Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2014
 or
£
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to __________________

Commission File Number: 001-36135
________________________
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
(Exact name of registrant as specified in its charter)
Maryland 46-2616226
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
   
250 Vesey Street, 15th Floor
New York, NY
(Address of principal executive offices)
 
10281
(Zip Code)
(212) 417-7000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No £¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No £¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer £¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company £¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £¨ No x

As of May 9,August 8, 2014, 100% of the registrant’s common stock (all of which is privately owned and is not traded on any public market) was held by Brookfield DTLA Holdings LLC.




BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31,JUNE 30, 2014

TABLE OF CONTENTS

   Page
PART I—FINANCIAL INFORMATION
    
 Item 1.Financial Statements. 
  
Condensed Consolidated Balance Sheets (unaudited) as of
     March 31,June 30, 2014 and December 31, 2013
  
Condensed Consolidated and Combined Statements of
     Operations
(unaudited) for the three and six months ended March 31,
     June 30, 2014 and 2013
  
Condensed Consolidated and Combined Statements of
     Comprehensive (Loss) Income (unaudited)
     for the three and six months ended March 31,June 30, 2014 and 2013
  
Condensed Consolidated and Combined Statements of
     Stockholders’ Equity (Deficit) (unaudited)
     for the threesix months ended March 31,June 30, 2014 and 2013
  
Condensed Consolidated and Combined Statements of
     Cash Flows
(unaudited) for the threesix months ended March 31,
     June 30, 2014 and 2013
  
Notes to Condensed Consolidated and Combined Financial
     Statements (unaudited)
 Item 2.Management’s Discussion and Analysis of Financial Condition
     and Results of Operations.
 Item 3.Quantitative and Qualitative Disclosures About Market Risk.
 Item 4.Controls and Procedures.
    
PART II—OTHER INFORMATION
    
 Item 1.Legal Proceedings.
 Item 1A.Risk Factors.
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
 Item 3.Defaults Upon Senior Securities.
 Item 4.Mine Safety Disclosures.
 Item 5.Other Information.
 Item 6.Exhibits.
 Signatures
   
  Exhibit 31.1 
 ��Exhibit 31.2 
  Exhibit 32.1 
  Exhibit 101 Instance Document 
  Exhibit 101 Schema Document 
  Exhibit 101 Calculation Linkbase Document 
  Exhibit 101 Definition Linkbase Document 
  Exhibit 101 Label Linkbase Document 
  Exhibit 101 Presentation Linkbase Document 


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
      
ASSETS      
Investments in real estate:      
Land$229,039
 $229,039
$229,039
 $229,039
Buildings and improvements2,142,443
 2,141,821
2,153,674
 2,141,821
Tenant improvements197,286
 187,005
207,712
 187,005
2,568,768
 2,557,865
2,590,425
 2,557,865
Less: accumulated depreciation(136,272) (121,612)(153,435) (121,612)
Investments in real estate, net2,432,496
 2,436,253
2,436,990
 2,436,253
      
Cash and cash equivalents119,798
 196,071
123,087
 196,071
Restricted cash19,894
 22,797
24,981
 22,797
Rents, deferred rents and other receivables, net70,316
 53,306
69,450
 53,306
Intangible assets, net147,188
 157,088
137,443
 157,088
Deferred charges, net61,299
 61,371
60,132
 61,371
Prepaid and other assets, net19,736
 19,310
9,780
 19,310
Total assets$2,870,727
 $2,946,196
$2,861,863
 $2,946,196
      
LIABILITIES AND (DEFICIT) EQUITY      
Liabilities:      
Mortgage loans, net$1,885,686
 $1,885,605
$1,885,618
 $1,885,605
Accounts payable and other liabilities67,587
 60,637
73,824
 60,637
Due to affiliates, net40,907
 35,615
41,463
 35,615
Intangible liabilities, net44,200
 44,801
42,019
 44,801
Total liabilities$2,038,380
 $2,026,658
$2,042,924
 $2,026,658
      
Commitments and Contingencies (See Note 13)
 


 









See accompanying notes to condensed consolidated and combined financial statements.

1

Table of Contents

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited; in thousands)

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
      
LIABILITIES AND (DEFICIT) EQUITY (continued)      
Mezzanine Equity:      
7.625% Series A Cumulative Redeemable Preferred Stock,
$0.01 par value, 9,730,370 shares issued and
outstanding as of March 31, 2014 and December 31, 2013
$343,738
 $339,101
7.625% Series A Cumulative Redeemable Preferred Stock,
$0.01 par value, 9,730,370 shares issued and
outstanding as of June 30, 2014
and December 31, 2013
$348,375
 $339,101
Noncontrolling Interests:      
Series A-1 preferred interest318,961
 314,658
323,264
 314,658
Senior participating preferred interest192,111
 257,780
196,143
 257,780
Total mezzanine equity854,810
 911,539
867,782
 911,539
      
Stockholders (Deficit) Equity:
      
Common stock, $0.01 par value, 1,000 shares
issued and outstanding as of March 31, 2014
and December 31, 2013

 
Common stock, $0.01 par value, 1,000 shares
issued and outstanding as of June 30, 2014
and December 31, 2013

 
Additional paid-in capital191,710
 191,710
191,710
 191,710
Accumulated deficit(102,806) (89,177)(114,421) (89,177)
Accumulated other comprehensive (loss) income(409) 480
(1,366) 480
Noncontrolling interest – Series B common interest(110,958) (95,014)(124,766) (95,014)
Total stockholders’ (deficit) equity(22,463) 7,999
(48,843) 7,999
Total liabilities and (deficit) equity$2,870,727
 $2,946,196
$2,861,863
 $2,946,196
















See accompanying notes to condensed consolidated and combined financial statements.

2

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF OPERATIONS
(Unaudited; in thousands)

For the Three Months EndedFor the Three Months Ended For the Six Months Ended
March 31, 2014 March 31, 2013June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Revenue:          
Rental income$37,677
 $13,210
$38,074
 $13,352
 $75,751
 $26,562
Tenant reimbursements20,348
 7,133
25,261
 8,260
 45,609
 15,393
Parking8,333
 2,869
8,329
 2,790
 16,662
 5,659
Interest and other2,319
 708
2,694
 722
 5,013
 1,430
Total revenue68,677
 23,920
74,358
 25,124
 143,035
 49,044
          
Expenses:          
Rental property operating and maintenance24,385
 8,273
23,224
 8,440
 47,609
 16,713
Real estate taxes9,047
 2,294
9,809
 3,128
 18,856
 5,422
Parking1,797
 747
1,652
 745
 3,449
 1,492
Other expense243
 546
701
 717
 944
 1,263
Depreciation and amortization26,010
 7,177
28,100
 7,127
 54,110
 14,304
Interest22,520
 4,337
22,271
 4,365
 44,791
 8,702
Total expenses84,002
 23,374
85,757
 24,522
 169,759
 47,896
          
Net (loss) income(15,325) 546
(11,399) 602
 (26,724) 1,148
Net income attributable to TRZ Holdings IV LLC
 (546)
 (602) 
 (1,148)
Net loss attributable to noncontrolling interests:          
Series A-1 preferred interest – current dividends(4,303) 
(4,303) 
 (8,606) 
Senior participating preferred interest – current dividends(4,133) 
(3,102) 
 (7,235) 
Senior participating preferred interest – redemption
measurement adjustment
(198) 
(930) 
 (1,128) 
Series B common interest – allocation of net loss14,967
 
12,756
 
 27,723
 
Net loss attributable to Brookfield DTLA(8,992) 
(6,978) 
 (15,970) 
Series A preferred stock – current dividends(4,637) 
(4,637) 
 (9,274) 
Net loss available to common interest
holders of Brookfield DTLA
$(13,629) $
$(11,615) $
 $(25,244) $














See accompanying notes to condensed consolidated and combined financial statements.

3

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited; in thousands)

For the Three Months EndedFor the Three Months Ended For the Six Months Ended
March 31, 2014 March 31, 2013June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
          
Net (loss) income$(15,325) $546
$(11,399) $602
 $(26,724) $1,148
          
Other comprehensive loss:          
Derivative transactions:          
Derivative holding losses(1,866) 
(2,009) 
 (3,875) 
          
Comprehensive (loss) income(17,191) 546
(13,408) 602
 (30,599) 1,148
Comprehensive (income) attributable to
TRZ Holdings IV LLC

 (546)
 (602) 
 (1,148)
Comprehensive loss attributable to
noncontrolling interests
7,310
 
5,473
 
 12,783
 
Comprehensive loss available to
common interest holders of Brookfield DTLA
$(9,881) $
$(7,935) $
 $(17,816) $

































See accompanying notes to condensed consolidated and combined financial statements.


4

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited; in thousands, except share amounts)

 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interest
 
Total
Stockholders
Equity
(Deficit)
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interest
 
Total
Stockholders
Equity
(Deficit)
 
Common
Stock
  
Common
Stock
 
                            
Balance, December 31, 2013 1,000
 $
 $191,710
 $(89,177) $480
 $(95,014) $7,999
 1,000
 $
 $191,710
 $(89,177) $480
 $(95,014) $7,999
Net loss       (8,992)   (6,333) (15,325)       (15,970)   (10,754) (26,724)
Other comprehensive loss         (889) (977) (1,866)         (1,846) (2,029) (3,875)
Dividends on Series A
preferred stock, Series A-1
preferred interest and
senior participating
preferred interest
       (4,637)   (8,634) (13,271)       (9,274)   (16,969) (26,243)
Balance, March 31, 20141,000
 $
 $191,710
 $(102,806) $(409) $(110,958) $(22,463)
Balance, June 30, 2014Balance, June 30, 20141,000
 $
 $191,710
 $(114,421) $(1,366) $(124,766) $(48,843)

 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
TRZ
Holdings IV
LLCs
Interest
 
Total
Stockholders
Equity
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
TRZ
Holdings IV
LLCs
Interest
 
Total
Member’s
Equity
 
Common
Stock
  
Common
Stock
 
                            
Balance, December 31, 2012Balance, December 31, 2012
 $
 $
 $
 $
 $508,703
 $508,703
Balance, December 31, 2012
 $
 $
 $
 $
 $508,703
 $508,703
Net income           546
 546
           1,148
 1,148
Distributions to
TRZ Holdings IV LLC, net
           (2,277) (2,277)
Balance, March 31, 2013
 $
 $
 $
 $
 $506,972
 $506,972
Contributions from
TRZ Holdings IV LLC, net
           2,690
 2,690
Balance, June 30, 2013Balance, June 30, 2013
 $
 $
 $
 $
 $512,541
 $512,541






















See accompanying notes to condensed consolidated and combined financial statements.

5

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

For the Three Months EndedFor the Six Months Ended
March 31, 2014 March 31, 2013June 30, 2014 June 30, 2013
Cash flows from operating activities:      
Net (loss) income$(15,325) $546
$(26,724) $1,148
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
      
Depreciation and amortization26,010
 7,177
54,110
 14,304
Amortization of below-market leases/
above-market leases
(653) (501)(1,248) (993)
Straight-line rent amortization(6,013) (3,029)(10,023) (5,728)
Amortization of tenant inducements256
 242
1,208
 488
Amortization of debt discounts1,274
 153
2,353
 311
Amortization of deferred financing costs318
 
627
 
Changes in assets and liabilities:      
Rents, deferred rents and other receivables(9,748) (306)(9,303) (719)
Due to (from) affiliates, net3,786
 (1,228)664
 (2,546)
Deferred charges(2,938) (1,512)(4,859) (1,941)
Prepaid and other assets(1,433) (64)8,524
 1,942
Accounts payable and other liabilities9,153
 1,694
3,442
 74
Net cash provided by operating activities4,687
 3,172
18,771
 6,340
Cash flows from investing activities:      
Expenditures for improvements to real estate(12,670) (4,043)(17,232) (7,634)
Decrease in restricted cash2,903
 
Increase in restricted cash(2,183) 
Net cash used in investing activities(9,767) (4,043)(19,415) (7,634)
Cash flows from financing activities:      
Principal payments on mortgage loans(1,193) (1,795)(2,340) (3,535)
Distributions to Brookfield DTLA Holdings(70,000) 
(70,000) 
Distributions to TRZ Holdings IV LLC, net
 (2,277)
Contributions from TRZ Holdings IV LLC, net
 2,690
Net cash used in financing activities(71,193) (4,072)(72,340) (845)
Net change in cash and cash equivalents(76,273) (4,943)(72,984) (2,139)
Cash and cash equivalents at beginning of period196,071
 5,707
196,071
 5,707
Cash and cash equivalents at end of period$119,798
 $764
$123,087
 $3,568








See accompanying notes to condensed consolidated and combined financial statements.

6

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF CASH FLOWS (continued)
(Unaudited; in thousands)

For the Three Months EndedFor the Six Months Ended
March 31, 2014 March 31, 2013June 30, 2014 June 30, 2013
Supplemental disclosure of cash flow information:      
Cash paid for interest$20,674
 $4,188
$41,757
 $8,431
      
Supplemental disclosure of non-cash investing and
financing activities:
      
Accrual for real estate improvements$5,307
 $2,325
$11,488
 $3,087
Accrual for deferred leasing costs3,265
 1,810
2,628
 1,923
Decrease in fair value of interest rate swap(1,866) 
(3,875) 
      










See accompanying notes to condensed consolidated and combined financial statements.

7

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


Note 1—Organization and Description of Business

General

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 (“Brookfield DTLA Holdings”), a Delaware limited liability company, and an indirect subsidiary of Brookfield Office Properties Inc. (“BPO”).

Prior to October 15, 2013, 333 South Hope Co. LLC (“333 South Hope”) and EYP Realty LLC (“EYP Realty”) were controlled by BPO through its indirect ownership interest in TRZ Holdings IV LLC (“TRZ”). TRZ owned 100% of the member units of 333 South Hope and EYP Realty, and BPO indirectly owns approximately 84% of the member units of TRZ.

On October 15, 2013, through a series of formation transactions TRZ’s interests in 333 South Hope and EYP Realty were contributed to subsidiaries of Brookfield DTLA in exchange for preferred and common interests in Brookfield DTLA Fund Properties II LLC (“New OP”) and a preferred interest in Brookfield DTLA Fund Properties III LLC (“DTLA OP”). 333 South Hope owned Bank of America Plaza (“BOA Plaza”) and EYP Realty owned Ernst & Young Plaza (“EY Plaza”). Both of these Class A commercial properties are located in the Los Angeles Central Business District (the “LACBD”).

MPG Acquisition

On October 15, 2013, Brookfield DTLA completed the acquisition of MPG (the “merger”) pursuant to the terms of the Merger Agreement. As part of the transaction, MPG was contributed to New OP in exchange for a preferred interest in New OP. In addition to BOA Plaza and EY Plaza, Brookfield DTLA now owns Wells Fargo Center–North Tower (also known as “Wells Fargo Tower”), Wells Fargo Center–South Tower (also known as “KPMG Tower”), Gas Company Tower and 777 Tower, each of which are Class A office properties located in the LACBD that were formerly owned by MPG.

At the effective time of the merger, (i) each issued and outstanding share of MPG common stock was automatically converted into, and canceled in exchange for, the right to receive $3.15 in cash, without interest and less any required withholding tax and (ii) each issued and outstanding share of the 7.625% Series A Cumulative Redeemable Preferred Stock of MPG (the “MPG Preferred Stock”) automatically, and without a vote by the holders of MPG Preferred Stock, was converted into and canceled in exchange for, the right to receive one share of the Company’s Series A preferred stock.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

In connection with the acquisition, DTLA Fund Holding Co., a subsidiary of Brookfield DTLA Holdings, made a tender offer to purchase all of the issued and outstanding shares of MPG Preferred Stock for cash consideration of $25.00 per share (the “offer price”). A total of 372,901 shares of MPG Preferred Stock were validly tendered into the offer and the holders thereof received the offer price for such shares. At the effective time of the merger, each share of MPG Preferred Stock that was issued and outstanding immediately prior to the merger, including each share of MPG Preferred Stock acquired by DTLA Fund Holding Co. in the offer, was exchanged for one share of Series A preferred stock of the Company with rights, terms and conditions substantially identical to those of the MPG Preferred Stock.

Note 2Basis of Presentation

Predecessor Entities

Prior to October 15, 2013, Brookfield DTLA had not conducted any business as a separate company and had no material assets or liabilities. In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the contribution of 333 South Hope and EYP Realty (together, the “Predecessor Entities”) constitute a transaction between entities under common control. A combination between entities that already share the same parent is not considered a business combination because there is no change in control at the parent level. Accordingly, the operations of the Predecessor Entities contributed to Brookfield DTLA by TRZ on October 15, 2013 are presented in the accompanying condensed consolidated and combined financial statements as if they were owned by Brookfield DTLA for all historical periods presented and the assets and liabilities of BOA Plaza and EY Plaza were recorded at the carrying values reflected in the books and records of 333 South Hope and EYP Realty. As such, no gain or loss was recorded in the consolidated statement of operations for the year ended December 31, 2013 due to this transaction. As a result of the transaction, TRZ’s interest in the Predecessor Entities was exchanged for a preferred and common interest in New OP and a preferred interest in DTLA OP. As a result of certain redemption features in the preferred instruments, these instruments have been classified in the consolidated balance sheets as mezzanine equity. See Note 7 “Mezzanine Equity.”

As used in these condensed consolidated and combined financial statements and related notes, the terms “Brookfield DTLA,” the “Company,” “us,” “we” and “our” refer to the combination of Brookfield DTLA Fund Office Trust Investor Inc. and the Predecessor Entities.

Principles of Consolidation and Combination and Basis of Presentation

The unaudited condensed consolidated and combined financial statements and related disclosures have been prepared in accordance with GAAP applicable to interim financial information and with the instructions to Form 10‑Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments, consisting of only those of a normal and recurring nature, considered necessary for a fair presentation of the financial position and interim results of Brookfield DTLA and the Predecessor Entities as of and for the periods presented have been included. The results of operations for interim periods are not necessarily indicative of those that may be expected for a full fiscal year.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

The condensed consolidated balance sheet data as of December 31, 2013 has been derived from Brookfield DTLA’s audited financial statements; however, the accompanying notes to the condensed consolidated and combined financial statements do not include all disclosures required by GAAP.

The financial information included herein should be read in conjunction with the consolidated and combined financial statements and related notes included in Brookfield DTLA’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 8, 2014, as amended on April 29, 2014.

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 variable interest entity that most significantly impact the entity’s economic performance and has the obligation to absorb 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 activities that most significantly impact the VIE’s economic performance, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions and its ability to replace the manager of and/or liquidate the entity.

The Company earns a return through an indirect investment in New OP. Brookfield 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 exposure to the economic performance of New OP, Brookfield DTLA meets the two conditions for being the primary beneficiary. Brookfield DTLA is required to continually evaluate its VIE relationships and consolidation conclusion.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Use of Estimates

The preparation of condensed consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated and combined financial statements and accompanying notes. For example, estimates and assumptions have been made with respect to fair values of assets and liabilities for applying the acquisition method of accounting, the useful lives of assets, recoverable amounts of receivables, impairment of long-lived assets and fair value of debt. Actual results could ultimately differ from such estimates.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014‑08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires entities to disclose only disposals representing a strategic shift in operations as discontinued operations. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new standard is effective in the first quarter of 2015 for public organizations with calendar year ends.year-ends. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in the financial statements previously issued. We do not believe that this update will have a material effect on Brookfield DTLA’s consolidated financial statements in future periods.

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the impact of the adoption of ASU 2014-09 on Brookfield DTLA’s consolidated financial statements.

Income Taxes

Brookfield DTLA intends to elect 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 year ended December 31, 2013. Brookfield DTLA intends to conduct its operations so as to qualify as a REIT. Accordingly, Brookfield DTLA will not be subject to U.S. federal income tax, provided that it qualifies as a REIT and distributions to its stockholders generally equal or exceed its taxable income.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

However, qualification and taxation as a REIT depends upon Brookfield DTLA’s ability to meet the various qualification tests imposed under the Code related to annual operating results, asset diversification, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that Brookfield DTLA will be organized or be able to operate in a manner so as to qualify or remain qualified as a REIT. If Brookfield DTLA fails to qualify as a REIT in any taxable year, it will be subject to federal and state income tax on its taxable income at regular corporate tax rates, and it may be ineligible to qualify as a REIT for four subsequent tax years. Brookfield DTLA may also be subject to certain state or local income taxes, or franchise taxes on its REIT activities.

Brookfield DTLA has made no provision for income taxes in its condensed consolidated and combined financial statements for the three and six months ended March 31,June 30, 2014 and 2013, respectively. Brookfield DTLA’s taxable income or loss is different than its financial statement income or loss.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

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 had no unrecognized tax benefits as of March 31,June 30, 2014 and December 31, 2013, and Brookfield DTLA does not expect its unrecognized tax benefits balance to change during the next 12 months. The Predecessor Entities’ 2009, 2010, 2011 and 2012 tax years remain open due to the statute of limitations and may be subject to examination by federal, state and local tax authorities.

Note 3—Rents, Deferred Rents and Other Receivables, Net

Brookfield DTLA’s rents, deferred rents and other receivables are presented net of the following amounts in the condensed consolidated balance sheets (in thousands):

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
Allowance for doubtful accounts$78
 $357
$168
 $357
Accumulated amortization of tenant inducements2,925
 2,669
3,877
 2,669

Brookfield DTLA recorded a provision for doubtful accounts of $0.1 million during the three and thesix months ended June 30, 2014. The Predecessor Entities recorded no provision for doubtful accounts during the three and six months ended March 31, 2014 and 2013, respectively.June 30, 2013.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 4—Intangible Assets and Liabilities

Brookfield DTLA’s intangible assets and liabilities are summarized as follows (in thousands):

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
Intangible Assets      
In-place leases$110,380
 $110,380
$110,380
 $110,380
Tenant relationships46,248
 46,248
46,248
 46,248
Above-market leases38,913
 38,913
38,913
 38,913
195,541
 195,541
195,541
 195,541
Accumulated amortization(48,353) (38,453)(58,098) (38,453)
Intangible assets, net$147,188
 $157,088
$137,443
 $157,088
      
Intangible Liabilities      
Below-market leases$76,438
 $76,438
$76,438
 $76,438
Accumulated amortization(32,238) (31,637)(34,419) (31,637)
Intangible liabilities, net$44,200
 $44,801
$42,019
 $44,801


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

The impact of the amortization of acquired below-market leases, net of acquired above-market leases, on rental income and of acquired in-place leases and tenant relationships on depreciation and amortization expense is as follows (in thousands):

For the Three Months EndedFor the Three Months Ended For the Six Months Ended
March 31, 2014 March 31, 2013June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Rental income$653
 $501
$595
 $492
 $1,248
 $993
Depreciation and amortization expense8,324
 1,358
8,159
 1,067
 16,483
 2,425

As of March 31,June 30, 2014, the estimate of the amortization/accretion of intangible assets and liabilities during the remainder of 2014, and the next four years and thereafter is as follows (in thousands):

In-Place
Leases
 
Other
Intangible Assets
 
Intangible
Liabilities
In-Place
Leases
 
Other
Intangible Assets
 
Intangible
Liabilities
2014$17,945
 $8,430
 $6,048
$11,308
 $5,943
 $3,882
201518,425
 9,733
 7,112
18,221
 9,733
 7,107
201615,351
 8,597
 6,433
15,146
 8,597
 6,428
20179,484
 5,794
 5,855
9,280
 5,794
 5,850
20186,829
 4,901
 4,081
6,821
 4,901
 4,081
Thereafter24,259
 17,440
 14,671
24,259
 17,440
 14,671
$92,293
 $54,895
 $44,200
$85,035
 $52,408
 $42,019


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 5—Deferred Charges, Net

Brookfield DTLA’s deferred charges are presented net of the following amounts in the condensed consolidated balance sheets (in thousands):

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
Accumulated amortization of leasing costs$20,607
 $17,914
$23,385
 $17,914
Accumulated amortization of deferred financing costs470
 152
779
 152


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 6Mortgage Loans

Brookfield DTLA’s debt is as follows (in thousands, except percentage amounts):

Contractual
Maturity Date
   Principal Amount as of
Contractual
Maturity Date
   Principal Amount as of
 Interest Rate March 31, 2014 December 31, 2013 Interest Rate June 30, 2014 December 31, 2013
Floating-Rate Debt            
Variable-Rate Loans:            
Wells Fargo Center–South Tower (1)12/1/2016 1.96% $290,000
 $290,000
12/1/2016 1.96% $290,000
 $290,000
777 Tower (2)11/1/2018 1.86% 200,000
 200,000
11/1/2018 1.86% 200,000
 200,000
Total variable-rate loans   490,000
 490,000
   490,000
 490,000
            
Variable-Rate Swapped to Fixed-Rate Loan:            
EY Plaza (3)11/27/2020 3.93% 185,000
 185,000
11/27/2020 3.93% 185,000
 185,000
Total floating-rate debt   675,000
 675,000
   675,000
 675,000
            
Fixed-Rate Debt:            
Wells Fargo Center–North Tower4/6/2017 5.70% 550,000
 550,000
4/6/2017 5.70% 550,000
 550,000
Gas Company Tower8/11/2016 5.10% 458,000
 458,000
8/11/2016 5.10% 458,000
 458,000
BOA Plaza(4)9/7/2014 5.06% 169,245
 170,191
9/7/2014 5.06% 168,335
 170,191
BOA Plaza(4)9/7/2014 6.26% 44,074
 44,321
9/7/2014 6.26% 43,837
 44,321
Total fixed-rate debt   1,221,319
 1,222,512
   1,220,172
 1,222,512
            
Total debt   1,896,319
 1,897,512
   1,895,172
 1,897,512
Debt discounts   (10,633) (11,907)   (9,554) (11,907)
Total debt, net   $1,885,686
 $1,885,605
   $1,885,618
 $1,885,605
__________
(1)This loan bears interest at LIBOR plus 1.80%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 4.75%.
(2)
This loan bears interest at LIBOR plus 1.70%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 5.75%.
(3)This loan bears interest at LIBOR plus 1.75%. As required by the loan agreement, we have entered into an interest rate swap agreement to hedge this loan, which effectively fixes the LIBOR portion of the interest rate at 2.178%. The effective interest rate of 3.93% includes interest on the swap.

(4)
The BOA Plaza mortgage loans were refinanced onAugust 7, 2014. SeeNote 14 “Subsequent Event.”

14



BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

As of March 31,June 30, 2014, our debt to be repaid during the remainder of 2014, and the next four years and thereafter is as follows (in thousands):

2014(1)$213,319
$212,172
2015311
311
2016751,831
751,831
2017554,026
554,026
2018204,232
204,232
Thereafter172,600
172,600
$1,896,319
$1,895,172
__________
(1)
The BOA Plaza mortgage loans were refinanced on August 7, 2014. SeeNote 14 “Subsequent Event.”

As of March 31,June 30, 2014, $185.0397.2 million of our debt may be prepaid without penalty, $671.3458.0 million may be defeased (as defined in the underlying loan agreements), $550.0 million may be prepaid with prepayment penalties or defeased (as defined in the underlying loan agreement) at our option, $290.0 million may be prepaid with prepayment penalties, and $200.0 million is locked out from prepayment until November 1, 2015.

The BOA Plaza mortgage loans mature on September 7, 2014. Brookfield DTLA intends to refinance these loans prior to or upon maturity. Management expects the refinancing will generate proceeds in excess of the amounts necessary to refinance the existing mortgage loans, pay all fees and other expenses related to the refinancing, and create or maintain related reserves as the fair value of the collateral securing the loans exceeds the face value of those loans as of March 31, 2014.

Funding of Wells Fargo Center–North Tower Collateral Reserve

In connection with the MPG acquisition, Brookfield DTLA Holdings assumed the mortgage loan secured by the Wells Fargo Center–North Tower office property. In connection with loan assumption, Brookfield DTLA Holdings agreed to deposit a total of $10.0 million into a collateral reserve account held by the lender, of which $5.0 million was deposited when the loan was assumed during 2013 and $1.25 million was funded by Brookfield DTLA in April 2014. The remaining $3.75 million will be paid in installments of $1.25 million in October 2014, April 2015, and October 2015.

Non-Recourse Carve Out Guarantees

All of Brookfield DTLA’s $1.9 billion of mortgage debt is subject to “non-recourse carve out” guarantees that expire upon elimination of the underlying loan obligations. Under these guarantees, these otherwise non‑recourse loans can become partially or fully recourse against Brookfield DTLA Holdings if certain triggering events occur as defined in the loan agreements.

Debt Reporting

Pursuant to the terms of certain of our mortgage loan agreements, Brookfield DTLA is required to report a debt service coverage ratio (“DSCR”) calculated using the formulas specified in the underlying loan agreements. We have submitted the required reports to the lenders for the measurement periods ended March 31,June 30, 2014 and were in compliance with the amounts required by the loan agreements, with the exception of Gas Company Tower.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

the exception of Gas Company Tower.

Under the Gas Company Tower mortgage loan, we reported a DSCR of 0.920.86 to 1.00, calculated using actual debt service under the loan, and a DSCR of 0.730.68 to 1.00, calculated using actual debt service plus a hypothetical principal payment using a 30-year amortization schedule. Because the reported DSCR using the actual debt service plus a hypothetical principal payment was less than 1.00 to 1.00, the lender could seek to remove Brookfield Properties Management (CA) Inc. as property manager of Gas Company Tower, which is the only recourse available to the lender as a result of such breach.

Pursuant to the terms of the Gas Company Tower, Wells Fargo Center–South Tower, Wells Fargo Center–North Tower, and EY Plaza mortgage loan agreements, we are required to provide annual audited financial statements of Brookfield DTLA Holdings to the lenders or agents. The receipt of any opinion other than an “unqualified” audit opinion on our annual audited financial statements is an event of default under the loan agreements for the properties listed above. If an event of default occurs, the lenders have the right to pursue the remedies contained in the loan documents, including acceleration of all or a portion of the debt and foreclosure.

Note 7—Mezzanine Equity

Mezzanine equity in the condensed consolidated balance sheets as of March 31,June 30, 2014 and December 31, 2013 is comprised of the Series A preferred stock, a Series A-1 preferred interest and a senior participating preferred interest (the “Preferred Interests”). The Series A-1 preferred interest and senior participating preferred interest are held by a noncontrolling interest holder. There is no commitment or obligation on the part of Brookfield DTLA or Brookfield DTLA Holdings to redeem the Preferred Interests. See “—Senior Participating Preferred Interest” below for a discussion of distributionsthe distribution paid related to the senior participating preferred interest during the three months ended March 31, 2014.

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 March 31,June 30, 2014 and December 31, 2013.

Other than the distribution paid to the senior participating preferred interest in the first quarter of 2014 described below, Brookfield DTLA has not paid any cash dividends 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.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Series A Preferred Stock

As of March 31,June 30, 2014 and December 31, 2013, 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 Brookfield DTLA Holdings.

The fair value of the 9,730,370 shares of Series A preferred stock issued by the Company in the merger with MPG was based on an estimate of fair value of $26.00 per share. The valuation was based on available trading information for the MPG Preferred Stock and the Company’s Series A preferred stock on the day prior to and subsequent to the transaction, respectively.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

No dividends were declared on the Series A preferred stock during the threesix months ended March 31, 2014.June 30, 2014. Dividends on the Series A preferred stock are cumulative, and therefore, will continue to accrue at an annual rate of $1.90625 per share. As of March 31,June 30, 2014,, the cumulative amount of unpaid dividends totals $100.5$105.1 million and has been reflected in the carrying amount of the Series A preferred stock.

As of March 31,June 30, 2014,, the Series A preferred stock is reported at its redemption value of $343.7$348.4 million calculated using the redemption price of $25.00 per share plus all accumulated and unpaid dividends on such Series A preferred stock through March 31, 2014.June 30, 2014.

Series A-1 Preferred Interest

As of March 31,June 30, 2014,, the Series A-1 preferred interest is reported at its redemption value of $319.0$323.3 million calculated using its liquidation value of $225.7 million plus $93.3$97.6 million of accumulated and unpaid dividends on such Series A-1 preferred interest through March 31, 2014.June 30, 2014.

Senior Participating Preferred Interest

On March 21, 2014, Brookfield DTLA made a cash distribution to Brookfield DTLA Holdings totaling $70.0 million, which was comprised of $7.3 million in settlement of preferred dividends on the senior participating preferred interest through March 21, 2014 and a return of investment of $62.7 million using proceeds generated by the refinancing of EY Plaza.

As of March 31,June 30, 2014,, the senior participating preferred interest is reported at its redemption value of $192.1$196.1 million calculated using the value of the preferred and participating interests totaling $191.8$192.7 million plus $0.3$3.4 million of accumulated and unpaid dividends on the preferred interest through March 31, 2014.

Change in Mezzanine Equity

A summary of the change in mezzanine equity for the three months ended March 31, 2014 is 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
 
           
Balance, December 31, 2013 9,730,370
 $339,101
 $314,658
 $257,780
 $911,539
Current dividends   4,637
 4,303
 4,133
 13,073
Redemption measurement adjustment       198
 198
Cash distribution       (70,000) (70,000)
Balance, March 31, 2014 9,730,370
 $343,738
 $318,961
 $192,111
 $854,810
June 30, 2014.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Change in Mezzanine Equity

A summary of the change in mezzanine equity for the six months ended June 30, 2014 is 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
 
           
Balance, December 31, 2013 9,730,370
 $339,101
 $314,658
 $257,780
 $911,539
Current dividends   9,274
 8,606
 7,235
 25,115
Redemption measurement adjustment       1,128
 1,128
Cash distribution       (70,000) (70,000)
Balance, June 30, 20149,730,370
 $348,375
 $323,264
 $196,143
 $867,782

Note 8—Noncontrolling Interests

Mezzanine Equity Component

The Series A-1 preferred interest and senior participating preferred interest consist of equity interests of New OP and DTLA OP, respectively, which are owned directly by Brookfield DTLA Holdings. These noncontrolling interests are presented in mezzanine equity in the condensed consolidated balance sheets as of March 31,June 30, 2014 and December 31, 2013. See Note 7 “Mezzanine Equity.”

Stockholders’ Equity 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 condensed consolidated balance sheets as of March 31,June 30, 2014 and December 31, 2013 as noncontrolling interest.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 9—Accumulated Other Comprehensive Loss

A summary of the change in accumulated other comprehensive loss related to Brookfield DTLA’s cash flow hedges is as follows (in thousands):

 For the Three Months Ended
 March 31, 2014 March 31, 2013
Balance at beginning of period$1,007
 $
Other comprehensive loss before reclassifications(1,866) 
Amounts reclassified from accumulated other
     comprehensive loss

 
Net current-period other comprehensive loss(1,866) 
Balance at end of period$(859) $
 For the Three Months Ended For the Six Months Ended
 June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Balance at beginning of period$(859) $
 $1,007
 $
Other comprehensive loss
    before reclassifications
(2,009) 
 (3,875) 
Amounts reclassified from accumulated
    other comprehensive loss

 
 
 
Net current-period
    other comprehensive loss
(2,009) 
 (3,875) 
Balance at end of period$(2,868) $
 $(2,868) $

Note 10—Fair Value Measurements

The valuation of Brookfield DTLA’s interest rate swap is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flow of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We have incorporated credit valuation adjustments to appropriately reflect both our own and the respective counterparty’s non-performance risk in the fair value measurements.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Brookfield DTLA’s assets and (liabilities) 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   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)
 
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 swap at:                
March 31, 2014 $(859) $
 $(859) $
June 30, 2014 $(2,868) $
 $(2,868) $
December 31, 2013 1,007
 
 1,007
 
 1,007
 
 1,007
 


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 11Financial Instruments

Derivative Financial Instruments

A summary of the fair value of Brookfield DTLA’s derivative financial instruments is as follows (in thousands):

 Fair Value Fair Value
 March 31, 2014 December 31, 2013 June 30, 2014 December 31, 2013
Derivatives designated as cash flow hedging
instruments:
        
Interest rate swap (liability) asset $(859) $1,007
 $(2,868) $1,007

The interest rate swap liability as of March 31,June 30, 2014 is included in accounts payable and other liabilities in the condensed consolidated balance sheet, while the interest rate swap asset as of December 31, 2013 is included in prepaid and other assets in the condensed consolidated balance sheet.

A summary of the effect of derivative financial instruments reported in the condensed consolidated and combined financial statements is as follows (in thousands):

 
Amount of (Loss)
Recognized in AOCL
 
Amount of Gain/(Loss)
Reclassified from
AOCL to Statement
of Operations
Derivatives designated as cash flow hedging instruments:   
Interest rate swap for the three months ended:   
March 31, 2014$(1,866) $
March 31, 2013
 
 
Amount of (Loss)
Recognized in AOCL
 
Amount of Gain/(Loss)
Reclassified from
AOCL to Statement
of Operations
Derivatives designated as cash flow hedging instruments:   
Interest rate swap for the six months ended:   
June 30, 2014$(3,875) $
June 30, 2013
 


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Interest Rate Swap—

As of March 31,June 30, 2014 and December 31, 2013, Brookfield DTLA held an interest rate swap with a notional amount of $185.0 million, which was assigned to the EY Plaza mortgage loan. The swap requires net settlement each month and expires on November 2, 2020.

Interest Rate Caps—

Brookfield DTLA holds interest rate caps pursuant to the terms of certain of its mortgage loan agreements with the following notional amounts (in thousands):

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
Wells Fargo Center–South Tower$290,000
 $290,000
$290,000
 $290,000
777 Tower200,000
 200,000
200,000
 200,000
$490,000
 $490,000
$490,000
 $490,000


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

The fair value of our interest rate caps was $1.2$0.4 million and $1.6 million as of March 31,June 30, 2014 and December 31, 2013, respectively.

Other Financial Instruments

The estimated fair value and carrying amount of Brookfield DTLA’s mortgage loans are as follows (in thousands):

March 31, 2014 December 31, 2013June 30, 2014 December 31, 2013
Estimated fair value$1,888,712
 $1,890,436
$1,901,875
 $1,890,436
Carrying amount1,885,686
 1,885,605
1,885,618
 1,885,605

We calculated the estimated fair value of our mortgage loans by discounting the future contractual cash flows of the loans using current risk adjusted rates available to borrowers with similar credit ratings. The estimated fair value of mortgage loans is classified as Level 3.

Note 12—Related Party Transactions

Intercompany Loan

The Company is indebted to BOP Management Inc. under a $25.0 million promissory note dated October 11, 2013 that matures on October 15, 2015, which is included in due to affiliates, net in the condensed consolidated balance sheets as of March 31,June 30, 2014 and December 31, 2013. The note bears interest at 3.25%, which is payable semi-annually. For the three and six months ended March 31,June 30, 2014, the Company accrued $0.2 million and $0.4 million, respectively, of interest expense related to this note. Given the short-term nature of this instrument, fair value was determined to approximate carrying value as of March 31,June 30, 2014 and December 31, 2013.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Management Agreements

The Predecessor Entities entered into arrangements with Brookfield Properties Management LLC, which is affiliated through common ownership with BPO, under which the affiliate provides property management and various other services. On October 15, 2013, these agreements were transferred to BOP Management Inc., an affiliate of BPO. The MPG properties entered into similar arrangements with BOP Management Inc. after the closing of the acquisition on October 15, 2013. Property management fees under these agreements are calculated based on 3.0% of rents collected (as defined in the management agreements). In addition, the Company pays BOP Management Inc. an asset management fee, which is calculated based on 0.75% of the capital contributed to Brookfield DTLA Holdings.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

A summary of costs incurred by Brookfield DTLA and the Predecessor Entities under these arrangements is as follows (in thousands):

 For the Three Months Ended
 March 31, 2014 March 31, 2013
Management fees expense$3,386
 $643
General, administrative and reimbursable expenses701
 287
Leasing and construction management fees672
 436
 For the Three Months Ended For the Six Months Ended
 June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Property management fee expense$2,138
 $713
 $4,017
 $1,356
Asset management fee expense1,523
 
 3,029
 
General, administrative and
    reimbursable expenses
609
 283
 1,310
 570
Leasing and construction management fees1,013
 61
 1,685
 497

Insurance Agreements

BOA Plaza and EY PlazaBrookfield DTLA’s properties are covered under an insurance policy entered into by BPO that provides all risk property and business interruption for BPO’s commercial portfolio with an aggregate limit of $2.5 billion per occurrence as well as an aggregate limit of $300.0 million of earthquake insurance. TheIn addition, Brookfield DTLA’s properties are covered by a terrorism insurance policy that provides aggregate coverage of $4.0 billion for all of BPO’s U.S. properties. Brookfield DTLA is in compliance with the contractual obligations regarding terrorism insurance contained in such agreements.

Prior to their expiration effective April 19, 2014, the MPG properties arewere covered under an insurance policy that providesprovided all risk property and business interruption with an aggregate limit of $1.25 billion and a $130.0 million aggregate limit of earthquake insurance.

In addition, BOA Plazainsurance, and EY Plaza are covered by a terrorism insurance policy that provides aggregate coverage of $4.0 billion for all of BPO’s U.S. properties. The MPG properties are covered by a terrorism insurance policy with a $1.25 billion aggregate limit. Brookfield DTLA is in compliance withEffective April 19, 2014, the contractual obligations regarding terrorismMPG properties were added to the existing BPO insurance contained in such agreements.policies described above.

Insurance premiums for BOA Plaza and EY PlazaBrookfield DTLA are paid by an affiliate company under common control through BPO. Brookfield DTLA reimburses the affiliate company for the actual cost of such premiums.

A summary of costs incurred by Brookfield DTLA and the Predecessor Entities under this arrangement is as follows (in thousands):

 For the Three Months Ended
 March 31, 2014 March 31, 2013
Insurance expense$1,304
 $1,212
 For the Three Months Ended For the Six Months Ended
 June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Insurance expense$2,463
 $1,209
 $3,767
 $2,421


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Effective April 19, 2014, the insurance policies covering the MPG properties expired and the MPG properties were added to the existing BPO insurance policies described above.

Note 13—Commitments and Contingencies

Litigation

General—

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 its business, financial condition or consolidated financial statements as a whole.

Merger-Related Litigation—

Following the announcement of the execution of the Agreement and Plan of Merger dated as of April 24, 2013, as amended (the “Merger Agreement”), seven putative class actions were filed against Brookfield Office Properties Inc. (“BPO”), Brookfield DTLA, Brookfield DTLA Holdings LLC, Brookfield DTLA Fund Office Trust Inc., Brookfield DTLA Fund Properties (collectively, the “Brookfield Parties”), MPG Office Trust, Inc., MPG Office, L.P., and the members of MPG Office Trust, Inc.’s board of directors. Five of these lawsuits were filed on behalf of MPG Office Trust, Inc.’s common stockholders: (i) two lawsuits, captioned Coyne v. MPG Office Trust, Inc., et al., No. BC507342 (the “Coyne Action”), and Masih v. MPG Office Trust, Inc., et al., No. BC507962 (the “Masih Action”), were filed in the Superior Court of the State of California in Los Angeles County (the “California State Court”) on April 29, 2013 and May 3, 2013, respectively; and (ii) three lawsuits, captioned Kim v. MPG Office Trust, Inc. et al., No. 24‑C-13-002600 (the “Kim Action”), Perkins v. MPG Office Trust, Inc., et al., No. 24-C-13-002778 (the “Perkins Action”) and Dell’Osso v. MPG Office Trust, Inc., et al., No. 24‑C-13-003283 (the “Dell’Osso Action”) were filed in the Circuit Court for Baltimore City, Maryland on May 1, 2013, May 8, 2013 and May 22, 2013, respectively (collectively, the “Common Stock Actions”). Two lawsuits, captioned Cohen v. MPG Office Trust, Inc. et al., No. 24-C-13-004097 (the “Cohen Action”) and Donlan v. Weinstein, et al., No. 24‑C-13-004293 (the “Donlan Action”), were filed on behalf of MPG Office Trust, Inc.’s preferred stockholders in the Circuit Court for Baltimore City, Maryland on June 20, 2013 and July 2, 2013, respectively (collectively, the “Preferred Stock Actions,” together with the Common Stock Actions, the “Merger Litigations”).

In each of the Common Stock Actions, the plaintiffs allege, among other things, that MPG Office Trust, Inc.’s board of directors breached their fiduciary duties in connection with the merger by failing to maximize the value of MPG Office Trust, Inc. and ignoring or failing to protect against conflicts of interest, and that the relevant Brookfield Parties named as defendants aided and abetted those breaches of fiduciary duty. The Kim Action further alleges that MPG Office, L.P. also aided and abetted the breaches of fiduciary duty by MPG Office Trust, Inc.’s board of directors, and the Dell’Osso Action further alleges that MPG Office Trust, Inc. and MPG Office, L.P. aided and abetted the breaches of fiduciary duty by MPG Office Trust, Inc.’s board of directors. On June 4, 2013, the Kim and Perkins plaintiffs filed identical, amended complaints in the Circuit Court for Baltimore City, Maryland. On June 5, 2013, the

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Masih plaintiffs also filed an amended complaint in the Superior Court of the State of California in Los Angeles County. The three amended complaints, as well as the Dell’Osso Action complaint, allege

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

that the preliminary proxy statement filed by MPG Office Trust, Inc. with the SEC on May 21, 2013 is false and/or misleading because it fails to include certain details of the process leading up to the merger and fails to provide adequate information concerning MPG Office Trust, Inc.’s financial advisors.

In each of the Preferred Stock Actions, which were brought on behalf of MPG Office Trust, Inc.’s preferred stockholders, the plaintiffs allege, among other things, that, by entering into the Merger Agreement and tender offer, MPG Office Trust, Inc. breached the Articles Supplementary, which governs the issuance of the MPG preferred shares, that MPG Office Trust, Inc.’s board of directors breached their fiduciary duties by agreeing to a merger agreement that violated the preferred stockholders’ contractual rights and that the relevant Brookfield Parties named as defendants aided and abetted those breaches of contract and fiduciary duty. On July 15, 2013, the plaintiffs in the Preferred Stock Actions filed a joint amended complaint in the Circuit Court for Baltimore City, Maryland that further alleged that MPG Office Trust, Inc.’s board of directors failed to disclose material information regarding BPO’s extension of the tender offer.

The plaintiffs in the seven lawsuits sought an injunction against the merger, rescission or rescissory damages in the event the merger has been consummated, an award of fees and costs, including attorneys’ and experts’ fees, and other relief.

On July 10, 2013, solely to avoid the costs, risks and uncertainties inherent in litigation, the Brookfield Parties and the other named defendants in the Common Stock Actions signed a memorandum of understanding (the “MOU”), regarding a proposed settlement of all claims asserted therein. The parties subsequently entered into a stipulation of settlement dated November 21, 2013 providing for the release of all asserted claims, additional disclosures by MPG concerning the merger made prior to the merger’s approval, and the payment, by defendants, of an award of attorneys’ fees and expenses in an amount not to exceed $475,000 (which will ultimately be determined by$475,000. After a hearing on June 4, 2014, the California State Court), which has been recorded as a liability as of March 31, 2014 as part of accounts payable and other liabilities in the condensed consolidated balance sheet. The asserted claims will not be released until such stipulation of settlement is approved by the court, following a hearing on notice to the proposed class. There can be no assurance that the court will approve the settlement. The hearingCourt granted plaintiffs’ motion for final approval of the settlement, and entered a Final Order and Judgment, awarding plaintiffs’ counsel’s attorneys’ fees and expenses in the amount of $475,000, which was paid by MPG Office LLC on June 18, 2014. BPO is scheduledseeking reimbursement for June 4, 2014.the settlement payment from MPG’s insurers.

In the Preferred Stock Actions, at a hearing on July 24, 2013, the Maryland State Court denied plaintiffs’ motion for preliminary injunction seeking to enjoin the tender offer. The plaintiffs filed a second amended complaint on November 22, 2013 that added additional arguments in support of their allegations that the new preferred shares do not have the same rights as the MPG preferred shares. The defendants moved to dismiss the second amended complaint on December 20, 2013, and briefing on the motion concluded on February 28, 2014. AAt a hearing dateon June 18, 2014, the Maryland State Court heard oral arguments on the defendants’ motion has not been scheduled byto dismiss and reserved judgment on the court.decision. As of the date of this report, no decision date can be reasonably estimated.

While the final outcome with respect to the Merger Litigations cannot be predicted with certainty, in the opinion of management after consultation with external legal counsel, any liability that may arise from such contingencies would not have a material adverse effect on the financial position, results of operations or liquidity of Brookfield DTLA.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS (continued)
(Unaudited)

Note 14—Subsequent Event

Refinancing of BOA Plaza Mortgage Loans

On August 7, 2014, Brookfield DTLA Holdings refinanced the mortgage loans secured by the BOA Plaza office property and received net proceeds totaling $399.4 million, of which $211.8 million was used to repay the mortgage loans that previously encumbered the property and $7.7 million was used to fund the loan reserves discussed below, with the remaining $179.9 million to be used for general corporate purposes, including a cash distribution from Brookfield DTLA to Brookfield DTLA Holdings for the holders of the senior preferred participating interest.

The new $400.0 million mortgage loan bears interest at a fixed rate equal to 4.05%, matures on September 1, 2024, and requires the payment of interest-only until maturity. The mortgage loan can be defeased upon the earlier of (i) August 7, 2017 or (ii) two years after the securitization of the loan until March 1, 2024, after which the loan can be repaid in full without penalty.

In connection with the refinancing, Brookfield DTLA Holdings was required to fund a $4.2 million tax reserve, a $3.0 million tenant improvement and leasing commission reserve, and a $0.5 million rent concession reserve at closing.


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Item 2.Management’s Discussion and Analysis of Financial Condition
and Results of Operations.

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated and combined financial statements and the related notes thereto that appear in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.

Overview and Background

General

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 (“Brookfield DTLA Holdings”), a Delaware limited liability company, and an indirect subsidiary of Brookfield Office Properties Inc. (“BPO”).

Prior to October 15, 2013, 333 South Hope Co. LLC (“333 South Hope”) and EYP Realty LLC (“EYP Realty”) were controlled by BPO through its indirect ownership interest in TRZ Holdings IV LLC (“TRZ”). TRZ owned 100% of the member units of 333 South Hope and EYP Realty, and BPO indirectly owns approximately 84% of the member units of TRZ.

On October 15, 2013, through a series of formation transactions TRZ’s interests in 333 South Hope and EYP Realty were contributed to subsidiaries of Brookfield DTLA in exchange for preferred and common interests in Brookfield DTLA Fund Properties II LLC (“New OP”) and a preferred interest in Brookfield DTLA Fund Properties III LLC (“DTLA OP”). 333 South Hope owned Bank of America Plaza (“BOA Plaza”) and EYP Realty owned Ernst & Young Plaza (“EY Plaza”). Both of these Class A commercial properties are located in the Los Angeles Central Business District (the “LACBD”).

Prior to October 15, 2013, Brookfield DTLA had not conducted any business as a separate company and had no material assets or liabilities. The operations of 333 South Hope and EYP Realty (together, the “Predecessor Entities”) contributed to Brookfield DTLA by TRZ on October 15, 2013 are presented in the condensed consolidated and combined financial statements as if they were owned by Brookfield DTLA for all historical periods presented. See Item 1. “Financial Statements.”

MPG Acquisition

On October 15, 2013, Brookfield DTLA completed the acquisition of MPG (the “merger”) pursuant to the terms of the Merger Agreement. As part of the transaction, MPG was contributed to New OP in exchange for a preferred interest in New OP. In addition to BOA Plaza and EY Plaza, Brookfield DTLA now owns Wells Fargo Center–North Tower (also known as “Wells Fargo Tower”),

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Wells Fargo Center–South Tower (also known as “KPMG Tower”), Gas Company Tower and 777 Tower, each of which are Class A office properties located in the LACBD that were formerly owned by MPG.

Brookfield DTLA intends to elect 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 year ended December 31, 2013. Brookfield DTLA intends to conduct its operations so as to qualify as a REIT. Accordingly, Brookfield DTLA will not be subject to U.S. federal income tax, provided that it qualifies as a REIT and distributions to its stockholders generally equal or exceed its taxable income.

Brookfield DTLA receives its income primarily from rental income (including tenant reimbursements) generated from the operations of its office and retail properties, and to a lesser extent, from its parking garages.

Liquidity and Capital Resources

General

Brookfield DTLA’s business requires continued access to adequate cash to fund its liquidity needs. Over the last several years, the Predecessor Entities have maintained their liquidity position through cash generated from operations and contributions from TRZ.

Sources and Uses of Liquidity

Brookfield DTLA’s potential liquidity sources and uses are, among others, as follows:

  Sources  Uses
 Cash on hand; Property operations;
 Cash generated from operations; and Capital expenditures;
 
Contributions from Brookfield
  DTLA Holdings.
 Payments in connection with loans; and
    
Distributions to Brookfield
  DTLA Holdings.

Potential Sources of Liquidity

Cash on Hand

As of March 31,June 30, 2014, Brookfield DTLA had cash and cash equivalents totaling $119.8$123.1 million.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Cash Generated from Operations

Brookfield DTLA’s cash generated from operations is primarily dependent upon (1) the occupancy level of its portfolio, (2) the rental rates achieved on its leases, and (3) the collectability of rent and other amounts billed to its tenants. Net cash generated from operations is tied to the level of operating expenses, described below under “—Potential Uses of Liquidity.”

Occupancy levels. The following table presents leasing information for Brookfield DTLA for leases in place as of March 31,June 30, 2014:

 Square Feet Leased % and In-Place Rents Square Feet Leased % and In-Place Rents
Property 
Net
Building
Rentable
 
% of Net
Rentable
 
%
Leased
 
Total
Annualized
Rents (1)
 
Annualized
Rent
$/RSF (2)
 
Net
Building
Rentable
 
% of Net
Rentable
 
%
Leased
 
Total
Annualized
Rents (1)
 
Annualized
Rent
$/RSF (2)
                    
BOA Plaza 1,405,428
 18.65% 89.8% $28,930,981
 $22.92
 1,405,428
 18.65% 89.9% $29,034,695
 $22.98
Wells Fargo Center–North Tower 1,400,639
 18.59% 83.2% 27,717,505
 23.78
 1,400,639
 18.59% 83.3% 27,936,558
 23.96
Gas Company Tower 1,345,163
 17.85% 71.7% 20,511,896
 21.26
 1,345,163
 17.85% 80.1% 23,177,695
 21.52
EY Plaza 1,234,372
 16.38% 86.7% 22,735,481
 21.24
 1,234,372
 16.38% 87.4% 22,948,284
 21.28
Wells Fargo Center–South Tower 1,124,960
 14.93% 86.0% 25,388,361
 26.25
 1,124,960
 14.93% 83.6% 24,705,956
 26.27
777 Tower 1,024,835
 13.60% 79.2% 18,627,280
 22.95
 1,024,835
 13.60% 83.4% 19,711,388
 23.05
 7,535,397
 100.00% 82.8% $143,911,504
 $23.05
 7,535,397
 100.00% 84.7% $147,514,576
 $23.12
__________
(1)Annualized rent represents the annualized monthly contractual rent under existing leases as of March 31,June 30, 2014. This amount reflects total base rent before any rent abatements as of March 31,June 30, 2014 and is shown on a net basis; thus, for any tenant under a partial gross lease, the expense stop, or under a fully gross lease, the current year operating expenses (which may be estimates as of such date), are subtracted from gross rent. Total abatements for leases in effect as of March 31,June 30, 2014 for the twelve months ending March 31,June 30, 2015 are approximately $11.6$11.5 million, or $1.86$1.80 per leased square foot.
(2)Annualized rent per rentable square foot represents annualized rent as computed above, divided by leased square feet as of the same date.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The following table presents a summary of lease expirations at Brookfield DTLA for leases in place at March 31,June 30, 2014, plus currently available space for the remainder of 2014, and for each of the nine calendar years beginning January 1, 2015.2015 and thereafter. This table assumes that none of our tenants 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)
 
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)
                        
2014 364,809
 5.8% $8,571,884
 6.0% $23.50
 $23.54
 285,817
 4.5% $6,736,273
 4.6% $23.57
 $23.57
2015 298,872
 4.8% 6,938,093
 4.7% 23.21
 23.62
 404,396
 6.3% 9,211,509
 6.1% 22.78
 22.97
2016 416,762
 6.7% 9,096,617
 6.3% 21.83
 22.98
 409,184
 6.4% 8,943,540
 6.1% 21.86
 22.89
2017 598,161
 9.6% 14,727,924
 10.2% 24.62
 26.93
 608,723
 9.5% 15,183,384
 10.3% 24.94
 26.93
2018 858,488
 13.7% 19,257,257
 13.4% 22.43
 24.27
 769,260
 12.1% 17,330,714
 11.7% 22.53
 24.20
2019 436,162
 7.0% 11,354,633
 7.9% 26.03
 31.20
 467,853
 7.3% 12,174,812
 8.3% 26.02
 30.93
2020 291,551
 4.7% 6,982,486
 4.9% 23.95
 29.41
 305,974
 4.8% 7,330,812
 5.0% 23.96
 29.41
2021 135,238
 2.1% 2,742,485
 1.9% 20.28
 23.86
 147,797
 2.3% 3,058,773
 2.1% 20.70
 24.47
2022 802,784
 12.9% 19,284,499
 13.4% 24.02
 30.73
 802,784
 12.6% 19,297,726
 13.1% 24.04
 30.73
2023 642,195
 10.3% 14,467,742
 10.1% 22.53
 30.71
 636,366
 10.0% 14,341,052
 9.7% 22.54
 30.72
Thereafter 1,397,211
 22.4% 30,487,884
 21.2% 21.82
 29.42
 1,542,587
 24.2% 33,905,981
 23.0% 21.98
 30.10
Total expiring leases 6,242,233
 100.0% $143,911,504
 100.0% $23.05
 $27.73
 6,380,741
 100.0% $147,514,576
 100.0% $23.12
 $27.92
Currently available 1,293,164
           1,154,656
          
Total rentable square feetTotal rentable square feet7,535,397
          Total rentable square feet7,535,397
          
__________
(1)
Annualized rent represents the annualized monthly contractual rent under existing leases as of March 31,June 30, 2014. This amount reflects total base rent before any rent abatements as of March 31,June 30, 2014 and is shown on a net basis; thus, for any tenant under a partial gross lease, the expense stop, or under a fully gross lease, the current year operating expenses (which may be estimates as of such date), are subtracted from gross rent. Total abatements for leases in effect as of March 31,June 30, 2014 for the twelve months ending March 31,June 30, 2015 are approximately $11.611.5 million, or $1.861.80 per leased square foot.
(2)Current rent per leased square foot represents current base rent, divided by total leased square feet as of the same date.
(3)Rent per leased square foot at expiration represents base rent, including any future rent steps, and thus represents the base rent that will be in place at lease expiration.

Rental Rates and Leasing Activity. Average asking rental rates in the LACBD were essentially flat during the threesix months ended March 31,June 30, 2014. Management believes that on average the current in‑place rents are generally close to market in the LACBD.

The following table summarizes leasing activity at Brookfield DTLA for the threesix months ended March 31,June 30, 2014:

Leasing Activity Percentage LeasedLeasing Activity Percentage Leased
      
Leased square feet as of December 31, 20136,289,262
 83.5 %6,289,262
 83.5 %
Expirations(121,399) (1.9)%(194,460) (2.6)%
New leases64,317
 1.0 %256,743
 3.4 %
Renewals10,053
 0.2 %29,196
 0.4 %
Leased square feet as of March 31, 20146,242,233
 82.8 %
Leased square feet as of June 30, 20146,380,741
 84.7 %


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Collectability of rent from our tenants. Brookfield DTLA’s rental income depends on collecting rent from tenants, and in particular from its major tenants. In the event of tenant defaults, Brookfield DTLA may experience delays in enforcing its rights as landlord and may incur substantial costs in pursuing legal possession of the tenant’s space and recovery of any amounts due from the tenant. This is particularly true in the case of the bankruptcy or insolvency of a major tenant or where the Federal Deposit Insurance Corporation is acting as receiver.

Contributions from Brookfield DTLA Holdings

During the threesix months ended March 31,June 30, 2014, Brookfield DTLA received no contributions from Brookfield DTLA Holdings. To the extent that future contributions are needed, Brookfield DTLA Holdings has agreed to fund up to $260 million to the Company, for which it will be entitled to receive a preferred return.

Potential Uses of Liquidity

The following are the projected uses, and some of the potential uses, of cash in the near term.

Property Operations

The Predecessor Entities have generated sufficient cash from operations to fund their operating activities. In the future, should the cash generated by Brookfield DTLA’s properties, including the properties acquired from MPG, not be sufficient to fund their operations, such cash would be provided by Brookfield DTLA Holdings.

Capital Expenditures

Capital expenditures fluctuate in any given period, subject to the nature, extent and timing of improvements required to maintain Brookfield DTLA’s properties. Leasing costs also fluctuate in any given period, depending upon such factors as the type of property, the length of the lease, the type of lease, the involvement of external leasing agents and overall market conditions.

Brookfield DTLA expects that leasing activities at its properties, including the properties acquired from MPG, will require material amounts of cash for at least several years. Excluding tenant improvements and leasing commissions, Brookfield DTLA projects spending between $70 million and $75 million over the next ten years, with the majority ($60 million to $65 million) over the next five years. The expected expenditures include, but are not limited to, renovations and physical capital upgrades to Brookfield DTLA’s properties, such as new fire alarm systems, elevator repairs and modernizations, facade work, roof replacement and new turbines.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Payments in Connection with Loans

As Brookfield DTLA’s debt matures, principal payment obligations present significant future cash requirements. The BOA Plaza mortgage loans totaling $213.3 million maturewere refinanced on SeptemberAugust 7, 2014. Brookfield DTLA intends to refinance these loans prior to or upon maturity. Management expects the refinancing to generate proceeds in excess of the amounts necessary to refinance the existing mortgage loans, pay all fees and other expenses related to the refinancing, and create or maintain related reserves as the fair value of the collateral securing the loans exceeds the face value of those loans as of March 31, 2014.See“Subsequent Event.”

Brookfield DTLA currently intends to refinance the existing mortgage loans on Wells Fargo Center–North Tower and Gas Company Tower on or about their scheduled maturity with new debt with a target leverage ratio of approximately 60% to 65%. As the leverage ratio for these loans is significantly above such targeted leverage ratio, Brookfield DTLA anticipates the need for additional cash of approximately $273 million to complete these refinancings, all of which will occur prior to 2017. There can be no assurance that any of these refinancings can be accomplished, what terms will be available in the market for these type of financings at the time of any refinancing, or that these refinancings will generate net cash proceeds.

Distributions to Brookfield DTLA Holdings

InOn August 7, 2014, Brookfield DLTA intends to refinancerefinanced the mortgage loans secured by BOA Plaza. IfSee “Subsequent Event.” Since the refinancings generaterefinancing generated net cash proceeds to DTLA OP, a subsidiary of Brookfield DTLA, it is anticipated that a major portion of the net cash proceeds will be distributed by DTLA OP to Brookfield DTLA Holdings.

On March 21, 2014, Brookfield DTLA made a cash distribution to Brookfield DTLA Holdings totaling $70.0 million, which was comprised of $7.3 million in settlement of preferred dividends on the senior participating preferred interest through March 21, 2014 and a return of investment of $62.7 million using proceeds generated by the refinancing of EY Plaza in 2013.

Indebtedness

As of March 31,June 30, 2014, Brookfield DTLA’s debt was comprised of mortgage loans secured by six properties. A summary of our debt as of March 31,June 30, 2014 is as follows (in millions, except percentage and year amounts):

Principal
Amount
 
Percent of
Total Debt
 
Effective
Interest
Rate
 
Weighted Average
Term to
Maturity
Principal
Amount
 
Percent of
Total Debt
 
Effective
Interest
Rate
 
Weighted Average
Term to
Maturity
Fixed-rate(1)$1,221.3
 64.40% 5.41% 2 years$1,220.2
 64.38% 5.41% 2 years
Variable-rate swapped to fixed-rate185.0
 9.76% 3.93% 7 years185.0
 9.76% 3.93% 6 years
Variable-rate490.0
 25.84% 1.92% 3 years490.0
 25.86% 1.92% 3 years
$1,896.3
 100.00% 4.36% 3 years$1,895.2
 100.00% 4.36% 3 years
__________
(1)
The BOA Plaza mortgage loans totaling $212.2 million were refinanced on August 7, 2014. See“Subsequent Event.”


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Certain information with respect to our indebtedness as of March 31,June 30, 2014 is as follows (in thousands, except percentage amounts):

Interest
Rate
 
Contractual
Maturity Date
 Principal
Amount (1)
 Annual Debt
Service
Interest
Rate
 
Contractual
Maturity Date
 Principal
Amount (1)
 Annual Debt
Service
Floating-Rate Debt          
Variable-Rate Loans:          
Wells Fargo Center–South Tower (2)1.96% 12/1/2016 $290,000
 $5,763
1.96% 12/1/2016 $290,000
 $5,763
777 Tower (3)1.86% 11/1/2018 200,000
 3,772
1.86% 11/1/2018 200,000
 3,772
Total variable-rate loans  490,000
 9,535
  490,000
 9,535
          
Variable-Rate Swapped to Fixed-Rate
Loan:
          
EY Plaza (4)3.93% 11/27/2020 185,000
 7,368
3.93% 11/27/2020 185,000
 7,368
Total floating-rate debt  675,000
 16,903
  675,000
 16,903
          
Fixed-Rate Debt          
Wells Fargo Center–North Tower5.70% 4/6/2017 550,000
 31,769
5.70% 4/6/2017 550,000
 31,769
Gas Company Tower5.10% 8/11/2016 458,000
 23,692
5.10% 8/11/2016 458,000
 23,692
BOA Plaza(5)5.06% 9/7/2014 169,245
 8,687
5.06% 9/7/2014 168,335
 8,640
BOA Plaza(5)6.26% 9/7/2014 44,074
 2,797
6.26% 9/7/2014 43,837
 2,782
Total fixed-rate rate debt  1,221,319
 $66,945
  1,220,172
 66,883
          
Total debt  1,896,319
    1,895,172
 $83,786
Debt discounts  (10,633)    (9,554)  
Total debt, net  $1,885,686
    $1,885,618
  
__________
(1)Assuming no payment has been made in advance of its due date.
(2)This loan bears interest at LIBOR plus 1.80%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 4.75%.
(3)
This loan bears interest at LIBOR plus 1.70%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 5.75%.
(4)This loan bears interest at LIBOR plus 1.75%. As required by the loan agreement, we have entered into an interest rate swap agreement to hedge this loan, which effectively fixes the LIBOR portion of the interest rate at 2.178%. The effective interest rate of 3.93% includes interest on the swap.
(5)
The BOA Plaza mortgage loans were refinanced on August 7, 2014. See“Subsequent Event.”

Funding of Wells Fargo Center–North Tower Collateral Reserve

In connection with the MPG acquisition, Brookfield DTLA Holdings assumed the mortgage loan secured by the Wells Fargo Center–North Tower office property. In connection with loan assumption, Brookfield DTLA Holdings agreed to deposit a total of $10.0 million into a collateral reserve account held by the lender, of which $5.0 million was deposited when the loan was assumed during 2013 and $1.25 million was funded by Brookfield DTLA in April 2014. The remaining $3.75 million will be paid in installments of $1.25 million in October 2014, April 2015, and October 2015.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Non-Recourse Carve Out Guarantees

All of Brookfield DTLA’s $1.9 billion of mortgage debt is subject to “non-recourse carve out” guarantees that expire upon elimination of the underlying loan obligations. Under these guarantees, these otherwise non‑recourse loans can become partially or fully recourse against Brookfield DTLA Holdings if certain triggering events occur as defined in the loan agreements.

Debt Reporting

Pursuant to the terms of certain of our mortgage loan agreements, Brookfield DTLA is required to report a debt service coverage ratio (“DSCR”) calculated using the formulas specified in the underlying loan agreements. We have submitted the required reports to the lenders for the measurement periods ended March 31,June 30, 2014 and were in compliance with the amounts required by the loan agreements, with the exception of Gas Company Tower.

Under the Gas Company Tower mortgage loan, we reported a DSCR of 0.920.86 to 1.00, calculated using actual debt service under the loan, and a DSCR of 0.730.68 to 1.00, calculated using actual debt service plus a hypothetical principal payment using a 30-year amortization schedule. Because the reported DSCR using the actual debt service plus a hypothetical principal payment was less than 1.00 to 1.00, the lender could seek to remove Brookfield Properties Management (CA) Inc. as property manager of Gas Company Tower, which is the only recourse available to the lender as a result of such breach.

Pursuant to the terms of the Gas Company Tower, Wells Fargo Center–South Tower, Wells Fargo Center–North Tower, and EY Plaza mortgage loan agreements, we are required to provide annual audited financial statements of Brookfield DTLA Holdings to the lenders or agents. The receipt of any opinion other than an “unqualified” audit opinion on our annual audited financial statements is an event of default under the loan agreements for the properties listed above. If an event of default occurs, the lenders have the right to pursue the remedies contained in the loan documents, including acceleration of all or a portion of the debt and foreclosure.



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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Results of Operations

Comparison of the Three Months Ended March 31,June 30, 2014 to March 31,June 30, 2013

Condensed Consolidated and Combined Statements of Operations Information
(In millions, except percentage amounts)

For the Three Months Ended Increase/
(Decrease)
 %
Change
For the Three Months Ended Increase/
(Decrease)
 %
Change
3/31/2014 3/31/2013 6/30/2014 6/30/2013 
Revenue:              
Rental income$37.7
 $13.2
 $24.5
 185 %$38.1
 $13.3
 $24.8
 186%
Tenant reimbursements20.4
 7.1
 13.3
 186 %25.3
 8.3
 17.0
 206%
Parking8.3
 2.9
 5.4
 188 %8.3
 2.8
 5.5
 197%
Interest and other2.3
 0.7
 1.6
 229 %2.7
 0.7
 2.0
 286%
Total revenue68.7
 23.9
 44.8
 187 %74.4
 25.1
 49.3
 196%
              
Expenses:              
Rental property operating and maintenance24.4
 8.3
 16.1
 195 %23.2
 8.4
 14.8
 175%
Real estate taxes9.0
 2.3
 6.7
 292 %9.8
 3.1
 6.7
 214%
Parking1.8
 0.7
 1.1
 147 %1.7
 0.8
 0.9
 121%
Other expense0.3
 0.5
 (0.2) (60)%0.7
 0.7
 
 %
Depreciation and amortization26.0
 7.2
 18.8
 262 %28.1
 7.1
 21.0
 295%
Interest22.5
 4.3
 18.2
 420 %22.3
 4.4
 17.9
 407%
Total expenses84.0
 23.3
 60.7
 261 %85.8
 24.5
 61.3
 250%
Net (loss) income$(15.3) $0.6
 $(15.9)  $(11.4) $0.6
 $(12.0)  

Rental Income

Rental income increased $24.5$24.8 million, or 185%186%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, largely due to the acquisition of MPG which contributed $24.5$24.1 million to rental income in the firstsecond quarter of 2014.

Tenant Reimbursements Revenue

Tenant reimbursements revenue increased $13.317.0 million, or 186%206%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, mainly due to the acquisition of MPG which contributed $11.8$16.3 million to tenant reimbursements revenue in the firstsecond quarter of 2014.

Parking Revenue

Parking revenue increased $5.4$5.5 million, or 188%197%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, mainly due to the acquisition of MPG which contributed $5.3 million to parking revenue in the firstsecond quarter of 2014.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Interest and Other Revenue

Interest and other revenue increased $1.62.0 million, or 229%286%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, mainly due to an increase in other expense recoveries combined with the acquisition of MPG which contributed $1.6$0.8 million to interest and other revenue in the firstsecond quarter of 2014.

Rental Property Operating and Maintenance Expense

Rental property operating and maintenance expense increased $16.114.8 million, or 195%175%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, mainly due to the acquisition of MPG which contributed $16.0$12.8 million to rental property operating and maintenance expense in the firstsecond quarter of 2014.

Real Estate Taxes Expense

Real estate taxes expense increased $6.7 million, or 292%214%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, largely as a result of the acquisition of MPG which contributed $6.0$6.9 million to real estate taxes expense in the firstsecond quarter of 2014.

Parking Expense

Parking expense increased $1.1$0.9 million, or 147%121%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013 primarily as a result of due to the acquisition of MPG which contributed $0.9 million to parking expense in the firstsecond quarter of 2014.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $18.8$21.0 million, or 262%295%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013 due to the acquisition of MPG which contributed $18.7$20.7 million to depreciation and amortization expense in the firstsecond quarter of 2014.

Interest Expense

Interest expense increased $18.2$17.9 million, or 420%407%, for the three months ended March 31,June 30, 2014 as compared to the three months ended March 31,June 30, 2013, largely as a result of the acquisition of MPG which contributed $17.4 million to interest expense in the firstsecond quarter of 2014.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Comparison of the Six Months Ended June 30, 2014 to June 30, 2013

Condensed Consolidated and Combined Statements of Operations Information
(In millions, except percentage amounts)

 For the Six Months Ended Increase/
(Decrease)
 %
Change
 6/30/2014 6/30/2013  
Revenue:       
Rental income$75.7
 $26.6
 $49.1
 185 %
Tenant reimbursements45.6
 15.4
 30.2
 196 %
Parking16.7
 5.6
 11.1
 196 %
Interest and other5.0
 1.4
 3.6
 257 %
Total revenue143.0
 49.0
 94.0
 192 %
        
Expenses:       
Rental property operating and maintenance47.6
 16.7
 30.9
 185 %
Real estate taxes18.9
 5.4
 13.5
 249 %
Parking3.4
 1.5
 1.9
 127 %
Other expense0.9
 1.3
 (0.4) (31)%
Depreciation and amortization54.1
 14.3
 39.8
 278 %
Interest44.8
 8.7
 36.1
 415 %
Total expenses169.7
 47.9
 121.8
 254 %
Net (loss) income$(26.7) $1.1
 $(27.8)  

Rental Income

Rental income increased $49.1 million, or 185%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, primarily due to the acquisition of MPG which contributed $48.6 million to rental income during the six months ended June 30, 2014.

Tenant Reimbursements Revenue

Tenant reimbursements revenue increased $30.2 million, or 196%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, mainly due to the acquisition of MPG which contributed $28.2 million to tenant reimbursements revenue during the six months ended June 30, 2014.

Parking Revenue

Parking revenue increased $11.1 million, or 196%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, mainly due to the acquisition of MPG which contributed $10.6 million to parking revenue during the six months ended June 30, 2014.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Interest and Other Revenue

Interest and other revenue increased $3.6 million, or 257%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, mainly due to the acquisition of MPG which contributed $2.4 million to interest and other revenue during the six months ended June 30, 2014 combined with an increase in other expense recoveries.

Rental Property Operating and Maintenance Expense

Rental property operating and maintenance expense increased $30.9 million, or 185%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, mainly due to the acquisition of MPG which contributed $28.8 million to rental property operating and maintenance expense during the six months ended June 30, 2014.

Real Estate Taxes Expense

Real estate taxes expense increased $13.5 million, or 249%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, largely as a result of the acquisition of MPG which contributed $12.9 million to real estate taxes expense during the six months ended June 30, 2014 combined with increases in 2014 property taxes at BOA Plaza and EY Plaza.

Parking Expense

Parking expense increased $1.9 million, or 127%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 as a result of the acquisition of MPG which contributed $1.9 million to parking expense during the six months ended June 30, 2014.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $39.8 million, or 278%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, mainly due to the acquisition of MPG which contributed $39.4 million to depreciation and amortization expense during the six months ended June 30, 2014.

Interest Expense

Interest expense increased $36.1 million, or 415%, for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013, largely as a result of the acquisition of MPG which contributed $34.8 million to interest expense during the six months ended June 30, 2014 combined with payments on the EY Plaza interest rate swap agreement related to the EY Plaza mortgage loan that was entered into in November 2013.



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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Cash Flow

The following summary discussion of Brookfield DTLA’s cash flow is based on the condensed consolidated and combined statements of cash flows in Item 1. “Financial Statements” and is not meant to be an all‑inclusive discussion of the changes in its cash flow for the periods presented below.

For the Three Months Ended Increase/
(Decrease)
For the Six Months Ended Increase/
(Decrease)
March 31, 2014 March 31, 2013 June 30, 2014 June 30, 2013 
(In thousands)(In thousands)
Net cash provided by operating activities$4,687
 $3,172
 $1,515
$18,771
 $6,340
 $12,431
Net cash used in investing activities(9,767) (4,043) 5,724
(19,415) (7,634) 11,781
Net cash used in financing activities(71,193) (4,072) 67,121
(72,340) (845) 71,495

Operating Activities

Brookfield DTLA’s cash flow from operating activities is primarily dependent upon (1) the occupancy level of its portfolio, (2) the 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 threesix months ended March 31,June 30, 2014 totaled $4.7$18.8 million, compared to net cash provided by operating activities of $3.2$6.3 million during the threesix months ended March 31, 2013.June 30, 2013. The $12.4 million increase is primarily related to cash generated by the operations of the MPG properties during 2014.

Investing Activities

Brookfield DTLA’s cash flow from investing activities is generally impacted by the amount of capital expenditures for its properties. Net cash used in investing activities totaled $9.8$19.4 million during the threesix months ended March 31,June 30, 2014, compared to net cash used in investing activities of $4.0$7.6 million during the threesix months ended March 31,June 30, 2013, as a result of increased expenditures for improvements to its properties during 2014.2014, including the properties acquired from MPG in 2013.

Financing Activities

Brookfield DTLA’s cash flow from financing activities is generally impacted by our loan activity, less any dividends and distributions paid to stockholders and distributions to affiliated companies, if any. Net cash used in financing activities totaled $71.2$72.3 million during the threesix months ended March 31,June 30, 2014, compared to net cash used in financing activities of $4.1$0.8 million during the threesix months ended March 31, 2013.June 30, 2013. A $70.0 million distribution to Brookfield DTLA Holdings related to the senior participating preferred interest during the threesix months ended March 31,June 30, 2014 was the primary driver of the change.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Off-Balance Sheet Arrangements

Brookfield DTLA did not have any off-balance sheet arrangements as of March 31,June 30, 2014 and December 31, 2013, respectively.

Contractual Obligations

The following table provides information with respect to Brookfield DTLA’s commitments as of March 31,June 30, 2014, including any guaranteed or minimum commitments under contractual obligations (in thousands):

2014 2015 2016 2017 2018 Thereafter Total2014 2015 2016 2017 2018 Thereafter Total
  
Principal payments on
mortgage loans(1)
$213,319
 $311
 $751,831
 $554,026
 $204,232
 $172,600
 $1,896,319
$212,172
 $311
 $751,831
 $554,026
 $204,232
 $172,600
 $1,895,172
Interest payments –                          
Fixed-rate debt (1)(2)49,620
 55,461
 46,331
 8,269
 
 
 159,681
30,117
 55,461
 46,331
 8,269
 
 
 140,178
Variable-rate swapped to
fixed-rate debt
5,511
 7,368
 7,306
 7,130
 6,985
 13,111
 47,411
3,674
 7,368
 7,306
 7,130
 6,985
 13,102
 45,565
Variable-rate debt (2)(3)7,184
 9,535
 9,087
 3,772
 3,152
 
 32,730
4,807
 9,535
 9,087
 3,772
 3,152
 
 30,353
Tenant-related
commitments (3)(4)
46,044
 2,032
 568
 8,108
 
 9,466
 66,218
49,766
 4,560
 2,750
 8,108
 
 9,319
 74,503
$321,678
 $74,707
 $815,123
 $581,305
 $214,369
 $195,177
 $2,202,359
$300,536
 $77,235
 $817,305
 $581,305
 $214,369
 $195,021
 $2,185,771
__________
(1)
The BOA Plaza mortgage loans scheduled to mature on September 7, 2014 were refinanced on August 7, 2014. See“Subsequent Event.”
(2)Interest payments on fixed-rate debt are calculated based on contractual interest rates and scheduled maturity dates.
(2)(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 March 31,June 30, 2014 plus the contractual spread per the loan agreements.
(3)(4)Tenant-related commitments include tenant improvements and leasing commissions and are based on executed leases as of March 31,June 30, 2014.

Related Party Transactions

Intercompany Loan

The Company is indebted to BOP Management Inc. under a $25.0 million promissory note dated October 11, 2013 that matures on October 15, 2015. The note bears interest at 3.25%, which is payable semi-annually. For the three and six months ended June 30, 2014, the Company accrued $0.2 million and $0.4 million, respectively, of interest expense related to this note.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Management Agreements

The Predecessor Entities entered into arrangements with Brookfield Properties Management LLC, which is affiliated through common ownership with BPO, under which the affiliate provides property management and various other services. On October 15, 2013, these agreements were transferred to BOP Management Inc., an affiliate of BPO. The MPG properties entered into similar arrangements with BOP Management Inc. after the closing of the acquisition on October 15, 2013. Property management fees under these agreements are calculated based on 3.0% of rents collected (as defined in the management agreements). In addition, the Company pays BOP Management Inc. an asset management fee, which is calculated based on 0.75% of the capital contributed to Brookfield DTLA Holdings.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

A summary of costs incurred by Brookfield DTLA and the Predecessor Entities under these arrangements is as follows (in thousands):

 For the Three Months Ended
 March 31, 2014 March 31, 2013
Management fees expense$3,386
 $643
General, administrative and reimbursable expenses701
 287
Leasing and construction management fees672
 436
 For the Three Months Ended For the Six Months Ended
 June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Property management fee expense$2,138
 $713
 $4,017
 $1,356
Asset management fee expense1,523
 
 3,029
 
General, administrative and
    reimbursable expenses
609
 283
 1,310
 570
Leasing and construction management fees1,013
 61
 1,685
 497

Insurance Agreements

BOA Plaza and EY PlazaBrookfield DTLA’s properties are covered under an insurance policy entered into by BPO that provides all risk property and business interruption for BPO’s commercial portfolio with an aggregate limit of $2.5 billion per occurrence as well as an aggregate limit of $300.0 million of earthquake insurance. TheIn addition, Brookfield DTLA’s properties are covered by a terrorism insurance policy that provides aggregate coverage of $4.0 billion for all of BPO’s U.S. properties. Brookfield DTLA is in compliance with the contractual obligations regarding terrorism insurance contained in such agreements.

Prior to their expiration effective April 19, 2014, the MPG properties arewere covered under an insurance policy that providesprovided all risk property and business interruption with an aggregate limit of $1.25 billion and a $130.0 million aggregate limit of earthquake insurance.

In addition, BOA Plazainsurance, and EY Plaza are covered by a terrorism insurance policy that provides aggregate coverage of $4.0 billion for all of BPO’s U.S. properties. The MPG properties are covered by a terrorism insurance policy with a $1.25 billion aggregate limit. Brookfield DTLA is in compliance withEffective April 19, 2014, the contractual obligations regarding terrorismMPG properties were added to the existing BPO insurance contained in such agreements.policies described above.

Insurance premiums for BOA Plaza and EY PlazaBrookfield DTLA are paid by an affiliate company under common control through BPO. Brookfield DTLA reimburses the affiliate company for the actual cost of such premiums.

A summary of costs incurred by the Predecessor Entities under this arrangement is as follows (in thousands):

 For the Three Months Ended
 March 31, 2014 March 31, 2013
Insurance expense$1,304
 $1,212

Effective April 19, 2014, the insurance policies covering the MPG properties expired and the MPG properties were added to the existing BPO insurance policies described above.

Litigation

See Part II, Item 1. “Legal Proceedings.”


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

A summary of costs incurred by Brookfield DTLA and the Predecessor Entities under this arrangement is as follows (in thousands):

 For the Three Months Ended For the Six Months Ended
 June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Insurance expense$2,463
 $1,209
 $3,767
 $2,421

Litigation

See Part II, Item 1. “Legal Proceedings.”

Critical Accounting Policies

Please refer to Brookfield DTLA’s Annual Report on Form 10-K filed with the SEC on April 8, 2014, as amended on April 29, 2014, for a discussion of our critical accounting policies for “Business Combinations,” “Consolidation,” “Impairment Evaluation,” “Revenue Recognition,” and “Allowance for Doubtful Accounts.” There have been no changes to these policies during the three months ended March 31,June 30, 2014.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014‑08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires entities to disclose only disposals representing a strategic shift in operations as discontinued operations. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new standard is effective in the first quarter of 2015 for public organizations with calendar year ends.year-ends. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in the financial statements previously issued. We do not believe that this update will have a material effect on Brookfield DTLA’s consolidated financial statements in future periods.

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the impact of the adoption of ASU 2014-09 on Brookfield DTLA’s consolidated financial statements.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Subsequent Event

Refinancing of BOA Plaza Mortgage Loans

On August 7, 2014, Brookfield DTLA Holdings refinanced the mortgage loans secured by the BOA Plaza office property and received net proceeds totaling $399.4 million, of which $211.8 million was used to repay the mortgage loans that previously encumbered the property and $7.7 million was used to fund the loan reserves discussed below, with the remaining $179.9 million to be used for general corporate purposes, including a cash distribution from Brookfield DTLA to Brookfield DTLA Holdings for the holders of the senior preferred participating interest.

The new $400.0 million mortgage loan bears interest at a fixed rate equal to 4.05%, matures on September 1, 2024, and requires the payment of interest-only until maturity. The mortgage loan can be defeased upon the earlier of (i) August 7, 2017 or (ii) two years after the securitization of the loan until March 1, 2024, after which the loan can be repaid in full without penalty.

In connection with the refinancing, Brookfield DTLA Holdings was required to fund a $4.2 million tax reserve, a $3.0 million tenant improvement and leasing commission reserve, and a $0.5 million rent concession reserve at closing.



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Item 3.Quantitative and Qualitative Disclosures About Market Risk.

See Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in Brookfield DTLA’s Annual Report on Form 10-K filed with the SEC on April 8, 2014, as amended on April 29, 2014, for a discussion regarding our exposure to market risk. Our exposure to market risk has not changed materially since year end 2013.

Item 4.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) 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, Mitchell E. Rudin,Paul Schulman, our principal executive officer, and Bryan K. Davis, our principal financial officer, concluded that these disclosure controls and procedures were effective at the reasonable assurance level as of March 31,June 30, 2014.

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 quarter ended March 31,June 30, 2014 that have materially affected, or that are reasonable likely to materially affect, our internal control over financial reporting.


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PART IIOTHER INFORMATION

Item 1.Legal Proceedings.

General

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 its business, financial condition or consolidated financial statements as a whole.

Merger-Related Litigation

Following the announcement of the execution of the Agreement and Plan of Merger dated as of April 24, 2013, as amended (the “Merger Agreement”), seven putative class actions were filed against Brookfield Office Properties Inc. (“BPO”), Brookfield DTLA, Brookfield DTLA Holdings LLC, Brookfield DTLA Fund Office Trust Inc., Brookfield DTLA Fund Properties (collectively, the “Brookfield Parties”), MPG Office Trust, Inc., MPG Office, L.P., and the members of MPG Office Trust, Inc.’s board of directors. Five of these lawsuits were filed on behalf of MPG Office Trust, Inc.’s common stockholders: (i) two lawsuits, captioned Coyne v. MPG Office Trust, Inc., et al., No. BC507342 (the “Coyne Action”), and Masih v. MPG Office Trust, Inc., et al., No. BC507962 (the “Masih Action”), were filed in the Superior Court of the State of California in Los Angeles County (the “California State Court”) on April 29, 2013 and May 3, 2013, respectively; and (ii) three lawsuits, captioned Kim v. MPG Office Trust, Inc. et al., No. 24‑C-13-002600 (the “Kim Action”), Perkins v. MPG Office Trust, Inc., et al., No. 24-C-13-002778 (the “Perkins Action”) and Dell’Osso v. MPG Office Trust, Inc., et al., No. 24‑C-13-003283 (the “Dell’Osso Action”) were filed in the Circuit Court for Baltimore City, Maryland on May 1, 2013, May 8, 2013 and May 22, 2013, respectively (collectively, the “Common Stock Actions”). Two lawsuits, captioned Cohen v. MPG Office Trust, Inc. et al., No. 24-C-13-004097 (the “Cohen Action”) and Donlan v. Weinstein, et al., No. 24‑C-13-004293 (the “Donlan Action”), were filed on behalf of MPG Office Trust, Inc.’s preferred stockholders in the Circuit Court for Baltimore City, Maryland on June 20, 2013 and July 2, 2013, respectively (collectively, the “Preferred Stock Actions,” together with the Common Stock Actions, the “Merger Litigations”).

In each of the Common Stock Actions, the plaintiffs allege, among other things, that MPG Office Trust, Inc.’s board of directors breached their fiduciary duties in connection with the merger by failing to maximize the value of MPG Office Trust, Inc. and ignoring or failing to protect against conflicts of interest, and that the relevant Brookfield Parties named as defendants aided and abetted those breaches of fiduciary duty. The Kim Action further alleges that MPG Office, L.P. also aided and abetted the breaches of fiduciary duty by MPG Office Trust, Inc.’s board of directors, and the Dell’Osso Action further alleges that MPG Office Trust, Inc. and MPG Office, L.P. aided and abetted the breaches of fiduciary duty by MPG Office Trust, Inc.’s board of directors. On June 4, 2013, the Kim and Perkins plaintiffs filed identical, amended complaints in the Circuit Court for Baltimore City, Maryland. On June 5, 2013, the Masih plaintiffs also filed an amended complaint in the Superior Court of the State of California in Los Angeles County. The three amended complaints, as well as the Dell’Osso Action complaint, allege that the preliminary proxy statement filed by MPG Office Trust, Inc. with the U.S. Securities and Exchange Commission (the “SEC”) on May 21, 2013 is false and/or misleading because it fails to include certain details of the process leading up to the merger and fails to provide adequate information concerning MPG Office Trust, Inc.’s financial advisors.


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In each of the Preferred Stock Actions, which were brought on behalf of MPG Office Trust, Inc.’s preferred stockholders, the plaintiffs allege, among other things, that, by entering into the Merger Agreement and tender offer, MPG Office Trust, Inc. breached the Articles Supplementary, which governs the issuance of the MPG preferred shares, that MPG Office Trust, Inc.’s board of directors breached their fiduciary duties by agreeing to a merger agreement that violated the preferred stockholders’ contractual rights and that the relevant Brookfield Parties named as defendants aided and abetted those breaches of contract and fiduciary duty. On July 15, 2013, the plaintiffs in the Preferred Stock Actions filed a joint amended complaint in the Circuit Court for Baltimore City, Maryland that further alleged that MPG Office Trust, Inc.’s board of directors failed to disclose material information regarding BPO’s extension of the tender offer.

The plaintiffs in the seven lawsuits sought an injunction against the merger, rescission or rescissory damages in the event the merger has been consummated, an award of fees and costs, including attorneys’ and experts’ fees, and other relief.

On July 10, 2013, solely to avoid the costs, risks and uncertainties inherent in litigation, the Brookfield Parties and the other named defendants in the Common Stock Actions signed a memorandum of understanding (the “MOU”), regarding a proposed settlement of all claims asserted therein. The parties subsequently entered into a stipulation of settlement dated November 21, 2013 providing for the release of all asserted claims, additional disclosures by MPG concerning the merger made prior to the merger’s approval, and the payment, by defendants, of an award of attorneys’ fees and expenses in an amount not to exceed $475,000 (which will ultimately be determined by$475,000. After a hearing on June 4, 2014, the California State Court). The asserted claims will not be released until such stipulation of settlement is approved by the court, following a hearing on notice to the proposed class. There can be no assurance that the court will approve the settlement. The hearingCourt granted plaintiffs’ motion for final approval of the settlement, and entered a Final Order and Judgment, awarding plaintiffs’ counsel’s attorneys’ fees and expenses in the amount of $475,000, which was paid by MPG Office LLC on June 18, 2014. BPO is scheduledseeking reimbursement for June 4, 2014.the settlement payment from MPG’s insurers.

In the Preferred Stock Actions, at a hearing on July 24, 2013, the Maryland State Court denied plaintiffs’ motion for preliminary injunction seeking to enjoin the tender offer. The plaintiffs filed a second amended complaint on November 22, 2013 that added additional arguments in support of their allegations that the new preferred shares do not have the same rights as the MPG preferred shares. The defendants moved to dismiss the second amended complaint on December 20, 2013, and briefing on the motion concluded on February 28, 2014. AAt a hearing dateon June 18, 2014, the Maryland State Court heard oral arguments on the defendants’ motion has not been scheduled byto dismiss and reserved judgment on the court.decision. As of the date of this report, no decision date can be reasonably estimated.

While the final outcome with respect to the Merger Litigations cannot be predicted with certainty, in the opinion of management after consultation with external legal counsel, any liability that may arise from such contingencies would not have a material adverse effect on the financial position, results of operations or liquidity of Brookfield DTLA.



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Item 1A.Risk Factors.

Factors That May Affect Future Results
(Cautionary Statement Under the Private Securities Litigation Reform Act of 1995)

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 (as set forth in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding our operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods, and include words such as “expects,” “anticipates,” “plans,” “believes,” “estimates,” “seeks,” “intends,” “targets,” “projects,” “forecasts,” “likely,” or negative versions thereof and other similar expressions, or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Although Brookfield DTLA believes that its anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors, many of which are beyond its control, which may cause Brookfield DTLA’s actual results, performance or achievements to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information.

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to:

Risks generally incident to the ownership of real property, including the ability to retain tenants and rent space upon lease expirations, the financial condition and solvency of our tenants, the relative illiquidity of real estate and changes in real estate taxes, regulatory compliance costs and other operating expenses;

Risks associated with the Downtown Los Angeles market, which is characterized by challenging leasing conditions, including limited numbers of new tenants coming into the market and the downsizing of large tenants in the market such as accounting firms, banks and law firms;

Risks related to increased competition for tenants in the Downtown Los Angeles market, including aggressive attempts by competing landlords to fill large vacancies by providing tenants with lower rental rates, increasing amounts of free rent and providing larger allowances for tenant improvements;

The impact or unanticipated impact of general economic, political and market factors in the regions in which Brookfield DTLA or any of its subsidiaries does business;

The use of debt to finance Brookfield DTLA’s business or that of its subsidiaries;


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The behavior of financial markets, including fluctuations in interest rates;

Uncertainties of real estate development or redevelopment;

Global equity and capital markets and the availability of equity and debt financing and refinancing within these markets;

Risks relating to Brookfield DTLA’s insurance coverage;

The possible impact of international conflicts and other developments, including terrorist acts;

Potential environmental liabilities;

Dependence on management personnel;

The ability to complete and effectively integrate acquisitions into existing operations and the ability to attain expected benefits therefrom;

Operational and reputational risks;

Catastrophic events, such as earthquakes and hurricanes; and

Other risks and factors relating to the transactions contemplated by the Merger Agreement including, but not limited to:

Increases in operating costs resulting from expenses related to the MPG acquisition;

Failure to realize the anticipated benefits and synergies of the transactions contemplated by the Merger Agreement, including as a result of an increase in costs associated with integration or difficulty in integrating the businesses of Brookfield DTLA, the Predecessor Entities and their respective subsidiaries and MPG;

Risks resulting from any lawsuits that may arise out of or have arisen as a result of the MPG acquisition or other transactions contemplated by the Merger Agreement; and

The impact of legislative, regulatory and competitive changes and other risk factors relating to the real estate industry, as detailed from time to time in the reports of Brookfield DTLA and BPO filed with the SEC.

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


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Additional material risk factors are discussed in other sections of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on April 8, 2014, as amended on April 29, 2014. Those risks are also relevant to our performance and financial condition. Moreover, we operate in a highly competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.Defaults Upon Senior Securities.

Dividends on the Series A preferred stock are cumulative, and therefore, will continue to accrue at an annual rate of $1.90625 per share. As of April 30,July 31, 2014, the cumulative amount of unpaid dividends totals $102.0$106.7 million.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.


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Item 6.Exhibits.

Exhibit No. Exhibit Description
31.1* Certification of Principal Executive Officer dated May 15,August 14, 2014 pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Principal Financial Officer dated May 15,August 14, 2014 pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Principal Executive Officer and Principal Financial Officer dated
May 15,August 14, 2014 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
__________
*Filed herewith.
**Furnished herewith.

(1)This exhibit should not be deemed to be “filed” for purposes of Section 18 of the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:As of May 15,August 14, 2014

 
BROOKFIELD DTLA FUND OFFICE
    TRUST INVESTOR INC.
 
 Registrant 
    
 By:/s/ MITCHELL E. RUDINPAUL SCHULMAN 
  Mitchell E. RudinPaul Schulman 
  President and Chief ExecutiveOperating Officer, 
  U.S. Commercial Operations 
  (Principal executive officer) 
    
 By:/s/ BRYAN K. DAVIS 
  Bryan K. Davis 
  Chief Financial Officer 
  (Principal financial officer) 

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