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 September 30, 2014March 31, 2015
 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 November 7, 2014,May 1, 2015, 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 SEPTEMBER 30, 2014MARCH 31, 2015

TABLE OF CONTENTS

   Page
PART I—FINANCIAL INFORMATION
    
 Item 1.Financial Statements. 
  
Condensed Consolidated Balance Sheets
     (unaudited) as of
     September 30, 2014 March 31, 2015 and December 31, 20132014
  
Condensed Consolidated and Combined Statements of Operations
     Operations     (unaudited) for the three and nine months ended
     September 30, March 31, 2015 and 2014 and 2013
  
Condensed Consolidated and Combined Statements of Comprehensive Loss
     Comprehensive (Loss) Income (unaudited)
for the three and nine months ended September 30,March 31, 2015 and 2014 and 2013
  
Condensed Consolidated and Combined Statements of Stockholders’ Deficit
     Stockholders’ Equity (Deficit) (unaudited)
for the ninethree months ended September 30,March 31, 2015 and 2014 and 2013
  
Condensed Consolidated and Combined Statements of
Cash Flows
     (unaudited) for the ninethree months ended
     September 30, March 31, 2014 and 20132014
  
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)

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
      
ASSETS      
Investments in real estate:      
Land$229,039
 $229,039
$229,555
 $229,555
Buildings and improvements2,154,064
 2,141,821
2,156,256
 2,155,040
Tenant improvements225,053
 187,005
245,730
 234,827
2,608,156
 2,557,865
2,631,541
 2,619,422
Less: accumulated depreciation(173,178) (121,612)(205,666) (189,108)
Investments in real estate, net2,434,978
 2,436,253
2,425,875
 2,430,314
      
Cash and cash equivalents168,013
 196,071
115,903
 125,004
Restricted cash38,544
 22,797
47,637
 47,118
Rents, deferred rents and other receivables, net69,674
 53,306
75,869
 74,332
Intangible assets, net129,863
 157,088
118,868
 125,827
Deferred charges, net60,592
 61,371
69,804
 63,825
Prepaid and other assets, net7,221
 19,310
13,741
 11,516
Total assets$2,908,885
 $2,946,196
$2,867,697
 $2,877,936
      
LIABILITIES AND (DEFICIT) EQUITY   
LIABILITIES AND DEFICIT   
Liabilities:      
Mortgage loans, net$2,109,487
 $1,885,605
$2,112,101
 $2,111,135
Accounts payable and other liabilities83,204
 60,637
83,754
 85,125
Due to affiliates, net21,169
 35,615
6,446
 2,749
Intangible liabilities, net40,108
 44,801
35,789
 37,725
Total liabilities$2,253,968
 $2,026,658
$2,238,090
 $2,236,734
      
Commitments and Contingencies (See Note 13)
 


 









See accompanying notes to condensed consolidated and combined financial statements.

1

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited; in thousands)thousands, except share amounts)

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
      
LIABILITIES AND (DEFICIT) EQUITY (continued)   
LIABILITIES AND DEFICIT (continued)   
Mezzanine Equity:      
7.625% Series A Cumulative Redeemable Preferred Stock,
$0.01 par value, 9,730,370 shares issued and
outstanding as of September 30, 2014
and December 31, 2013
$353,012
 $339,101
7.625% Series A Cumulative Redeemable Preferred Stock,
$0.01 par value, 9,730,370 shares issued and
outstanding as of March 31, 2015
and December 31, 2014
$362,286
 $357,649
Noncontrolling Interests:      
Series A-1 preferred interest327,567
 314,658
336,174
 331,871
Senior participating preferred interest48,472
 257,780
51,427
 50,080
Total mezzanine equity729,051
 911,539
749,887
 739,600
      
Stockholders (Deficit) Equity:
   
Common stock, $0.01 par value, 1,000 shares
issued and outstanding as of September 30, 2014
and December 31, 2013

 
Stockholders Deficit:
   
Common stock, $0.01 par value, 1,000 shares
issued and outstanding as of March 31, 2015
and December 31, 2014

 
Additional paid-in capital191,710
 191,710
191,710
 191,710
Accumulated deficit(126,895) (89,177)(146,560) (137,339)
Accumulated other comprehensive (loss) income(946) 480
Accumulated other comprehensive loss(3,274) (2,066)
Noncontrolling interest – Series B common interest(138,003) (95,014)(162,156) (150,703)
Total stockholders’ (deficit) equity(74,134) 7,999
Total liabilities and (deficit) equity$2,908,885
 $2,946,196
Total stockholders’ deficit(120,280) (98,398)
Total liabilities and deficit$2,867,697
 $2,877,936
















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 Ended For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Revenue:          
Rental income$38,232
 $13,449
 $113,983
 $40,011
$38,803
 $37,677
Tenant reimbursements25,062
 7,511
 70,671
 22,904
21,641
 20,348
Parking8,790
 2,895
 25,452
 8,554
8,673
 8,333
Interest and other3,613
 1,379
 8,626
 2,809
4,391
 2,319
Total revenue75,697
 25,234
 218,732
 74,278
73,508
 68,677
          
Expenses:          
Rental property operating and maintenance25,817
 8,956
 73,426
 25,669
22,205
 24,385
Real estate taxes9,746
 2,266
 28,602
 7,688
9,988
 9,047
Parking1,903
 633
 5,352
 2,125
1,916
 1,797
Other expense1,289
 599
 2,233
 1,862
226
 243
Depreciation and amortization28,399
 7,360
 82,509
 21,664
24,589
 26,010
Interest23,447
 4,389
 68,238
 13,091
23,645
 22,520
Total expenses90,601
 24,203
 260,360
 72,099
82,569
 84,002
          
Net (loss) income(14,904) 1,031
 (41,628) 2,179
Net income attributable to TRZ Holdings IV LLC
 (1,031) 
 (2,179)
Net loss(9,061) (15,325)
Net loss attributable to noncontrolling interests:          
Series A-1 preferred interest – current dividends(4,303) 
 (12,909) 
(4,303) (4,303)
Senior participating preferred interest –
current dividends
(2,232) 
 (9,467) 
(587) (4,133)
Senior participating preferred interest –
redemption measurement adjustment
(97) 
 (1,225) 
(760) (198)
Series B common interest – allocation of net loss13,699
 
 41,422
 
10,127
 14,967
Net loss attributable to Brookfield DTLA(7,837) 
 (23,807) 
(4,584) (8,992)
Series A preferred stock – current dividends(4,637) 
 (13,911) 
(4,637) (4,637)
Net loss available to common interest
holders of Brookfield DTLA
$(12,474) $
 $(37,718) $
$(9,221) $(13,629)
















See accompanying notes to condensed consolidated and combined financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

For the Three Months Ended For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
          
Net (loss) income$(14,904) $1,031
 $(41,628) $2,179
Net loss$(9,061) $(15,325)
          
Other comprehensive loss:          
Derivative transactions:          
Derivative holding gains (losses)882
 
 (2,993) 
Derivative holding losses(2,534) (1,866)
          
Comprehensive (loss) income(14,022) 1,031
 (44,621) 2,179
Comprehensive (income) attributable to
TRZ Holdings IV LLC

 (1,031) 
 (2,179)
Comprehensive loss(11,595) (17,191)
Comprehensive loss attributable to
noncontrolling interests
6,605
 
 19,388
 
5,803
 7,310
Comprehensive loss available to
common interest holders of Brookfield DTLA
$(7,417) $
 $(25,233) $
$(5,792) $(9,881)





































See accompanying notes to condensed consolidated and combined financial statements.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)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
Loss
 
Non-
controlling
Interest
 
Total
Stockholders
Deficit
 
Common
Stock
  
Common
Stock
 
                            
Balance, December 31, 2013 1,000
 $
 $191,710
 $(89,177) $480
 $(95,014) $7,999
Balance, December 31, 2014 1,000
 $
 $191,710
 $(137,339) $(2,066) $(150,703) $(98,398)
Net loss       (23,807)   (17,821) (41,628)       (4,584)   (4,477) (9,061)
Other comprehensive loss         (1,426) (1,567) (2,993)         (1,208) (1,326) (2,534)
Dividends on Series A
preferred stock, Series A-1
preferred interest and
senior participating
preferred interest
       (13,911)   (23,601) (37,512)       (4,637)   (5,650) (10,287)
Balance, September 30, 20141,000
 $
 $191,710
 $(126,895) $(946) $(138,003) $(74,134)
Balance, March 31, 2015Balance, March 31, 20151,000
 $
 $191,710
 $(146,560) $(3,274) $(162,156) $(120,280)

  
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
     
               
Balance, December 31, 2012
 $
 $
 $
 $
 $508,703
 $508,703
Net income           2,179
 2,179
Issuance of common stock 1,000
 
 28
       28
Contributions from
    TRZ Holdings IV LLC, net
           5,402
 5,402
Balance, September 30, 20131,000
 $
 $28
 $
 $
 $516,284
 $516,312



  
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
     
               
Balance, December 31, 20131,000
 $
 $191,710
 $(89,177) $480
 $(95,014) $7,999
Net loss       (8,992)   (6,333) (15,325)
Other comprehensive loss         (889) (977) (1,866)
Dividends on Series A
    preferred stock, Series A-1
    preferred interest and
    senior participating
    preferred interest
       (4,637)   (8,634) (13,271)
Balance, March 31, 20141,000
 $
 $191,710
 $(102,806) $(409) $(110,958) $(22,463)



















See accompanying notes to condensed consolidated and combined financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Cash flows from operating activities:      
Net (loss) income$(41,628) $2,179
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
   
Net loss$(9,061) $(15,325)
Adjustments to reconcile net loss to net cash
provided by operating activities:
   
Depreciation and amortization82,509
 21,664
24,589
 26,010
Provision for doubtful accounts(202) 
Amortization of below-market leases/
above-market leases
(1,722) (1,482)(623) (653)
Straight-line rent amortization(16,631) (6,275)(3,295) (6,013)
Amortization of tenant inducements854
 735
515
 256
Amortization of debt discounts3,394
 471
965
 1,274
Amortization of deferred financing costs950
 
297
 318
Changes in assets and liabilities:      
Rents, deferred rents and other receivables(8,582) (1,302)1,445
 (9,748)
Due to (from) affiliates, net8,485
 (2,536)
Due to affiliates, net3,437
 3,786
Deferred charges(5,973) (2,673)(8,630) (2,938)
Prepaid and other assets10,316
 3,190
(1,967) (1,433)
Accounts payable and other liabilities8,102
 3,489
3,819
 9,153
Net cash provided by operating activities40,074
 17,460
11,289
 4,687
Cash flows from investing activities:      
Expenditures for improvements to real estate(26,586) (15,649)(19,840) (12,670)
Increase in restricted cash(15,746) 
(Increase) decrease in restricted cash(519) 2,903
Net cash used in investing activities(42,332) (15,649)(20,359) (9,767)
Cash flows from financing activities:      
Proceeds from mortgage loans435,000
 
Principal payments on mortgage loans(214,512) (5,287)
 (1,193)
Distributions to Brookfield DTLA Holdings(220,000) 

 (70,000)
Contributions from TRZ Holdings IV LLC, net
 5,402
Due to affiliates(25,000) 
Financing fees paid(1,288) 
(31) 
Offering costs
 28
Net cash (used in) provided by financing activities(25,800) 143
Net cash used in financing activities(31) (71,193)
Net change in cash and cash equivalents(28,058) 1,954
(9,101) (76,273)
Cash and cash equivalents at beginning of period196,071
 5,707
125,004
 196,071
Cash and cash equivalents at end of period$168,013
 $7,661
$115,903
 $119,798







See accompanying notes to condensed consolidated and combined financial statements.

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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 Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Supplemental disclosure of cash flow information:      
Cash paid for interest$64,378
 $12,665
$22,375
 $20,674
      
Supplemental disclosure of non-cash investing and
financing activities:
      
Accrual for real estate improvements$19,091
 $1,626
$10,816
 $5,307
Accrual for deferred leasing costs2,656
 2,124
7,765
 3,265
Decrease in fair value of interest rate swap, net(2,993) 
Decrease in fair value of interest rate swap(2,534) (1,866)
      










See accompanying notes to condensed consolidated and combined financial statements.

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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 owned 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 toowns 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.Los Angeles Central Business District (the “LACBD”).

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

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”) constitutes 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 subsidiaries of 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, unless the context requires otherwise, 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 GAAPaccounting principles generally accepted in the United States of America (“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, 20132014 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.March 31, 2015.

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 isguidance in ASU 2014-08 became effective in the first quarterfor Brookfield DTLA beginning January 1, 2015. The implementation of 2015 for public organizations with calendar year-ends. Early adoption is permitted but only for disposals (or classifications as held for sale) that havethis pronouncement did not been reported in the financial statements previously issued. We do not believe that this update will have a material effectimpact on Brookfield DTLA’s consolidated financial statements in future periods.statements.

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, 2016.2017. 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.

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

In August 2014, the FASB issued ASU 2014-15. Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This topic provides guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and requires related footnote disclosures. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-09 on Brookfield DTLA’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. We are currently evaluating the impact of the adoption of ASU 2015-03 on Brookfield DTLA’s consolidated financial statements.

Income Taxes

Brookfield DTLA has elected to be taxed as a real estate investment trust (“REIT”) pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax yearperiod ended December 31, 2013. Brookfield DTLA intends to conduct its operations so as to continue to qualify as a REIT. Accordingly, Brookfield DTLA is not subject to U.S. federal income tax, provided that it continues to qualify as a REIT and distributions to its stockholders, if any, 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)

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 continue to qualify 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 nine months ended September 30,March 31, 2015 and 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 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 September 30, 2014March 31, 2015 and December 31, 2013,2014, and Brookfield DTLA does not expect its unrecognized tax benefits balance to change during the next 12 months. Brookfield DTLA’s 2013 tax period and 2014 tax year remainsremain open due to the statute of limitations and may be subject to examination by federal, state and local authorities. The Predecessor Entities’ 2010, 2011 and 2012 tax years as well as the Predecessor Entities’ short tax period ended October 15, 2013 for Brookfield DTLA and its subsidiaries 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):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
Allowance for doubtful accounts$168
 $357
$180
 $382
Accumulated amortization of tenant inducements3,523
 2,669
4,393
 3,878

Brookfield DTLA recorded a provision for doubtful accounts of $0.0 million and $0.1$(0.2) million during the three and nine months ended September 30, 2014, respectively. The Predecessor EntitiesMarch 31, 2015. Brookfield DTLA recorded no provision for doubtful accounts during the three and nine months ended September 30, 2013.March 31, 2014.


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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):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
Intangible Assets      
In-place leases$110,380
 $110,380
$110,519
 $110,519
Tenant relationships46,248
 46,248
46,248
 46,248
Above-market leases38,913
 38,913
39,936
 39,936
195,541
 195,541
196,703
 196,703
Accumulated amortization(65,678) (38,453)(77,835) (70,876)
Intangible assets, net$129,863
 $157,088
$118,868
 $125,827
      
Intangible Liabilities      
Below-market leases$76,438
 $76,438
$76,344
 $76,344
Accumulated amortization(36,330) (31,637)(40,555) (38,619)
Intangible liabilities, net$40,108
 $44,801
$35,789
 $37,725

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 Ended For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Rental income$474
 $489
 $1,722
 $1,482
$623
 $653
Depreciation and amortization expense6,143
 1,275
 22,626
 3,700
5,646
 8,324

As of September 30, 2014,March 31, 2015, the estimate of the amortization/accretion of intangible assets and liabilities during the remainder of 2014,2015, 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$6,046
 $3,625
 $1,971
201518,221
 9,733
 7,107
$11,971
 $6,197
 $5,521
201615,146
 8,597
 6,428
13,879
 7,635
 6,597
20179,280
 5,794
 5,850
10,776
 6,296
 5,944
20186,821
 4,901
 4,081
7,787
 5,198
 4,176
20196,526
 4,363
 3,515
Thereafter24,259
 17,440
 14,671
20,839
 17,401
 10,036
$79,773
 $50,090
 $40,108
$71,778
 $47,090
 $35,789


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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):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
Accumulated amortization of leasing costs$25,899
 $17,914
$30,654
 $28,270
Accumulated amortization of deferred financing costs1,102
 152
1,405
 1,108

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 Sept. 30, 2014 Dec. 31, 2013 Interest Rate March 31, 2015 Dec. 31, 2014
Floating-Rate Debt            
Variable-Rate Loans:            
Wells Fargo Center–South Tower (1)12/1/2016 1.96% $290,000
 $290,000
12/1/2016 1.98% $290,000
 $290,000
777 Tower (2)11/1/2018 1.86% 200,000
 200,000
11/1/2018 1.88% 200,000
 200,000
Figueroa at 7th (3)9/10/2017 2.40% 35,000
 
9/10/2017 2.43% 35,000
 35,000
Total variable-rate loans   525,000
 490,000
   525,000
 525,000
            
Variable-Rate Swapped to Fixed-Rate Loan:            
EY Plaza (4)11/27/2020 3.93% 185,000
 185,000
11/27/2020 3.93% 185,000
 185,000
Total floating-rate debt   710,000
 675,000
   710,000
 710,000
            
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 Plaza9/1/2024 4.05% 400,000
 
9/1/2024 4.05% 400,000
 400,000
Total fixed-rate debt   1,408,000
 1,008,000
   1,408,000
 1,408,000
            
Debt Refinanced:      
BOA Plaza   
 170,191
BOA Plaza   
 44,321
Total debt refinanced   
 214,512
Total debt   2,118,000
 1,897,512
   2,118,000
 2,118,000
Debt discounts   (8,513) (11,907)   (5,899) (6,865)
Total debt, net   $2,109,487
 $1,885,605
   $2,112,101
 $2,111,135

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

__________
(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%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).
(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%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

(3)
This loan bears interest at LIBOR plus 2.25%. Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of 12 months, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).
(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.

As of September 30, 2014,March 31, 2015, our debt to be repaid during the remainder of 2014,2015, the next four years and thereafter is as follows (in thousands):

2014$
2015311
$311
2016751,831
751,831
2017589,026
589,026
2018204,232
204,232
20194,449
Thereafter572,600
568,151
$2,118,000
$2,118,000

As of September 30, 2014March 31, 2015, $220.0 million of our debt may be prepaid without penalty, $458.0 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, $200.0 million is locked out from prepayment until November 1, 2015, and $400.0 million locked out from defeasance until August 7, 2017.

Secured Debt Financing

On September 10, 2014, Brookfield DTLA completed a $35.0 million mortgage loan secured by the Figueroa at 7th retail property and received net proceeds totaling $34.6 million, which will be used for general corporate purposes, including the repayment of the Company’s $25.0 million intercompany loan with BOP Management Inc. See Note 12 “Related Party Transactions—Intercompany Loan.”

The loan bears interest at a rate equal to LIBOR plus 2.25%, matures on September 10, 2017, and requires the payment of interest-only until maturity. The mortgage loan can be repaid at any time prior to maturity, in whole or in part, without penalty.

Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of 12 months, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement). If the maturity date of the loan is extended, the loan will require the monthly payment of a principal reduction amount (as defined in the loan agreement) and interest until maturity.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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 $150.0 million cash distribution from Brookfield DTLA to Brookfield DTLA Holdings to the holders of the senior preferred participating interest. See Note 7 “Mezzanine Equity—Senior Participating Preferred 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.30, 2016.

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 and2014, October 2014 and April 2015, respectively. The remaining $2.5$1.25 million will be paid in installments of $1.25 million in April and October 2015.

Non-Recourse Carve Out Guarantees

All of Brookfield DTLA’s $2.1 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.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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 September 30, 2014March 31, 2015 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)

Under the Gas Company Tower mortgage loan, we reported a DSCR of 0.820.72 to 1.00, calculated using actual debt service under the loan, and a DSCR of 0.620.57 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, EY Plaza, and Figueroa at 7th 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 September 30, 2014March 31, 2015 and December 31, 20132014 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. The Preferred Interests are classified in mezzanine equity because they are callable and the holder of the Series A-1 preferred interest and senior participating preferred interest (which also owns some of the Series A preferred stock) indirectly controls the ability to elect to redeem such instruments, through its controlling interest in the Company and its subsidiaries. There is no commitment or obligation on the part of Brookfield DTLA or Brookfield DTLA Holdings to redeem the Preferred Interests. See “—Senior Participating Preferred Interest” below for a discussion of the distributions paid related to the senior participating preferred interest during 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 September 30, 2014March 31, 2015 and December 31, 2013.2014. Adjustments to increase the carrying amount to redemption value are recorded in the consolidated statement of operations as a redemption measurement adjustment.


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Other than
BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

During the year ended December 31, 2014, the Company made cash distributions paid to Brookfield DTLA Holdings totaling $220.0 million, in respect of the senior participating preferred interest described below,held by Brookfield DTLA Holdings, using proceeds from the refinancing of EY Plaza and BOA Plaza. Other than these distributions, 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.

Series A Preferred Stock

As of September 30, 2014March 31, 2015 and December 31, 2013,2014, 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 ofNo dividends were declared on the 9,730,370 shares of Series A preferred stock issued byduring the Company inthree months ended March 31, 2015 and 2014. Dividends on 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 are cumulative, and therefore, will continue to accrue at an annual rate of $1.90625 per share. As of March 31, 2015, the cumulative amount of unpaid dividends totals $119.0 million and has been reflected in the carrying amount of the Series A preferred stock.

The Series A preferred stock does not have a stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series A preferred stock will rank senior to our common stock with respect to the payment of distributions. We may, at our option, redeem the Series A preferred stock, in whole or in part, for cash at a redemption price of $25.00 per share, plus all accumulated and unpaid dividends on such Series A preferred stock up to and including the redemption date. The Series A preferred stock is not convertible into or exchangeable for any other property or securities of Brookfield DTLA.

As of March 31, 2015, the Series A preferred stock is reported at its redemption value of $362.3 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, 2015.

Series A-1 Preferred Interest

On October 15, 2013, Brookfield DTLA Fund Properties II LLC (“New OP”) issued a Series A-1 preferred interest to Brookfield DTLA Holdings or wholly owned subsidiaries of Brookfield DTLA Holdings with a stated value of $225.7 million in connection with the formation of Brookfield DTLA and the MPG acquisition.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

The Series A-1 preferred interest has mirror rights to the Series A preferred interests issued by New OP, which are held by a wholly owned subsidiary of Brookfield DTLA, but only with respect to their respective preferred liquidation preferences, and share pro rata with 48.13% to the Series A-1 preferred interest and 51.87% to the Series A preferred interest based on their current liquidation preferences in accordance with their respective preferred liquidation preferences in distributions from New OP, until their preferred liquidation preferences have been reduced to zero. Thereafter, distributions will be made 47.66% to the Series A preferred interest and 52.34% to the Series B preferred interest, which is held by Brookfield DTLA Holdings. The economic terms of the Series A preferred stock mirror those of the New OP Series A preferred interests, including distributions in respect of the preferred liquidation preference.

As of March 31, 2015, the Series A-1 preferred interest is reported at its redemption value of $336.2 million calculated using its liquidation value of $225.7 million plus $110.5 million of accumulated and unpaid dividends on such Series A-1 preferred interest through March 31, 2015.

Senior Participating Preferred Interest

On October 15, 2013, Brookfield DTLA Fund Properties III LLC (“DTLA OP”) issued a senior participating preferred interest to Brookfield DTLA Holdings in connection with the formation of Brookfield DTLA and the MPG acquisition. The senior participating preferred interest was comprised of $240.0 million in preferred interests with a 7.0% coupon and a 4.0% participating interest in the residual value of DTLA OP, which owns 333 South Hope Co. LLC and EYP Realty LLC.

BOA Plaza and EY Plaza were contributed to DTLA OP, directly and indirectly, by Brookfield DTLA in connection with the merger. As of the merger date, these properties had a leverage ratio that was lower than the leverage ratio of the MPG properties acquired, as well as the target leverage ratio that the Company’s management sought to achieve for its properties, as they were refinanced, of approximately 60% to 65%. The size of the preferred interest component of the senior participating preferred interest issued to Brookfield DTLA was based, in part, on the day priorexpected net proceeds from the refinancing of the properties owned by 333 South Hope LLC (which holds BOA Plaza) and EYP Realty LLC (which holds EY Plaza) at a leverage ratio in this range and represented a portion of the approximately $595 million fair market value as of the merger date of BOA Plaza and EY Plaza, reduced by the outstanding principal balances of the mortgage loans secured by BOA Plaza and EY Plaza and the $25.0 million promissory note due to BOP Management Inc.

As of March 31, 2015, the senior participating preferred interest is reported at its redemption value of $51.4 million calculated using the value of the preferred and subsequent toparticipating interests totaling $50.0 million plus $1.4 million of accumulated and unpaid dividends on the transaction, respectively.preferred interest through March 31, 2015.


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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 nine months ended September 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 September 30, 2014, the cumulative amount of unpaid dividends totals $109.7 million and has been reflected in the carrying amount of the Series A preferred stock.

As of September 30, 2014, the Series A preferred stock is reported at its redemption value of $353.0 million calculated using the redemption price of $25.00 per share plus all accumulated and unpaid dividends on such Series A preferred stock through September 30, 2014.

Series A-1 Preferred Interest

As of September 30, 2014, the Series A-1 preferred interest is reported at its redemption value of $327.6 million calculated using its liquidation value of $225.7 million plus $101.9 million of accumulated and unpaid dividends on such Series A-1 preferred interest through September 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.

On August 28, 2014, Brookfield DTLA made a cash distribution to Brookfield DTLA Holdings of $150.0 million, which was comprised of $5.5 million in settlement of preferred dividends on the senior participating preferred interest through August 28, 2014 and a return of investment of $144.5 million using proceeds generated by the refinancing of BOA Plaza.

As of September 30, 2014, the senior participating preferred interest is reported at its redemption value of $48.5 million calculated using the value of the preferred and participating interests totaling $48.3 million plus $0.2 million of accumulated and unpaid dividends on the preferred interest through September 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 ninethree months ended September 30, 2014March 31, 2015 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   13,911
 12,909
 9,467
 36,287
Redemption measurement adjustment       1,225
 1,225
Cash distributions       (220,000) (220,000)
Balance, September 30, 20149,730,370
 $353,012
 $327,567
 $48,472
 $729,051
  
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, 2014 9,730,370
 $357,649
 $331,871
 $50,080
 $739,600
Current dividends   4,637
 4,303
 587
 9,527
Redemption measurement adjustment       760
 760
Balance, March 31, 20159,730,370
 $362,286
 $336,174
 $51,427
 $749,887

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 inas mezzanine equity in the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013.sheet. 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 September 30, 2014 and December 31, 2013sheet 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 For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Balance at beginning of period$(2,868) $
 $1,007
 $
$(4,337) $1,007
Other comprehensive gain (loss)
before reclassifications
882
 
 (2,993) 
Other comprehensive loss
before reclassifications
(2,534) (1,866)
Amounts reclassified from accumulated
other comprehensive loss

 
 
 

 
Net current-period
other comprehensive gain (loss)
882
 
 (2,993) 
Net current-period
other comprehensive loss
(2,534) (1,866)
Balance at end of period$(1,986) $
 $(1,986) $
$(6,871) $(859)

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.

Brookfield DTLA’s (liabilities) assets measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, are as follows (in thousands):

    Fair Value Measurements Using
  
Total
Fair
Value
 
Quoted Prices in
Active Markets
for Identical
(Liabilities)
Assets (Level 1)
 
Significant
Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Interest rate swap at:        
September 30, 2014 $(1,986) $
 $(1,986) $
December 31, 2013 1,007
 
 1,007
 
    Fair Value Measurements Using
  
Total
Fair
Value
 
Quoted Prices in
Active Markets
for Identical
(Liabilities)
Assets (Level 1)
 
Significant
Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Interest rate swap at:        
March 31, 2015 $(6,871) $
 $(6,871) $
December 31, 2014 (4,337) 
 (4,337) 
         
Interest rate caps at:        
March 31, 2015 $88
 $
 $88
 $
December 31, 2014 190
 
 190
 


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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
 September 30, 2014 December 31, 2013 March 31, 2015 December 31, 2014
Derivatives designated as cash flow hedging
instruments:
        
Interest rate swap (liability) asset $(1,986) $1,007
Interest rate swap liability $(6,871) $(4,337)

The interest rate swap liability as of September 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 nine months ended:   
September 30, 2014$(2,993) $
September 30, 2013
 
 
Amount of Loss
Recognized in AOCL
 
Amount of 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, 2015$(2,534) $
March 31, 2014(1,866) 

Interest Rate Swap—

As of September 30, 2014March 31, 2015 and December 31, 2013,2014, 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):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
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 $0.3 million and $1.6 million as of September 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):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
Estimated fair value$2,107,988
 $1,890,436
$2,143,148
 $2,133,158
Carrying amount2,109,487
 1,885,605
2,118,000
 2,118,000

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 was indebted to BOP Management Inc. under a $25.0 million promissory note dated October 11, 2013, which was included in due to affiliates, net in the condensed consolidated balance sheet as of December 31, 2013. The note bore interest at 3.25%. For the three and nine months ended September 30, 2014, the Company accrued $0.2 million and $0.6 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 December 31, 2013.

During September 2014, the Company paid $25.8 million in full settlement of the principal and interest outstanding on the intercompany loan using proceeds from the mortgage loan secured by the Figueroa at 7th retail property.

Management Agreements

The Predecessor EntitiesBrookfield DTLA has entered into arrangements with Brookfield PropertiesBOP Management LLC,Inc., an affiliate of BPO, which is affiliated with the Company through common ownership through 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%2.75% 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 For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Property management fee expense$2,173
 $737
 $6,190
 $2,093
$1,903
 $1,879
Asset management fee expense1,540
 
 4,569
 
1,523
 1,506
General, administrative and
reimbursable expenses
586
 297
 1,896
 867
549
 701
Leasing and construction management fees274
 162
 1,959
 659
2,779
 672

Insurance Agreements

Brookfield 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. In 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 policies.


Prior to their expiration effective April 19, 2014, the MPG properties were covered under an insurance policy that provided all risk property and business interruption with an aggregate limit
21

Table of $1.25 billion and a $130.0 million aggregate limit of earthquake insurance, and a terrorism insurance policy with a $1.25 billion aggregate limit. Effective April 19, 2014, the MPG properties were added to the existing BPO insurance policies described above.Contents


BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

Insurance premiums for Brookfield 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 For the Nine Months Ended
 Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013
Insurance expense$2,485
 $1,234
 $6,252
 $3,655
 For the Three Months Ended
 March 31, 2015 March 31, 2014
Insurance expense$2,147
 $1,304


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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 the Company’s 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”Actions”).


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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 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. After a hearing on June 4, 2014, the California State Court 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 seeking reimbursement for the settlement payment from MPG’s insurers.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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. At a hearing on June 18, 2014, the Maryland State Court heard oral arguments on the defendants’ motion to dismiss and reserved judgment on the decision. On October 21, 2014, the parties sent a joint letter to the Maryland State Court stating that since the June 18 meeting, the parties have commenced discussions towards a possible resolution of the lawsuit, requesting that the court temporarily refrain from deciding the pending motion to dismiss to facilitate the

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

discussions, and stating that the parties will report to the court within 45 days of the October 21 letter regarding the status of their discussions.

Counsel for the parties have reached an agreement to settle the Preferred Stock Actions on a class-wide basis and dismiss the case with prejudice in exchange for the payment of $2.25 per share of Series A preferred stock of accumulated and unpaid dividends to holders of record on a record date to be set after final approval of the settlement by the Maryland State Court, plus any attorneys’ fees awarded by the Maryland State Court to the plaintiffs’ counsel. The dividend will reduce the amount of accumulated and unpaid dividends on the Series A preferred stock, and the terms of the Series A preferred stock will otherwise remain unchanged. The agreement is subject to a number of conditions precedent, further documentation, and approval of the Maryland State Court, after notice to the class. The parties entered into a Memorandum of Understanding (the “MOU”) on March 30, 2015 memorializing the agreement to settle the Preferred Stock Actions, which has been filed with the Maryland State Court. A copy of the MOU was filed with Brookfield DTLA’s Annual Report of Form 10-K as Exhibit 99.1.

While the final outcome with respect to the Merger LitigationsPreferred Stock Actions 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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Table of Contents

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 owned 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 toowns 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.Los Angeles Central Business District (the “LACBD”).

Brookfield DTLA has elected to be taxed as a real estate investment trust (“REIT”) pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax yearperiod ended December 31, 2013. Brookfield DTLA intends to conduct its operations so as to continue to qualify as a REIT. Accordingly, Brookfield DTLA is not subject to U.S. federal income tax, provided that it continues to qualify as a REIT and distributions to its stockholders, if any, 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.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

Liquidity and Capital Resources

General

Brookfield DTLA’s business requires continued access to adequate cash to fund its liquidity needs. OverThe amount of cash Brookfield DTLA currently generates from its operations is not sufficient to cover Brookfield DTLA’s operating, financing and investing activities, resulting in a “negative cash burn,” and there can be no assurance that the last several years,amount of Brookfield DTLA’s negative cash burn will decrease, or that it will not increase, in the Predecessor Entities have maintained their liquidity position throughfuture. If Brookfield DTLA’s operating cash generated from operationsflow and contributions from TRZ.capital are not sufficient to cover our operating costs or to repay our indebtedness as it comes due, we may issue additional debt and/or equity, including to affiliates of Brookfield DTLA, which issuances could further adversely impact the amount of funds available to Brookfield DTLA for any purpose, including for dividends or other distributions to holders of its capital stock, including the Series A preferred stock. In many cases, such securities may be issued if authorized by board of directors of Brookfield DTLA without the approval of the holders of the Series A preferred stock. See “—Potential Uses of Liquidity—Property Operations” below.

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 September 30,March 31, 2015 and December 31, 2014, Brookfield DTLA had cash and cash equivalents totaling $168.0 million.$115.9 million and $125.0 million, respectively.


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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.”


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

Occupancy levels. The following table presents leasing information for Brookfield DTLA for leases in place as of September 30, 2014:March 31, 2015:

 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% 89.9% $29,283,496
 $23.18
 1,405,428
 18.67% 93.0% $30,545,060
 $23.37
Wells Fargo Center–North Tower 1,400,639
 18.59% 81.8% 27,622,179
 24.12
 1,400,639
 18.61% 82.4% 28,532,499
 24.71
Gas Company Tower 1,345,163
 17.85% 79.2% 22,984,090
 21.58
 1,345,163
 17.87% 79.3% 23,323,053
 21.86
EY Plaza 1,234,372
 16.38% 87.9% 23,185,434
 21.36
 1,224,967
 16.28% 89.3% 24,104,637
 22.05
Wells Fargo Center–South Tower 1,124,960
 14.93% 68.3% 20,713,227
 26.96
 1,124,960
 14.95% 77.0% 21,275,434
 24.57
777 Tower 1,024,835
 13.60% 83.4% 19,739,760
 23.08
 1,024,835
 13.62% 85.8% 19,786,696
 22.49
 7,535,397
 100.00% 82.0% $143,528,186
 $23.22
 7,525,992
 100.00% 84.6% $147,567,379
 $23.17
__________
(1)Annualized rent represents the annualized monthly contractual rent under existing leases as of September 30, 2014.March 31, 2015. This amount reflects total base rent before any rent abatements as of September 30, 2014March 31, 2015 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 September 30, 2014March 31, 2015 for the twelve months ending September 30, 2015March 31, 2016 are approximately $11.8$14.3 million, or $1.91$2.25 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 September 30, 2014,March 31, 2015, plus currently available space, for the remainder of 2014,2015, each of the nine calendar years beginning January 1, 20152016 and thereafter. This table assumes that none of our tenants will exercise renewal options or early termination rights, if any, at or prior to their scheduled expirations.

Year 
Total Area in
Square Feet
Covered by 
Expiring
Leases
 
Percentage
of Leased
Square Feet
 
Annualized
Rent (1)
 
Percentage of
Annualized
Rent
 
Current
Rent per
Leased
Square
Foot (2)
 
Rent per
Leased Square
Foot at
Expiration (3)
 
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 44,218
 0.7% $911,609
 0.6% $20.62
 $20.62
2015 402,390
 6.5% 9,209,685
 6.4% 22.89
 22.91
 294,348
 4.6% $6,995,911
 4.7% $23.77
 $23.78
2016 387,943
 6.3% 8,392,919
 5.8% 21.63
 22.59
 398,195
 6.3% 8,388,493
 5.7% 21.07
 21.51
2017 631,131
 10.2% 15,720,207
 11.0% 24.91
 26.55
 482,494
 7.6% 12,599,236
 8.5% 26.11
 27.93
2018 769,260
 12.4% 17,400,561
 12.1% 22.62
 24.20
 629,349
 9.9% 10,663,059
 7.2% 16.94
 18.64
2019 478,140
 7.7% 12,438,385
 8.7% 26.01
 30.83
 469,462
 7.4% 12,328,509
 8.4% 26.26
 30.55
2020 313,613
 5.1% 7,549,657
 5.3% 24.07
 29.39
 281,838
 4.4% 6,871,804
 4.7% 24.38
 28.67
2021 147,797
 2.4% 3,058,773
 2.1% 20.70
 24.47
 199,526
 3.1% 4,745,218
 3.2% 23.78
 29.02
2022 806,252
 13.0% 19,502,293
 13.6% 24.19
 30.73
 813,884
 12.8% 20,095,835
 13.6% 24.69
 30.78
2023 658,942
 10.7% 15,113,346
 10.5% 22.94
 30.66
 700,148
 11.0% 15,602,076
 10.6% 22.28
 29.18
2024 382,876
 6.0% 9,096,209
 6.2% 23.76
 30.90
Thereafter 1,542,587
 25.0% 34,230,751
 23.9% 22.19
 30.10
 1,715,927
 26.9% 40,181,029
 27.2% 23.42
 33.06
Total expiring leases 6,182,273
 100.0% $143,528,186
 100.0% $23.22
 $28.02
 6,368,047
 100.0% $147,567,379
 100.0% $23.17
 $28.74
Currently available 1,353,124
           1,157,945
          
Total rentable square feetTotal rentable square feet7,535,397
          Total rentable square feet7,525,992
          
__________
(1)Annualized rent represents the annualized monthly contractual rent under existing leases as of September 30, 2014.March 31, 2015. This amount reflects total base rent before any rent abatements as of September 30, 2014March 31, 2015 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 September 30, 2014March 31, 2015 for the twelve months ending September 30, 2015March 31, 2016 are approximately $11.8$14.3 million, or $1.91$2.25 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 ninethree months ended September 30, 2014.March 31, 2015. 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 ninethree months ended September 30, 2014:March 31, 2015:

Leasing Activity Percentage LeasedLeasing Activity Percentage Leased
      
Leased square feet as of December 31, 20136,289,262
 83.5 %
Leased square feet as of December 31, 20146,247,953
 83.0 %
Expirations(463,146) (6.2)%(413,319) (5.5)%
New leases283,187
 3.7 %178,863
 2.4 %
Renewals72,970
 1.0 %354,550
 4.7 %
Leased square feet as of September 30, 20146,182,273
 82.0 %
Leased square feet as of March 31, 20156,368,047
 84.6 %


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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 its 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 ninethree months ended September 30,March 31, 2015 and 2014, Brookfield DTLA received no contributions from Brookfield DTLA Holdings. To the extent that future contributions are needed, Brookfield DTLA Holdings has agreedmade a commitment to fundcontribute up to $260 million in cash or property to Brookfield DTLA Fund Properties II LLC (“New OP”), which directly or indirectly owns the Company,Brookfield DTLA properties, for which it will be entitled to receive a preferred return.return, if and when called by New OP. As of the date of this report, no capital contributions have been funded under this commitment.

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 EntitiesBOA Plaza and EY Plaza have historically 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.Holdings or another source of funds available to the Company or, if such cash were not made available, the Company might not have sufficient cash to fund its operations. Brookfield DTLA Holdings has made a commitment to make future capital contributions in cash or property to New OP, which directly or indirectly owns the Brookfield DTLA properties, for up to $260 million of its future cash needs, for which it would be entitled to receive a preferred return, if and when called by New OP. As of the date of this report, no capital contributions have been funded under this commitment.

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 $75approximately $118 million over the next ten years, with the majority ($60 million to $65(approximately $94 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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Brookfield DTLA’s properties, such as new fire alarm systems, elevator repairs and modernizations, facade work, roof replacement and new turbines.

Payments in Connection with Loans

As Brookfield DTLA’s debt matures, principal payment obligations present significant future cash requirements. 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$270 million to complete these refinancings, allboth of which will occur prior to 2017. There can be no assurance that any of these refinancings can be accomplished or 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.refinancing.

Distributions to Brookfield DTLA Holdings

OnDuring the three months ended March 21, 2014,31, 2015, the Company made no cash distributions to Brookfield DTLA Holdings.

During the year ended December 31, 2014, the Company made a cash distributiondistributions to Brookfield DTLA Holdings totaling $70.0 million, which was comprised of $7.3$220.0 million, in settlementrespect of preferred dividends on the senior participating preferred interest through March 21, 2014 and a return of investment of $62.7 millionheld by Brookfield DTLA Holdings, using proceeds generated byfrom the refinancing of EY Plaza.

On August 28, 2014, Brookfield DTLA made a cash distribution to Brookfield DTLA Holdings of $150.0 million, which was comprised of $5.5 million in settlement of preferred dividends on the senior participating preferred interest through August 28, 2014Plaza and a return of investment of $144.5 million using proceeds generated by the refinancing of BOA Plaza.

Indebtedness

As of September 30, 2014,March 31, 2015, Brookfield DTLA’s debt was comprised of mortgage loans secured by seven properties. A summary of our debt as of September 30, 2014March 31, 2015 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$1,408.0
 66.49% 5.04% 4 years$1,408.0
 66.49% 5.04% 4 years
Variable-rate swapped to fixed-rate185.0
 8.73% 3.93% 6 years185.0
 8.73% 3.93% 6 years
Variable-rate525.0
 24.78% 1.95% 3 years525.0
 24.78% 1.97% 3 years
$2,118.0
 100.00% 4.17% 4 years$2,118.0
 100.00% 4.18% 4 years


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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 September 30, 2014March 31, 2015 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
1.98% 12/1/2016 $290,000
 $5,822
777 Tower (3)1.86% 11/1/2018 200,000
 3,772
1.88% 11/1/2018 200,000
 3,812
Figueroa at 7th (4)2.40% 9/10/2017 35,000
 853
2.43% 9/10/2017 35,000
 861
Total variable-rate loans  525,000
 10,388
  525,000
 10,495
          
Variable-Rate Swapped to Fixed-Rate
Loan:
          
EY Plaza (5)3.93% 11/27/2020 185,000
 7,368
3.93% 11/27/2020 185,000
 7,368
Total floating-rate debt  710,000
 17,756
  710,000
 17,863
          
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 Plaza4.05% 9/1/2024 400,000
 16,425
4.05% 9/1/2024 400,000
 16,425
Total fixed-rate rate debt  1,408,000
 71,886
  1,408,000
 71,886
Total debt  2,118,000
 $89,642
  2,118,000
 $89,749
Debt discounts  (8,513)    (5,899)  
Total debt, net  $2,109,487
    $2,112,101
  
__________
(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%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).
(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%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).
(4)
This loan bears interest at LIBOR plus 2.25%. Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of 12 months, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).
(5)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.

Secured Debt Financing

On September 10, 2014, Brookfield DTLA completed a $35.0 million mortgage loan secured by the Figueroa at 7th retail property and received net proceeds totaling $34.6 million, which will be used for general corporate purposes, including the repayment of the Company’s $25.0 million intercompany loan with BOP Management Inc. See “Related Party Transactions—Intercompany Loan.”

The loan bears interest at a rate equal to LIBOR plus 2.25%, matures on September 10, 2017, and requires the payment of interest-only until maturity. The mortgage loan can be repaid at any time prior to maturity, in whole or in part, without penalty.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of 12 months, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement). If the maturity date of the loan is extended, the loan will require the monthly payment of a principal reduction amount (as defined in the loan agreement) and interest until maturity.

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 $150.0 million cash distribution from Brookfield DTLA to Brookfield DTLA Holdings to 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.

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 and2014, October 2014 and April 2015, respectively. The remaining $2.5$1.25 million will be paid in installments of $1.25 million in April 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 $2.1 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 September 30, 2014March 31, 2015 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.

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

Under the Gas Company Tower mortgage loan, we reported a DSCR of 0.820.72 to 1.00, calculated using actual debt service under the loan, and a DSCR of 0.620.57 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, EY Plaza, and Figueroa at 7th 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 September 30,March 31, 2015 to March 31, 2014 to September 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
9/30/2014 9/30/2013 3/31/2015 3/31/2014 
Revenue:              
Rental income$38.2
 $13.4
 $24.8
 184%$38.8
 $37.7
 $1.1
 3 %
Tenant reimbursements25.1
 7.5
 17.6
 234%21.6
 20.4
 1.2
 6 %
Parking8.8
 2.9
 5.9
 204%8.7
 8.3
 0.4
 5 %
Interest and other3.6
 1.4
 2.2
 157%4.4
 2.3
 2.1
 91 %
Total revenue75.7
 25.2
 50.5
 200%73.5
 68.7
 4.8
 7 %
              
Expenses:              
Rental property operating and maintenance25.8
 8.9
 16.9
 189%22.2
 24.4
 (2.2) (9)%
Real estate taxes9.7
 2.3
 7.4
 327%10.0
 9.0
 1.0
 11 %
Parking1.9
 0.6
 1.3
 205%1.9
 1.8
 0.1
 6 %
Other expense1.3
 0.6
 0.7
 117%0.3
 0.3
 
  %
Depreciation and amortization28.4
 7.4
 21.0
 285%24.6
 26.0
 (1.4) (5)%
Interest23.5
 4.4
 19.1
 434%23.6
 22.5
 1.1
 5 %
Total expenses90.6
 24.2
 66.4
 274%82.6
 84.0
 (1.4) (2)%
Net (loss) income$(14.9) $1.0
 $(15.9)  
Net loss$(9.1) $(15.3) $6.2
  

Rental Income

Rental income increased $24.8$1.1 million, or 184%3%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013, largely due to the acquisitionMarch 31, 2014, primarily as a result of MPG which contributed $24.3 million to rental incomean increase in the third quarteroccupancy of 2014.1.6%.

Tenant Reimbursements Revenue

Tenant reimbursements revenue increased $17.61.2 million, or 234%6%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013, mainly due to the acquisitionMarch 31, 2014, primarily as a result of MPG which contributed $15.5 million to tenant reimbursements revenuean increase in the third quarteroccupancy of 2014.1.6%.

ParkingInterest and Other Revenue

ParkingInterest and other revenue increased $5.9$2.1 million, or 204%91%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013,March 31, 2014, mainly due to the acquisitionas a result of MPG which contributed $5.5 million to parkinglease termination revenue in the third quarter of 2014.2015 totaling $2 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)

Interest and Other Revenue

Interest and other revenue increased $2.2 million, or 157%, for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013, mainly due to the acquisition of MPG which contributed $2.7 million to interest and other revenue in the third quarter of 2014.

Rental Property Operating and Maintenance Expense

Rental property operating and maintenance expense increaseddecreased $16.92.2 million, or 189%9%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013, mainly due to the acquisitionMarch 31, 2014 as a result of MPG which contributed $16.3 million to rentallower utility and insurance costs combined with a reduction in property operating and maintenance expense in the third quarter of 2014.administration costs.

Real Estate Taxes Expense

Real estate taxes expense increased $7.4$1.0 million, or 327%11%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013, largely as a result of the acquisition of MPG which contributed $6.6 million to real estate taxes expense in the third quarter ofMarch 31, 2014 combined with increases in 2014 property taxes at BOA Plaza and EY Plaza.

Parking Expense

Parking expense increased $1.3 million, or 205%, for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 due to tax increases across the acquisition of MPG which contributed $1.0 million to parking expense in the third quarter of 2014.portfolio.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $21.0decreased $1.4 million, or 285%5%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013 due to the acquisitionMarch 31, 2014, largely as a result of MPG which contributed $20.7 million to depreciationa decrease in amortization of acquired in-place lease and amortization expense in the third quarter of 2014.tenant relationship intangible assets.

Interest Expense

Interest expense increased $19.1$1.1 million, or 434%5%, for the three months ended September 30, 2014March 31, 2015 as compared to the three months ended September 30, 2013, largely as a result of the acquisition of MPG which contributed $17.6 million to interest expense in the third quarter ofMarch 31, 2014, combined with payments on the EY Plaza interest rate swap agreement 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)

Comparison of the Nine Months Ended September 30, 2014 to September 30, 2013

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

 For the Nine Months Ended Increase/
(Decrease)
 %
Change
 9/30/2014 9/30/2013  
Revenue:       
Rental income$114.0
 $40.0
 $74.0
 185%
Tenant reimbursements70.7
 22.9
 47.8
 209%
Parking25.4
 8.6
 16.8
 196%
Interest and other8.6
 2.8
 5.8
 207%
Total revenue218.7
 74.3
 144.4
 194%
        
Expenses:       
Rental property operating and maintenance73.4
 25.7
 47.7
 186%
Real estate taxes28.6
 7.7
 20.9
 272%
Parking5.4
 2.1
 3.3
 155%
Other expense2.2
 1.8
 0.4
 22%
Depreciation and amortization82.5
 21.7
 60.8
 281%
Interest68.2
 13.1
 55.1
 421%
Total expenses260.3
 72.1
 188.2
 261%
Net (loss) income$(41.6) $2.2
 $(43.8)  

Rental Income

Rental income increased $74.0 million, or 185%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, primarily due to the acquisitionrefinancing of MPG which contributed $72.9 million to rental income during the nine months ended September 30,BOA Plaza in August 2014.

Tenant Reimbursements Revenue

Tenant reimbursements revenue increased $47.8 million, or 209%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, mainly due to the acquisition of MPG which contributed $43.7 million to tenant reimbursements revenue during the nine months ended September 30, 2014.

Parking Revenue

Parking revenue increased $16.8 million, or 196%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, mainly due to the acquisition of MPG which contributed $16.1 million to parking revenue during the nine months ended September 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 $5.8 million, or 207%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, mainly due to the acquisition of MPG which contributed $6.2 million to interest and other revenue during the nine months ended September 30, 2014.

Rental Property Operating and Maintenance Expense

Rental property operating and maintenance expense increased $47.7 million, or 186%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, mainly due to the acquisition of MPG which contributed $46.3 million to rental property operating and maintenance expense during the nine months ended September 30, 2014.

Real Estate Taxes Expense

Real estate taxes expense increased $20.9 million, or 272%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, largely as a result of the acquisition of MPG which contributed $19.5 million to real estate taxes expense during the nine months ended September 30, 2014, combined with increases in 2014 property taxes at BOA Plaza and EY Plaza.

Parking Expense

Parking expense increased $3.3 million, or 155%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 as a result of the acquisition of MPG which contributed $2.8 million to parking expense during the nine months ended September 30, 2014.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $60.8 million, or 281%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, mainly due to the acquisition of MPG which contributed $60.1 million to depreciation and amortization expense during the nine months ended September 30, 2014.

Interest Expense

Interest expense increased $55.1 million, or 421%, for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, largely as a result of the acquisition of MPG which contributed $52.4 million to interest expense during the nine months ended September 30, 2014, combined with payments on the EY Plaza interest rate swap agreement 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 Nine Months Ended Increase/
(Decrease)
For the Three Months Ended Increase/
(Decrease)
Sept. 30, 2014 Sept. 30, 2013 March 31, 2015 March 31, 2014 
(In thousands)(In thousands)
Net cash provided by operating activities$40,074
 $17,460
 $22,614
$11,289
 $4,687
 $6,602
Net cash used in investing activities(42,332) (15,649) 26,683
(20,359) (9,767) 10,592
Net cash (used in) provided by financing activities(25,800) 143
 (25,943)
Net cash used in financing activities(31) (71,193) (71,162)

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 ninethree months ended September 30, 2014March 31, 2015 totaled $40.1$11.3 million, compared to net cash provided by operating activities of $17.5$4.7 million during the ninethree months ended September 30, 2013.March 31, 2014. The $22.6$6.6 million increase is primarily related to cash generated by the operations during 2015.

34

Table of the MPG properties during 2014.Contents


BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

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 $42.3$20.4 million during the ninethree months ended September 30, 2014,March 31, 2015, compared to net cash used in investing activities of $15.6$9.8 million during the ninethree months ended September 30, 2013,March 31, 2014, as a result of increased expenditures for improvements to its properties during 2014, including the properties acquired from MPG in 2013 and deposits to restricted cash.2015.

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 $25.8$0.0 million during the ninethree months ended September 30, 2014,March 31, 2015, compared to net cash provided byused in financing activities of $0.1$71.2 million during the ninethree months ended September 30, 2013. DistributionsMarch 31, 2014. A distribution totaling $220.0$70.0 million made to Brookfield DTLA Holdings related to the senior participating preferred interest during the ninethree months ended September 30,March 31, 2014 and the repayment of the $25.0 million intercompany loan, partially offset by proceeds from the refinancing of BOA Plaza and the financing of Figueroa at 7th, werewas the primary driversdriver 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 September 30, 2014March 31, 2015 and December 31, 2013,2014, respectively.

Contractual Obligations

The following table provides information with respect to Brookfield DTLA’s commitments as of September 30, 2014,March 31, 2015, including any guaranteed or minimum commitments under contractual obligations (in thousands):

2014 2015 2016 2017 2018 Thereafter Total2015 2016 2017 2018 2019 Thereafter Total
  
Principal payments on
mortgage loans
$
 $311
 $751,831
 $589,026
 $204,232
 $572,600
 $2,118,000
$311
 $751,831
 $589,026
 $204,232
 $4,449
 $568,151
 $2,118,000
Interest payments –                          
Fixed-rate debt (1)18,120
 71,886
 62,866
 24,781
 16,425
 93,195
 287,273
54,161
 62,866
 24,781
 16,425
 16,425
 76,770
 251,428
Variable-rate swapped to
fixed-rate debt
3,674
 7,368
 7,306
 7,130
 6,985
 13,102
 45,565
5,531
 7,306
 7,130
 6,985
 6,784
 6,312
 40,048
Variable-rate debt (2)2,619
 10,388
 9,942
 4,363
 3,152
 
 30,464
7,907
 10,044
 4,409
 3,185
 
 
 25,545
Tenant-related
commitments (3)
56,162
 4,495
 2,750
 8,108
 
 7,851
 79,366
33,201
 14,238
 25,744
 9,015
 
 18,853
 101,051
$80,575
 $94,448
 $834,695
 $633,408
 $230,794
 $686,748
 $2,560,668
$101,111
 $846,285
 $651,090
 $239,842
 $27,658
 $670,086
 $2,536,072
__________
(1)Interest payments on fixed-rate debt are calculated based on contractual interest rates and scheduled maturity dates.
(2)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 September 30, 2014March 31, 2015 plus the contractual spread per the loan agreements.
(3)Tenant-related commitments include tenant improvements and leasing commissions and are based on executed leases as of September 30, 2014.March 31, 2015.

Related Party Transactions

Intercompany Loan

The Company was indebted to BOP Management Inc. under a $25.0 million promissory note dated October 11, 2013 that bore interest at 3.25%. For the three and nine months ended September 30, 2014, the Company accrued $0.2 million and $0.6 million, respectively, of interest expense related to this note.

During September 2014, the Company paid $25.8 million in full settlement of the principal and interest outstanding on the intercompany loan using proceeds from the mortgage loan secured by the Figueroa at 7th retail property.


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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

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

Related Party Transactions

Management Agreements

The Predecessor EntitiesBrookfield DTLA has entered into arrangements with Brookfield PropertiesBOP Management LLC,Inc., an affiliate of BPO, which is affiliated with the Company through common ownership through 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%2.75% 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.

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 For the Nine Months EndedFor the Three Months Ended
Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013March 31, 2015 March 31, 2014
Property management fee expense$2,173
 $737
 $6,190
 $2,093
$1,903
 $1,879
Asset management fee expense1,540
 
 4,569
 
1,523
 1,506
General, administrative and
reimbursable expenses
586
 297
 1,896
 867
549
 701
Leasing and construction management fees274
 162
 1,959
 659
2,779
 672

Insurance Agreements

Brookfield 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. In 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 policies.

Prior to their expiration effective April 19, 2014, the MPG properties were covered under an insurance policy that provided all risk property and business interruption with an aggregate limit of $1.25 billion and a $130.0 million aggregate limit of earthquake insurance, and a terrorism insurance policy with a $1.25 billion aggregate limit. Effective April 19, 2014, the MPG properties were added to the existing BPO insurance policies described above.

Insurance premiums for Brookfield 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 under this arrangement is as follows (in thousands):

 For the Three Months Ended
 March 31, 2015 March 31, 2014
Insurance expense$2,147
 $1,304


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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 Nine Months Ended
 Sept. 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013
Insurance expense$2,485
 $1,234
 $6,252
 $3,655

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,March 31, 2015 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 September 30, 2014.March 31, 2015.

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 isguidance in ASU 2014-08 became effective in the first quarterfor Brookfield DTLA beginning January 1, 2015. The implementation of 2015 for public organizations with calendar year-ends. Early adoption is permitted but only for disposals (or classifications as held for sale) that havethis pronouncement did not been reported in the financial statements previously issued. We do not believe that this update will have a material effectimpact on Brookfield DTLA’s consolidated financial statements in future periods.statements.

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, 2016.2017. We are currently evaluating the impact of the adoption of ASU 2014-09 on Brookfield DTLA’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15. Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This topic provides guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and requires related footnote disclosures. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. 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)

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. We are currently evaluating the impact of the adoption of ASU 2015-03 on Brookfield DTLA’s consolidated financial statements.


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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,March 31, 2015 for a discussion regarding our exposure to market risk. Our exposure to market risk has not changed materially since year end 2013.2014.

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, 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 September 30, 2014.March 31, 2015.

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 September 30, 2014March 31, 2015 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 the Company’s 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”Actions”).

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. After a hearing on June 4, 2014, the California State Court 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 seeking reimbursement for 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. At a hearing on June 18, 2014, the Maryland State Court heard oral arguments on the defendants’ motion to dismiss and reserved judgment on the decision. On October 21, 2014, the parties sent a joint letter to the Maryland State Court stating that since the June 18 meeting, the parties have commenced discussions towards a possible resolution of the lawsuit, requesting that the court temporarily refrain from deciding the pending motion to dismiss to facilitate the discussions, and stating that the parties will report to the court within 45 days of the October 21 letter regarding the status of their discussions.


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Counsel for the parties have reached an agreement to settle the Preferred Stock Actions on a class-wide basis and dismiss the case with prejudice in exchange for the payment of $2.25 per share of Series A preferred stock of accumulated and unpaid dividends to holders of record on a record date to be set after final approval of the settlement by the Maryland State Court, plus any attorneys’ fees awarded by the Maryland State Court to the plaintiffs’ counsel. The dividend will reduce the amount of accumulated and unpaid dividends on the Series A preferred stock, and the terms of the Series A preferred stock will otherwise remain unchanged. The agreement is subject to a number of conditions precedent, further documentation, and approval of the Maryland State Court, after notice to the class. The parties entered into a Memorandum of Understanding (the “MOU”) on March 30, 2015 memorializing the agreement to settle the Preferred Stock Actions, which has been filed with the Maryland State Court. A copy of the MOU was filed with Brookfield DTLA’s Annual Report of Form 10-K as Exhibit 99.1.

While the final outcome with respect to the Merger LitigationsPreferred Stock Actions 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.


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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


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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 EntitiesBOA Plaza and EY Plaza 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.March 31, 2015. 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 October 31, 2014,April 30, 2015, the cumulative amount of unpaid dividends totals $111.3$120.6 million.

Item 4.Mine Safety Disclosures.

Not applicable.


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Item 5.Other Information.

None.


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Item 6.Exhibits.

Exhibit No. Exhibit Description
31.1* Certification of Principal Executive Officer dated November 14, 2014May 13, 2015 pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Principal Financial Officer dated November 14, 2014May 13, 2015 pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Principal Executive Officer and Principal Financial Officer dated
November 14, 2014May 13, 2015 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 November 14, 2014May 13, 2015

 
BROOKFIELD DTLA FUND OFFICE
    TRUST INVESTOR INC.
 
 Registrant 
    
 By:/s/ PAUL SCHULMAN 
  Paul Schulman 
  President and Chief Operating 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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