Brookfield Property Preferred (BPYPM) 6-K Management’s Discussion And Analysis Of Financial Results

Brookfield Property Partners L.P.

Condensed Consolidated Balance Sheets

Unaudited			As of
(US$ Millions)	Note		Jun. 30, 2014		Dec. 31, 2013
Assets
Non-current assets
Investment properties		5	$	36,511	$	34,153
Equity accounted investments		6		9,299		9,281
Participating loan interests		7		676		747
Hotel assets		8		2,243		2,432
Other non-current assets		9		3,589		2,802
Loans and notes receivable		10		107		20
				52,425		49,435
Current assets
Loans and notes receivable		10		87		608
Accounts receivable and other		11		1,105		1,035
Cash and cash equivalents				1,504		1,368
				2,696		3,011
Total assets			$	55,121	$	52,446
Liabilities and equity
Non-current liabilities
Debt obligations		12	$	20,173	$	16,520
Capital securities		13		2,260		2,181
Other non-current liabilities				424		250
Deferred tax liabilities				2,121		1,532
				24,978		20,483
Current liabilities
Debt obligations		12		3,422		5,120
Capital securities		13		187		188
Accounts payable and other liabilities		15		1,836		1,665
				5,445		6,973
Total liabilities				30,423		27,456
Equity
Limited partners(1)		16		5,615		2,528
General partner(1)		16		4		4
Non-controlling interests attributable to:
Redeemable/exchangeable and special limited partnership units(1)		16,17		11,979		11,092
Limited partnership units of Brookfield Office Properties Exchange LP(1)		16,17		724		―
Interests of others in operating subsidiaries and properties		17		6,376		11,366
Total equity				24,698		24,990
Total liabilities and equity			$	55,121	$	52,446

⁽¹⁾ The partnership’s equity interests include general partnership units (“GP Units”), publicly traded limited partnership units (“LP Units”), redeemable/exchangeable partnership units (“Redeemable/Exchangeable Partnership Units”) and special limited partnership units (“Special LP Units”) of the operating partnership and limited partnership units of Brookfield Office Properties Exchange LP (“Exchange LP Units”). Holders of the GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and Exchange LP Units are collectively referred to as the “unitholders”.

See accompanying notes to the condensed consolidated financial statements.

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Brookfield Property Partners L.P.

Condensed Consolidated Statements of Income

Unaudited			Three months ended Jun. 30,					Six months ended Jun. 30,
(US$ Millions, except per unit information)	Note		2014		2013			2014		2013
Commercial property revenue		18	$	742	$	711		$	1,465	$	1,459
Hospitality revenue				264		331			539		660
Investment and other revenue		19		209		44			266		99
Total revenue				1,215		1,086			2,270		2,218
Direct commercial property expense		20		331		293			645		598
Direct hospitality expense		21		202		262			415		514
Interest expense				307		276			595		543
Depreciation and amortization		22		37		54			76		87
Administration and other expense		23		95		65			179		111
Total expenses				972		950			1,910		1,853
Fair value gains, net		24		1,014		376			1,582		590
Share of net earnings from equity accounted investments		6		301		162			529		394
Income before income taxes				1,558		674			2,471		1,349
Income tax expense		14		269		196			689		295
Net income				1,289		478			1,782		1,054
Net income attributable to:
Limited partners(1)			$	270	$	44		$	347	$	44
General partner(1)				―		―			―		―
Brookfield Asset Management Inc.(2)				―		(97	)		―		232
Non-controlling interests attributable to:
Redeemable/exchangeable and special limited partnership units(1)				574		206			866		206
Limited partnership units of Brookfield Office Properties Exchange LP				48		―			51		―
Interests of others in operating subsidiaries and properties				397		325			518		572
				1,289		478			1,782		1,054
Net income per LP Unit:
Basic(3)		16	$	1.29	$	0.54		$	2.16	$	0.54
Diluted(3)		16	$	1.25	$	0.54		$	2.12	$	0.54

⁽¹⁾ For periods subsequent to April 15, 2013.

⁽²⁾ For the periods prior to April 15, 2013.

⁽³⁾ Net income per LP Unit have been presented effective for the period from the date of the Spin-off on April 15, 2013, as this is the date of legal entitlement of earnings to the LP Unit holders.

See accompanying notes to the condensed consolidated financial statements.

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Brookfield Property Partners L.P.

Condensed Consolidated Statements of Comprehensive Income

Unaudited			Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	Note		2014			2013			2014			2013
Net income			$	1,289		$	478		$	1,782		$	1,054
Other comprehensive income (loss):		26
Foreign currency translation				101			(615	)		136			(749	)
Cash flow hedges				(46	)		72			(91	)		117
Available-for-sale securities				4			―			3			6
Equity accounted investments				53			(38	)		53			(38	)
Total other comprehensive income (loss)				112			(581	)		101			(664	)
Total comprehensive income (loss)				1,401			(103	)		1,883			390
Comprehensive income attributable to:
Limited partners(1)
Net income				270			44			347			44
Other comprehensive income (loss)				18			(55	)		15			(55	)
				288			(11	)		362			(11	)
General partner(1)
Net income				―			―			―			―
Other comprehensive income (loss)				―			―			―			―
				―			―			―			―
Brookfield Asset Management Inc.(2)
Net income				―			(97	)		―			232
Other comprehensive income (loss)				―			36			―			(25	)
				―			(61	)		―			207
Non-controlling interests
Redeemable/exchangeable and special limited partnership units(1)
Net income				574			206			866			206
Other comprehensive income (loss)				38			(265	)		28			(265	)
				612			(59	)		894			(59	)
Limited partnership units of Brookfield Office Properties Exchange LP(1)
Net income				48			―			51			―
Other comprehensive income (loss)				3			―			3			―
				51			―			54			―
Interests of others in operating subsidiaries and properties(1)
Net income				397			325			518			572
Other comprehensive income (loss)				53			(297	)		55			(319	)
				450			28			573			253
Total comprehensive income (loss)			$	1,401		$	(103	)	$	1,883		$	390

⁽¹⁾ For periods subsequent to April 15, 2013.

⁽²⁾ For the periods prior to April 15, 2013.

See accompanying notes to the condensed consolidated financial statements.

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Brookfield Property Partners L.P.

Condensed Consolidated Statements of Changes in Equity

 

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Brookfield Property Partners L.P.

Condensed Consolidated Statements of Cash Flows

Unaudited			Six months ended Jun. 30,
(US$ Millions)	Note		2014			2013
Operating activities
Net income			$	1,782		$	1,054
Share of equity accounted earnings, net of distributions				(130	)		(394	)
Fair value (gains) losses, net		24		(1,582	)		(590	)
Deferred income tax expense		14		649			318
Depreciation and amortization		22		76			87
Working capital and other				(370	)		(308	)
				425			167
Financing activities
Debt obligations, issuance				5,949			3,518
Debt obligations, repayments				(4,232	)		(2,201	)
Capital securities redeemed				―			(201	)
Non-controlling interests, issued				711			90
Non-controlling interests, purchased				(1,538	)		―
Distributions to non-controlling interests in operating subsidiaries				(807	)		(224	)
Contributions from Brookfield Asset Management Inc.				―			19
Distributions to Brookfield Asset Management Inc.				(218	)		(206	)
Distributions to unitholders of the operating partnership				(80	)		(60	)
Distributions to holders of Exchange LP units				(9	)		―
Distributions to general partnership unitholders				―			(1	)
				(224	)		734
Investing activities
Investment properties, proceeds of dispositions				629			221
Investment properties, investments				(1,050	)		(805	)
Investment in equity accounted investments				―			(144	)
Proceeds from sale of investments				―			114
Investments in associates, dispositions				111			―
Investments in associates, additions				(33	)		―
Financial assets, dispositions				1,182			131
Financial assets, acquisitions				(1,035	)		―
Other property, plant and equipment, dispositions				140			―
Other property, plant and equipment, investments				(20	)		―
Foreign currency hedges of net investments				―			(21	)
Loans and notes receivable, collected				―			164
Loans and notes receivable, advanced				―			(119	)
Restricted cash and deposits				―			(18	)
Acquisitions of subsidiaries, net of disposition				(1	)		54
Capital expenditures – development and redevelopment				―			(128	)
Capital expenditures – commercial properties				―			(167	)
				(77	)		(718	)
Cash and cash equivalents
Net change in cash and cash equivalents during the period				124			183
Effect of exchange rate fluctuations on cash and cash equivalents held in foreign currencies				12			(26	)
Balance, beginning of period				1,368			894
Balance, end of period			$	1,504		$	1,051
Supplemental cash flow information
Cash paid for:
Income taxes			$	70		$	57
Interest (excluding dividends on capital securities)			$	570		$	425

See accompanying notes to the condensed consolidated financial statements.

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Brookfield Property Partners L.P.

Notes to the Condensed Consolidated Financial Statements

NOTE 1.   Organization and NATURE OF THE Business

Brookfield Property Partners L.P. (“BPY” or the “partnership”) was formed as a limited partnership established under the laws of Bermuda, pursuant to a limited partnership agreement dated January 3, 2013, as amended and restated on August 8, 2013. BPY is a subsidiary of Brookfield Asset Management Inc. (“Brookfield Asset Management” or the “parent company”) and is the primary entity through which the parent company and its affiliates own, operate, and invest in commercial and other income producing property on a global basis.

The partnership’s sole material asset is a 34% managing general partnership unit interest in Brookfield Property L.P. (the “operating partnership”), which holds the partnership’s interest in commercial and other income producing property operations. Prior to August 8, 2013, the partnership’s interest in the operating partnership was comprised solely of a limited partnership interest in class A limited partnership units (the “Class A LP Units”) of the operating partnership. Effective August 8, 2013, the Class A LP Units were renamed managing general partner units. The managing general partner units provide the partnership with the power to direct the relevant activities of the operating partnership.

The partnership’s limited partnership units are listed and publicly traded on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) under the symbols ‘‘BPY’’ and ‘‘BPY.UN’’, respectively. The registered head office of the partnership is 73 Front Street, 5^th Floor, Hamilton HM 12, Bermuda.

NOTE 2.   Summary of significant accounting policies

a) Statement of compliance

The interim condensed consolidated financial statements of the partnership and its subsidiaries have been prepared in accordance with International Accounting Standard (“IAS”) 34,Interim Financial Reporting (“IAS 34”), as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB, have been omitted or condensed.

These condensed consolidated financial statements as of and for the three and six months ended June 30, 2014 were approved and authorized for issue by the Board of Directors of the partnership on August 6, 2014.

b) Basis of presentation

The interim condensed consolidated financial statements are prepared using the same accounting policies and methods as those used in the consolidated financial statements for the year ended December 31, 2013, except for the impact of adoption of the accounting standard described below. Consequently, the information included in these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the partnership’s annual report on Form 20-F for the year ended December 31, 2013.

The interim condensed consolidated financial statements are unaudited and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented in accordance with IFRS. The results reported in these interim condensed consolidated financial statements should not necessarily be regarded as indicative of results that may be expected for the entire year.

The interim condensed consolidated financial statements are prepared on a going concern basis and have been presented in U.S. dollars rounded to the nearest million unless otherwise indicated.

c) Change in operating segments

In April 2014, the partnership realigned its operating segments as a result of changes to the organizational and governance structure of the partnership’s businesses to align the structures more closely with the nature of the partnership’s investments, such as the acquisition of additional interests in Brookfield Office Properties Inc. (“Brookfield Office Properties” or “BPO”). Such realignment gave rise to changes in how the partnership presents information for financial reporting and management decision-making purposes. Consequently, the partnership’s operating segments now consist of i) Office, ii) Retail, iii) Industrial, and iv) Multi-family and Hotels. All prior period segment disclosures have been recast to reflect changes in the partnership’s operating segments. Certain other prior year amounts have been reclassified to conform to the current year presentation. See Note 31,Segmented Information, for further discussion.

d) Estimates

The preparation of the partnership’s interim condensed consolidated financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise judgment in applying the partnership’s accounting policies. The accounting policies and critical estimates and assumptions have been set out in Note 2,Significant Accounting Policies, to the partnership’s consolidated financial statements for the year ended December 31, 2013 and have been consistently applied in the preparation of the interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2014.

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e) Adoption of Accounting Standard

In May 2013, the IASB issued IFRIC Interpretation 21,Levies (“IFRIC 21”), which was developed by the IFRS Interpretations Committee. The partnership adopted IFRIC 21 effective January 1, 2014. IFRIC 21 addresses when an entity should recognize a liability to pay a government levy other than income taxes. IFRIC 21 is an interpretation of IAS 37,Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”). IAS 37 sets out criteria for the recognition of a liability, one of which requires an entity to have a present obligation as a result of a past event. IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The adoption of this guidance did not have any significant impact on the partnership’s interim condensed consolidated financial statements.

f) Continuity of interests

On April 15, 2013, Brookfield Asset Management completed a spin-off of its commercial property operations (the “Business”) to the partnership (the “Spin-off”), which was effected by way of a special dividend of units of the partnership to holders of Brookfield Asset Management’s Class A and B limited voting shares as of March 26, 2013. Brookfield Asset Management directly and indirectly controlled the Business prior to the Spin-off and continues to control the partnership subsequent to the Spin-off through its interests in the partnership. As a result of this continuing common control, there is insufficient substance to justify a change in the measurement of the Business. Accordingly, the partnership has reflected the Business in its financial position and results of operations using Brookfield Asset Management’s carrying values prior to the Spin-off.

To reflect the continuity of interests, the interim condensed consolidated financial statements provide comparative information of the Business for the periods prior to the Spin-off, as previously reported by Brookfield Asset Management. The economic and accounting impact of contractual relationships created or modified in conjunction with the Spin-off have been reflected prospectively from the date of the Spin-off and have not been reflected in the results of operations or financial position of the partnership prior to April 15, 2013 as such items were in fact not created or modified prior thereto. Accordingly, the financial information for the periods prior to April 15, 2013 is presented based on the historical financial information for the contributed operations as previously reported by Brookfield Asset Management. For the periods after the Spin-off, the results are based on the actual results of the partnership, including the adjustments associated with the Spin-off and the execution of several new and amended agreements including management service and relationship agreements (see Note 29,Related Parties, for further discussion). Certain of these new or amended agreements resulted in differences in the basis of accounting as recorded by Brookfield Asset Management and as recorded by the partnership.

NOTE 3.    ACQUISITION OF BROOKFIELD OFFICE PROPERTIES INC.

As of December 31, 2013, the partnership’s interest in Brookfield Office Properties consisted of 49% of its outstanding common shares and 97% of its outstanding voting preferred shares. On February 12, 2014, the partnership and its indirect subsidiaries Brookfield Office Properties Exchange LP (“Exchange LP”) and Brookfield Property Split Corp. (“BOP Split”, and collectively with BPY and Exchange LP, the “Purchasers”), announced the commencement of the tender offer to acquire any or all of the common shares of Brookfield Office Properties that they did not already own (the “Offer”). Under the Offer, Brookfield Office Properties shareholders were able to elect to receive one BPY limited partnership unit or $20.34 in cash for each BPO common share rendered, subject in each case to pro-ration based on a maximum number of BPY limited partnership units and maximum cash consideration equating to approximately 67% and 33%, respectively, of the total number of BPO common shares subject to the Offer. BOP Split was incorporated as a wholly-owned subsidiary of Brookfield BPY Holdings Inc., a primary holding subsidiary of the partnership, to acquire common stock of BPO under the Offer and was established as a preferred share issuer.

Immediately after completion of the Offer, the Purchasers owned 92% of the outstanding BPO common shares. In June 2014, the Purchasers completed a subsequent acquisition of all the remaining BPO common shares by way of a plan of arrangement (the “Arrangement”) under Canadian corporate law. Pursuant to shareholder elections under the Arrangement, holders of BPO securities received the following consideration:

a) Common Shares

Pursuant to the terms of the Arrangement, BPO shareholders were able to receive either one limited partnership unit of BPY or $20.34 in cash for each BPO common share held, subject to pro-ration. Shareholders electing to receive BPY limited partnership units, or exchangeable limited partnership units of Exchange LP (the “Exchange LP Units”), received one limited partnership unit for each BPO common share tendered (or deemed tendered). Canadian BPO shareholders were given the option to receive, in lieu of BPY Units, Exchange LP units. Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, for BPY Units, subject to certain terms and applicable law. An Exchange LP Unit provides a holder thereof with economic terms which are substantially equivalent to those of a BPY Unit.

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b) Preferred Shares

Holders of outstanding BPO Convertible Preference Shares series, which consist of the Class AAA Preference Shares, Series G, Series H, Series J, and Series K of BPO, were given the option to elect either:

i. to exchange their BPO Convertible Preference Shares for BOP Split senior preferred shares (“BOP Split Senior Preferred Shares”), subject to minimum listing requirements and a maximum of 1,000,000 BOP Split Senior Preferred Shares issued per series, pro-rated, or

ii. to continue holding their BPO Convertible Preference Shares, the conditions of which were modified in order to provide for the BPO Convertible Preference Shares to be exchangeable into BPY limited partnership units rather than convertible into BPO common shares.

c) Class A Voting Preferred Shares

All Class A Series A and B voting preferred shares owned by BPO, other than those held by the Purchasers or their subsidiaries, were redeemed by BPO for cash.

Under IFRS 10,Consolidated Financial Statements, the buy-out of a non-controlling interest by a parent is accounted for as an equity transaction. As a result of the Offer and Arrangement, BPY owns 100% of the issued and outstanding common shares of BPO. Prior to the Arrangement, BPO was consolidated by BPY. Subsequent to the Arrangement, BPY will continue to consolidate BPO. In addition, and in accordance with IAS 32,Financial Instruments: Presentation(“IAS 32”), transaction costs associated with such a transaction are accounted for as a deduction of equity in the consolidated financial statements. As a result, the partnership deducted approximately $25 million from equity for the six months ended June 30, 2014.

NOTE 4.   BUSINESS ACQUISITIONS AND COMBINATIONS

The partnership accounts for business combinations using the acquisition method of accounting under IFRS 3,Business Combinations (“IFRS 3”), pursuant to which the cost of acquiring a business is allocated to its identifiable tangible and intangible assets and liabilities on the basis of the estimated fair values at the date of acquisition. The partnership completed the following acquisitions during the six months ended June 30, 2014. Financial results of each transaction are included within the partnership’s condensed consolidated statements of income from the dates of each acquisition.

In June 2014, the partnership acquired an additional 50% interest in KPMG Tower in Sydney for a net purchase price of approximately $130 million bringing its ownership in the property to 100%. The acquisition of the additional interest in KPMG Tower is accounted for as a business combination in accordance with IFRS 3 and KPMG Tower has been consolidated by the partnership since the acquisition date. Prior to the acquisition date, KPMG Tower was accounted for as an investment in joint operations.

In January 2014, the partnership purchased an additional 23.6% interest in Five Manhattan West (previously known as 450 West 33^rd Street) for a net purchase price of $57 million, which includes cash consideration of $50 million and the settlement of a $7 million loan receivable. As a result, the partnership’s ownership in Five Manhattan West increased to 98.6%. The partnership has consolidated Five Manhattan West as a result of the business combination in accordance with IFRS 3 since the acquisition date, prior to which it was accounted for as an investment in joint venture under the equity method of accounting.

The following table summarizes the impact of significant acquisitions during the six months ended June 30, 2014 that resulted in consolidation:

(US$ Millions)		Five Manhattan West(2)		KPMG Tower		Other Business Combinations		Total
Cash and cash equivalents	$	54	$	―	$	―	$	54
Accounts receivable and other		3		―		1		4
Investment properties		653		130		158		941
Total assets		710		130		159		999
Less:
Accounts payable and other liabilities		(2)		―		(1)		(3)
Debt obligations		(462)		―		―		(462)
Non-controlling interests(1)		(4)		―		―		(4)
Net assets acquired	$	242	$	130	$	158	$	530
Consideration	$	57	$	130	$	158	$	345

⁽¹⁾ Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition.

⁽²⁾ Consideration for the acquisition of Five Manhattan West is before considering the existing investment in joint venture accounted for under the equity method of accounting.

In the period from the acquisition date to June 30, 2014, the partnership recorded revenue and net income in connection with these acquisitions of approximately $26 million and $3 million, respectively. If the acquisitions had occurred on January 1, 2014, the partnership’s total revenue and net income would have been $2,312 million and $1,789 million, respectively, for the six months ended June 30, 2014.

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Acquisition-related costs, which primarily relates to legal and consulting fees, are expensed as incurred in accordance with IFRS 3 and are included in administration and other expense on the condensed consolidated statements of income.

NOTE 5.   iNVESTMENT PROPERTIES

The following table is a roll forward of investment property balances for the six months ended June 30, 2014 and the year ended December 31, 2013:

	Six months ended Jun. 30, 2014						Year ended Dec. 31, 2013
	Commercial properties		Commercial developments		Total		Commercial properties		Commercial developments		Total
(US$ Millions)
Balance, beginning of period	$	31,679	$	2,474	$	34,153	$	30,211	$	1,485	$	31,696
Additions:
Property acquisitions		1,284		331		1,615		4,224		637		4,861
Capital expenditures		23		68		91		514		490		1,004
Property dispositions(1)		(1,182)		(48)		(1,230)		(1,340)		(193)		(1,533)
Fair value gains (losses), net		1,145		151		1,296		805		143		948
Change in presentation on Spin-off(2)		―		―		―		(1,421)		―		(1,421)
Change in basis of presentation(3)		―		―		―		(175)		(36)		(211)
Foreign currency translation		344		41		385		(1,264)		(66)		(1,330)
Other		148		53		201		125		14		139
Balance, end of period	$	33,441	$	3,070	$	36,511	$	31,679	$	2,474	$	34,153

⁽¹⁾ Property dispositions represent the carrying value on date of sale.

⁽²⁾ Certain investment properties have been reclassified to equity accounted investments and participating loan notes to reflect the accounting impact of contractual relationships created or modified in conjunction with the Spin-off.

⁽³⁾ Due to the reorganization of ownership interests between the partnership and Brookfield Asset Management in 2013, certain operating and development assets have been reclassified to/from equity accounted investments, as they were held through entities that the partnership previously consolidated and are now equity accounted investments.

The partnership’s investment properties balance consists of both commercial properties and commercial developments. The partnership determines the fair value of each commercial property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the applicable balance sheet dates, less future cash outflows (including rental payments and other outflows) in respect of such leases. Where available, the partnership determines the fair value of commercial properties based on recent sales of similar property in the same location and condition and subject to a similar leasing profile. Where comparable current sales in an active market do not exist, the partnership considers information from a variety of sources, including: i) discounted cash flows based on reliable estimates of future cash flows, supported by the terms of existing lease and other contracts, and evidence such as current market rents for similar properties in the same location and condition, using discount rates to reflect uncertainty in the amount and timing of the cash flows; ii) recent prices of similar properties in less active markets, with adjustments to reflect any change in economic conditions since the date of the observed transactions that occurred at those prices, including market rents and discount or capitalization rates; and iii) current prices in an active market for properties of a different nature, condition or location, including differences in leasing and other contracts.

In certain cases, these sources will suggest different conclusions about the fair value of an investment property. In such cases, the partnership considers the reasons for any such differences in validating the most reliable estimate of fair value. Investment property valuations are completed by undertaking one of two accepted income approach methods, which include either: i) discounting the expected future cash flows, generally over a term of 10 years including a terminal value based on the application of a capitalization rate to estimated year 11 cash flows; or ii) undertaking a direct capitalization approach whereby a capitalization rate is applied to estimated current year cash flows. Fair values are primarily determined by discounting the expected future cash flows as opposed to the direct capitalization approach. In determining the appropriateness of the methodology applied, the partnership considers the relative uncertainty of the timing and amount of expected cash flows and the impact such uncertainty would have in arriving at a reliable estimate of fair value. In circumstances where there is low uncertainty as to the timing and amount of expected cash flows, which is primarily due to the lease profile, maturity and the market in which the property is located, a discounted cash flow approach is applied.

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Commercial developments are also measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. Development sites in the planning phases are measured using comparable market values for similar assets.

In accordance with its policy, the partnership measures and records its commercial properties and developments using valuations prepared by management. The partnership does not measure or record its properties based on valuations prepared by external valuation professionals.

Values are most sensitive to changes in discount rates and timing or variability of cash flows. The key valuation metrics for the partnership’s consolidated commercial properties and equity accounted investments are set forth in the following tables below on a weighted-average basis:

		Jun. 30, 2014			Dec. 31, 2013
Consolidated Properties	Primary valuation method	Discount Rate	Terminal Capitalization Rate	Investment Horizon (yrs.)	Discount Rate	Terminal Capitalization Rate	Investment Horizon (yrs.)
Office
United States	Discounted cash flow	7.4%	6.1%	11	7.5%	6.3%	11
Canada	Discounted cash flow	6.4%	5.7%	11	6.4%	5.7%	11
Australia	Discounted cash flow	8.3%	7.1%	10	8.4%	7.2%	10
Europe	Discounted cash flow	6.7%	5.3%	10	6.7%	5.3%	10
Retail
Brazil	Discounted cash flow	9.0%	7.2%	10	9.0%	7.2%	10
Australia	Discounted cash flow	10.5%	12.0%	10	10.3%	9.5%	10
Industrial	Discounted cash flow	8.2%	7.6%	10	8.9%	7.7%	10
Multi-family(1)	Direct capitalization	5.8%	n/a	n/a	6.0%	n/a	n/a

⁽¹⁾ The valuation method used to value multi-family properties is the direct capitalization method. The rates presented as the discount rate relate to the overall implied capitalization rate. The terminal capitalization rate and investment horizon are not applicable.

		Jun. 30, 2014			Dec. 31, 2013
Equity Accounted Investments(1)	Primary valuation method	Discount Rate	Terminal Capitalization Rate	Investment Horizon (yrs.)	Discount Rate	Terminal Capitalization Rate	Investment Horizon (yrs.)
Office
United States	Discounted cash flow	6.4%	5.6%	9	6.6%	5.9%	9
Australia	Discounted cash flow	8.6%	7.3%	10	8.7%	7.3%	10
Retail
United States	Discounted cash flow	7.6%	5.8%	10	7.6%	5.8%	10
Industrial	Discounted cash flow	7.4%	6.7%	10	7.8%	7.0%	10
Multi-family(2)	Direct capitalization	5.6%	n/a	n/a	5.6%	n/a	n/a

⁽¹⁾ See Note 6 for further discussion on the partnership’s equity accounted investments.

⁽²⁾ The valuation method used to value multi-family investments is the direct capitalization method. The rates presented as the discount rate relates to the overall implied capitalization rate. The terminal capitalization rate and investment horizon are not applicable.

NOTE 6.   EQUITY ACCOUNTED INVESTMENTS

The partnership has investments in joint arrangements that are joint ventures, and also has investments in associates. Joint ventures hold individual commercial properties and developments that the partnership owns together with co-owners where decisions relating to the relevant activities of the joint venture require the unanimous consent of the co-owners.

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Details of the partnership’s investments in joint ventures and associates, which have been accounted for following the equity method, are as follows:

			Proportion of Ownership Interests/ Voting Rights Held by the Partnership			Carrying value
(US$ Millions)	Principal Activity	Principal Place of Business	Jun. 30, 2014	Dec. 31, 2013		Jun. 30, 2014		Dec. 31, 2013
Joint Ventures
245 Park Avenue, New York	Property holding company	United States	51%	51%	$	680	$	653
Grace Building, New York	Property holding company	United States	50%	50%		513		695
Five Manhattan West, New York (1)	Property holding company	United States	n/a	75%		―		191
E&Y Complex, Sydney	Property holding company	Australia	50%	50%		247		236
Republic Plaza(2)	Property holding company	United States	50%	n/a		99		―
Other	Various	Various	12%-83%	13%-83%		866		906
					2,405			2,681
Associates
General Growth Properties, Inc. (“GGP”)	Real Estate Investment Trust	United States	29%	28%		6,307		6,044
Rouse Properties, Inc. (“Rouse”)	Real Estate Investment Trust	United States	34%	39%		415		399
Other	Various	Various	24%-42%	24%-42%		172		157
						6,894		6,600
Total equity accounted investments					$	9,299	$	9,281

⁽¹⁾ See Note 4 for further discussion.

⁽²⁾ At December 31, 2013, Republic Plaza was consolidated and presented at fair value within investment properties on the condensed consolidated balance sheet as the partnership’s ownership of the property, through BPO, was 100%. See below for further discussion.

In April 2014, BPO sold 50% of its interest in Republic Plaza, which is located in Denver, Colorado, through the establishment of a 50/50 joint venture partnership for approximately $98 million. Republic Plaza was previously consolidated within investment properties on the condensed consolidated balance sheet. BPO continues to retain joint control of the resulting joint venture in accordance with IFRS 11,Joint Arrangements, and as of the sale date, recorded and presented Republic Plaza as an equity accounted investment on the condensed consolidated balance sheet at $98 million. BPO has retained management and leasing responsibilities at Republic Plaza.

The fair value of the common shares of GGP held by the partnership based on the trading price of GGP common stock as of June 30, 2014 is $6 billion (December 31, 2013 - $5 billion). The fair value of the common shares of Rouse held by the partnership based on the trading price of Rouse common stock as of June 30, 2014 is $332 million (December 31, 2013 - $430 million). There are no quoted market prices for the partnership’s other equity accounted investments.

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

(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013
Non-current assets	$	50,798	$	49,681
Current assets		1,959		1,695
Total assets	$	52,757	$	51,376
Non-current liabilities		22,170		20,945
Current liabilities		1,609		2,325
Total liabilities		23,779		23,270
Net assets	$	28,978	$	28,106
Partnership’s share of net assets	$	9,299	$	9,281

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2014		2013		2014		2013
Revenue	$	1,000	$	1,074	$	2,013	$	2,283
Expense		393		795		945		1,589
Income before fair value gains, net		607		279		1,068		694
Fair value gains, net		349		92		618		556
Net income		956		371		1,686		1,250
Partnership’s share of net earnings	$	301	$	162	$	529	$	394

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NOTE 7.   Participating loan interests

Participating loan interests represent interests in certain properties in Australia that do not provide the partnership with control over the entity that owns the underlying property and are accounted for as loans and receivables and held at amortized cost on the condensed consolidated balance sheets. The instruments, which are receivable from a wholly-owned subsidiary of Brookfield Asset Management, have contractual maturity dates of September 26, 2020 and February 1, 2023, subject to the partnership’s prior right to convert into direct ownership interests in the underlying commercial properties, and have contractual interest rates that vary with the results of operations of those properties.

The outstanding principal of the participating loan interests relates to the following properties:

(US$ Millions)	Participation Interest
Name of Property		Maturity		Jun. 30, 2014		Dec. 31, 2013
Darling Park Complex, Sydney	30%	Sep. 26, 2020	$	175	$	161
IAG House, Sydney	50%	Sep. 26, 2020		117		110
NAB House, Sydney(1)	―	Sep. 26, 2020		―		105
Bourke Place Trust, Melbourne	43%	Sep. 26, 2020		194		174
Jessie Street, Sydney	100%	Feb. 1, 2023		150		130
Fujitsu Centre, Sydney(2)	―	Feb. 1, 2023		―		30
Infrastructure House, Canberra	100%	Feb. 1, 2023		40		37
Total participating loan interests			$	676	$	747

⁽¹⁾ During the first quarter of 2014, BPO sold its 25% participating interest in NAB House in Sydney for approximately $105 million in net proceeds.

⁽²⁾ During the second quarter of 2014, the partnership sold its economic interest in Fujitsu Centre for approximately $33 million in net proceeds.

Included in the balance of participating loan interests is an embedded derivative representing the partnership’s right to participate in the changes in the fair value of the referenced properties. The embedded derivative is measured at fair value with changes in fair value reported through earnings in fair value gains, net on the condensed consolidated statements of income. The carrying value of the embedded derivative as at June 30, 2014 is $47 million (December 31, 2013 - $56 million).

For the three and six month periods ended June 30, 2014, the partnership recognized interest income on the participating loan interests of $13 million (2013 – $13 million) and $27 million (2013 – $13 million), respectively, and fair value gains of $19 million (2013 – $22 million) and $15 million (2013 – $22 million), respectively.

Summarized financial information in respect of the properties underlying the partnership’s investment in participating loan interests is set out below:

(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013
Non-current assets	$	2,327	$	2,678
Current assets		58		53
Total assets		2,385		2,731
Non-current liabilities		648		363
Current liabilities		22		660
Total liabilities		670		1,023
Net assets	$	1,715	$	1,708

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2014		2013		2014		2013
Revenues	$	52	$	62	$	104	$	62
Expenses		23		28		49		28
Earnings before fair value gains, net		29		34		55		34
Fair value gains, net		24		44		20		44
Net earnings	$	53	$	78	$	75	$	78

NOTE 8.    HOTEL ASSETS

Hotel assets primarily consist of the partnership’s hotel properties received as part of the acquisitions of Paradise Island Holdings Limited (“Atlantis”) and BREF HR, LLC (“Hard Rock”). Hotel assets are presented on a cost basis, net of accumulated fair value changes and accumulated depreciation. Accumulated fair value changes include unrealized revaluations of hotel assets using the revaluation method, which are recorded in revaluation surplus as a component of equity, as well as unrealized impairment losses recorded in net income. The partnership determines the fair value of these assets on an annual basis as of December 31 by discounting the expected future cash flows using internal valuations.

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The following table presents the change to the components of the partnership’s hotel assets from the beginning of the year:

(US$ Millions)	Jun. 30, 2014			Dec. 31, 2013
Cost
Balance, beginning of the period	$	2,569		$	3,129
Net additions (dispositions)		(133	)		133
Foreign exchange translation		―			(85	)
Change in basis of presentation(1)		―			(608	)
		2,436			2,569
Accumulated fair value changes
Balance, beginning of the period		129			1
Increase from revaluation		―			138
Provision for impairment		―			(7	)
Disposals		―			(3	)
		129			129
Accumulated depreciation
Balance, beginning of the period		(266	)		(160	)
Depreciation		(56	)		(125	)
Change in basis of presentation(1)		―			19
		(322	)		(266	)
Total hotel assets	$	2,243		$	2,432

⁽¹⁾ Certain hotel assets in Australia, which are held through an entity which was previously consolidated by the partnership through September 29, 2013, have been reclassified to equity accounted investments as of September 30, 2013.

NOTE 9.    OTHER NON-CURRENT ASSETS

The components of other non-current assets are as follows:

(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013
Securities designated as fair value through profit or loss (“FVTPL”)	$	1,799	$	1,068
Derivative assets		1,104		868
Securities designated as available-for-sale (“AFS”)		151		124
Goodwill		128		120
Other		407		622
Total other non-current assets	$	3,589	$	2,802

a) Securities designated as FVTPL

Securities designated as FVTPL are financial assets that are stated at fair value on the consolidated balance sheets, with any gains or losses arising on remeasurement recognized in fair value gains, net on the consolidated statements of income.

Securities designated as FVTPL primarily includes the partnership’s 22% common equity interest in Canary Wharf Group plc (“Canary Wharf”), a privately held commercial property investment and development company in the United Kingdom, and a $500 million investment in preferred equity of China Xintiandi (“CXTD”), an entity whose common equity is wholly-owned by Hong Kong listed developer Shui On Land. CXTD owns Shui On Land’s portfolio of retail and office properties in Shanghai.

The partnership has determined that it does not exercise significant influence over these aforementioned entities.

b) Derivative assets

Derivative assets include the carrying amount of warrants to purchase shares of common stock of GGP with a carrying amount of $1,074 million (December 31, 2013 - $868 million). The fair value of the GGP warrants as of June 30, 2014 was determined using a Black-Scholes option pricing model, assuming a 3.4 year term (December 31, 2013 - 3.9 year term), 51% volatility (December 31, 2013 - 51% volatility), and a risk free interest rate of 1.00% (December 31, 2013 - 1.49%).

c) Securities designated as AFS

Securities designated as AFS are financial assets that are stated at fair value on the condensed consolidated balance sheets, with any fair value gains or losses recognized in other comprehensive income and reclassified to net income upon sale or impairment.

At June 30, 2014 securities designated as AFS includes $106 million (December 31, 2013 – $105 million) which represents the partnership’s 10% common equity interest and $92 million preferred equity interest in 1625 Eye Street in Washington, D.C. The preferred equity securities, bearing a fixed dividend of 6.50%, are redeemable by the issuer at par in 2016 and are pledged as security for a loan payable to the issuer in the amount of $92 million (December 31, 2013 – $92 million) recognized in other non-current financial liabilities.

Securities designated as AFS also includes $30 million as of June 30, 2014 which represents the partnership’s 10% common equity interest in Heritage Plaza in Houston that resulted from the disposition of a 41% interest, net of a 49% non-controlling interest, in the property during the first quarter of 2014. The 49% non-controlling interest previously consolidated was also disposed of.

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d) Goodwill

Goodwill represents a portfolio premium recognized in connection with the historical purchase of the partnership’s Brazilian retail assets. The partnership performs an annual goodwill impairment test during the fourth quarter of the fiscal year using carrying amounts as of December 31. Should certain events or indicators of impairment occur between annual impairment tests, the partnership will perform the impairment test as those events or indicators occur. The partnership assesses goodwill impairment at the cash generating unit level.

e) Other

Other primarily includes the partnership’s finite-lived intangible assets which are presented on a cost basis, net of accumulated amortization and accumulated impairment losses on the condensed consolidated balance sheets. These intangible assets primarily represent the trademark and licensing assets acquired as part of the acquisitions of Atlantis and Hard Rock. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. As of June 30, 2014, the amount of accumulated amortization related to the finite-lived intangible assets was approximately $55 million (December 31, 2013 - $43 million).

NOTE 10.LOANS AND NOTES RECEIVABLE

Loans and notes receivable are financial assets that are carried at amortized cost on the consolidated balance sheets with interest income recognized following the effective interest method on the consolidated statements of income. Notes receivables purchased at a discount are also carried at amortized cost with discounts amortized over the remaining expected life of the loan following the effective interest method. A loan is considered impaired when, based upon current information and events, it is probable that the partnership will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement. Loans are evaluated individually for impairment given the unique nature and size of each loan. On a quarterly basis, the partnership’s subsidiaries perform a quarterly review of all collateral properties underlying the loans receivable for each collateralized loan. There is no impairment of loans and notes receivable for the three and six month periods ended June 30, 2014.

Loans and notes receivable are generally secured by commercial and other income producing property.  

(US$ Millions)	Interest Rate	Maturity Date	Jun. 30, 2014		Dec. 31, 2013
Fixed rate	2.5% - 15.0%	On demand/sale	$	7	$	21
Variable rate	3M Euribor + 2.5% (50%); 3M Euribor + 4% (50%); Bank Rate + 2.0%	On demand / completion of construction		92		607
Non-interest bearing				95		―
			$	194	$	628
Current			$	87	$	608
Non-current				107		20
Total loans and notes receivable			$	194	$	628

In the second quarter of 2014, notes receivable denominated in Euros and carried at amortized cost were repaid to the partnership for cash at par value plus accrued interest.

NOTE 11.ACCOUNTS RECEIVABLE AND OTHER

The components of accounts receivable and other are as follows:

(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013
Accounts receivable(1)	$	530	$	386
Restricted cash and deposits		337		337
Other current assets		238		312
Total accounts receivable and other	$	1,105	$	1,035

⁽¹⁾ See Note 29, Related Parties, for further discussion.

Restricted cash and deposits are considered restricted when they are subject to contingent rights of third parties that prevent the assets’ use for current purposes.

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NOTE 12.Debt obligations

The partnership’s debt obligations include the following:

	Jun. 30, 2014			Dec. 31, 2013
(US$ Millions)	Weighted-Average Rate		Debt Balance	Weighted-Average Rate		Debt Balance
Unsecured facilities
Brookfield Office Properties’ revolving facility	2.6%	$	675	3.5%	$	336
Brookfield Office Properties’ senior unsecured notes	4.2%		325	4.2%		327
Brookfield Property Partners’ credit facility	2.5%		2,430	3.0%		496
Funds subscription credit facility	1.8%		121	1.8%		645
Secured debt obligations
Fixed rate	5.4%		10,745	5.1%		10,077
Variable rate	4.5%		9,299	3.9%		9,759
Total debt obligations		$	23,595		$	21,640
Current		$	3,422		$	5,120
Non-current			20,173			16,520
Total debt obligations		$	23,595		$	21,640

Debt obligations include foreign currency denominated debt in the functional currencies of the borrowing subsidiaries. Debt obligations by currency are as follows:

(US$ Millions)	Jun. 30, 2014				Dec. 31, 2013
	U.S. Dollars		Local Currency		U.S. Dollars		Local Currency
U.S. dollars	$	16,286	$	16,286	$	15,047	$	15,047
Canadian dollars		3,071	C$	3,277		2,845	C$	3,022
Australian dollars		2,092	A$	2,218		1,711	A$	1,919
Brazilian reais		787	R$	1,733		743	R$	1,740
British pounds		1,170	£	684		1,021	£	617
Euros		189	€	138		273	€	199
Total debt obligations	$	23,595			$	21,640

NOTE 13.cAPITAL sECURITIES

The partnership has the following capital securities outstanding as of June 30, 2014 and December 31, 2013:

(US$ Millions, except where noted)	Shares Outstanding		Cumulative Dividend Rate			Jun. 30, 2014		Dec. 31, 2013
Class B Junior Preferred Shares		30,000,000		5.75	%	$	750	$	750
Class C Junior Preferred Shares		20,000,000		6.75	%		500		500
BPO Class AAA Preferred Shares:
Series G(1)		3,400,000		5.25	%		85		110
Series H(1)		7,000,000		5.75	%		164		188
Series J(1)		7,000,000		5.00	%		164		188
Series K(1)		5,000,000		5.20	%		118		142
BOP Split Senior Preferred Shares:
Series 1		1,000,000		5.25	%		24		–
Series 2		1,000,000		5.75	%		23		–
Series 3		1,000,000		5.00	%		23		–
Series 4		1,000,000		5.20	%		24		–
Capital Securities – Fund Subsidiaries(2)		–		–			572		491
Total capital securities						$	2,447	$	2,369
Current						$	187	$	188
Non-current							2,260		2,181
Total capital securities						$	2,447	$	2,369

⁽¹⁾ Subsequent to the privatization of BPO on June 9, 2014, Brookfield Property Split Corp. owns 1,000,000 shares of each Series G, Series H, Series J and Series K capital securities, which has been reflected as a reduction in outstanding shares of each series of the BPO Class AAA Preferred Shares.

⁽²⁾ The Capital Securities - Fund Subsidiaries represent the equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by co-investors in the fund which have been classified as a liability, rather than as non-controlling interest, as holders of these interests can cause DTLA to redeem their interests in the fund for cash equivalent to the fair value of the interests on October 15, 2023, and on every fifth anniversary thereafter. Capital securities – fund subsidiaries are measured at redemption amount.

16

The terms of BPO’s Class AAA Preferred Shares, Series G, H, J and K, have been amended such that these shares are exchangeable into BPY units and no longer convertible into BPO common stock. As discussed previously, in connection with the Arrangement, holders of such securities were given the option, subject to an overall limit of 1,000,000 shares per series and certain other conditions, to exchange their BPO Convertible Preference Shares for BPO Split Senior Preferred Shares. Subsequent to the Arrangement, 1,000,000 such shares of each series were issued in exchange for the same number of BPO Convertible Preference Shares, which are now held by BOP Split.

Capital securities includes $516 million (December 31, 2013 – $518 million) repayable in Canadian dollars of C$550 million (December 31, 2013 – C$550 million).

Cumulative preferred dividends on the capital securities are payable quarterly, as and when declared by the Board of Directors of Brookfield BPY Holdings Inc. and BPO. On April 24, 2014 the Board of Directors of BPO declared quarterly dividends payable for the Class AAA Series G, H, J and K preferred shares.

As stated in Note 3, holders of outstanding BPO Convertible Preference Shares series were given the option to elect to exchange their BPO Convertible Preference shares for BOP Split Senior Preferred Shares. In accordance with IAS 32 and IAS 1,Presentation of Financial Statements, the BOP Split Senior Preferred Shares are presented as current liabilities within capital securities on the condensed consolidated balance sheets as there is a contractual obligation to deliver cash as well as a retraction provision that permits holders of each series of shares to retract the BOP Split Senior Preferred Shares at any time.

The holders of each series of the BOP Split Senior Preferred Shares are each entitled to receive fixed cumulative preferential cash dividends, if, as and when declared by the Board of Directors of BOP Split. Dividends on each series of the BOP Split Senior Preferred Shares accrue daily from the date of issue (less any tax required to be deducted and withheld by BOP Split) and are payable quarterly on the last day of March, June, September and December in each year. The first dividend paid on the BOP Split Senior Preferred Shares will be for the full quarter ended September 30, 2014. The first dividend on the BOP Split Senior Preferred Shares issued pursuant to the Arrangement will be calculated as if the BOP Split Senior Preferred Shares were issued on July 1, 2014, regardless of the date that such shares were actually issued.

NOTE 14.iNCOME tAXES

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

The major components of income tax expense include the following:

	Three months ended Jun. 30,					Six months ended Jun. 30,
(US$ Millions)	2014		2013			2014		2013
Current income tax (recovery)	$	13	$	(47	)	$	40	$	(23	)
Deferred income tax		256		243			649		318
Income tax expense	$	269	$	196		$	689	$	295

The increase in income tax expense relates primarily to increased revenue, deferred taxes due to a change in legislation, which affects the rate at which some of the partnership’s temporary differences will be taxed and an increase in deferred taxes relating to the purchase of additional interest in BPO.

NOTE 15.aCCOUNTS PAYABLE AND OTHER LIABILITIES

The components of accounts payable and other liabilities are as follows:

(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013
Accounts payable and accrued liabilities	$	1,642	$	1,541
Other liabilities		194		124
Total accounts payable and other liabilities	$	1,836	$	1,665

Included in accounts payable and other liabilities are derivative liabilities with a carrying amount of $191 million at June 30, 2014 (December 31, 2013 – $128 million).

17

NOTE 16.eQUITY

The partnership’s capital structure is comprised of five classes of partnership units: general partnership units (“GP Units”) and limited partnership units (“LP Units”), redeemable/exchangeable partnership units of the operating partnership (“Redeemable/Exchangeable Partnership Units”), special limited partnership units of the operating partnership (“Special LP Units”), and limited partnership units of Exchange LP (“Exchange LP Units”). Prior to the Spin-off, equity otherwise not attributable to interests of others in operating subsidiaries and properties had been allocated to Brookfield Asset Management.

a) General and limited partnership equity

GP units entitle the holder the right to govern the financial and operating policies of the partnership. The GP units are entitled to a 1% general partnership interest, equity enhancement distributions and incentive distributions from the operating partnership. The managing general partner of BPY is Brookfield Property Partners Limited, a wholly-owned subsidiary of Brookfield Asset Management.

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

GP units and LP Units outstanding are as follows:

	General partnership units		Limited partnership units		Total
(Thousands of units)	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014	Dec. 31, 2013
Outstanding, beginning of period	139	–	102,522	–	102,661	–
Issued on Spin-off	–	139	–	80,091	–	80,230
Issued on November 1, 2013 for the acquisition of incremental interest in GGP	–	–	–	22,431	–	22,431
Issued on March 20, April 1, and June 9 2014 for the acquisition of incremental BPO shares	–	–	124,871	–	124,871	–
Exchange LP Units exchanged	–	–	15,906	–	15,906	–
Distribution Reinvestment Program	–	–	43	–	43	–
Outstanding, end of period	139	139	243,342	102,522	243,481	102,661

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

Redeemable/Exchangeable Partnership Units

The Redeemable/Exchangeable Partnership Units are non-voting limited partnership interests in the operating partnership and have the same economic attributes in all respects with the partnership’s LP Units. Beginning on April 15, 2015, the Redeemable/Exchangeable Partnership Units may, at the request of the holder, be redeemed in whole or in part, for cash in an amount equal to the market value of one of the partnership’s LP Units multiplied by the number of units to be redeemed (subject to certain adjustments). This right is subject to the partnership’s right, at its sole discretion, to elect to acquire any unit presented for redemption in exchange for one LP unit (subject to certain customary adjustments). If the partnership elects not to exchange the Redeemable/Exchangeable Partnership Units for LP Units, the Redeemable/Exchangeable Partnership Units are required to be redeemed for cash. The Redeemable/Exchangeable Partnership Units provide the holder the direct economic benefits and exposures to the underlying performance of the partnership and accordingly to the variability of the distributions of the operating partnership, whereas the partnership’s unitholders have indirect access to the economic benefits and exposures of the operating partnership through direct ownership interest in the partnership which owns a direct interest in the managing general partner units of the operating partnership.

Redeemable/Exchangeable Partnership Units outstanding are as follows:

	Redeemable/Exchangeable Partnership Units
(Thousands of units)	Jun. 30, 2014		Dec. 31, 2013
Outstanding, beginning of period		432,649		–
Issued on Spin-off		–		381,329
Issued on November 15, 2013 for the acquisition of incremental interest in GGP		–		51,320
Outstanding, end of period		432,649		432,649

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Special limited partnership units

Prior to August 8, 2013, Property Special LP held 1% of the GP units of the partnership and as part of the reorganization effected on August 8, 2013, these units were transferred to be 1% Special LP Units. This reorganization was made in order to simplify the partnership’s governance structure and to more clearly delineate the partnership’s governance rights in respect of the operating partnership.

There were 4,759,997 Special LP Units outstanding at June 30, 2014 and December 31, 2013, respectively.

c) Limited partnership units of Brookfield Office Properties Exchange LP

Exchange LP Units were issued in March and June 2014 to certain Canadian holders of common shares of BPO who elected to receive such units for each BPO common share tendered in the Offer or the Arrangement by such shareholder. The Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, subject to their terms and applicable law, for LP Units. An Exchange LP Unit provides a holder thereof with economic terms that are substantially equivalent to those of a LP Unit of the partnership. Subject to certain conditions and applicable law, Exchange LP will have the right, commencing on the seventh anniversary of the completion of the Arrangement to redeem all of the then outstanding Exchange LP Units.

Exchange LP Units are outstanding as follows:

	Limited Partnership Units of Brookfield Office Properties Exchange LP
(Thousands of units)	Jun. 30, 2014		Dec. 31, 2013
Outstanding, beginning of period		–		–
Issued on March 20, April 1, and June 9 2014 for the acquisition of incremental BPO shares		48,126		–
Exchange LP Units exchanged(1)		(15,906)		–
Outstanding, end of period		32,220		–

⁽¹⁾ Approximately 15.9 million Exchange LP Units issued for the acquisition of incremental BPO shares are held by an indirect subsidiary of the partnership.

d) Distributions

Distributions made to each class of partnership units are as follows:

	Three months ended Jun. 30,					Six months ended Jun. 30,
(US$ Millions, except per unit information)		2014		2013	(1)		2014		2013	(1)
General partner	$	–	$	–		$	–	$	–
Limited partners		54		10			80		10
Holders of:
Redeemable/exchangeable partnership units		108		50			216		50
Special limited partnership units		1		–			2		–
Limited partnership units of Exchange LP		9		–			9		–
Total distributions		172		60			307		60
Per unit(2)	$	0.25	$	0.13		$	0.50	$	0.13

⁽¹⁾ For the period from April 15, 2013, the date of the Spin-off, to June 30, 2013.

⁽²⁾ Per unit outstanding on the record date for each.

e) Earnings per unit

The partnership’s net income per LP Unit and weighted average units outstanding are calculated as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2014		2013		2014		2013
Net income attributable to limited partners – basic	$	270	$	44	$	347	$	44
Dilutive effect of conversion of BPO Convertible Preferred Shares		1		–		1		–
Net income attributable to limited partners – diluted		271		44		348		44
Weighted average units outstanding – basic		209.9		80.2		160.4		80.2
Dilutive effect of conversion of BPO Convertible Preferred Shares(1)		6.3		–		3.2		–
Weighted average units outstanding - diluted		216.2		80.2		163.6		80.2

⁽¹⁾ The calculation of diluted earnings per unit of the partnership also includes the dilutive impact of the BPO Convertible Preferred Shares as such shares, subsequent to the Arrangement, are convertible into BPY Units.

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NOTE 17.NON-CONTROLLING INTERESTS

Non-controlling interests consists of the following:

(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013
Redeemable/Exchangeable and special limited partnership units	$	11,979	$	11,092
Limited partnership units of Exchange L.P.		724		–
Interest of others in operating subsidiaries and properties:
Preferred shares held by Brookfield Asset Management Inc.		25		25
Preferred equity of subsidiaries		1,659		1,614
Non-controlling interests in subsidiaries and properties		4,692		9,727
Total interests of others in operating subsidiaries and properties		6,376		11,366
Total non-controlling interests	$	19,079	$	22,458

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

		Proportion of economic interests held by non-controlling interests
(US$ Millions)	Principal Place of Business	Jun. 30, 2014	Dec. 31, 2013		Jun. 30, 2014		Dec. 31, 2013
Brookfield Office Properties Inc.(1)	U.S., Canada, Australia, U.K	–	51%	$	1,178	$	6,723
Brookfield Brazil Retail Fundo de Investimento em Participacões	Brazil	65%	65%		992		936
IDI Realty, LLC	U.S.	72%	72%		819		801
Gazeley Limited	U.K., Germany, France, Italy, Spain	72%	72%		329		254
BREF ONE, LLC	U.S., Bahamas	67%	67%		363		369
Other	Various	18%-88%	18%-88%		1,011		644
Total non-controlling interests in subsidiaries and properties				$	4,692	$	9,727

⁽¹⁾ Includes non-controlling interests in BPO subsidiaries which vary from 0.6%-50.0%.

In the first quarter of 2014, the partnership acquired 220.0 million common shares of BPO pursuant to its Offer to acquire any or all of the common shares of BPO not beneficially owned by the partnership. Consequently, the partnership increased its ownership interest in the common shares of BPO from approximately 49% at December 31, 2013 to 92% at March 31, 2014, resulting in a corresponding reduction in the proportion of the economic interests in Brookfield Office Properties held by non-controlling interests from 51% to 8%. In the second quarter of 2014, the Purchasers acquired the remaining BPO common shares pursuant to the Arrangement, representing approximately 8% of the BPO common shares. As of June 9, 2014, BPY owns 100% of the issued and outstanding common shares of BPO resulting in a corresponding reduction in the proportion of the economic interests in BPO’s common shares held by non-controlling interests from 8% at March 31, 2014 to nil.

Other non-controlling interests in subsidiaries and properties consist of earnings attributable to interests not owned by BPO at 100% in other assets and funds and preferred shares issued by BPO.

NOTE 18.COMMERCIAL PROPERTY REVENUE

The components of commercial property revenue are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2014		2013		2014		2013
Base rent	$	667	$	607	$	1,309	$	1,301
Straight- line rent		25		27		50		56
Lease termination		8		–		12		–
Other		42		77		94		102
Total commercial property revenue	$	742	$	711	$	1,465	$	1,459

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NOTE 19.INVESTMENT AND OTHER REVENUE

The components of investment and other revenue are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Fee revenue	$	9	$	13	$	16	$	27
Dividend income		19		2		22		2
Interest income		55		14		80		32
Participating loan notes		13		13		27		13
Other		113		2		121		25
Total investment and other revenue	$	209	$	44	$	266	$	99

NOTE 20.DIRECT COMMERCIAL PROPERTY EXPENSE

The components of direct commercial property expense are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Employee compensation and benefits	$	32	$	21	$	69	$	52
Property maintenance		158		140		312		281
Real estate taxes		102		94		197		189
Ground rents		8		8		17		17
Other		31		30		50		59
Total direct commercial property expense	$	331	$	293	$	645	$	598

NOTE 21.DIRECT HOSPITALITY EXPENSE

The components of direct hospitality expense are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Employee compensation and benefits	$	69	$	95	$	145	$	191
Marketing and advertising		9		12		23		26
Cost of food, beverage, and retail goods sold		18		22		36		42
Maintenance and utilities		25		27		47		50
Other		81		106		164		205
Total direct hospitality expense	$	202	$	262	$	415	$	514

NOTE 22.depreciation and amortization

The components of depreciation and amortization expense are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Depreciation and amortization of real estate assets	$	27	$	43	$	56	$	65
Depreciation and amortization of non-real estate assets		10		11		20		22
Total depreciation and amortization	$	37	$	54	$	76	$	87

NOTE 23.administration and other expense

The components of administration and other expense are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Employee compensation and benefits	$	37	$	32	$	63	$	60
Management fees		25		11		43		11
Other		33		22		73		40
Total administration and other expense	$	95	$	65	$	179	$	111

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NOTE 24.fair value gains, net

The components of fair value gains, net, are as follows:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Investment properties	$	926	$	394	$	1,296	$	608
Financial instruments		149		–		397		46
Other fair value gains (losses)		(61)		(18)		(111)		(64)
Total fair value gains, net	$	1,014	$	376	$	1,582	$	590

NOTE 25.share- based compensation

Immediately following the plan of arrangement through which the outstanding common shares of BPO were acquired by BPY, options and other share-based compensation awards outstanding at BPO as of the acquisition date were redeemed for cash and/or exchanged for new share-based compensation plans linked to interests in the partnership. The following is a summary of the partnership’s shared based compensation plans:

a) BPY Unit Option Plan

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

As of June 30, 2014, the total number of BPY Awards granted was 22,246,624 with a weighted average price of $19.73.

Consequences for BPO option holders:

i. For holders of vested in-the-money BPO options: Each participant’s vested in-the-money BPO options were redeemed for a cash payment equal to the in-the-money amount on the transaction closing date of June 9, 2014 (the “Closing Date”);

ii. For holders of unvested in-the-money BPO options: Each participant was granted BPY Awards equivalent in number to the outstanding BPO options held prior to the Closing Date. The grant price was equal to the closing price of a BPY Unit on the NYSE on the last trading day prior to the Closing Date less the in-the-money amount of the exchanged BPO Options on the Closing Date. These BPY Awards have expiry dates and vesting terms consistent with the unvested BPO options exchanged;

iii. For holders of out-of-the money BPO options: Each participant was granted BPY Awards equivalent in number to the outstanding out-of-the money BPO options (vested and unvested) held prior to the Closing Date. The exercise price was equal the closing price of a BPY Unit on the NYSE on the last trading day prior to the Closing Date. These BPY Awards have a 10-year term and a 5-year vesting period;

iv. For participants receiving 2013 compensation: New share-based compensation awards were granted on the Closing Date related to 2013 performance to participants. These BPY Awards have an exercise price equal to the closing price of a BPY share on the NYSE on the last trading day prior to the Closing Date and a 10-year term and 5-year vesting period. Participants were given the option to receive a portion of their 2013 compensation in restricted LP Units (as discussed below).

The partnership estimated the fair value of the BPY Awards granted during the year using the Black-Scholes valuation model. The following assumptions were utilized:

		Jun. 30, 2014
Weighted average unit price	US$	19.73
Weighted average fair value per option	US$	2.72
Average term to exercise	In Years	6.93
Unit price volatility	%	30
Liquidity discount	%	25
Weighted average annual dividend yield	%	4
Risk-free rate	%	2.26%

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b) Restricted BPY LP Unit Plan

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

As of June 30, 2014, the total number of Restricted Units granted was 320,544 with a weighted average price of US$20.79.

c) Restricted BPY LP Unit Plan (Canada)

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

As of June 30, 2014, the total number of Canadian Restricted Units granted was 19,410 with a weighted average price of C$22.14.

NOTE 26.other comprehensive income (loss)

Other comprehensive income (loss) consists of the following:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Items that may be reclassified to net income:
Foreign currency translation
Net unrealized foreign currency translation gains (losses) in respect of foreign Operations, net of income taxes	$	206	$	(649)	$	264	$	(818)
Gains (losses) on hedges of net investments in foreign operations, net of income taxes for the three and six months ended June 30, 2014 of $18 million and $31, respectively (2013 – nil and nil) (1)		(105)		34		(128)		69
		101		(615)		136		(749)
Cash flow hedges
Gains (losses) on derivatives designated as cash flow hedges, net of income taxes for the three and six months ended June 30, 2014 of $16 million and $31 million, respectively (2013 - $25 million and $31 million)		(46)		69		(91)		111
Reclassification of gains on derivatives designated as cash flow hedges, net of income taxes		–		3		–		6
		(46)		72		(91)		117
Available-for-sale securities
Change in unrealized gains on available-for-sale  securities, net of income taxes		4		–		3		6
		4		–		3		6
Equity accounted investments
Share of unrealized foreign currency translations gains (losses) in respect of foreign operations, net of income taxes		53		(38)		53		(38)
		53		(38)		53		(38)
Total other comprehensive income (loss)	$	112	$	(581)	$	101	$	(664)

⁽¹⁾ Unrealized gains (losses) on hedges of net investments in foreign operations are with a related party.

NOTE 27.OBLIGATIONS guarantees, contingencies and other

In the normal course of operations, the partnership and its consolidated entities execute agreements that provide for indemnification and guarantees to third parties in transactions such as business dispositions, business acquisitions, sales of assets and sales of services.

The partnership’s operating subsidiaries have also agreed to indemnify its directors and certain of its officers and employees. The nature of substantially all of the indemnification undertakings prevent the partnership from making a reasonable estimate of the maximum potential amount that it could be required to pay third parties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, neither the partnership nor its consolidated subsidiaries have made significant payments under such indemnification agreements.

The partnership and its operating subsidiaries may be contingently liable with respect to litigation and claims that arise from time to time in the normal course of business or otherwise. A specific litigation, with a judgment amount of $59 million (A$63 million), is being pursued against one of the partnership’s subsidiaries related to security on a defaulted loan. Management has determined that the most probable cash outflow related to the litigation being pursued against the company is $25 million (A$27 million), which has been fully provided for in the partnership’s financial statements. The partnership settled this specific litigation subsequent to June 30, 2014. See Note 32,Subsequent Events, for further information.

The partnership, through its 50% interest in London Wall Place LP, has a £125 million commitment at June 30, 2014 in respect of obligations under a pre-let agreement relating to 1 London Wall Place, which allows the joint venture partners, including the partnership, to commence formal construction of the development as soon as demolition work has been completed.

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At June 30, 2014, the partnership has commitments totaling approximately C$260 million for the development of Bay Adelaide East in Toronto and Brookfield Place East Tower in Calgary and approximately A$228 million for the development of Brookfield Place Perth Tower 2.

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

During 2013, Brookfield Asset Management announced the final close on the $4.4 billion Brookfield Strategic Real Estate Partners fund, a global private fund focused on making opportunistic investments in commercial property. The partnership, as lead investor, committed approximately $1.3 billion to the fund.

NOTE 28.financial instruments

a) Derivatives and hedging activities

The partnership and its operating entities use derivative and non-derivative instruments to manage financial risks, including interest rate, commodity, equity price and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approved limits. The partnership does not use derivatives for speculative purposes. The partnership and its operating entities use the following derivative instruments to manage these risks:

• foreign currency forward contracts to hedge exposures to Canadian Dollar, Australian Dollar, British Pound, and Euro denominated net investments in foreign subsidiaries and foreign currency denominated financial assets;

• interest rate swaps to manage interest rate risk associated with planned refinancings and existing variable rate debt;

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

• total return swaps on BPO’s shares to economically hedge exposure to variability in its share price under its deferred share unit plan.

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

Interest Rate Hedging

The following table provides the partnership’s outstanding derivatives that are designated as cash flow hedges of variability in interest rates associated with forecasted fixed rate financings and existing variable rate debt as of June 30, 2014 and December 31, 2013:

(US$ millions)	Hedging item		Notional	Rates	Maturity dates		Fair value
Jun. 30, 2014	Interest rate swaps of fixed US$ debt	$	1,995	2.3% -  4.9%	Nov. 2024 to Jun. 2029	$	(153)
	Interest rate swaps of fixed C$ debt		47	2.8%	Dec. 2024		–
	Interest rate swaps of US$ LIBOR debt		483	0.6% - 2.2%	Dec. 2015 to Nov. 2020		(5)
	Interest rate caps of US$ LIBOR debt		1,725	3.0% - 5.8%	Sep. 2014 to Oct. 2018		–
	Interest rate swaps of £ LIBOR debt		229	1.1%	Sep. 2017		3
	Interest rate swaps of A$ BBSW/BBSY debt		632	3.5% - 5.9%	Jan. 2016 to Jul. 2017		(34)
Dec. 31, 2013	Interest rate swaps of fixed US$ debt	$	1,505	2.3% and 4.7%	Jun. 2024 to Jun. 2026	$	(32)
	Interest rate swaps of fixed C$ debt		47	2.8%	Dec. 2024		3
	Interest rate swaps of US$ LIBOR debt		784	0.6% - 2.2%	May 2014 to Nov. 2020		(1)
	Interest rate caps of US$ LIBOR debt		2,246	3.0% - 5.8%	Jan. 2014 to Oct. 2018		2
	Interest rate swaps of £ LIBOR debt		222	1.1%	Sep. 2017		3
	Interest rate swaps of A$ BBSW/BBSY debt		936	3.5% - 5.9%	Jan. 2014 to Jul. 2017		(37)

For the three and six months ended June 30, 2014 and 2013, the amount of hedge ineffectiveness recorded in interest expense in connection with the partnership’s interest rate hedging activities was not significant.

Foreign Currency Hedging

The partnership has derivatives designated as net investment hedges of its investments in foreign subsidiaries. As of June 30, 2014, the partnership had hedged a notional amount of £981 million (December 31, 2013 - £770 million) at rates between £0.60/US$ and £0.63/US$ using foreign currency forward contracts maturing between July 2014 and June 2015. In addition, as of June 30, 2014, the partnership had hedged a notional amount of €288 million (December 31, 2013 - €550 million) at rates between €0.72/US$ and €0.74/US$ using foreign currency forward contracts maturing in August 2014. The partnership had also hedged, as of June 30, 2014, a notional amount of A$1,369 million (December 31, 2013 – A$535 million) at rates between A$1.06/US$ and A$1.14/US$ using foreign currency forward contracts maturing between July 2014 and March 2015.

The fair value of the partnership’s outstanding foreign currency forwards as of June 30, 2014 is a loss of $118 million (December 31, 2013 – loss of $27 million).

24

In addition, as of June 30, 2014, the partnership had designated C$1,413 million (December 31, 2013 – C$900 million) of Canadian dollar financial liabilities as hedges against the partnership’s net investment in Canadian operations.

Other Derivatives

The following table provides details of the partnership’s other derivatives that have been entered into to manage financial risks as of June 30, 2014 and December 31, 2013:

(US$ millions)	Derivative type		Fair Value(2)	Maturity dates	Rates		Fair value (gain)/loss	Classification of gain/loss
Jun. 30, 2014	Total return swap(1)	$	–	–	–	$	(3)	General and administrative expense
	Interest rate caps		400	Mar. 2016	3.65%		–	General and administrative expense
	Interest rate caps		350	Jul. 2017	3.25%		–	General and administrative expense
	Interest rate caps		2,175	Sep. 2014	4.50%		–	General and administrative expense
Dec. 31, 2013	Total return swap(1)	$	1	–	–	$	(5)	General and administrative expense
	Interest rate caps		400	Mar. 2016	3.65%		–	General and administrative expense
	Interest rate caps		882	Apr. 2014	2.50%		–	General and administrative expense
	Interest rate caps		2,270	Apr. 2014	4.50%		–	General and administrative expense

⁽¹⁾ Relates to the total return swap on BPO’s shares in connection with its deferred share unit plans which was settled for C$1 million during the second quarter of 2014.

⁽²⁾ Interest rate caps are presented at their notional amount.

The other derivatives have not been designated as hedges for accounting purposes.

b) Measurement and classification of financial instruments

Classification and Measurement

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

			Jun. 30, 2014				Dec. 31, 2013
(US$ Millions)	Classification	Measurement basis	Carrying value		Fair value		Carrying value		Fair value
Financial assets
Participating loan interests	Loans and receivables	Amortized cost	$	676	$	676	$	747	$	747
Loans and notes receivable	Loans and receivables	Amortized cost		194		194		628		628
Other non-current assets
Securities designated as FVTPL	FVTPL	Fair Value		1,799		1,799		1,068		1,068
Derivative assets	FVTPL	Fair Value		1,104		1,104		868		868
Securities designated as AFS	AFS	Fair Value		151		151		124		124
Other receivables	Loans and receivables	Amortized cost		95		95		95		95
Accounts receivable and other
Other receivables	Loans and receivables	Amortized cost		1,105		1,105		1,035		1,035
Cash and cash equivalents	Loans and receivables	Amortized cost		1,504		1,504		1,368		1,368
Total financial assets			$	6,628	$	6,628	$	5,933	$	5,933
Financial liabilities
Debt obligations	Other liabilities	Amortized cost	$	23,595	$	24,707	$	21,640	$	22,003
Capital securities	Other liabilities	Amortized cost		2,447		2,490		2,369		2,380
Other non-current liabilities
Other non-current financial liabilities	Other liabilities	Amortized cost(1)		424		424		250		250
Accounts payable and other liabilities	Other liabilities	Amortized cost(2)		1,836		1,836		1,665		1,665
Total financial liabilities			$	28,302	$	29,457	$	25,924	$	26,298

⁽¹⁾ Includes derivative liabilities measured at fair value of approximately $80 million and nil as of June 30, 2014 and December 31, 2013, respectively.

⁽²⁾ Includes derivative liabilities measured at fair value of approximately $191 million and $128 million as of June 30, 2014 and December 31, 2013, respectively.

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Fair Value Hierarchy

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

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

	Jun. 30, 2014								Dec. 31, 2013
(US$ Millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets
Participating loan interests – embedded derivative	$	–	$	–	$	47	$	47	$	–	$	–	$	56	$	56
Other non-current assets
Securities designated as FVTPL		–		7		1,792		1,799		–		–		1,068		1,068
Securities designated as AFS		–		–		151		151		–		–		124		124
Derivative assets		–		37		1,074		1,111		–		70		868		938
Total financial assets	$	–	$	44	$	3,064	$	3,108	$	–	$	70	$	2,116	$	2,186
Financial liabilities
Accounts payable and non-current other liabilities		–		271		–		271		–		128		–		128
Total financial liabilities	$	–	$	271	$	–	$	271	$	–	$	128	$	–	$	128

There were no transfers between levels during the three and six month periods ended June 30, 2014.

A reconciliation of fair value measurements in Level 3 is presented below:

	Jun. 30, 2014				Dec. 31, 2013
(US$ Millions)	Financial Assets		Financial Liabilities		Financial Assets		Financial Liabilities
Balance, beginning of period	$	2,116	$	–	$	1,709	$	54
Acquisitions		527		–		353		–
Dispositions		(5)		–		(85)		(54)
Fair value gains (losses), net and OCI		426		–		149		–
Other		–		–		(10)		–
Balance, end of period	$	3,064	$	–	$	2,116	$	–

NOTE 29.related parties

In the normal course of operations, the partnership enters into the transactions with related parties on market terms. These transactions have been measured at exchange value and are recognized in the interim condensed consolidated financial statements.

The immediate parent of the partnership is the general partner. The ultimate parent of the partnership is Brookfield Asset Management. Other related parties of the partnership include the partnership’s and Brookfield Asset Management’s subsidiaries and operating entities.

Since the Spin-off, the partnership has a management agreement with its service providers, wholly-owned subsidiaries of Brookfield Asset Management. Pursuant to a Master Services Agreement, on a quarterly basis, the partnership pays a base management fee (“base management fee”), to the service provider equal to $12.5 million per quarter ($50 million annually). The base management fee for the three and six months ended June 30, 2014 was $12.5 million and $25 million, respectively. The base management fee for the period from Spin-off to June 30, 2013 was $10.5 million.

Additionally, the partnership pays a quarterly equity enhancement distribution to Special L.P., a wholly-owned subsidiary of Brookfield Asset Management, of 0.3125% of the amount by which the operating partnership’s total capitalization value at the end of each quarter exceeds its total capitalization value immediately following the Spin-off, subject to certain adjustments. For purposes of calculating the equity enhancement distribution at each quarter end, the capitalization of the partnership is equal to the volume weighted average of the closing prices of the partnership’s units on the NYSE (or other exchange or market where the partnership’s units are principally traded) for each of the last five trading days of the applicable quarter multiplied by the number of issued and outstanding units of the partnership on the last of those days (assuming full conversion of Brookfield Asset Management’s interest in the partnership into units of the partnership), plus the amount of third-party debt, net of cash, with recourse to the partnership and the operating partnership and certain holding entities held directly by the operating partnership. The equity enhancement distribution for the three and six month periods ended June 30, 2014 was $12.4 million and $18.3 million, respectively. The equity enhancement distribution for the period from Spin-off to June 30, 2013 was nil.

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The following table summarizes transactions with related parties:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2014		2013		2014		2013
Commercial property revenue(1)	$	6	$	2	$	7	$	4
Interest and other income		15		17		29		19
Interest expense on debt obligations		1		5		6		7
Interest on capital securities paid to Brookfield Asset Management		20		–		40		–
Administration expense(2)		10		31		20		55
Management fees paid		23		27		62		41

(US$ Millions)		Jun. 30, 2014		Dec. 31, 2013
Participating loan interests	$	676	$	747
Loans and notes receivable(3)		191		293
Receivables and other assets		99		11
Debt obligations		260		341
Other liabilities		123		98
Capital securities owned by Brookfield Asset Management		1,250		1,250

⁽¹⁾ Amounts received from Brookfield Asset Management and its subsidiaries for the rental of office premises.

⁽²⁾ Amounts paid to Brookfield Asset Management and its subsidiaries for administrative services.

⁽³⁾ Includes $95 million receivable from Brookfield Asset Management upon the earlier of the partnership's exercise of its option to convert its participating loan interests into direct ownership of the Australian portfolio or the maturity of the participating loan notes.

NOTE 30.Subsidiary PUBLIC ISSUERS

BOP Split was incorporated for the purpose of being an issuer of preferred shares and owning the Purchasers’ additional investment in BPO Common Shares. Pursuant to the terms of the arrangement, holders of outstanding BPO Convertible Preference Shares Series G, H, J and K, which were convertible into BPO common shares, were able to exchange their shares for BOP Split Senior Preferred Shares, subject to certain conditions. The BOP Split Senior Preferred shares are listed on the TSX and began trading on June 11, 2014. All shares issued by BOP Split are retractable by the holders at any time for cash.

The following table provides consolidated summary financial information for the partnership, BOP Split, and the Holding Entities:

(US$ Millions) For the three months ended Jun. 30, 2014	Brookfield Property Partners L.P.		Brookfield Property Split Corp.		Holding Entities(3)		Other Subsidiaries		Consolidating Adjustments(2)			Brookfield Property Partners L.P. consolidated
Revenue	$	–	$	–	$	73	$	1,215	$	(73	)	$	1,215
Net income attributable to unitholders(1)		298		281		893		539		(1,119	)		892
For the three months ended Jun. 30, 2013
Revenue	$	–	$	–	$	46	$	1,086	$	(46	)	$	1,086
Net income attributable to unitholders(1)		22		–		153		107		(129	)		153

For the six months ended Jun. 30, 2014
Revenue	$	–	$	–	$	147	$	2,270	$	(147	)	$	2,270
Net income attributable to unitholders(1)		373		282		1,264		835		(1,490	)		1,264
For the six months ended Jun. 30, 2013
Revenue	$	–	$	–	$	46	$	2,218	$	(46	)	$	2,218
Net income attributable to unitholders(1)		22		–		484		436		(460	)		482

⁽¹⁾ Includes net income attributable to limited partners, general partner, non-controlling interest - Redeemable/Exchangeable and special limited partnership units and non-controlling interest - Limited partnership units of Exchange LP.

⁽²⁾ Includes elimination of intercompany transactions and balances necessary to present the partnership on a consolidated basis.

⁽³⁾ Includes Brookfield Property L.P., Brookfield BPY Holdings Inc., Brookfield BPY Retail Holdings II Inc., BPY Bermuda Holdings Limited and BPY Bermuda Holdings II Limited.

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(US$ Millions) As of Jun. 30, 2014	Brookfield Property Partners L.P.		Brookfield Property Split Corp.		Holding Entities		Other Subsidiaries		Consolidating Adjustments			Brookfield Property Partners L.P. consolidated
Current assets	$	–	$	–	$	142	$	2,554	$	–		$	2,696
Non- current assets		8,584		5,392		20,746		52,425		(34,722	)		52,425
Current liabilities		–		–		215		5,230		–			5,445
Non-current liabilities		–		3,258		2,346		19,374		–			24,978
Equity attributable to non-controlling interests of others in operating subsidiaries and properties		–		–		5		6,371		–			6,376
Equity attributable to unitholders(1)		8,584		2,134		18,322		24,004		(34,722	)		18,322
As of Dec. 31, 2013
Current assets	$	–	$	–	$	6	$	3,005	$	–		$	3,011
Non- current assets		2,590		–		15,330		49,435		(17,920	)		49,435
Current liabilities		–		–		109		6,864		–			6,973
Non-current liabilities		–		–		1,598		18,885		–			20,483
Equity attributable to non-controlling interests of others in operating subsidiaries and properties		–		–		5		11,361		–			11,366
Equity attributable to unitholders(1)		2,590		–		13,624		15,330		(17,920	)		13,624

⁽¹⁾ Includes net income attributable to limited partners, general partner, non-controlling interest - Redeemable/Exchangeable and special limited partnership units and non-controlling interest - Limited partnership units of Exchange LP.

NOTE 31.SEGMENT INFORMATION

a) Operating segments

IFRS 8,Operating Segments, requires operating segments to be determined based on internal reports that are regularly reviewed by the chief operating decision maker (“CODM”) for the purpose of allocating resources to the segment and to assessing its performance. Prior to April 1, 2014, the partnership managed the business in three operating segments: i) Office, ii) Retail, and iii) Multi-family, Industrial, and Hotels. As discussed in Note 2(c), the partnership realigned its operating segments as a result of changes to the organizational structure of its businesses, following the acquisition of additional interests in BPO. Beginning April 1, 2014, the partnership has four operating segments that include i) Office, ii) Retail, iii) Industrial, and iv) Multi-family and Hotels that are independently and regularly reviewed and managed by the CODM. Certain amounts are allocated to the partnership’s corporate operations based on the determination that those activities should not be used to evaluate a segment’s operating performance.

b) Basis of measurement

The CODM measures and evaluates the performance of the partnership’s operating segments based on net operating income (“NOI”) and funds from operations (“FFO”). Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies and organizations. The partnership defines these measures as follows:

i. NOI - revenues from properties in our commercial and hospitality operations less direct property expenses.

ii. FFO - net income, prior to realized gains (losses) on the sale of investment properties, fair value changes, depreciation and amortization of real estate assets, and income taxes less non-controlling interests of others in operating subsidiaries and properties share of these items. When determining FFO, the partnership includes the proportionate share of the FFO of equity accounted investments.

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c) Reportable segment measures

The following summary presents certain financial information regarding our operating segments for the three and six month periods ended June 30, 2014 and 2013.

(US$ Millions)	Total revenue				NOI				FFO
Three months ended Jun. 30,	2014		2013		2014		2013		2014		2013
Office	$	804	$	644	$	351	$	359	$	170	$	91
Retail		50		37		25		27		103		65
Industrial		48		21		15		8		3		(1)
Multi-family and Hotels		313		384		82		93		18		14
Corporate		–		–		–		–		(86)		(36)
Total	$	1,215	$	1,086	$	473	$	487	$	208	$	133

(US$ Millions)	Total revenue				NOI				FFO
Six months ended Jun. 30,	2014		2013		2014		2013		2014		2013
Office	$	1,462	$	1,314	$	696	$	734	$	265	$	200
Retail		85		77		51		54		218		135
Industrial		89		41		30		20		5		–
Multi-family and Hotels		634		780		167		199		32		30
Corporate		–		6		–		–		(148)		(49)
Total	$	2,270	$	2,218	$	944	$	1,007	$	372	$	316

The following summary presents information about certain balance sheet items of the partnership, on a segmented basis, as of June 30, 2014 and December 31, 2013:

	Total assets				Total liabilities				Total equity attributable to unitholders
(US$ Millions)	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2014		Dec. 31, 2013
Office	$	36,383	$	34,725	$	18,086	$	17,509	$	15,113	$	7,910
Retail		10,692		9,492		915		848		8,398		7,704
Industrial		2,934		2,759		1,317		1,241		434		463
Multi-family and Hotels		4,988		5,375		3,811		4,235		578		462
Corporate		124		95		6,294		3,623		(6,201)		(2,915)
Total	$	55,121	$	52,446	$	30,423	$	27,456	$	18,322	$	13,624

The following table provides a reconciliation of NOI and FFO to net income attributable to unitholders for the three and six months ended June 30, 2014 and 2013:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)		2014		2013		2014		2013
Commercial property revenue	$	742	$	711	$	1,465	$	1,459
Hospitality revenue		264		331		539		660
Direct commercial property expense		(331)		(293)		(645)		(598)
Direct hospitality expense		(202)		(262)		(415)		(514)
NOI		473		487		944		1,007
Investment and other revenue		209		44		266		99
Share of equity accounted income excluding fair value gains		131		95		273		199
Interest expense		(307)		(276)		(595)		(543)
Administration and other expense		(95)		(65)		(179)		(111)
Depreciation and amortization of non-real estate assets		(10)		(11)		(20)		(22)
Non-controlling interests of others in operating subsidiaries and properties in FFO		(193)		(141)		(317)		(313)
FFO(1)		208		133		372		316
Depreciation and amortization of real estate assets		(27)		(43)		(56)		(65)
Fair value gains, net		1,014		376		1,582		590
Share of equity accounted fair value gains		170		67		256		195
Income tax expense		(269)		(196)		(689)		(295)
Non-controlling interests of others in operating subsidiaries and properties in non-FFO		(204)		(184)		(201)		(259)
Net income attributable to unitholders(1)		892		153		1,264		482
Net income attributable to non-controlling interests of others in operating subsidiaries and properties		397		325		518		572
Net income	$	1,289	$	478	$	1,782	$	1,054

⁽¹⁾ Represents interests attributable to LP Units and Exchange LP and REU’s (defined as Redeemable/Exchangeable and special limited partnership units). The interests attributable to limited partner units of Exchange LP and REU’s are presented as non-controlling interests in the condensed consolidated statements of income.

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NOTE 32.Subsequent events

On July 18, 2014, the partnership settled a specific litigation that was being pursued against the partnership for A$27 million. See Note 27 for further information.

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