, as of March 20, 2020, set forth below is a table that shows how much of our Series A preferred stock was beneficially owned on March 20, 2020, by each person known to us to beneficially own more than 5% of our Series A preferred stock. Please note that under U.S. securities laws, the Series A preferred stock is generally not considered voting stock and, therefore, persons beneficially owning more than 5% of our Series A preferred stock have no obligation to notify us or the SEC of their beneficial ownership of such Series A preferred stock. Consequently, there may be other holders of more than 5% of the Series A preferred stock that are not known to us.
|
| | | | | | |
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership (1) | | Percent of Class (1) |
(a) | | (b) | | (c) |
Kawa Capital Management Inc. (2) 21500 Biscayne Boulevard Suite 700 Aventura, FL 33180 | | 491,772 |
| | 5.05 | % |
__________
| |
(1) | Under Rule 13d-3 of the Exchange Act, certain shares may be deemed to be beneficially owned by more than one person (if, for example, a person shares the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of Series A preferred stock actually outstanding as of March 20, 2020.
|
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(2) | Information regarding Kawa Capital Management Inc. (“Kawa”) was obtained from a Schedule 13G/A, filed with the SEC by Kawa on February 14, 2020. Kawa reported that, at February 14, 2020, the following entity and natural person possessed shared power to vote, and shared power to direct the disposition of, the respective amount of shares that follow: Kawa–491,772; and Mr. Daniel Ades–491,772. |
Security Ownership of our Directors and Executive Officers
Common Stock
As of March 20, 2020,24, 2023, none of Brookfield DTLA’s current directors or current executive officers owns any shares of the Company’s common stock.
Series A Preferred Stock
As of March 20, 2020,24, 2023, none of Brookfield DTLA’s current directors or current executive officers owns any shares of the Company’s Series A preferred stock.
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Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Item 13.Certain Relationships and Related Transactions, and Director Independence.
Policies and Procedures for Related Party Transactions
Under Brookfield DTLA’s Corporate Governance Guidelines, each director is required to inform the board of directors of any potential or actual conflicts, or what might appear to be a conflict of interest he or she may have with the Company. If a director has a personal interest in a matter before the board of directors or a committee, he or she must not participate in any vote on the matter except where the board of directors or the committee has expressly determined that it is appropriate for him or her to do so. Under BAM’sBrookfield Corporation’s Code of Business Conduct and Ethics, officer and employee conflicts of interest are generally prohibited as a matter of Company policy.
Management Agreements
Certain subsidiaries of Brookfield DTLA have entered into arrangements with the Manager, pursuant to which the Manager provides property management and various other services. Property managementThe following table presents the basis of fees under the management agreements entered into in connection with these arrangements are calculated based on 2.75% of rents collected (as defined in the management agreements). In addition, the Company pays an asset management fee to BPY and BAM, which is calculated based on 0.75% of the capital invested by DTLA Holdings in Brookfield DTLA’s properties. Leasing management fees paid to the Manager range from 1.00% to 4.00% of expected rents, depending on the terms of the lease and whether a third-party broker was paid a commission for the transaction. Construction management fees are paid to the Manager based on 3.00% of hard and soft construction costs. Development management fees are paidincurred to the Manager and Brookfield affiliates byduring the unconsolidated real estate joint venture based on 3.00% of hardyears ended December 31, 2022, 2021 and soft construction costs.2020:
| | | | | | | | | | | | |
Fee Type | Affiliate | Fee Description | | | | |
Property management | The Manager | 2.75% of rents collected (as defined in the management agreements) | | | | |
Asset management | BPY and Brookfield Corporation | 0.75% of DTLA Holdings’ invested equity in Brookfield DTLA’s properties | | | | |
Leasing | The Manager and Brookfield affiliates | 1.00% to 4.00% of expected rents, depending on the terms of the lease and whether a third-party broker was paid a commission for the transaction | | | | |
Construction management | The Manager | 3.00% of hard and soft construction costs | | | | |
Development management | Affiliate of the Manager | 3.00% of hard and soft construction costs | | | | |
Entitlement | Affiliate of the Manager | 20.00% of the entitlement costs incurred by BOA Plaza, if the entitlement budget is less than $3,000,000 | | | | |
A summary of fees and costs incurred by the applicable Brookfield DTLA subsidiaries under these arrangements is as follows (in thousands):follows:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Property management fee expense | $ | 8,479 |
| | $ | 8,111 |
| | $ | 8,136 |
|
Asset management fee expense | 6,161 |
| | 6,330 |
| | 6,330 |
|
Leasing and construction management fees | 5,051 |
| | 3,209 |
| | 5,198 |
|
Development management fees (1) | 991 |
| | — |
| | — |
|
General, administrative and reimbursable expenses | 2,865 |
| | 3,007 |
| | 2,613 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Property management | $ | 8,045 | | | $ | 8,037 | | | $ | 8,035 | |
Asset management (2) | $ | 6,346 | | | $ | 6,166 | | | $ | 6,040 | |
Leasing | $ | 1,549 | | | $ | 1,607 | | | $ | 2,105 | |
Construction management | $ | 1,148 | | | $ | 400 | | | $ | 3,239 | |
Development management (1) | $ | 1,230 | | | $ | 1,881 | | | $ | 1,007 | |
Entitlement | $ | 111 | | | $ | 639 | | | $ | — | |
General, administrative and reimbursable expenses | $ | 3,904 | | | $ | 2,807 | | | $ | 2,492 | |
__________
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(1) | Amount presented is calculated by applying the Company’s ownership interest percentage in the unconsolidated real estate joint venture as of period end to the amounts capitalized during the period. Amounts capitalized prior to May 31, 2019 (the date our wholly‑owned interests in Brookfield DTLA 4050/755 Inc. were transferred to the joint venture) are reported at 100%. |
(1)Amounts presented are calculated by applying the Company’s ownership interest percentage in the unconsolidated real estate joint venture as of year end to the costs incurred during the year.
(2)As of December 31, 2022 and 2021, asset management fee payables totaled $3.2 million and $0.0 million, respectively.
Insurance Agreements
Properties held by certain Brookfield DTLA subsidiaries and affiliates are covered under insurance policies entered into by the Manager that provide, among other things, all risk property and business interruption coverage for BPY’s commercial portfolio with an aggregate limit of $2.5 billion per occurrence as well as an aggregate limit of $437.5 million of earthquake insurance for California, and $372.5 million of flood and weather catastrophe insurance. In addition, Brookfield DTLA’s properties are covered by a terrorism insurance policy that provides a maximum of $4.0 billion per occurrence for all of BPY’s U.S. properties. Brookfield DTLA is in compliance with the contractual obligations regarding terrorism insurance contained in such policies.Manager. Insurance premiums for Brookfield DTLA’s properties are paid by the Manager. Brookfield DTLA reimburses the Manager for the amount of fees and expenses related to such policies that have been allocated to the Company’s properties as determined by the Manager in its reasonable discretion taking into consideration certain facts and circumstances, including the value of the Company’s properties.
A summary of costs incurred by the applicable Brookfield DTLA subsidiaries and affiliates under this arrangement, which are included in rental property operating and maintenance expense in the consolidated statements of operations, is as follows (in thousands):follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
Insurance expense (1) | $ | 12,905 | | | $ | 12,473 | | | $ | 11,836 | |
(1)An affiliate of Brookfield Corporation secures insurance policies for the Company through third-party brokers and insurance companies and charges the Company a fee for the services it provides. Fees charged vary but will not exceed 2.50% of the total net insurance premiums of the Company and its covered properties. Effective November 1, 2021, this affiliate of Brookfield Corporation ceased charging such fee. Fees incurred for these services totaled $244 thousand and $282 thousand during the years ended December 31, 2021 and 2020, respectively. Additionally, the Company’s terrorism insurance coverage is purchased through a captive facility that is an affiliate of BPY. Insurance premiums incurred totaled $127 thousand, $129 thousand and $149 thousand during the years ended December 31, 2022, 2021 and 2020, respectively. |
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | | | |
Insurance expense | $ | 9,286 |
| | $ | 8,026 |
| | $ | 7,795 |
|
Other Related Party Transactions with BAMBrookfield Corporation Affiliates
A summary of the impact of other related party transactions with BAMBrookfield Corporation affiliates on the Company’s consolidated statementstatements of operations is as follows (in thousands):follows:
| | | | | | | | | | For the Year Ended December 31, |
| For the Year Ended December 31, | | 2022 | | 2021 | | 2020 |
| 2019 | | 2018 | | 2017 | | | | | | |
| | | | | | |
Lease income | $ | 5,916 |
| | $ | 1,928 |
| | $ | — |
| |
Lease income (1) | | Lease income (1) | $ | 14,315 | | | $ | 13,343 | | | $ | 11,443 | |
Parking revenue (1) | | Parking revenue (1) | $ | 988 | | | $ | 1,001 | | | $ | 1,317 | |
Interest and other revenue | 208 |
| | — |
| | — |
| Interest and other revenue | $ | — | | | $ | — | | | $ | 51 | |
Rental property operating and maintenance expense (1)(2) | 676 |
|
| 862 |
|
| 579 |
| $ | — | | | $ | 318 | | | $ | 577 | |
Other expense | 142 |
| | — |
| | — |
| |
Other expenses | | Other expenses | $ | — | | | $ | — | | | $ | 90 | |
Interest expense (2)(4) | 613 |
| | — |
| | — |
| $ | 3,087 | | | $ | 2,201 | | | $ | 1,982 | |
__________
| |
(1) | Amounts presented are for purchases of chilled water for air conditioning at one of the Company’s properties. |
| |
(2) | On September 30, 2019, BAM acquired a significant interest in Oaktree Capital Management, L.P., whose subsidiary is the lender of the $35.0 million mezzanine loan due from Wells Fargo Center–North Tower. Interest payable to the lender totals $112 thousand as of December 31, 2019. See Part II, Item 8. “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 7 “Secured(1)In September 2019, Brookfield Corporation acquired a significant interest in Oaktree Capital Group, LLC (“Oaktree”), an existing tenant at Wells Fargo Center–North Tower. Lease income and parking revenue from Oaktree and its subsidiaries have been reported as related party transactions since the date of acquisition by Brookfield Corporation. (2)Amounts presented are for purchases of chilled water for air conditioning at one of the Company’s properties supplied by an affiliate of Brookfield Corporation. In July 2021, such supplier was acquired by third parties. (3)A subsidiary of Oaktree is the lender of the $35.0 million mezzanine loan secured by Wells Fargo Center–North Tower. Interest payable to the lender totaled $146 thousand and $84 thousand as of December 31, 2022 and 2021, respectively, and is reported as part of accounts payable and other liabilities in the consolidated balance sheets. See Note 5—“Secured Debt, Net.” Interest expense on this loan has been reported as a related party transaction since the date of acquisition by Brookfield Corporation. (4)In February 2021, Brookfield Corporation purchased $18.2 million of commercial mortgage-backed securities (“CMBS”) secured by the Gas Company Tower loans in the open market. The CMBS are payable in monthly installments over a two -year period at a floating interest rate of one-month LIBOR + 2.35%. The transaction was conducted on an arm’s length basis at fair market value. In September 2021, this CMBS was sold to Brookfield Corporation Reinsurance Ltd., an affiliate of Brookfield Corporation. During the years ended December 31, 2022 and 2021, the Company incurred interest expense of $712 thousand and $391 thousand, respectively, on this CMBS to Brookfield Corporation.
The Manager or its affiliates may incur certain out-of-pocket expenses on behalf of the Company and pass through such expenses at cost to the Company.
|
Director Independence
Because the Series A preferred stock is the only publicly listed security of the Company, Brookfield DTLA is a special entity as defined by the NYSE rules on corporate governance (the “NYSE Rules”) and has chosen to rely on the NYSE Rules’ “special entity exemption” with respect to certain independence requirements. Of the Company’s seven directors, three are currently independent of management, DTLA Holdings and the Manager. The board of directors has adopted independence standards as part of the Company’s Corporate Governance Guidelines, which are also available in print to any person who sends a written request to that effect to the attention of our Secretary, as provided for above under the heading “—Board Governance Documents.” in Part III, Item 10. Directors, Executive Officers and Corporate Governance.
The independence standards contained in our Corporate Governance Guidelines incorporate the categories of relationships between a director and a listed company that would make a director ineligible to be independent according to the standards issued by the NYSE.
In accordance with NYSE Rules and our Corporate Governance Guidelines, on March 24, 2020,27, 2023, the board of directors affirmatively determined that each of the following directors is and was independent within the meaning of both the Company’s and the NYSE’s director independence standards, as then in effect:
Robert L. Stelzl
Andrew Dakos
Phillip Goldstein
Item 14.Principal Accounting Fees and Services.
The following table summarizes the aggregate fees billed to Brookfield DTLA for professional services rendered by its independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”) (PCAOB ID No. 34):
| | | | | | | | | | | | | | |
Fees (1) | | For the Year Ended December 31, |
| 2022 | | 2021 |
| | | | |
Audit fees (2) | | $ | 822,970 | | | $ | 799,000 | |
Audit-related fees | | — | | | — | |
Tax fees | | — | | | — | |
All other fees | | — | | | — | |
| | $ | 822,970 | | | $ | 799,000 | |
__________
(1)All services rendered for these fees were pre-approved in accordance with the Audit Committee’s policy regarding the approval of audit and non-audit services provided by the external auditor.
(2)Audit fees consist of fees for professional services provided in connection with the audits of the Company’s annual consolidated financial statements, audits of the Company’s subsidiaries required for statute or otherwise, and the performance of interim reviews of the Company’s quarterly unaudited consolidated financial statements.
|
| | | | | | | | |
Fees (1) | | For the Year Ended December 31, |
| 2019 | | 2018 |
| | | | |
Audit fees (2) | | $ | 776,100 |
| | $ | 754,100 |
|
Audit-related fees | | — |
| | — |
|
Tax fees | | — |
| | — |
|
All other fees | | — |
| | — |
|
| | $ | 776,100 |
| | $ | 754,100 |
|
119
__________ | |
(1) | All services rendered for these fees were pre-approved in accordance with the Audit Committee’s policy regarding the approval of audit and non-audit services provided by the external auditor. |
| |
(2) | Audit fees consist of fees for professional services provided in connection with the audits of the Company’s annual consolidated financial statements, audits of the Company’s subsidiaries required for statute or otherwise, and the performance of interim reviews of the Company’s quarterly unaudited condensed consolidated financial statements. |
Pre-approval Policies and Procedures of the Audit Committee
Brookfield DTLA has adopted written policies, which require the Audit Committee or the Chair of the Audit Committee to pre‑approve all audit and non‑audit services to be performed for the Company by Deloitte in accordance with applicable law. Any decisions of the Chair of the Audit Committee to pre‑approve a permitted service (as defined in the policy) shall be reported to the Audit Committee at each of its regularly schedulescheduled meetings. The Audit Committee does not delegate to management its responsibilities to pre-approve services performed by Deloitte. The pre‑approval of audit and non-audit services may be given at any time up to a year before commencement of the specified service.
PART IV
Item 15.Exhibits, Financial Statement Schedules.
|
| | | | | | | | | | | | | | | | | | | |
(a) | | The following documents are filed as part of this Annual Report on Form 10-K: |
| | | | | | |
1. | | Financial Statements | | | | |
| | |
| | | | | | |
2. | | Financial Statement Schedules for the Years Ended December 31, 2019, 20182022, 2021 and 20172020 |
| | All financial statement schedules are omitted because they are not applicable, or the |
| | required information is included in the consolidated financial statements or |
| | |
| | | | | | |
3. | | Exhibits (listed by number corresponding to Item 601 of Regulation S-K) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Articles of Incorporation of Brookfield DTLA Fund Office Trust Investor Inc. | | S-4 | | 333-189273 | | 3.1 | | June 12, 2013 |
| | | | | | | | | | |
| | Second Amended and Restated Bylaws of Brookfield DTLA Fund Office Trust Investor Inc. | | 8-K | | 001-36135 | | 3.2 | | August 14, 2014 |
| | | | | | | | | | |
| | Articles of Incorporation of Brookfield DTLA Fund Office Trust Inc. | | S-4 | | 333-189273 | | 3.3 | | June 12, 2013 |
| | | | | | | | | | |
| | Bylaws of Brookfield DTLA Fund Office Trust Inc. | | S-4 | | 333-189273 | | 3.4 | | June 12, 2013 |
| | | | | | | | | | |
| | Articles of Amendment of Brookfield DTLA Fund Office Trust Inc. | | S-4/A | | 333-189273 | | 3.5 | | October 9, 2013 |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Investor Inc. 7.625% Series A Cumulative Redeemable Preferred Stock | | S-4/A | | 333-189273 | | 4.1 | | August 27, 2013 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Articles of Incorporation of Brookfield DTLA Fund Office Trust Investor Inc. | | S-4 | | 333-189273 | | 3.1 | | June 12, 2013 |
| | | | | | | | | | |
| | Second Amended and Restated Bylaws of Brookfield DTLA Fund Office Trust Investor Inc. | | 8-K | | 001-36135 | | 3.2 | | August 14, 2014 |
| | | | | | | | | | |
| | Articles of Incorporation of Brookfield DTLA Fund Office Trust Inc. | | S-4 | | 333-189273 | | 3.3 | | June 12, 2013 |
| | | | | | | | | | |
| | Bylaws of Brookfield DTLA Fund Office Trust Inc. | | S-4 | | 333-189273 | | 3.4 | | June 12, 2013 |
| | | | | | | | | | |
| | Articles of Amendment of Brookfield DTLA Fund Office Trust Inc. | | S-4/A | | 333-189273 | | 3.5 | | October 9, 2013 |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Investor Inc. 7.625% Series A Cumulative Redeemable Preferred Stock | | S-4/A | | 333-189273 | | 4.1 | | August 27, 2013 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Investor Inc. 15% Series B Cumulative Non-Voting Preferred Stock | | S-4/A | | 333-189273 | | 4.2 | | August 27, 2013 |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Inc. 7.625% Series A Cumulative Redeemable Preferred Stock | | S-4/A | | 333-189273 | | 4.3 | | August 27, 2013 |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Inc. 15% Series B Cumulative Non-Voting Preferred Stock | | S-4/A | | 333-189273 | | 4.4 | | August 27, 2013 |
| | | | | | | | | | |
| | Form of Certificate of 7.625% Series A Cumulative Redeemable Preferred Stock of Brookfield DTLA Fund Office Trust Investor Inc. | | 10-K | | 001-36135 | | 4.1 | | April 8, 2014 |
| | | | | | | | | | |
| | Indemnification Agreement of Brookfield DTLA Fund Office Trust Investor Inc. | | 8-K | | 001-36135 | | 10.1 | | November 4, 2013 |
| | | | | | | | | | |
| | Limited Liability Company Agreement of Brookfield DTLA Fund Properties II LLC | | 8-K | | 001-36135 | | 10.1 | | April 1, 2019 |
| | | | | | | | | | |
| | First Amendment to the Limited Liability Company Agreement of Brookfield DTLA Fund Properties II LLC | | 10-K | | 001-36135 | | 10.3 | | March 25, 2021 |
| | | | | | | | | | |
| | Limited Liability Company Agreement of Brookfield DTLA Fund Properties III LLC | | 8-K | | 001-36135 | | 10.2 | | April 1, 2019 |
| | | | | | | | | | |
| | Loan Agreement dated as of February 6, 2018 by and between BOP FIGat7th LLC, as Borrower, and Metropolitan Life Insurance Company, as Lender | | 8-K | | 001-36135 | | 10.3 | | April 1, 2019 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Investor Inc. 15% Series B Cumulative Nonvoting Preferred Stock | | S-4/A | | 333-189273 | | 4.2 | | August 27, 2013 |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Inc. 7.625% Series A Cumulative Redeemable Preferred Stock | | S-4/A | | 333-189273 | | 4.3 | | August 27, 2013 |
| | | | | | | | | | |
| | Articles Supplementary of Brookfield DTLA Fund Office Trust Inc. 15% Series B Cumulative Nonvoting Preferred Stock | | S-4/A | | 333-189273 | | 4.4 | | August 27, 2013 |
| | | | | | | | | | |
| | Form of Certificate of Series A Preferred Stock of Brookfield DTLA Fund Office Trust Investor Inc. | | 10-K | | 001-36135 | | 4.1 | | April 8, 2014 |
| | | | | | | | | | |
| | Form of Indemnification Agreement of Brookfield DTLA Fund Office Trust Investor Inc. | | 8-K | | 001-36135 | | 10.1 | | November 4, 2013 |
| | | | | | | | | | |
| | Limited Liability Company Agreement of Brookfield DTLA Fund Properties II LLC | | 8-K | | 001-36135 | | 10.1 | | April 1, 2019 |
| | | | | | | | | | |
| | Limited Liability Company Agreement of Brookfield DTLA Fund Properties III LLC | | 8-K | | 001-36135 | | 10.2 | | April 1, 2019 |
| | | | | | | | | | |
| | Loan Agreement dated as of February 6, 2018 by and between BOP FIGat7th LLC, as Borrower, and Metropolitan Life Insurance Company, as Lender | | 8-K | | 001-36135 | | 10.3 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Guaranty as of February 6, 2018 by Brookfield DTLA Holdings LLC (“Guarantor”) in favor of Metropolitan Life Insurance Company (“Lender”) | | 10-K | | 001-36135 | | 10.5 | | April 1, 2019 |
| | | | | | | | | | |
| | Mortgage Loan Agreement dated as of September 23, 2020 among EYP Realty, LLC, as Borrower, and Morgan Stanley Bank, N.A. and Wells Fargo Bank, National Association, collectively, as Lenders | | 8-K | | 001-36135 | | 10.1 | | March 25, 2021 |
| | | | | | | | | | |
| | Limited Recourse Guaranty, made as of September 23, 2020 by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Morgan Stanley Bank, N.A. and Wells Fargo Bank, National Association, collectively, as Lender | | 8-K | | 001-36135 | | 10.2 | | March 25, 2021 |
| | | | | | | | | | |
| | Mezzanine Loan Agreement dated as of September 23, 2020 among EYP Mezzanine, LLC, as Borrower, and Morgan Stanley Mortgage Capital Holdings LLC and Wells Fargo Bank, National Association, collectively, as Lenders | | 8-K | | 001-36135 | | 10.3 | | March 25, 2021 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Guaranty as of February 6, 2018 by Brookfield DTLA Holdings LLC (“Guarantor”) in favor of Metropolitan Life Insurance Company (“Lender”) | | 10-K | | 001-36135 | | 10.5 | | April 1, 2019 |
| | | | | | | | | | |
| | Amended and Restated Loan Agreement dated as of March 29, 2018, by and among EYP Realty, LLC, as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner, Landesbank Baden-Württemberg, New York Branch, as Documentation Agent and the Financial Institutions now or hereafter signatories hereto and their assignees pursuant to Section 13.12, as Lenders | | 8-K | | 001-36135 | | 10.4 | | April 1, 2019 |
| | | | | | | | | | |
| | Mezzanine Loan Agreement dated as of March 29, 2018 by and among EYP Mezzanine, LLC, as Borrower, and RVP Mezz Debt 1 LLC, as Lender | | 8-K | | 001-36135 | | 10.5 | | April 1, 2019 |
| | | | | | | | | | |
| | Mezzanine Limited Guaranty made as of March 29, 2018 by Brookfield DTLA Holdings LLC (“Guarantor”) in favor of RVP Mezz Debt 1 LLC (“Lender”) | | 10-K | | 001-36135 | | 10.8 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Mezzanine Limited Recourse Guaranty, made as of September 23, 2020 by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Morgan Stanley Mortgage Capital Holdings LLC and Wells Fargo Bank, National Association, collectively, as Lender | | 8-K | | 001-36135 | | 10.4 | | March 25, 2021 |
| | | | | | | | | | |
| | Loan Agreement dated as of September 21, 2018 among North Tower, LLC, as Borrower, the Financial Institutions party hereto and their Assignees under Section 18.15, as Lenders, Citibank, N.A., as Administrative Agent, and Citigroup Global Markets Inc. and Natixis, New York Branch, as Joint Lead Arranger | | 8-K | | 001-36135 | | 10.6 | | April 1, 2019 |
| | | | | | | | | | |
| | Completion Guaranty dated September 21, 2018 by Brookfield DTLA Holdings LLC (the “Guarantor”) in favor of Citibank, N.A. (the “Administrative Agent”) and each of the Lenders | | 10-K | | 001-36135 | | 10.10 | | April 1, 2019 |
| | | | | | | | | | |
| | Limited Recourse Guaranty dated September 21, 2018 by Brookfield DTLA Holdings LLC (the “Guarantor”) in favor of Citibank, N.A. (the “Administrative Agent”) and each of the Lender | | 10-K | | 001-36135 | | 10.11 | | April 1, 2019 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Loan Agreement dated as of September 21, 2018 among North Tower, LLC, as Borrower, the Financial Institutions party hereto and their Assignees under Section 18.15, as Lenders, Citibank, N.A., as Administrative Agent, and Citigroup Global Markets Inc. and Natixis, New York Branch, as Joint Lead Arranger | | 8-K | | 001-36135 | | 10.6 | | April 1, 2019 |
| | | | | | | | | | |
| | Completion Guaranty dated September 21, 2018 by Brookfield DTLA Holdings LLC (the “Guarantor”) in favor of Citibank, N.A. (the “Administrative Agent”) and each of the Lenders | | 10-K | | 001-36135 | | 10.10 | | April 1, 2019 |
| | | | | | | | | | |
| | Limited Recourse Guaranty dated September 21, 2018 by Brookfield DTLA Holdings LLC (the “Guarantor”) in favor of Citibank, N.A. (the “Administrative Agent”) and each of the Lenders | | 10-K | | 001-36135 | | 10.11 | | April 1, 2019 |
| | | | | | | | | | |
| | Unfunded Obligations Guaranty dated September 21, 2018 by Brookfield DTLA Holdings LLC (the “Guarantor”) in favor of Citibank, N.A. (the “Administrative Agent”) and each of the Lenders | | 10-K | | 001-36135 | | 10.12 | | April 1, 2019 |
| | | | | | | | | | |
| | Mezzanine A Loan Agreement dated as of September 21, 2018 between North Tower Mezzanine, LLC, as Borrower, and Mirae Asset Daewoo Co., Ltd., as Lender | | 8-K | | 001-36135 | | 10.7 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Unfunded Obligations Guaranty dated September 21, 2018 by Brookfield DTLA Holdings LLC (the “Guarantor”) in favor of Citibank, N.A. (the “Administrative Agent”) and each of the Lenders | | 10-K | | 001-36135 | | 10.12 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Mezzanine A Loan Agreement dated as of September 21, 2018 between North Tower Mezzanine, LLC, as Borrower, and Mirae Asset Daewoo Co., Ltd., as Lender | | 8-K | | 001-36135 | | 10.7 | | April 1, 2019 |
| | | | | | | | | | |
| | Mezzanine B Loan Agreement dated as of September 21, 2018 between North Tower Mezzanine II, LLC, as Borrower, and Citi Global Markets Realty Corp., as Lender | | 8-K | | 001-36135 | | 10.8 | | April 1, 2019 |
| | | | | | | | | | |
| | Mortgage Loan Agreement dated as of February 5, 2021 among Maguire Properties – 555 W. Fifth, LLC and Maguire Properties – 350 S. Figueroa, LLC, collectively, as Borrowers, and Citi Real Estate Funding Inc. and Morgan Stanley Bank, N.A., collectively, as Lenders | | 8-K | | 001-36135 | | 10.5 | | March 25, 2021 |
| | | | | | | | | | |
| | Limited Recourse Guaranty, made as of February 5, 2021, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Citi Real Estate Funding Inc. and Morgan Stanley Bank, N.A., collectively, as Lender | | 8-K | | 001-36135 | | 10.6 | | March 25, 2021 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Mezzanine B Loan Agreement dated as of September 21, 2018 between North Tower Mezzanine II, LLC, as Borrower, and Citi Global Markets Realty Corp., as Lender | | 8-K | | 001-36135 | | 10.8 | | April 1, 2019 |
| | | | | | | | | | |
| | Loan Agreement dated as of July 11, 2016 between Maguire Properties – 555 W. Fifth, LLC and Maguire Properties – 350 S. Figueroa, LLC, collectively, as Borrower, and Deutsche Bank AG, New York Branch and Barclays Bank PLC, collectively, as Lender | | 10-K | | 001-36135 | | 10.7 | | March 20, 2017 |
| | | | | | | | | | |
| | Mezzanine Loan Agreement dated as of July 11, 2016 between Maguire Properties – 555 W. Fifth Mezz I, LLC, as Borrower, and Deutsche Bank AG, New York Branch and Barclays Bank PLC, collectively, as Lender | | 10-K | | 001-36135 | | 10.8 | | March 20, 2017 |
| | | | | | | | | | |
| | Guaranty of Recourse Obligations executed as of July 11, 2016 by Brookfield DTLA Holdings LLC, as Guarantor, for the benefit of Deutsche Bank AG, New York Branch and of Barclays Bank PLC, collectively as Lender | | 10-K | | 001-36135 | | 10.9 | | March 20, 2017 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Mezzanine A Loan Agreement dated as of February 5, 2021 among Maguire Properties – 555 W. Fifth Mezz I, LLC, as Borrower, and Citigroup Global Markets Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC, collectively, as Lenders | | 8-K | | 001-36135 | | 10.7 | | March 25, 2021 |
| | | | | | | | | | |
| | Mezzanine A Limited Recourse Guaranty, made as of February 5, 2021, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Citigroup Global Markets Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC, collectively, as Lender | | 8-K | | 001-36135 | | 10.8 | | March 25, 2021 |
| | | | | | | | | | |
| | Mezzanine B Loan Agreement dated as of February 5, 2021 among Maguire Properties – 555 W. Fifth Mezz II, LLC, as Borrower, and SBAF Mortgage Fund I/Lender, LLC, as Lender | | 8-K | | 001-36135 | | 10.9 | | March 25, 2021 |
| | | | | | | | | | |
| | Mezzanine B Limited Recourse Guaranty, made as of February 5, 2021, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of SBAF Mortgage Fund I/Lender, LLC, as Lender | | 8-K | | 001-36135 | | 10.10 | | March 25, 2021 |
| | | | | | | | | | |
| | Loan Agreement, dated as of October 31, 2019, by and among Maguire Properties – 777 Tower LLC, as Borrower, each of the financial institutions initially a signatory hereto together with their assignees, as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, and Wells Fargo Securities LLC, as Sole Lead Arranger and Sole Bookrunner | | 8-K | | 001-36135 | | 10.1 | | March 26, 2020 |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Mezzanine Guaranty of Recourse Obligations executed as of July 11, 2016 by Brookfield DTLA Holdings LLC, as Guarantor, for the benefit of Deutsche Bank AG, New York Branch and of Barclays Bank PLC, collectively as Lender | | 10-K | | 001-36135 | | 10.10 | | March 20, 2017 |
| | | | | | | | | | |
| | Loan Agreement, dated as of October 31, 2019, by and among Maguire Properties – 777 Tower LLC, as Borrower, each of the financial institutions initially a signatory hereto together with their assignees, as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, and Wells Fargo Securities LLC, as Sole Lead Arranger and Sole Bookrunner | | 8-K | | 001-36135 | | 10.1 | | March 26, 2020 |
| | | | | | | | | | |
| | Limited Guaranty, made as of October 31, 2019, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Wells Fargo Bank, National Association, as Administrative Agent on behalf of the Lenders, and each of the Lenders party to the Loan Agreement | | 8-K | | 001-36135 | | 10.2 | | March 26, 2020 |
| | | | | | | | | | |
| | Mezzanine Loan Agreement, dated as of October 31, 2019, by and among, 777 Tower Mezzanine, LLC, as Borrower, and Mesa West Core Lending Fund, LLC, as Lender | | 8-K | | 001-36135 | | 10.3 | | March 26, 2020 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Limited Guaranty, made as of October 31, 2019, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Wells Fargo Bank, National Association, as Administrative Agent on behalf of the Lenders and each of the Lenders party to the Loan Agreement | | 8-K | | 001-36135 | | 10.2 | | March 26, 2020 |
| | | | | | | | | | |
| | Mezzanine Loan Agreement, dated as of October 31, 2019, by and among, 777 Tower Mezzanine, LLC, as Borrower, and Mesa West Core Lending Fund, LLC, as Lender | | 8-K | | 001-36135 | | 10.3 | | March 26, 2020 |
| | | | | | | | | | |
| | Mezzanine Limited Guaranty, made as of October 31, 2019, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Mesa West Core Lending Fund, LLC, as Lender | | 8-K | | 001-36135 | | 10.4 | | March 26, 2020 |
| | | | | | | | | | |
| | Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement | | 8-K | | 001-36135 | | N/A | | February 10, 2023 |
| | | | | | | | | | |
| | Loan Agreement dated as of November 5, 2018 by and among Maguire Properties–355 S. Grand, LLC, as Borrower, Landesbank Hessen-Thüringen Girozentrale, as Administrative Agent, Barclays Bank PLC, as Syndication Agent, Landesbank Hessen-Thüringen Girozentrale, Barclays Bank PLC and Natixis, New York Branch, as Joint Lead Arrangers. Landesbank Hessen-Thüringen Girozentrale as Hedge Coordinator, and the Financial Institutions now or hereafter signatories hereto and their assignees, as Lenders | | 8-K | | 001-36135 | | 10.9 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Mezzanine Limited Guaranty, made as of October 31, 2019, by Brookfield DTLA Holdings LLC, as Guarantor, in favor of Mesa West Core Lending Fund, LLC, as Lender | | 8-K | | 001-36135 | | 10.4 | | March 26, 2020 |
| | | | | | | | | | |
| | Loan Agreement dated as of November 5, 2018 by and among Maguire Properties–355 S. Grand, LLC, as Borrower, Landesbank Hessen- Thürigen Girozentrale, New York Branch, as Administrative Agent, Barclays Bank PLC, as Syndication Agent, Landesbank Hessen- Thürigen Girozentrale, Barclays Bank PLC and Natixis, New York Branch, as Joint Lead Arrangers. Landesbank Hessen-Thürigen Girozentrale as Hedge Coordinator, and the Financial Institutions now or hereafter signatories hereto and their assignees, as Lenders | | 8-K | | 001-36135 | | 10.9 | | April 1, 2019 |
| | | | | | | | | | |
| | Limited Guaranty made as of November 5, 2018 by Brookfield DTLA Holdings LLC (“Guarantor”) in favor of Landesbank Hessen- Thüringen Girozentrale, New York Branch, as Administrative Agent on behalf of the Lenders (together with its successors and assigns, “Administrative Agent”) and each of the Lenders party to the Loan Agreement | | 8-K | | 001-36135 | | 10.10 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Limited Guaranty made as of November 5, 2018 by Brookfield DTLA Holdings LLC (“Guarantor”) in favor of Landesbank Hessen-Thüringen Girozentrale, New York Branch, as Administrative Agent on behalf of the Lenders (together with its successors and assigns, “Administrative Agent”) and each of the Lenders party to the Loan Agreement | | 8-K | | 001-36135 | | 10.10 | | April 1, 2019 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Loan Agreement, dated as of August 7, 2014, among 333 South Hope Co. LLC and 333 South Hope Plant LLC, collectively, as Borrower, Wells Fargo Bank, National Association, as Lender, and Citigroup Global Markets Realty Corp., as Lender | | 10-K | | 001-36135 | | 10.24 | | March 31, 2015 |
| | | | | | | | | | |
| | Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of August 7, 2014, by 333 South Hope Co. LLC and 333 South Hope Plant LLC, collectively, as grantor, to Fidelity National Title Company, as trustee, for the benefit of Wells Fargo Bank, National Association and Citigroup Global Markets Realty Corp., collectively, as beneficiary | | 10-K | | 001-36135 | | 10.25 | | March 31, 2015 |
| | | | | | | | | | |
| | Guaranty of Recourse Obligations dated as of August 7, 2014 | | 10-K | | 001-36135 | | 10.26 | | March 31, 2015 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Loan Agreement, dated as of August 7, 2014, among 333 South Hope Co. LLC and 333 South Hope Plant LLC, collectively, as Borrower, Wells Fargo Bank, National Association, as Lender, and Citigroup Global Markets Realty Corp., as Lender | | 10-K | | 001-36135 | | 10.24 | | March 31, 2015 |
| | | | | | | | | | |
| | Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of August 7, 2014, by 333 South Hope Co. LLC and 333 South Hope Plant LLC, collectively, as grantor, to Fidelity National Title Company, as trustee, for the benefit of Wells Fargo Bank, National Association and Citigroup Global Markets Realty Corp., collectively, as beneficiary | | 10-K | | 001-36135 | | 10.25 | | March 31, 2015 |
| | | | | | | | | | |
| | Guaranty of Recourse Obligations dated as of August 7, 2014 | | 10-K | | 001-36135 | | 10.26 | | March 31, 2015 |
| | | | | | | | | | |
| | Reserve Guaranty dated as of August 7, 2014 | | 10-K | | 001-36135 | | 10.27 | | March 31, 2015 |
| | | | | | | | | | |
| | Side Letter regarding Reserve Guaranty dated as of August 7, 2014 | | 10-K | | 001-36135 | | 10.28 | | March 31, 2015 |
| | | | | | | | | | |
| | List of Subsidiaries of the Registrant as of December 31, 2019 | | | | | | | | |
| | | | | | | | | | |
| | Certification of Principal Executive Officer dated March 26, 2020 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | | | | | | | | | |
| | Reserve Guaranty dated as of August 7, 2014 | | 10-K | | 001-36135 | | 10.27 | | March 31, 2015 |
| | | | | | | | | | |
| | Side Letter regarding Reserve Guaranty dated as of August 7, 2014 | | 10-K | | 001-36135 | | 10.28 | | March 31, 2015 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | List of Subsidiaries of the Registrant as of December 31, 2022 | | | | | | | | |
| | | | | | | | | | |
| | Certification of Principal Executive Officer dated March 31, 2023 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
| | Certification of Principal Financial Officer dated March 31, 2023 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
| | Certification of Principal Executive Officer and Principal Financial Officer dated March 31, 2023 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
(b) | | Exhibits Required by Item 601 of Regulation S-K | | Incorporated by Reference | | |
Exhibit No. | | Exhibit DescriptionSee Item 3 above. | | Form | | File No. | | Exhibit No. | | Filing Date |
| | | | | | | | | | |
| | Certification of Principal
Financial Officer
dated March 26, 2020
pursuant to Section 302 of
the Sarbanes-Oxley Act
of 2002 | | | | | | | | |
| | | | | | | | | | |
| | Certification of Principal
Executive Officer and
Principal Financial
Officer dated
March 26, 2020 pursuant
to 18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the
Sarbanes-Oxley
Act of 2002 (1) | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | |
(c) | | Financial Statement Schedules | | | | |
(b) |
| | Exhibits Required by Item 601 of Regulation S-K | | | | |
| | See Item 3 above. | | | | |
| | | | | | |
(c) |
| | Financial Statement Schedules | | | | |
| | See Item 2 above. | | | | |
__________ | | | | |
* |
| | Filed herewith. | | | | |
** |
| | Furnished herewith. | | | | |
(1(1) | ) | | This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. |
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC. | |
Date: | March 26, 2020Registrant |
|
| | | |
| BROOKFIELD DTLA FUND OFFICE
TRUST INVESTOR INC. By: | |
| Registrant | |
| | | |
| By: | /s/ G. MARK BROWN | |
| | G. Mark Brown | |
| | Chairman of the Board | |
| | (Principal executive officer) | |
| | | |
| By: | /s/ BRYAN D. SMITH | |
| | Bryan D. Smith | |
| | Chief Financial Officer | |
| | (Principal financial officer) | |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| | | |
Date: | March 31, 2023 | By: | |
Date: | March 26, 2020 | By: | /s/ G. MARK BROWN |
| | | G. Mark Brown Chairman of the Board
(Principal executive officer)
|
| | | |
| March 26, 202031, 2023 | By: | /s/ BRYAN D. SMITH |
| | | Bryan D. Smith Chief Financial Officer
(Principal financial and accounting officer)
|
| | | |
| March 26, 202031, 2023 | By: | /s/ MICHELLE L. CAMPBELL |
| | | Michelle L. Campbell Senior Vice President, Secretary and Director
|
| | | |
| March 26, 202031, 2023 | By: | /s/ ANDREW DAKOS |
| | | Andrew Dakos Director
|
| | | |
| March 26, 202031, 2023 | By: | /s/ MURRAY GOLDFARB |
| | | Murray Goldfarb Director
|
| | | |
| March 26, 202031, 2023 | By: | /s/ PHILLIP GOLDSTEIN |
| | | Phillip Goldstein Director
|
| | | |
| March 26, 202031, 2023 | By: | /s/ IAN PARKER |
| | | Ian Parker Chief Operating Officer and Director
|
| | | |
| March 26, 202031, 2023 | By: | /s/ ROBERT L. STELZL |
| | | Robert L. Stelzl
Director |