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

Management’s Discussion and Analysis of Financial Results

INTRODUCTION

This management’s discussion and analysis (“MD&A”) of Brookfield Property Partners L.P. (“BPY”, the “partnership”, or “we”) covers the financial position as of June 30, 2015 and December 31, 2014 and results of operations for the three and six months ended June 30, 2015 and 2014. This MD&A should be read in conjunction with the unaudited condensed consolidated financial statements (the “Financial Statements”) and related notes as of June 30, 2015, included elsewhere in this report, and our annual report for the year ended December 31, 2014 on Form 20-F.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND USE OF NON-IFRS MEASURES

This MD&A, particularly “Part IV – Additional Information – Trend Information”, contains “forward-looking information” within the meaning of Canadian provincial securities laws and applicable regulations and “forward-looking statements” within the meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding our operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods, and include words such as “expects”, “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “targets”, “projects”, “forecasts”, “likely”, or negative versions thereof and other similar expressions, or future or conditional verbs such as “may”, “will”, “should”, “would” and “could”.

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

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: risks incidental to the ownership and operation of real estate properties including local real estate conditions; the impact or unanticipated impact of general economic, political and market factors in the countries in which we do business; the ability to enter into new leases or renew leases on favorable terms; business competition; dependence on tenants’ financial condition; the use of debt to finance our business; the behavior of financial markets, including fluctuations in interest and foreign exchanges rates; uncertainties of real estate development or redevelopment; global equity and capital markets and the availability of equity and debt financing and refinancing within these markets; risks relating to our insurance coverage; the possible impact of international conflicts and other developments including terrorist acts; potential environmental liabilities; changes in tax laws and other tax related risks; dependence on management personnel; illiquidity of investments; the ability to complete and effectively integrate acquisitions into existing operations and the ability to attain expected benefits therefrom; operational and reputational risks; catastrophic events, such as earthquakes and hurricanes; and other risks and factors detailed from time to time in our documents filed with the securities regulators in Canada and the United States, as applicable.

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

We disclose a number of financial measures in this MD&A that are calculated and presented using methodologies other than in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). We utilize these measures in managing our business, including performance measurement, capital allocation and valuation purposes and believe that providing these performance measures on a supplemental basis to our IFRS results is helpful to investors in assessing our overall performance. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with IFRS. We caution readers that these non-IFRS financial measures may differ from the calculations disclosed by other businesses, and as a result, may not be comparable to similar measures presented by others. Reconciliations of these non-IFRS financial measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, where applicable, are included within this MD&A.

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PART I – OBJECTIVES AND FINANCIAL HIGHLIGHTS

BASIS OF PRESENTATION

Our sole material asset is our 38% interest in Brookfield Property L.P. (the “Operating Partnership”). As we have the ability to direct its activities pursuant to our rights as owners of the general partner units, we consolidate the Operating Partnership. Accordingly, our Financial Statements reflect 100% of its assets, liabilities, revenues, expenses and cash flows, including non-controlling interests therein, which capture the ownership interests of other third parties. We also discuss the results of operations on a segment basis, consistent with how we manage our business. Our seven operating segments are organized into the following: i) Office, ii) Retail, iii) Industrial, iv) Multifamily, v) Hotels, vi) Triple Net Lease, which includes Capital Automotive Real Estate Services Inc. (“CARS”), and vii) Corporate. These segments are independently and regularly reviewed and managed by the Chief Executive Officer, who is considered the Chief Operating Decision Maker. For presentation purposes, certain information for our Industrial, Multifamily, Hotels and Triple Net Lease segments have been combined in this MD&A.

Our partnership’s equity interests include general partnership units (“GP Units”), publicly traded 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 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 will be collectively referred to throughout this MD&A as “Unitholders”. The GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and Exchange LP Units have the same economic attributes in all respects, except that the Redeemable/Exchangeable Partnership Units provide Brookfield Asset Management Inc. (“Brookfield Asset Management”) the right to request that its units be redeemed for cash consideration starting in April 2015. In the event that Brookfield Asset Management exercises this right, our partnership has the right, at its sole discretion, to satisfy the redemption request with its LP Units, rather than cash, on a one-for-one basis. As a result, Brookfield Asset Management, as holder of Redeemable/Exchangeable Partnership Units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units. However, given the Redeemable/Exchangeable Partnership Units have been issued by a subsidiary of the partnership, we present such units as a component of non-controlling interests. The Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the holder, for LP Units and, like the Redeemable/Exchangeable Partnership Units, participate in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units. As these equity interests have been issued by a subsidiary of the partnership, we present the Exchange LP Units as a component of non-controlling interests.

This MD&A includes financial data for the three and six months ended June 30, 2015 and includes material information up to August 12, 2015. Financial data has been prepared using accounting policies in accordance with IFRS. Non-IFRS measures used in this MD&A are reconciled to or calculated from such financial information. Unless otherwise specified, all operating and other statistical information is presented as if we own 100% of each property in our portfolio, regardless of whether we own all of the interests in each property, excluding information relating to our interests in China Xintiandi (“CXTD”), as this is accounted for as a financial investment. We believe this is the most appropriate basis on which to evaluate the performance of properties in the portfolio relative to each other and others in the market. All dollar references, unless otherwise stated, are in millions of U.S. Dollars, except per unit amounts. Amounts in Canadian Dollars (C$), Australian Dollars (A$), British Pounds (£), Euros (€), Brazilian Reais (R$), and Indian Rupees (₨) are identified where applicable.

Additional information is available on our website at www.brookfieldpropertypartners.com, or on www.sedar.com or www.sec.gov.

OVERVIEW OF THE BUSINESS

Our partnership is Brookfield Asset Management’s primary public entity to make investments in the real estate industry. We are a globally-diversified owner and operator of high-quality properties that typically generate stable and sustainable cash flows over the long term. With approximately 14,000 employees involved in our real estate businesses around the globe, we have built operating platforms in the Office, Retail, Industrial, Multifamily, Hotels and Triple Net Lease sectors. We leverage these operating platforms to enhance the cash flow and value of our assets, including through active asset management and by executing development and redevelopment projects.

Our portfolio is comprised of high-quality properties, including interests in:

• 243 office properties totaling over 114 million square feet primarily located in the world’s leading commercial markets such as New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, Houston, Calgary and Perth;

• 172 regional malls and urban retail properties containing 154 million square feet in the United States and Brazil; our retail properties are primarily held through our 29% interest in General Growth Properties, Inc. (“GGP”) (33% on a fully diluted basis, assuming all outstanding warrants are exercised) and our 33% interest in Rouse Properties, Inc. (“Rouse”);

• Approximately 44 million square feet of industrial space across 164 industrial properties, primarily consisting of modern logistics assets in North America and Europe, with an additional 11 million square feet currently under construction;

• Approximately 26,900 multifamily units across 89 properties across the United States and Canada;

• Eleven hotel assets with over 8,560 rooms across North America and Australia; and

• Over 300 properties that are leased to automotive dealerships across the United States and Canada on a triple net lease basis.

In addition, we have a 31 million square foot office development pipeline, an over $540 million retail mall redevelopment pipeline (on a proportionate basis) and a land portfolio with the potential to build 47 million square feet of industrial properties.

Our strategy is to be the leading globally-diversified owner and operator of commercial properties. Due to the cyclical nature of the real estate industry, we believe that a real estate portfolio diversified by property type and geography will perform consistently over time. Furthermore, since property valuations fluctuate considerably based on market sentiment and other factors, we believe that the flexibility to shift capital to sectors and geographies that are out of favor will enable us to earn premium returns on the capital that we invest. As we grow our

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business, we will seek to acquire high-quality assets on a value basis, utilize our operating platforms to add value through pro-active management and recycle capital for re-investment in new opportunities.

Our diversified portfolio of high-quality assets has a stable cash flow profile with growth potential. As a result of the mark-to-market of rents upon lease expiry, escalation provisions in leases and increases in occupancy, our existing assets should generate strong same-property net operating income (“NOI”) growth without significant capital investment. Furthermore, we expect to earn between 8% and 11% unlevered, pre-tax returns on construction costs for our development and redevelopment projects. With this cash flow profile, our goal is to pay an attractive annual distribution to our Unitholders and to grow our distribution by 5% to 8% per annum.

Overall, we seek to earn leveraged after-tax returns of 12% to 15% on our invested capital. These returns will be comprised of current cash flow that is generated by our assets and capital appreciation. Some of the capital appreciation will be reflected in the fair value gains that flow through our income statement as a result of our revaluation of investment properties in accordance with IFRS. The remainder of the capital appreciation will be realized in future periods to the extent we are able to successfully execute development and redevelopment projects as well as other value creation strategies. From time to time, we will convert some or all of these unrealized gains to cash through asset sales, joint ventures or refinancings.

PERFORMANCE MEASURES

We expect to generate returns to Unitholders from a combination of cash flow earned from our operations and capital appreciation. Furthermore, if we are successful in increasing cash flow earned from our operations we will be able to increase distributions to Unitholders to provide them with an attractive current yield on their investment.

To measure our performance against these targets, we focus on NOI, funds from operations (“FFO”), fair value changes, and net income and equity attributable to Unitholders. Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies. We define each of these measures as follows:

• NOI: revenues from our commercial and hospitality operations of consolidated properties less direct property expenses.

• FFO: net income, prior to fair value gains, net, 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, we include our proportionate share of the FFO of unconsolidated partnerships and joint ventures and associates.

• Fair value changes: increase or decrease in the value of investment properties that is reflected in the consolidated statements of income.

• Net income attributable to Unitholders: net income attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and Exchange LP Units.

• Equity attributable to Unitholders: equity attributable to holders of GP Units, LP Units, Redeemable/Exchangeable Partnership Units, Special LP Units and Exchange LP Units.

NOI is a key indicator of our ability to increase cash flow from our operations. We seek to grow NOI through pro-active management and leasing of our properties. In evaluating our performance, we also look at a subset of NOI, defined as “same-property NOI,” which excludes NOI that is earned from assets recently acquired, disposed of, developed, or not of a recurring nature, and from opportunistic assets. Same-property NOI allows us to segregate the performance of leasing and operating initiatives on the portfolio from the impact to performance of investing activities and “one-time items”, which for the historical periods presented consist primarily of lease termination income.

We also consider FFO an important measure of our operating performance. FFO is a widely recognized measure that is frequently used by securities analysts, investors and other interested parties in the evaluation of real estate entities, particularly those that own and operate income producing properties. Our definition of FFO includes all of the adjustments that are outlined in the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, including the exclusion of gains (or losses) from the sale of investment properties, the add back of any depreciation and amortization related to real estate assets and the adjustment for unconsolidated partnerships and joint ventures. In addition to the adjustments prescribed by NAREIT, we also make adjustments to exclude any unrealized fair value gains (or losses) that arise as a result of reporting under IFRS, and income taxes that arise as certain of our subsidiaries are structured as corporations as opposed to real estate investment trusts (“REITs”). These additional adjustments result in an FFO measure that is similar to that which would result if our partnership was organized as a REIT that determined net income in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which is the type of organization on which the NAREIT definition is premised. Our FFO measure will differ from other organizations applying the NAREIT definition to the extent of certain differences between the IFRS and U.S. GAAP reporting frameworks, principally related to the recognition of lease termination income. Because FFO excludes fair value gains (losses), including equity accounted fair value gains (losses), realized gains (losses) on the sale of investment properties, depreciation and amortization of real estate assets and income taxes, it provides a performance measure that, when compared year-over-year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and interest costs, providing perspective not immediately apparent from net income. We reconcile FFO to net income rather than cash flow from operating activities as we believe net income is the most comparable measure.

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We do not utilize net income on its own as a key metric in assessing the performance of our business because, in our view, it does not provide a consistent or complete measure of the ongoing performance of the underlying operations. Nevertheless, we recognize that others may wish to utilize net income as a key measure and therefore provide a reconciliation of net income to NOI and FFO on page 8 in this MD&A.

In addition to monitoring, analyzing and reviewing earnings performance, we also review initiatives and market conditions that contribute to changes in the fair value of our investment properties. These value changes, combined with earnings, represent a total return on the equity attributable to Unitholders and form an important component in measuring how we have performed relative to our targets.

We also consider the following items to be important drivers of our current and anticipated financial performance:

• Increases in occupancies by leasing vacant space;

• Increases in rental rates through maintaining or enhancing the quality of our assets and as market conditions permit; and

• Reductions in operating costs through achieving economies of scale and diligently managing contracts.

We also believe that key external performance drivers include the availability of the following:

• Debt capital at a cost and on terms conducive to our goals;

• Equity capital at a reasonable cost;

• New property acquisitions that fit into our strategic plan; and

• Investors for dispositions of peak value or non-core assets.

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PART II – FINANCIAL STATEMENTS ANALYSIS

REVIEW OF CONSOLIDATED FINANCIAL RESULTS

In this section, we review our financial position and consolidated performance as of June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014. Further details on our results from operations and our financial positions are contained within the “Segment Performance” section beginning on page 11.

Summary Statement of Operating Results and Key Metrics

	Three months ended Jun 30,					Six months ended Jun 30,
(US$ Millions)	2015			2014		2015			2014
Commercial property revenue	$	781		$	742	$	1,591		$	1,465
Hospitality revenue	264			264		534			539
Investment and other revenue	125			237		194			301
Total revenue	1,170			1,243		2,319			2,305
Direct commercial property expense	308			331		635			645
Direct hospitality expense	196			202		402			415
Investment and other expense	60			28		60			35
Interest expense	366			307		740			595
Depreciation and amortization	41			37		77			76
General and administrative expense	122			95		232			179
Total expenses	1,093			1,000		2,146			1,945
Fair value gains, net	179			1,014		1,007			1,582
Share of earnings from equity accounted investments	549			301		813			529
Income before taxes	805			1,558		1,993			2,471
Income tax (benefit) expense	(360		)	269		(181		)	689
Net income	$	1,165		$	1,289	$	2,174		$	1,782
Net income attributable to non-controlling interests interests of others in operating subsidiaries and properties	139			397		315			518
Net income attributable to Unitholders	$	1,026		$	892	$	1,859		$	1,264
NOI	$	541		$	473	$	1,088		$	944
FFO	$	158		$	208	$	334		$	372

Our basic and diluted net income attributable to Unitholders per unit and weighted average units outstanding are calculated as follows:

	Three months ended Jun 30,				Six months ended Jun 30,
(US$ Millions, except per share information)	2015		2014		2015		2014
Net income attributable to Unitholders - basic(1)	$	1,026	$	892	$	1,859	$	1,264
Dilutive effect of conversion of capital securities - corporate	8		2		18		2
Net income attributable to Unitholders - diluted	$	1,034	$	894	$	1,877	$	1,266
Weighted average common shares outstanding - basic(1)	782.8		681.1		782.8		618.6
Conversion of capital securities - corporate	37.3		6.3		40.4		3.1
Weighted average units outstanding - diluted	820.1		687.4		823.2		621.7
Net income per share attributable to Unitholders - basic(1)	$	1.31	$	1.31	$	2.37	$	2.04
Net income per share attributable to Unitholders - diluted	$	1.26	$	1.30	$	2.28	$	2.03

⁽¹⁾ Basic net income attributable to Unitholders per unit for the three and six months ended June 30, 2015 requires the inclusion of preferred shares of the Operating Partnership that are mandatorily convertible into LP Units without an add back to earnings of the associated carry on the preferred shares. Net income attributable to Unitholders per unit with the add back of the associated carry on the preferred shares would be $1.34 per unit and $2.44 per unit for the three and six months ended June 30, 2015, respectively.

Consolidated Performance and Analysis

For the three months ended June 30, 2015, we reported net income of $1,165 million, of which $1,026 million is attributable to Unitholders. This compares to net income of $1,289 million, of which $892 million is attributable to Unitholders for the same period in the prior year. The increase in net income attributable to Unitholders is primarily due to our increased weighted average ownership of the common shares of Brookfield Office Properties Inc. (“BPO”) of 100% in the current quarter from 94% during the same quarter in the prior year, net income recorded from acquisitions, including CARS and the incremental interest in Canary Wharf Group plc (“Canary Wharf”). In connection with the acquisition of additional interests in Canary Wharf, we contributed our 22% interest therein to a newly created joint venture formed to acquire all outstanding shares of Songbird Estates plc (“Songbird”) and Canary Wharf (collectively, the “Canary Wharf Transaction”). In addition, during

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the second quarter of 2015, we recorded income driven by a reversal of a tax expense recorded during 2014 as a result of a reduction in the effective tax rate applied to income of certain subsidiaries. These increases were offset by fair value losses on our warrants in GGP in our retail segment due to the decrease in its stock price during the period, as well as dispositions in our office and retail platforms.

For the six months ended June 30, 2015, we reported net income of $2,174 million, of which $1,859 million is attributable to Unitholders. This compares to net income of $1,782 million, of which $1,264 million is attributable to Unitholders for the same period in the prior year. The increase period over period is primarily related to our increased weighted average interest in BPO and additional acquisition activity, including the additional interests in Canary Wharf and CARS. We also recorded significant fair value gains, primarily related to our office and retail portfolios in the United States and a reversal of tax expense in the current period, as discussed above. These increases were partially offset by the negative impact of foreign currency. In addition, the prior year included a one-time gain on the repayment of Immobiliaria Colonial ("Colonial") debt.

Commercial property revenue was $781 million for the three months ended June 30, 2015 compared to $742 million during the same period in the prior year. The increase is primarily attributable to revenue from acquisitions in our multifamily segments, as well as the acquisition of CARS in our triple net lease segment in the fourth quarter of 2014, which was partially offset by the dispositions of assets across our portfolio and the negative impact of foreign exchange.

Commercial property revenue was $1,591 million for the six months ended June 30, 2015 compared to $1,465 million during the same period in the prior year primarily due to the acquisition of CARS and a portfolio of apartment buildings in Manhattan during the current year offset by the negative impact of foreign exchange and the disposition of office assets in the United States and the United Kingdom.

Hospitality revenue was $264 million for the three months ended June 30, 2015, which was consistent with the same period in 2014. The disposition of the One&Only Ocean Club in the Bahamas in the second quarter of 2014 was offset by the impact of higher volumes and improved operating performance at the Atlantis during the current year. Hospitality revenue was $534 million for the six months ended June 30, 2015 compared to $539 million during the same period in the prior year. The decrease period over period is primarily due to the disposition of the One&Only Ocean Club.

Direct commercial property expense was $308 million for the three months ended June 30, 2015 compared to $331 million during the same period in the prior year. The decrease is primarily due to dispositions of mature properties and the impact of currency movements, which was partially offset by direct commercial property expense on newly acquired properties.

Direct commercial property expense decreased by $10 million for the six months ended June 30, 2015 compared to the same period in the prior year due to dispositions of mature properties and the impact of currency movements, which was partially offset by acquisition activity.

During the three and six months ended June 30, 2015, direct hospitality expense decreased by $6 million and $13 million, respectively, as compared to the same periods in the prior year primarily as a result of the disposition of the One&Only Ocean Club.

Investment and other revenue decreased by $112 million for the three months ended June 30, 2015 to $125 million as compared to $237 million during the same period in the prior year. This is primarily due to a one-time $140 million gain recorded in the second quarter of 2014 on the repayment of a debt investment in Colonial. This decrease is partially offset by an increase in interest income on a loan note associated with a portfolio of hotels in Germany. In addition, during the current quarter we recorded $67 million of development revenue from our industrial platform, as compared to $41 million in the comparative prior year period.

For the six months ended June 30, 2015, investment and other revenue decreased by $107 million as compared to the same period in the prior year primarily due to the gain on the debt investment in Colonial noted above and a fee of $9 million earned from the disposition of an office property in Houston during the prior year. These decreases were partially offset by a $15 million dividend from our investment in Canary Wharf prior to our acquisition thereof, a $4 million fee earned in connection with the disposition of an office property in Seattle, as well as $67 million of development revenue in our industrial platform, compared to $54 million of development revenue in the same period in the prior year.

For the three and six months ended June 30, 2015, interest expense increased by $59 million and $145 million, respectively, as compared to the same periods in the prior year. These increases were primarily driven by interest expense on preferred equity securities issued to the Qatar Investment Authority (“QIA”) in December 2014 and interest associated with the acquisition facility used to acquire the remaining outstanding common shares of BPO in the first and second quarters of 2014, as well as additional property-level debt as a result of acquisitions and upfinancings.

General and administrative expense increased by $27 million and $53 million for the three and six months ended June 30, 2015, respectively, compared to the same periods in the prior year. This is attributable to an increase of $7 million and $28 million in the equity enhancement distributions recorded during the three and six months ended June 30, 2015, respectively, following the increase in the partnership capitalization. The increase is also attributable to increased unit-based compensation expense and expenses from subsidiaries acquired during 2015.

Investment and other expense, which relates to costs incurred in connection with development contracts in our industrial platform, increased by $32 million and $25 million during the three and six month periods ended June 30, 2015 compared to the respective prior year periods, as a result of higher development activity in the current year.

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The table below presents further information of the fair value gains, net recorded during the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,					Six months ended Jun 30,
(US$ Millions)	2015			2014		2015			2014
Commercial properties	$	414		$	779	$	934		$	1,145
Commercial developments	45			147		171			151
Financial instruments and other	(280		)	88		(98		)	286
Total fair value gains, net	$	179		$	1,014	$	1,007		$	1,582

Fair value gains of $179 million were recognized for the three months ended June 30, 2015 as compared to $1,014 million in the same period in the prior year as detailed in the table above. Fair value gains on our commercial properties and developments of $459 million primarily relate to continued strength in the office markets in the United States. Fair value losses on our financial instruments and other were $280 million, which are primarily attributable to the fair value loss on our GGP warrants.

Fair value gains of $1,007 million were recognized for the six months ended June 30, 2015 as compared to $1,582 million in the same period in the prior year. As in the three month period ended June 30, 2015, the fair value gains primarily relate to continued strength in our office segment. Fair value losses on our financial instruments and other were $98 million as compared to a fair value gain of $286 million in the prior year related to our investments in GGP warrants.

The components of earnings from equity accounted investments for the three and six months ended June 30, 2015 and 2014 are presented as follows:

	Three months ended Jun 30,				Six months ended Jun 30,
(US$ Millions)	2015		2014		2015		2014
Joint ventures	$	267	$	130	$	410	$	175
Associates	282		171		403		354
Share of net earnings from equity accounted investments	$	549	$	301	$	813	$	529

Our share of net earnings from equity accounted investments was $549 million for the three months ended June 30, 2015, which represents an increase of $248 million compared to the same period in the prior year. For the six months ended June 30, 2015, we earned $813 million from equity accounted investments, which represents an increase of $284 million compared to the same period in the prior year.

Our investments in joint ventures earned $267 million and $410 million for the three and six months ended June 30, 2015, respectively, which represents increases of $137 million and $235 million compared to the same respective periods in the prior year. These increases are primarily attributable to the net earnings from our joint venture interest in Canary Wharf and fair value gains on our equity accounted office properties in New York and London in the current year.

We earned $282 million from associates for the three months ended June 30, 2015, a $111 million increase compared with the same period in the prior year primarily due to higher valuation gains on our U.S. retail portfolio during the current period.

We earned $403 million from associates for the six months ended June 30, 2015, a $49 million increase compared with the prior year primarily due to higher valuation gains on our U.S. retail portfolio as compared to the prior year, partially offset by higher income in the current quarter as a result of a disposition gain on the sale of a facilities management operation in Canada and Australia.

For the three months ended June 30, 2015, we recorded an income tax benefit of $360 million compared with $269 million of income tax expense during the same period in the prior year. For the six months ended June 30, 2015, we recorded an income tax benefit of $181 million compared with $689 million of income tax expense during the same period in the prior year. The decrease in both periods is primarily attributable to an income tax recovery as a result of a reorganization of our interests in certain subsidiaries that resulted in a reduction in the tax rate applied to those subsidiaries and a reversal of a tax expense recorded in 2014.

Net income attributable to non-controlling interests of others in operating subsidiaries and properties decreased by $258 million and $203 million for the three and six months ended June 30, 2015, respectively, primarily as a result of a higher proportion of our net income being attributable to our investment in BPO, which is now wholly-owned.

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NON-IFRS MEASURES

As described in the “Performance Measures” section on page 3, our partnership uses non-IFRS measures to assess the performance of its operations. An analysis of the measures and reconciliation to IFRS measures is included below.

The following table reconciles NOI to net income for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Commercial property revenue	$	781		$	742		$	1,591		$	1,465
Direct commercial property expense	(308		)	(331		)	(635		)	(645		)
Commercial property NOI	473			411			956			820
Hospitality revenue	264			264			534			539
Direct hospitality expense	(196		)	(202		)	(402		)	(415		)
Hospitality NOI	68			62			132			124
Total NOI	541			473			1,088			944
Investment and other revenue	125			237			194			301
Investment and other expense	(60		)	(28		)	(60		)	(35		)
Share of net earnings from equity accounted investments	549			301			813			529
Interest expense	(366		)	(307		)	(740		)	(595		)
Depreciation and amortization	(41		)	(37		)	(77		)	(76		)
General and administrative expense	(122		)	(95		)	(232		)	(179		)
Fair value gains, net	179			1,014			1,007			1,582
Income before taxes	805			1,558			1,993			2,471
Income tax benefit (expense)	360			(269		)	181			(689		)
Net income	$	1,165		$	1,289		$	2,174		$	1,782
Net income attributable to non-controlling interests	139			397			315			518
Net income attributable to Unitholders	$	1,026		$	892		$	1,859		$	1,264

Commercial property NOI increased by $62 million to $473 million during the three months ended June 30, 2015 compared with $411 million during the same period in the prior year. During the six months ended June 30, 2015, commercial property NOI increased by $136 million to $956 million compared with $820 million during the same period in the prior year. The increases are driven by investments that were acquired during the year which primarily include CARS in our triple net lease segment, a multifamily portfolio in Manhattan and office parks in India (“Candor Office Parks”), offset by dispositions of non-core assets across our portfolio.

Hospitality NOI increased by $6 million to $68 million during the three months ended June 30, 2015 compared with $62 million during the same period in prior year. In addition, hospitality NOI increased by $8 million to $132 million during the six months ended June 30, 2015 compared with $124 million during the same period in prior year. This increase is primarily due to an increase in NOI at the Atlantis, offset by the sale of the One&Only Ocean Club.

The following table reconciles net income to FFO for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Net income	$	1,165		$	1,289		$	2,174		$	1,782
Add (deduct):
Fair value gains, net	(179		)	(1,014		)	(1,007		)	(1,582		)
Share of equity accounted fair value gains, net	(390		)	(170		)	(483		)	(256		)
Depreciation and amortization of real estate assets	34			27			65			56
Income tax (benefit) expense	(360		)	269			(181		)	689
Non-controlling interests in above items	(112		)	(193		)	(234		)	(317		)
FFO	$	158		$	208		$	334		$	372

FFO decreased to $158 million during the three months ended June 30, 2015 compared with $208 million during the same period in the prior year. For the six months ended June 30, 2015, FFO decreased to $334 million compared with $372 million during the same period in the prior year. The decrease was driven by higher interest expense in the current period as a result of financing arrangements related to the acquisition of BPO and the Canary Wharf Transaction, as well as the negative impact of foreign exchange rates fluctuations on our earnings from operations outside of the U.S. In addition, the current period reflects transaction costs related to debt breakage fees, while in the prior year we recorded a net realized gain of $43 million related to our debt investment in Colonial. This decrease was partially offset by the increased ownership of BPO in the second quarter of 2014 as well as acquisition activity, which we noted above, as well as a gain on the extinguishment of debt in our U.S. retail portfolio.

8

Summary Statement of Financial Position and Key Metrics

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Investment properties
Commercial properties	$	37,299	$	37,789
Commercial developments	4,038		3,352
Equity accounted investments	14,510		10,356
Hotel assets	2,417		2,478
Cash and cash equivalents	1,242		1,282
Assets held for sale	648		2,241
Total assets	64,778		65,575
Debt obligations	26,036		27,006
Liabilities associated with assets held for sale	267		1,221
Total equity	29,201		28,299
Equity attributable to Unitholders	$	21,523	$	20,208
Equity per unit	$	30.19	$	28.35

As of June 30, 2015, we had $64,778 million in total assets, compared with $65,575 million at December 31, 2014. This $797 million decrease is primarily due to the impact of the depreciation of foreign currencies relative to the U.S. Dollar and the dispositions of office properties in Washington, D.C., Boston, Seattle and Toronto. The decrease is offset by the acquisition of additional interests in Canary Wharf.

The following table presents the changes in our commercial properties from December 31, 2014 to June 30, 2015:

(US$ Millions)	Jun 30, 2015
Commercial properties, beginning of period	$	37,789
Additions resulting from:
Acquisitions	177
Capital expenditures	411
Dispositions	(161		)
Fair value gains, net	934
Reclassifications to assets held for sale	(1,202		)
Foreign currency translation	(758		)
Other	109
Commercial properties, end of period	$	37,299

Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $4,038 million at June 30, 2015, an increase of $686 million from the balance of $3,352 million at December 31, 2014. The increase is primarily attributable to capital expenditures, and the recognition of valuation gains, primarily at our office developments in New York, Calgary, Toronto, London and Perth, partially offset by the impact of foreign exchange.

During the first quarter of 2015, we reclassified an office property in Boston and an industrial development in Europe to assets classified as held for sale on the condensed consolidated balance sheet. In addition, the partnership disposed of office properties in Seattle and Toronto, as well as one of the four multifamily assets that had been reclassified to assets classified as held for sale as of December 31, 2014. During the second quarter of 2015, we reclassified office properties in Toronto and London to assets held for sale upon entering into an agreement to sell the properties. In addition, we contributed eight office assets from our D.C. portfolio to Brookfield D.C. Office Partners LLC ("D.C. Fund"). The following buildings were contributed to the D.C. Fund: 650 Massachusetts Avenue, 77 K Street, 799 9th Avenue and five properties formerly held in the US Office Fund (1400 K Street, 1200 K Street, 1250 Connecticut Avenue, Bethesda Crescent and the Victor Building). We have a 40% economic interest in the D.C. Fund which is reflected as a 51% equity accounted investment less convertible notes payable and capital securities held by an institutional investor on our condensed consolidated financial statements. In our office segment, we also disposed of a 49% interest in 75 State Street in Boston and now account for the remaining interest as an equity accounted investment. We further sold three assets in our multifamily segment.

9

The following table presents a roll forward of changes in our equity accounted investments from December 31, 2014 to June 30, 2015:

(US$ Millions)	Jun 30, 2015
Equity accounted investments, beginning of period	$	10,356
Additions, net of disposals	3,416
Share of net income	813
Distributions received	(134)
Foreign exchange	67
Other	(8)
Equity accounted investments, end of period	$	14,510

Equity accounted investments, which includes our investments in GGP, Rouse and other income producing property, increased by $4,154 million since December 31, 2014 primarily as a result of our investment in a joint venture formed to acquire all outstanding shares of Songbird to which we also contributed our investment in Canary Wharf that was previously recognized as a financial asset. In addition, due to the sales of partial interests in the properties held in the D.C. Fund and 75 State Street, we are equity accounting our remaining interest within these properties.

The following table presents additional information on our partnership’s outstanding debt obligations:

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Corporate borrowings	$	3,730	$	3,881
Non-recourse borrowings
Property-specific borrowings	22,150		22,569
Subsidiary borrowings	156		556
Total debt obligations	26,036		27,006
Current	7,096		3,127
Non-current	18,940		23,879
Total debt obligations	$	26,036	$	27,006

Debt obligations decreased by $970 million from $27,006 million at December 31, 2014 to $26,036 million at June 30, 2015. Contributing to this decrease was the repayment of a subscription facility that was used to fund acquisitions during the fourth quarter of 2014 and the reclassification of 99 Bishopsgate in London and the HSBC Building in Toronto to assets held for sale, as well as the impact of foreign exchange. These decreases were offset by new debt relating to newly acquired assets and draws on construction facilities in the current period.

The following table presents the components used to calculate equity attributable to Unitholders per unit:

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Total equity	$	29,201	$	28,299
Less:
Interests of others in operating subsidiaries and properties	7,678		8,091
Equity attributable to Unitholders	21,523		20,208
Partnership units	712,864,378		712,743,649
Equity attributable to Unitholders per unit	$	30.19	$	28.35

Equity attributable to Unitholders was $21,523 million, or $30.19 per unit, at June 30, 2015, compared to $20,208 million, or $28.35 per unit, at December 31, 2014. The increase was a result of fair value gains recorded during the period, primarily in the U.S. and Europe due to strong leasing activity and improved market conditions.

Interests of others in operating subsidiaries and properties was $7,678 million at June 30, 2015, a decrease of $413 million from the balance of $8,091 million at December 31, 2014. The decrease was primarily a result of the acquisition of additional interests in Candor Office Parks in the first quarter of 2015, which was previously recorded as non-controlling interest.

10

SUMMARY OF QUARTERLY RESULTS

	2015				2014								2013
(US$ Millions, except per unit information)	Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3
Revenue	$	1,170	$	1,149	$	1,070	$	1,098	$	1,243	$	1,062	$	1,100	$	1,048
Direct operating costs	504		533		524		505		533		527		525		524
Net income	1,165		1,009		1,595		1,043		1,289		493		326		383
Net income attributable to unitholders	1,026		833		1,492		978		892		372		190		235
Net income per share attributable to unitholders - basic	$	1.31	$	1.06	$	2.09	$	1.37	$	1.31	$	0.67	$	0.37	$	0.50
Net income per share attributable to unitholders - diluted	$	1.26	$	1.02	$	1.97	$	1.33	$	1.30	$	0.67	$	0.37	$	0.50

Revenue varies from quarter to quarter due to acquisitions and dispositions of commercial and other income producing assets, changes in occupancy levels, as well as new leases and renewals at market net rents. In addition, revenue also fluctuates as a result of changes in foreign exchange rates and seasonality, which primarily affects our retail assets and hotel assets. Generally, our retail assets have stronger performance in the winter months and our hotel operations in the winter and spring months. Our net income fluctuates largely due to fair value gains and losses in each given period as well.

SEGMENT PERFORMANCE

Our operations are organized into seven operating segments, including our corporate activities. For purposes of this MD&A, we have combined certain segment information in the industrial, multifamily, hotels and triple net lease results since a majority of these assets were acquired recently and would not be meaningful on a stand-alone basis.

The following table presents FFO by segment for comparison purposes:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Office	$	150		$	170		$	317		$	265
Retail	107			103			220			218
Industrial, Multifamily, Hotels and Triple Net Lease	42			21			74			37
Corporate	(141		)	(86		)	(277		)	(148		)
FFO	$	158		$	208		$	334		$	372

The following table presents equity attributable to Unitholders by segment as of June 30, 2015 and December 31, 2014:

(US$ Millions)	Jun 30, 2015			Dec 31, 2014
Office	$	19,075		$	16,003
Retail	9,228			9,171
Industrial, Multifamily, Hotels and Triple Net Lease	1,741			1,590
Corporate	(8,521		)	(6,556		)
Total	$	21,523		$	20,208

Office

Our office segment consists of interests in 243 office properties totaling over 114 million square feet, which are located primarily in the world’s leading commercial markets such as New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, Houston, Calgary, and Perth, among others.

The following table presents FFO and net income attributable to Unitholders in our office segment for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,				Six months ended Jun 30,
(US$ Millions)	2015		2014		2015		2014
FFO	$	150	$	170	$	317	$	265
Net income attributable to Unitholders	1,096		795		1,917		996

11

FFO from our office segment was $150 million for the three months ended June 30, 2015 as compared to $170 million in the same period in the prior year. During the prior year period, we recorded a $43 million net realized gain from a debt investment in Colonial. This is offset by our increased ownership of the common shares of BPO to 100% in 2015 from 94% in 2014 on a weighted average basis for the three months ended June 30, 2015 and 2014, respectively, as well as the FFO contribution from the Canary Wharf Transaction.

FFO from our office segment was $317 million for the six months ended June 30, 2015 as compared to $265 million in the same period in the prior year. The increase was primarily the result of our increased ownership of the common shares of BPO to 100% in 2015 from 74% for the same period in 2014 on a weighted-average basis, as well as the FFO contribution from Canary Wharf in the current period and the acquisition of Candor Office Parks in the fourth quarter of last year. We also recognized a $15 million dividend from our 22% interest in Canary Wharf prior to the Canary Wharf Transaction and a fee in connection with the disposition of an office property in Seattle. These increases were partially offset by the negative impact of foreign exchange and a $9 million fee earned in connection with the disposition of an office property in Houston in the first quarter of 2014.

Net income attributable to Unitholders increased by $301 million to $1,096 million during the three months ended June 30, 2015 as compared to $795 million during the same period in 2014. The increase is primarily a result of the recorded fair value gains due to the strengthening of market conditions and leasing during the period primarily in New York City and London in addition to an income tax benefit recorded as a result of a reduction in the effective tax rate applied to the income of certain subsidiaries.

Net income attributable to Unitholders increased by $921 million to $1,917 million during the six months ended June 30, 2015 as compared to $996 million during the same period in 2014. The increase is primarily due to the tax benefit noted above, as well as higher FFO compared to the prior year and fair value gains in the current period. This increase is partially offset by the impact of foreign exchange.

The following table presents key operating metrics for our office portfolio as at June 30, 2015 and 2014 and for the three months ended June 30, 2015 and 2014:

	Consolidated						Unconsolidated
(US$ Millions, except where noted)	Jun 30, 2015			Jun 30, 2014			Jun 30, 2015			Jun 30, 2014
Total portfolio:
NOI(1)	$	325		$	351		$	171		$	43
Number of properties	185			171			58			26
Leasable square feet (in thousands)	70,428			67,358			24,426			12,456
Occupancy	88.4		%	88.3		%	94.2		%	89.7		%
In-place net rents (per square foot)(2)	$	25.81		$	26.37		$	41.59		$	36.41
Same-property:
NOI(1,2)	$	282		$	279		$	43		$	39
Number of properties	77			77			9			9
Leasable square feet (in thousands)	55,080			55,206			7,519			7,530
Occupancy	91.0		%	90.4		%	95.8		%	95.2		%
In-place net rents (per square foot)(2)	$	27.90		$	26.69		$	50.11		$	46.94

⁽¹⁾ NOI for unconsolidated properties is presented on a proportionate basis, representing the Unitholders’ interest in the property.

⁽²⁾ Prior period presented using the June 30, 2015 exchange rate.

NOI from our consolidated properties decreased to $325 million during the three months ended June 30, 2015 from $351 million during the same period in 2014. This decrease was primarily due to the negative impact of foreign currency and the partial disposition of the eight assets contributed to the D.C. Fund and dispositions in Boston, Seattle and Toronto, offset by the NOI contribution from acquisitions made during the current year.

NOI from our unconsolidated properties, which is presented on a proportionate basis, increased by $128 million to $171 million during the three months ended June 30, 2015, compared to $43 million during the period in the prior year. This increase reflects the inclusion of Canary Wharf in the current period and our higher proportionate interest in BPO following the acquisition of additional interests in BPO. The increase in occupancy reflects the inclusion of Canary Wharf, where occupancy rates are on average higher than at our other unconsolidated properties.

Same-property NOI for our consolidated properties for the three months ended June 30, 2015 compared with the same period in the prior year increased by $3 million to $282 million, on a constant currency basis. This increase was primarily the result of higher same-property NOI at our U.S. and U.K. properties as a result of successful leasing activity.

During the three months ended June 30, 2015, same-property NOI for our unconsolidated properties, which is presented on a proportionate and constant currency basis, increased by $4 million to $43 million compared to the same period in the prior year. This increase reflects higher in-place net rents at our unconsolidated properties in the United States, partially offset by lower occupancy.

12

The following table presents certain key operating metrics related to leasing activity in our office segment for the three months ended June 30, 2015 and 2014:

	Total Portfolio
(US$ Millions, except where noted)	Jun 30, 2015		Jun 30, 2014
Leasing activity (in thousands of square feet)
New leases	1,493		2,897
Renewal leases	1,745		1,288
Total leasing activity	3,238		4,185
Average term (in years)	8.3		7.4
Year one leasing net rents (per square foot)(1)	$	23.34	$	28.74
Average leasing net rents (per square foot)(1)	26.07		32.26
Expiring net rents (per square foot)(1)	20.11		28.41
Estimated market net rents for similar space (per square foot)(1)	36.30		33.25
Tenant improvement and leasing costs (per square foot)	53.13		64.30

⁽¹⁾ Presented using normalized foreign exchange rates, using the June 30, 2015 exchange rate.

For the six months ended June 30, 2015, we leased approximately 3.2 million square feet at average in-place net rents of $26.07 per square foot. Approximately 46% of our leasing activity represented new leases. Our overall office portfolio’s in-place net rents are currently 14% below market net rents, which gives us confidence that we will be able to increase our NOI in the coming years, as we sign new leases. For the six months ended June 30, 2015, tenant improvements and leasing costs related to leasing activity were $53.13 per square foot, compared to $64.30 per square foot in the prior year.

We calculate net rent as the annualized amount of cash rent receivable from leases on a per square foot basis including tenant expense reimbursements, less operating expenses being incurred for that space, excluding the impact of straight-lining rent escalations or amortization of free rent periods. This measure represents the amount of cash, on a per square foot basis, generated from leases in a given period.

The following table presents our fair value gains from consolidated and unconsolidated investments attributable to our office segment:

	Three months ended Jun 30,				Six months ended Jun 30,
(US$ Millions)	2015		2014		2015		2014
Consolidated properties	$	391	$	738	$	1,043	$	1,189
Unconsolidated properties(1)	222		85		347		88
Total fair value gains, net	$	613	$	823	$	1,390	$	1,277

⁽¹⁾ Fair value gains for unconsolidated investments are presented on a proportionate basis, representing the Unitholders’ interest in the investments.

We recorded fair value gains of $613 million in the second quarter of 2015 as compared to $823 million in the same period in the prior year. The fair value gains in the current period primarily relate to continued strength in the New York City, London and Sydney office markets.

During the six months ended June 30, 2015, we recorded fair value gains of $1,390 million as compared to $1,277 million in the same period in the prior year. The current year includes fair value gains in our U.S. and Australian office portfolios, mainly as a result of cash flow changes, based on leases signed during the quarter and some discount and capitalization rate compression to reflect improvements in the office markets in the impacted regions, respectively. Also contributing to this increase were the fair value gains on our investment in Canary Wharf prior to contributing it into the joint venture formed to acquire Songbird.

13

The key valuation metrics for commercial properties in our office segment are as follows:

	Jun 30, 2015					Dec 31, 2014
	Discount rate		Terminal capitalization rate		Investment horizon	Discount rate		Terminal capitalization rate		Investment horizon
Consolidated properties
United States	7.0	%	5.8	%	10	7.1	%	5.9	%	10
Canada	6.2	%	5.6	%	10	6.3	%	5.6	%	11
Australia	8.0	%	6.5	%	10	8.3	%	6.8	%	10
Europe	6.0	%	5.1	%	12	6.8	%	5.1	%	10
Brazil	9.0	%	7.5	%	10	8.5	%	7.5	%	10
India	15.1	%	10.3	%	10	n/a		n/a		n/a
Unconsolidated properties
United States	6.5	%	5.5	%	9	6.4	%	5.4	%	9
Europe(1)	5.6	%	5.3	%	10	n/a		n/a		n/a
Australia	8.0	%	6.8	%	10	8.3	%	7.0	%	10

⁽¹⁾ Certain European properties accounted under the equity method are valued using both discounted cash flow and yield models. For comparative purposes, the discount and terminal capitalization rates and investment horizons calculated under the discounted cash flow method are presented in the table above.

The following table provides an overview of the financial position of our office segment as at June 30, 2015 and December 31, 2014:

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Investment properties
Commercial properties	$	28,087	$	28,531
Commercial developments	3,332		2,640
Equity accounted investments	5,927		2,061
Participating loan interests	607		609
Investment in Canary Wharf	—		1,265
Accounts receivable and other	1,009		1,216
Cash and cash equivalents	621		620
Assets held for sale	627		1,676
Total assets	$	40,210	$	38,618
Debt obligations	13,996		14,402
Capital securities	684		643
Accounts payable and other liabilities	2,840		3,040
Liabilities associated with assets held for sale	267		825
Non-controlling interests of others in operating subsidiaries and properties	3,348		3,705
Equity attributable to Unitholders	$	19,075	$	16,003

Equity attributable to Unitholders increased by $3,072 million to $19,075 million at June 30, 2015 from $16,003 million at December 31, 2014. The increase was primarily the result of an additional investment in Canary Wharf, which was funded through the issuance of capital securities in December 2014. The remaining increase in equity was a result of valuation gains recorded in the current year, partially offset by the negative impact of foreign exchange.

Commercial properties totaled $28,087 million at June 30, 2015, compared to $28,531 million at December 31, 2014. The decrease is primarily attributable to the reclassification of 99 Bishopsgate in London and the HSBC Building in Toronto to assets held for sale and the impact of foreign exchange offset by the recognition of valuation gains and capital expenditures during the period.

Commercial developments increased by $692 million between December 31, 2014 and June 30, 2015. The increase is primarily attributable to capital expenditures and the recognition of valuation gains offset by the negative impact of foreign exchange.

14

The following table summarizes the scope and progress of active developments in our office segment as of June 30, 2015:

					Cost				Loan
(US$ Millions, except square feet in thousands)	Square Feet Under Construction (in 000's)	Expected Date of Cash Stabilization	Percent Pre-Leased		Total(1)		To Date		Total		Drawn
Active developments:
Brookfield Place Tower 2, Perth	362	Q3 2016	63	%	A$	338	A$	251	A$	240	A$	157
Bay Adelaide East, Toronto	980	Q2 2017	69	%	C$	463	C$	396	C$	350	C$	220
L'Oreal Brazil Headquarters, Rio de Janeiro(2)	197	Q3 2017	93	%	R$	194	R$	69	R$	—	R$	—
Manhattan West Residential Tower, Midtown New York	587	Q3 2018	—		$	739	$	262	$	479	$	—
Brookfield Place East Tower, Calgary	1,400	Q3 2018	71	%	C$	799	C$	275	C$	575	C$	29
Giroflex, São Paulo	681	Q3 2018	—		R$	624	R$	537	R$	292	R$	145
London Wall Place, London(2)	505	Q3 2019	73	%	£	224	£	83	£	137	£	15
Manhattan West Northeast Tower, Midtown New York	2,117	Q4 2019	25	%	$	1,899	$	307	$	1,250	$	—
Principal Place - Commercial, London	621	Q4 2019	69	%	£	365	£	130	£	280	£	40
Newfoundland, London(2)	562	Q2 2020	—		£	197	£	21	£	140	£	—
Wood Wharf Phase 1, London(2)	1,453	Q2 2022	—		£	650	£	57	£	458	£	—
1 Bank Street, London(2)	713	Q3 2022	40	%	£	233	£	35	£	140	£	—
10 Bank Street, London(2)	661	Q1 2023	—		£	217	£	44	£	141	£	—
	10,839

⁽¹⁾  Net of NOI earned during stabilization.

⁽²⁾  Presented on a proportionate basis at our ownership interest in each of these developments.

The following table presents changes in our partnership’s equity accounted investments in the office segment from December 31, 2014 to June 30, 2015:

(US$ Millions)	Jun 30, 2015
Equity accounted investments, beginning of period	$	2,061
Additions, net of disposals and return of capital distributions	3,360
Share of net income, including fair value gains	424
Distributions received	(22		)
Foreign exchange	78
Other	26
Equity accounted investments, end of period	$	5,927

Equity accounted investments increased by $3,866 million since December 31, 2014 to $5,927 million at June 30, 2015. The increase reflects the acquisition of a 50% interest in Canary Wharf and fair value gains on equity accounted properties in New York and London.

Debt obligations decreased from $14,402 million at December 31, 2014 to $13,996 million at June 30, 2015. This decrease is the result of the reclassification of property-level debt related to office properties in London and Toronto to liabilities associated with assets held for sale and the impact of foreign exchange. These decreases were partially offset by upfinancing activities and drawdowns on construction facilities.

We also had $684 million of capital securities – fund subsidiaries outstanding at June 30, 2015 as compared to $643 million at December 31, 2014. Capital securities – fund subsidiaries include $645 million (December 31, 2014 - $643 million) of equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by our co-investors in the fund, which have been classified as a liability, rather than as non-controlling interests, as the 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. In addition, capital securities – fund subsidiaries also includes $39 million (December 31, 2014 - nil) which represents the equity interests held by our co-investor in the D.C. Fund which have been classified as a liability, rather than as non-controlling interest, due to the fact that on June 18, 2023, and on every second anniversary thereafter, the holders of these interests can redeem their interests in the D.C. Fund for cash equivalent to the fair value of the interests.

15

Reconciliation of Non-IFRS Measures – Office

The key components of NOI in our office segment are presented below:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Commercial property revenue	$	599		$	636		$	1,215		$	1,248
Direct commercial property expense	(274		)	(285		)	(553		)	(552		)
Total NOI	$	325		$	351		$	662		$	696

The following table reconciles office NOI to net income for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Same-property net operating income	$	282		$	279		$	546		$	542
Currency variance	—			18			—			33
Net operating income related to acquisitions and dispositions	17			41			66			101
Net operating income from opportunistic portfolio	26			13			50			20
Total NOI	325			351			662			696
Investment and other revenue	33			168			85			214
Share of net earnings from equity accounted investments	260			110			424			137
Interest expense	(169		)	(183		)	(337		)	(355		)
Depreciation and amortization	(5		)	(4		)	(9		)	(9		)
General and administrative expense	(37		)	(43		)	(71		)	(76		)
Fair value gains, net	391			738			1,043			1,189
Income before taxes	798			1,137			1,797			1,796
Income tax benefit (expense)	360			(108		)	245			(437		)
Net income	$	1,158		$	1,029		$	2,042		$	1,359
Net income attributable to non-controlling interests	62			234			125			363
Net income attributable to Unitholders	$	1,096		$	795		$	1,917		$	996

The following table reconciles office net income to FFO for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Net income	$	1,158		$	1,029		$	2,042		$	1,359
Add (deduct):
Fair value gains, net	(391		)	(738		)	(1,043		)	(1,189		)
Share of equity accounted fair value gains, net	(222		)	(85		)	(347		)	(88		)
Income tax (benefit) expense	(360		)	108			(245		)	437
Non-controlling interests in above items	(35		)	(144		)	(90		)	(254		)
FFO	$	150		$	170		$	317		$	265

Retail

Our retail segment consists of 172 regional malls and urban retail properties containing 154 million square feet in the United States and Brazil. A substantial portion of our retail properties are held through our 29% interest in GGP (33% on a fully-diluted basis, assuming all outstanding warrants are exercised) and our 33% interest in Rouse.

The following table presents FFO and net income attributable to Unitholders in our retail segment for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,				Six months ended Jun. 30,
(US$ Millions)	2015		2014		2015		2014
FFO	$	107	$	103	$	220	$	218
Net income attributable to Unitholders	28		285		192		588

16

FFO earned in our retail platform for the three months ended June 30, 2015 was $107 million compared to $103 million for the same period in the prior year. FFO earned in our retail platform for the six months ended June 30, 2015 was $220 million compared to $218 million for the same period in the prior year. These increases period over period are primarily a result of higher FFO from our investment in GGP, due to improved operating performance and interest expense savings in the underlying investment.

Net income attributable to Unitholders decreased by $257 million to $28 million for the three months ended June 30, 2015 as compared to $285 million during the same period in the prior year. The decrease is primarily attributable to fair value adjustments of our investment in GGP warrants, which is offset by fair value gains recorded in the operating portfolio of GGP.

Net income attributable to Unitholders decreased by $396 million to $192 million for the six months ended June 30, 2015 as compared to $588 million during the same period in the prior year. This decrease in fair value is primarily attributable to the market-to-market adjustment on our investment in GGP warrants as described above. In addition, the prior year included significant fair value gains on our U.S. retail portfolio.

The following table presents key operating metrics in our retail portfolio as at June 30, 2015 and 2014 and for the three months ended June 30, 2015 and 2014:

	Consolidated						Unconsolidated
(US$ Millions, except where noted)	Jun 30, 2015			Jun 30, 2014			Jun 30, 2015			Jun 30, 2014
NOI:
Total portfolio(1)	$	18		$	25		$	175		$	181
Same-property(1,2)	17			16			172			169
Total portfolio:
Number of malls and urban retail properties	6			9			166			159
Leasable square feet (in thousands)	2,280			3,448			151,504			150,888
Occupancy	95.4		%	96.4		%	94.8		%	95.2		%
In-place net rents (per square foot)(2)	40.03			30.98			55.96			55.30
Tenant Sales (per square foot)(2)	570			521			547			521

⁽¹⁾ NOI for unconsolidated properties is presented on a proportionate basis, representing the Unitholders’ interest in the investments.

⁽²⁾ Presented using normalized foreign exchange rates, using the June 30, 2015 exchange rate.

NOI on consolidated properties for the three months ended June 30, 2015 compared with the same period of the prior year decreased by $7 million. This decrease was primarily due to the disposition of two malls in Brazil as well as the negative impact of foreign exchange.

NOI on unconsolidated properties during the same period, which is presented on a proportionate basis, decreased to $175 million from $181 million in the prior year, primarily as a result of dispositions, including of partial interests in a marquee mall in Honolulu. On a same-property basis, NOI on unconsolidated properties increased by $3 million to $172 million from $169 million due to increases in rental rates and higher tenant sales in our United States portfolio.

The results of our operations are primarily driven by changes in occupancy and in-place rental rates. The following table presents new and renewal leases with commencement dates in 2015 and 2016 compared to expiring leases for the prior tenant in the same suite, for leases where the downtime between new and previous tenant is less than 24 months, among other metrics.

	Total Portfolio
(US$ Millions, except where noted)	Jun 30, 2015		Jun 30, 2014
Number of leases	1,644		1,680
Leasing activity (in thousands of square feet)	5,149		5,020
Average term in years	6.1		6.1
Initial rent per square foot(1)	61.09		59.70
Expiring rent per square foot(2)	55.36		52.29
Initial rent spread	5.73		7.41
% change	10.4	%	14.2	%
Tenant allowances and leasing costs	89		70

⁽¹⁾ Represents initial rent over the term consisting of base minimum rent and common area costs.

⁽²⁾ Represents expiring rent at end of lease consisting of base minimum rent and common area costs.

For the three months ended June 30, 2015, we leased approximately 5.1 million square feet at initial rents approximately 10.4% higher than expiring net rents on a suite-to-suite basis. Additionally, for the quarter ended June 30, 2015, tenant allowances and leasing costs related to leasing activity was $89 million compared to $70 million during the same period in the prior year.

Our retail portfolio occupancy rate at June 30, 2015 was 94.8%. In our retail segment, we use in-place rents as a measure of leasing performance. In-place rents are calculated on a cash basis and consist of base minimum rent, plus reimbursements of common area costs, and real estate taxes. In-place rents increased to $55.42 at June 30, 2015 from $54.05 at June 30, 2014, primarily as a result of strong leasing activity

17

across our U.S. and Brazilian mall portfolios. At GGP, tenant sales (all less anchors) increased by 3.4% on a trailing twelve month basis and suite-to-suite lease spreads increased by 10.4% for leases that commenced in the trailing twelve months.

The following table presents our fair value (losses) gains from consolidated and unconsolidated investments in our retail segment:

	Three months ended Jun 30,					Six months ended Jun. 30,
(US$ Millions)	2015			2014		2015			2014
Consolidated properties	$	(267	)	$	151	$	(179	)	$	277
Unconsolidated properties(1)	174			70		132			137
Total fair value (losses) gains	$	(93	)	$	221	$	(47	)	$	414

⁽¹⁾  Fair value gains for unconsolidated properties are presented on a proportionate basis, representing the Unitholders’ interest in the investments.

We recorded fair value losses of $93 million and $47 million in our retail segment for the three and six months ended June 30, 2015 and 2014, respectively, as compared to fair value gains of $221 million and $414 million during the same time periods in the prior year. The fair value losses are due to the fair value loss on the GGP warrants as described above.

The key valuation metrics of these properties in our retail segment are presented in the following table. The valuations are most sensitive to changes in the discount rate and timing or variability of cash flows.

	Jun 30, 2015					Dec 31, 2014
	Discount rate		Terminal capitalization rate		Investment horizon	Discount rate		Terminal capitalization rate		Investment horizon
Consolidated properties
Brazil	9.2	%	7.1	%	10	9.2	%	7.1	%	10
Unconsolidated properties
United States	7.6	%	5.9	%	10	7.4	%	5.8	%	10

Equity attributable to Unitholders in the retail segment increased by $57 million at June 30, 2015 from December 31, 2014 due to the net income attributable to Unitholders offset by dividends received from our investment in GGP and Rouse.

The following table presents an overview of the financial position of our retail segment as at June 30, 2015 and December 31, 2014:

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Investment properties	$	1,211	$	1,496
Equity accounted investments	7,539		7,295
GGP warrants	1,243		1,394
Accounts receivable and other	740		778
Cash and cash equivalents	55		60
Total assets	$	10,788	$	11,023
Debt obligations	392		$	513
Accounts payable and other liabilities	114		155
Non-controlling interests of others in operating subsidiaries and properties	1,054		1,184
Equity attributable to Unitholders	$	9,228	$	9,171

Investment properties totaled $1,211 million at June 30, 2015 as compared to $1,496 million at December 31, 2014. The decrease is a result of the disposition of a mall in Brazil and the impact of foreign exchange.

Equity accounted investments increased by $244 million to $7,539 million at June 30, 2015 as compared to $7,295 million at December 31, 2014 primarily as a result of net income from our U.S. mall portfolio. This increase was partially offset by dividends received from GGP and Rouse during the current period.

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The following table presents a roll-forward of our partnership’s equity accounted investments from December 31, 2014 to June 30, 2015:

(US$ Millions)	Jun 30, 2015
Equity accounted investments, beginning of period	$	7,295
Share of net income, including fair value gains	346
Distributions received	(94		)
Other	(8		)
Equity accounted investments, end of period	$	7,539

Debt obligations decreased by $121 million to $392 million at June 30, 2015 from $513 million at December 31, 2014 as a result of the paydown of debt in Brazil with proceeds from the dispositions described above as well as the impact of foreign exchange.

Reconciliation of Non-IFRS Measures – Retail

The key components of NOI in our retail segment are presented below:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Commercial property revenue	$	24		$	32		$	49		$	65
Direct commercial property expense	(6		)	(7		)	(11		)	(14		)
Total NOI	$	18		$	25		$	38		$	51

The following table reconciles retail NOI to net income for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Total NOI	$	18		$	25		$	38		$	51
Investment and other revenue	12			18			24			20
Share of net earnings from equity accounted investments	278			164			346			343
Interest expense	(15		)	(19		)	(30		)	(37		)
General and administrative expenses	(4		)	—			(7		)	(6		)
Fair value (losses) gains, net	(267		)	151			(179		)	277
Income before taxes	22			339			192			648
Income tax benefit (expense)	3			—			—			(13		)
Net income	$	25		$	339		$	192		$	635
Net income attributable to non-controlling interests	(3		)	54			—			47
Net income attributable to Unitholders	$	28		$	285		$	192		$	588

The following table reconciles retail net income to FFO for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Net income	$	25		$	339		$	192		$	635
Add (deduct):
Share of equity accounted fair value gains, net	(174		)	(70		)	(132		)	(137		)
Fair value losses (gains), net	267			(151		)	179			(277		)
Income tax (benefit) expense	(3		)	—			—			13
Non-controlling interests in above items	(8		)	(15		)	(19		)	(16		)
FFO	$	107		$	103		$	220		$	218

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Industrial, Multifamily, Hotels and Triple Net Lease

Our industrial, multifamily, hotels and triple net lease segments are comprised of the following:

• Approximately 44 million square feet of industrial space across 164 industrial properties, primarily consisting of modern logistics assets in North America and Europe, with an additional 11 million square feet currently under construction;

• Approximately 26,900 multifamily units across 89 properties in the United States and Canada;

• Eleven hotel assets with over 8,560 rooms in North America and Australia; and

• Over 300 properties that are leased to automotive dealerships across North America on a triple net lease basis.

The following table presents NOI, FFO and net income attributable to Unitholders in our industrial, multifamily, hotels and triple net lease segments for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,				Six months ended Jun 30,
(US$ Millions)	2015		2014		2015		2014
NOI	$	198	$	97	$	388	$	197
FFO	42		21		74		37
Net income attributable to Unitholders	53		50		102		58

Since last year, we have made significant investments in industrial, multifamily, hotels and triple net lease properties. These investments are the primary driver of the increased earnings for the periods presented. These investments include the following:

• Expanded our industrial platform in Europe with the acquisition of portfolios in France and Germany;

• Acquired a 4,000-unit multifamily portfolio in Manhattan on a value-add basis, with plans to renovate the majority of those units and benefit from positive rent spreads on the releasing of renovated units;

• Acquired interests in six hotel assets, totaling 1,957 rooms across North America; and

• Established a new platform with the acquisition of CARS, which owns the real estate for more than 300 automotive dealerships across North America and leases it on a triple net basis.

In addition to the contribution from these investments, we also benefited from improved operating results at the Atlantis and the Hard Rock Hotel & Casino.

Contributing to the increase in net income attributable to Unitholders were fair value gains, particularly related to the value-add multifamily portfolio and our industrial assets in the U.S., U.K. and Germany, where we benefited from discount rate and capitalization rate compression as a result of an improved economic environment.

Offsetting some of these increases were the disposition of the One&Only Ocean Club in the Bahamas in the second quarter of 2014, as well as the disposition of select mature assets within the multifamily and industrial portfolios throughout the period. In addition, during the fourth quarter of 2014, we also disposed of our Mexican industrial portfolio.

The following table presents the contributions to fair value gains, net from consolidated and unconsolidated investments in our industrial, multifamily, hotels and triple net lease segments:

	Three months ended Jun 30,					Six months ended Jun 30,
(US$ Millions)	2015			2014		2015		2014
Consolidated properties	$	65		$	125	$	165	$	116
Unconsolidated properties(1)	(6		)	15		4		31
Total fair value gains, net	$	59		$	140	$	169	$	147

⁽¹⁾  Fair value gains for unconsolidated investments are presented on a proportionate basis, representing the Unitholders’ interest in the investments.

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The key valuation metrics of our industrial, multifamily and triple net lease properties are presented in the following table. The valuations are most sensitive to changes in the discount rate and timing or variability of cash flows.

	Jun 30, 2015					Dec 31, 2014
	Discount rate		Terminal capitalization rate		Investment horizon	Discount rate		Terminal capitalization rate		Investment horizon
Consolidated properties
Industrial	7.7	%	6.9	%	9	7.9	%	7.3	%	10
Multifamily(1)	5.0	%	n/a		n/a	5.4	%	n/a		n/a
Triple Net Lease(1)	6.3	%	n/a		n/a	6.6	%	n/a		n/a
Unconsolidated properties
Industrial	7.3	%	6.5	%	9	7.2	%	6.6	%	10
Multifamily(1)	5.5	%	n/a		n/a	5.5	%	n/a		n/a

⁽¹⁾  The valuation method used to value multifamily and triple net lease 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.

The following table presents equity attributable to Unitholders in our industrial, multifamily, hotels and triple net lease segments:

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Investment properties	$	8,707	$	8,474
Hotel assets	2,417		2,478
Equity accounted investments	982		958
Accounts receivable and other	853		895
Cash and cash equivalents	516		442
Assets held for sale	21		565
Total assets	$	13,496	$	13,812
Debt obligations	7,918		8,210
Accounts payable and other liabilities	575		545
Liabilities associated with assets held for sale	—		396
Non-controlling interests of others in operating subsidiaries and properties	3,262		3,071
Equity attributable to Unitholders	$	1,741	$	1,590

The increase in investment properties since December 31, 2014 is primarily the result of fair value gains in our multifamily, industrial and triple net lease portfolios. The decrease in hotel assets at June 30, 2015 was the result of current period depreciation.

Equity accounted investments increased during the six months ended June 30, 2015 compared to December 31, 2014 as a result of the acquisition of a hotel asset and six value-add multifamily properties.

Assets held for sale and related liabilities decreased at June 30, 2015 primarily as a result of the sale of three multifamily assets during the second quarter of 2015.

Debt obligations decreased from December 31, 2014 to June 30, 2015 primarily due to the repayment of a subscription facility that was used to fund acquisitions in the fourth quarter of 2014 offset by draws on the credit facility in our triple net lease segment to fund new acquisitions.

Reconciliation of Non-IFRS Measures - Industrial, Multifamily, Hotels and Triple Net Lease

The key components of NOI in our industrial, multifamily, hotels and triple net lease segments are presented below:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Commercial property revenue	$	158		$	74		$	327		$	152
Hospitality revenue	264			264			534			539
Direct commercial property expense	(28		)	(39		)	(71		)	(79		)
Direct hospitality expense	(196		)	(202		)	(402		)	(415		)
Total NOI	$	198		$	97		$	388		$	197

21

The following table reconciles industrial, multifamily, hotels and triple net lease NOI to net income for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Total NOI	$	198		$	97		$	388		$	197
Investment and other revenue	80			51			85			67
Investment and other expense	(60		)	(28		)	(60		)	(35		)
Share of net earnings from equity accounted investments	9			25			40			46
Interest expense	(97		)	(51		)	(200		)	(102		)
General and administrative expense	(22		)	(18		)	(46		)	(28		)
Depreciation and amortization	(36		)	(33		)	(68		)	(67		)
Fair value gains, net	65			125			165			116
Income before taxes	137			168			304			194
Income tax expense	(2		)	(9		)	(10		)	(9		)
Net income	$	135		$	159		$	294		$	185
Net income attributable to non-controlling interests	82			109			192			127
Net income attributable to Unitholders	$	53		$	50		$	102		$	58

The following table reconciles industrial, multifamily, hotels and triple net lease net income to FFO for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Net income	$	135		$	159		$	294		$	185
Add (deduct):
Fair value gains, net	(65		)	(125		)	(165		)	(116		)
Share of equity accounted fair value losses (gains), net	6			(15		)	(4		)	(31		)
Depreciation and amortization of real estate assets	34			27			65			56
Income tax expense	2			9			10			9
Non-controlling interests in above items	(70		)	(34		)	(126		)	(66		)
FFO	$	42		$	21		$	74		$	37

Corporate

Certain amounts are allocated to our corporate segment in our management reports as those activities should not be used to evaluate our segments’ operating performance.

FFO in our corporate segment was a loss of $141 million (2014 - loss of $86 million) and $277 million (2014 - loss of $148 million) for the three and six months ended June 30, 2015.

Interest expense for the three months ended June 30, 2015 was $85 million, which is comprised of $57 million of interest expense on capital securities and $28 million of interest expense on our credit facilities, as compared to $54 million for the same period in the prior year. The $31 million increase in interest expense is primarily due to interest expense on capital securities issued in December 2014 and interest associated with the acquisition facility used to acquire the remaining outstanding common shares of BPO in 2014.

General and administrative expense for the three months ended June 30, 2015 was $59 million which is primarily comprised of $45 million of asset management fees and $18 million of other corporate and transaction costs. The increase of $25 million during the current quarter from $34 million during the same period in the prior year is primarily due to an increase in asset management fees which is a result of the increase of the partnership's total capitalization.

22

The following table presents equity attributable to Unitholders at the corporate level:

(US$ Millions)	Jun 30, 2015			Dec 31, 2014
Accounts receivable and other	$	234		$	162
Restricted cash	—			1,800
Cash and cash equivalents	50			160
Total assets	284			2,122
Debt obligations	3,730			3,881
Capital securities	3,344			3,368
Deferred tax liabilities	1,188			1,131
Accounts payable and other liabilities	529			167
Non-controlling interests	14			131
Equity attributable to Unitholders	$	(8,521	)	$	(6,556	)

The corporate balance sheet includes corporate debt and capital securities from our partnership and BPO. The decrease in corporate debt obligations is primarily a result of assets sales initiatives that raised $483 million in proceeds to repay our BPO acquisition facility from $1,141 million at the end of the prior year to the current balance of $658 million.

On December 4, 2014, the Operating Partnership issued $1,800 million of exchangeable preferred equity securities (“Preferred Equity Units”) to QIA. The Preferred Equity Units are exchangeable at the option of QIA into LP Units at a price of $25.70 per unit and were issued in three tranches of $600 million each, with an average dividend yield of 6.5% and maturities of seven, ten and twelve years. The cash received from the issuance of the Preferred Equity Units was used during the first quarter of 2015 in connection with the Canary Wharf Transaction.

In August 2015, we renewed our normal course issuer bid for our LP Units for a further one-year period. During the twelve-month period commencing August 6, 2015, and ending August 5, 2016, we may purchase on the Toronto Stock Exchange, the New York Stock Exchange, and any alternative Canadian trading platform, up to 13,142,359 LP Units, representing approximately 5% of our issued and outstanding LP Units.

The following table provides additional information on our outstanding capital securities – corporate:

(US$ Millions)	Shares Outstanding	Cumulative Dividend Rate		Jun 30, 2015		Dec 31, 2014
Operating Partnership Class A Preferred Equity Units:
Series 1	24,000,000	6.25	%	$	528	$	524
Series 2	24,000,000	6.50	%	513		510
Series 3	24,000,000	6.75	%	504		501
Brookfield BPY Holdings Inc. Junior Preferred Shares:
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:
Class AAA Series G(1)	3,396,451	5.25	%	85		85
Class AAA Series H(1)	7,000,000	5.75	%	140		150
Class AAA Series J(1)	7,000,000	5.00	%	139		150
Class AAA Series K(1)	4,995,414	5.20	%	100		107
Brookfield Property Split Corp. Senior Preferred Shares:
Class A Series 1	1,000,000	5.25	%	25		25
Class A Series 2	1,000,000	5.75	%	20		22
Class A Series 3	936,332	5.00	%	20		22
Class A Series 4	1,000,000	5.20	%	20		22
Total capital securities - corporate				$	3,344	$	3,368
Current				$	449	$	476
Non-current				2,895		2,892
Total capital securities - corporate				$	3,344	$	3,368

⁽¹⁾  BPY and its subsidiaries own 1,003,549, 1,000,000, 1,000,000 and 1,004,586 shares of Series G, Series H, Series J and Series K capital securities, respectively, which has been reflected as a reduction in outstanding shares of each series.

In addition, as at June 30, 2015, we had $25 million of preferred shares issued by various holding entities of our partnership with a cumulative dividend rate of 5% outstanding.

23

Reconciliation of Non-IFRS Measures – Corporate

The following table reconciles corporate net (loss) to FFO for the three and six months ended June 30, 2015 and 2014:

	Three months ended Jun 30,						Six months ended Jun 30,
(US$ Millions)	2015			2014			2015			2014
Net (loss)	$	(153	)	$	(238	)	$	(354	)	$	(397	)
Add (deduct):
Fair value gains, net	10			—			22			—
Income tax expense	1			152			54			230
Non-controlling interests in above items	1			—			1			19
FFO	$	(141	)	$	(86	)	$	(277	)	$	(148	)

LIQUIDITY AND CAPITAL RESOURCES

The capital of our business consists of debt obligations, capital securities, preferred stock and equity. Our objective when managing this capital is to maintain an appropriate balance between holding a sufficient amount of equity capital to support our operations and reducing our weighted average cost of capital to improve our return on equity. As at June 30, 2015, capital totaled $59 billion, unchanged from December 31, 2014.

We attempt to maintain a level of liquidity to ensure we are able to participate in investment opportunities as they arise and to better withstand sudden adverse changes in economic circumstances. Our primary sources of liquidity include cash, undrawn committed credit facilities, construction facilities, cash flow from operating activities and access to public and private capital markets. In addition, we structure our affairs to facilitate monetization of longer-duration assets through financings and co-investor participations.

We seek to increase income from our existing properties by maintaining quality standards for our properties that promote high occupancy rates and support increases in rental rates while reducing tenant turnover and related costs, and by controlling operating expenses. Consequently, we believe our revenue, along with proceeds from financing activities and divestitures, will continue to provide the necessary funds to cover our short-term liquidity needs. However, material changes in the factors described above may adversely affect our net cash flows.

Our principal liquidity needs for the current year and for periods beyond include:

• Recurring expenses;

• Debt service requirements;

• Distributions to Unitholders;

• Capital expenditures deemed mandatory, including tenant improvements;

• Development costs not covered under construction loans;

• Investing activities which could include:

◦ Discretionary capital expenditures;

◦ Property acquisitions;

◦ Future developments; and

◦ Repurchase of our units.

We plan to meet these liquidity needs by accessing our group-wide liquidity of $6,333 million at June 30, 2015 as highlighted in the table below. In addition, we have the ability to supplement this liquidity through cash generated from operating activities, asset sales, co-investor interests and financing opportunities. During the second quarter of 2015, we added construction facilities related to the active developments at One Manhattan West ($1,250 million), Canary Wharf ($1,164 million at share) and Principal Place - Commercial ($440 million at share).

(US$ Millions)	Jun 30, 2015		Dec 31, 2014
Corporate cash and cash equivalents	$	39	$	73
Restricted cash related to issuance of preferred shares	—		1,800
Available committed corporate credit facilities	300		130
Available subordinated credit facilities	174		399
Corporate liquidity	513		2,402
Proportionate cash retained at subsidiaries	1,017		882
Proportionate availability under construction facilities	4,334		1,614
Proportionate availability under subsidiary credit facilities	469		305
Group-wide liquidity	$	6,333	$	5,203

We finance our assets principally at the operating company level with asset-specific debt that generally has long maturities, few restrictive covenants and with recourse only to the asset. We endeavor to maintain prudent levels of debt and strive to ladder our principal repayments over a number of years.

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The following table summarizes our secured debt obligations on investment properties by contractual maturity over the next five years and thereafter:

(US$ Millions)	Jun 30, 2015
Remainder of 2015	$	691
2016	4,469
2017	4,305
2018	2,424
2019	2,426
2020 and thereafter	5,478
Deferred financing costs	(146		)
Secured debt obligations	$	19,647
Loan to value	47.5		%

We generally believe that we will be able to either extend the maturity date, repay, or refinance the debt that is scheduled to mature in 2015-2016.

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PART III – RISKS AND UNCERTAINTIES

The financial results of our business are impacted by the performance of our properties and various external factors influencing the specific sectors and geographic locations in which we operate, including: macro-economic factors such as economic growth, changes in currency, inflation and interest rates; regulatory requirements and initiatives; and litigation and claims that arise in the normal course of business.

Our property investments are generally subject to varying degrees of risk depending on the nature of the property. These risks include changes in general economic conditions (including the availability and costs of mortgage funds), local conditions (including an oversupply of space or a reduction in demand for real estate in the markets in which we operate), the attractiveness of the properties to tenants, competition from other landlords with competitive space and our ability to provide adequate maintenance at an economical cost.

Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges, must be made regardless of whether a property is producing sufficient income to service these expenses. Certain properties are subject to mortgages which require substantial debt service payments. If we become unable or unwilling to meet mortgage payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure or sale. We believe the stability and long-term nature of our contractual revenues effectively mitigates these risks.

We are affected by local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own assets. A protracted decline in economic conditions would cause downward pressure on our operating margins and asset values as a result of lower demand for space.

Substantially all of our properties are located in North America, Europe and Australia, with a growing presence in Brazil, China and India. A prolonged downturn in the economies of these regions would result in reduced demand for space and the number of prospective tenants and would affect the ability of our properties to generate significant revenue. If there is an increase in operating costs resulting from inflation and other factors, we may not be able to offset such increases by increasing rents.

We are subject to risks that affect the retail environment, including unemployment, weak income growth, lack of available consumer credit, industry slowdowns and plant closures, consumer confidence, increased consumer debt, poor housing market conditions, adverse weather conditions, natural disasters and the need to pay down existing obligations. All of these factors could negatively affect consumer spending, and adversely affect the sales of our retail tenants. This could have an unfavorable effect on our operations and our ability to attract new retail tenants.

As owners of office, retail, and industrial properties, lease rollovers also present a risk, as continued growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies. Refer to “Lease Rollover Risk” below for further details.

For a more detailed description of the risk factors facing our business, please refer to the section entitled “Item 3.D. Key Information - Risk Factors” in our December 31, 2014 annual report on Form 20-F.

CREDIT RISK

Credit risk arises from the possibility that tenants may be unable to fulfill their lease commitments. We mitigate this risk by ensuring that our tenant mix is diversified and by limiting our exposure to any one tenant. We also maintain a portfolio that is diversified by property type so that exposure to a business sector is lessened. Government and Government Agencies comprise 7.1% of our office segment tenant base and, as at June 30, 2015, no one tenant comprises more than this.

The following list shows the largest tenants by leasable area in our office portfolio and their respective credit ratings and exposure as at June 30, 2015:

Tenant	Primary Location	Credit Rating(1)	Exposure (%)(2)
Government and Government Agencies	Various	AAA/AA+	7.1	%
Morgan Stanley	London/Denver/NY/Toronto	A-	2.5	%
Barclays	London	BBB	2.5	%
CIBC World Markets(3)	Calgary/Houston/NY/Toronto	A+	1.8	%
Suncor Energy Inc.	Calgary/Houston	A-	1.7	%
Bank of Montreal	Calgary/Toronto	A+	1.4	%
Bank of America | Merrill Lynch	Denver/NY/LA/Toronto/D.C.	A-	1.4	%
Royal Bank of Canada	Various	AA-	1.3	%
JPMorgan Chase & Co.	Denver/Houston/LA/NY	A	1.3	%
Commonwealth Bank	Brisbane/Melbourne/Sydney	AA-	0.9	%
Total			21.9	%

⁽¹⁾  From Standard & Poor’s Rating Services, Moody’s Investment Services, Inc. or DBRS Limited.

⁽²⁾ Prior to considering the partnership’s interest in partially-owned properties.

⁽³⁾ CIBC World Markets leases 1.1 million square feet at 300 Madison Avenue in New York, of which they sublease 925,000 square feet to PricewaterhouseCoopers LLP and

approximately 100,000 square feet to Sumitomo Corporation of America.

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The following list reflects the largest tenants in our retail portfolio as at June 30, 2015. The largest ten tenants in our portfolio accounted for approximately 22.5% of minimum rents, tenant recoveries and other.

Tenant	DBA	Exposure (%)(1)
L Brands, Inc.	Victoria's Secret, Bath & Body Works, PINK	3.9	%
The Gap, Inc.	Gap, Banana Republic, Old Navy	3.0	%
Foot Locker, Inc.	Footlocker, Champs Sports, Footaction USA	2.7	%
Forever 21, Inc.	Forever 21	2.7	%
Abercrombie & Fitch Stores, Inc.	Abercrombie, Abercrombie & Fitch, Hollister, Gilly Hicks	2.0	%
Signet Jewelers Limited	Zales, Gordon's, Kay, Jared	1.8	%
Luxottica Group S.p.A.	Lenscrafters, Sunglass Hut, Pearle Vision	1.6	%
Genesco Inc.	Journeys, Lids, Underground Station, Johnston & Murphy	1.6	%
American Eagle Outfitters, Inc.	American Eagle, Aerie	1.6	%
Express, Inc.	Express, Express Men	1.6	%
Total		22.5	%

⁽¹⁾  Exposure is a percentage of minimum rents and tenant recoveries.

LEASE ROLL-OVER RISK

Lease roll-over risk arises from the possibility that we may experience difficulty renewing leases as they expire or in re-leasing space vacated by tenants upon early lease expiry. We attempt to stagger the lease expiry profile so that we are not faced with disproportionate amounts of space expiring in any one year. On average, approximately 9.1% of our office, retail and industrial leases mature annually up to 2019. Our office, retail and industrial portfolio has a weighted average remaining lease life of approximately 6.5 years. We further mitigate this risk by maintaining a diversified portfolio mix by geographic location and by pro-actively leasing space in advance of its contractual expiry.

The following table sets out lease expiries, by square footage, for our office, retail and industrial portfolios at June 30, 2015, including our unconsolidated investments:

Office
(Sq. ft. in thousands)	Current		Remaining 2015		2016		2017		2018		2019		2020		2021		2022 and Beyond		Total
Total	9,453		3,010		5,505		5,647		6,996		7,634		6,663		5,352		44,594		94,854
Total % expiring	10.0	%	3.2	%	5.8	%	6.0	%	7.4	%	8.0	%	7.0	%	5.6	%	47.0	%	100.0	%
Retail(1)
Total	3,360		2,592		7,369		7,350		6,546		6,445		4,685		3,878		22,186		64,411
Total % expiring	5.2	%	4.0	%	11.4	%	11.4	%	10.2	%	10.0	%	7.4	%	6.0	%	34.4	%	100.0	%
Industrial
Total	3,942		2,642		6,300		4,553		6,563		3,791		4,978		3,594		7,536		43,899
Total % expiring	9.0	%	6.0	%	14.4	%	10.4	%	15.0	%	8.6	%	11.3	%	8.2	%	17.1	%	100.0	%

⁽¹⁾ Represents regional malls only and excludes traditional anchor and specialty leasing agreements.

TAX RISK

We are subject to income taxes in various jurisdictions, and our tax liabilities are dependent upon the distribution of income among these different jurisdictions. Our effective income tax rate is influenced by a number of factors, including changes in tax law, tax treaties, interpretation of existing laws, and our ability to sustain our reporting positions on examination. Changes in any of those factors could change our effective tax rate, which could adversely affect our profitability and results of operations.

ENVIRONMENTAL RISKS

As an owner of real property, we are subject to various federal, provincial, state and municipal laws relating to environmental matters. Such laws provide that we could be liable for the costs of removing certain hazardous substances and remediating certain hazardous locations. The failure to remove such substances or remediate such locations, if any, could adversely affect our ability to sell such real estate or to borrow using such real estate as collateral and could potentially result in claims against us. We are not aware of any material non-compliance with environmental laws at any of our properties nor are we aware of any pending or threatened investigations or actions by environmental regulatory authorities in connection with any of our properties or any pending or threatened claims relating to environmental conditions at our properties.

We will continue to make the necessary capital and operating expenditures to ensure that we are compliant with environmental laws and regulations. Although there can be no assurances, we do not believe that costs relating to environmental matters will have a materially adverse effect on our business, financial condition or results of operations. However, environmental laws and regulations can change and we may become subject to more stringent environmental laws and regulations in the future, which could have an adverse effect on our business, financial condition or results of operations.

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ECONOMIC RISK

Real estate is relatively illiquid. Such illiquidity may limit our ability to vary our portfolio promptly in response to changing economic or investment conditions. Also, financial difficulties of other property owners resulting in distressed sales could depress real estate values in the markets in which we operate.

Our commercial properties generate a relatively stable source of income from contractual tenant rent payments. Continued growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are found promptly to fill vacancies. We are substantially protected against short-term market conditions, as most of our leases are long-term in nature with an average term of approximately 6.5 years.

INSURANCE RISK

We maintain insurance on our properties in amounts and with deductibles that we believe are in line with what owners of similar properties carry. We maintain all risk property insurance and rental value coverage (including coverage for the perils of flood, earthquake and weather catastrophe).

INTEREST RATE AND FINANCING RISK

We attempt to stagger the maturities of our mortgage portfolio. We have an on-going need to access debt markets to refinance maturing debt as it comes due. There is a risk that lenders will not refinance such maturing debt on terms and conditions acceptable to us or on any terms at all. Our strategy to stagger the maturities of our mortgage portfolio attempts to mitigate our exposure to excessive amounts of debt maturing in any one year.

Approximately 57% of our outstanding debt obligations at June 30, 2015 are floating rate debt compared to 56% at December 31, 2014. This debt is subject to fluctuations in interest rates. A 100 basis point increase in interest rates relating to our corporate and commercial floating rate debt obligations would result in an increase in annual interest expense of approximately $149 million. A 100 basis point increase in interest rates relating to fixed rate debt obligations due within one year would result in an increase in annual interest expense of approximately $5 million upon refinancing. In addition, we have exposure to interest rates within our equity accounted investments. We have mitigated, to some extent, the exposure to interest rate fluctuations through interest rate derivative contracts. See “Derivative Financial Instruments” below in this MD&A.

At June 30, 2015, our consolidated debt to capitalization was 44% (December 31, 2014 – 46%). It is our view this level of indebtedness is conservative given the cash flow characteristics of our properties and the fair value of our assets. Based on this, we believe that all debts will be financed or repaid as they come due in the foreseeable future.

FOREIGN EXCHANGE RISK

As at and for the six months ended June 30, 2015, approximately 31% of our assets and 28% of our revenues originated outside the United States and consequently are subject to foreign currency risk due to potential fluctuations in exchange rates between these currencies and the U.S. Dollar. To mitigate this risk, we attempt to maintain a natural hedged position with respect to the carrying value of assets through debt agreements denominated in local currencies and, from time to time, supplemented through the use of derivative contracts as discussed under “Derivative Financial Instruments”.

DERIVATIVE FINANCIAL INSTRUMENTS

We and our 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. We do not use derivatives for speculative purposes. We and our 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 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; and

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

We also designate Canadian Dollar financial liabilities of certain of our operating entities as hedges of our net investments in our Canadian operations.

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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, 2015 and December 31, 2014:

(US$ Millions)	Hedging item	Notional		Rates	Maturity dates	Fair value
Jun 30, 2015	Interest rate caps of US$ LIBOR debt	$	2,993	3.0% - 5.8%	Sep 2015 - Oct 2018	$	1
	Interest rate swaps of US$ LIBOR debt	285		2.1% - 2.2%	Oct 2020 - Nov 2020	(7		)
	Interest rate cap of £ LIBOR debt	217		3.0%	Dec 2016	—
	Interest rate swaps of £ LIBOR debt	376		0.3% - 1.4%	Sep 2017 - Feb 2021	(2		)
	Interest rate swaps of A$ BBSW/BBSY debt	335		3.5% - 5.9%	Jan 2016 - July 2017	(18		)
	Interest rate swaps on forecasted fixed rate debt	1,885		2.8% - 5.3%	Nov 2025 - Jun 2029	(245		)
Dec 31, 2014	Interest rate caps of US$ LIBOR debt	$	3,174	2.5% - 5.8%	Jan 2015 - Oct 2018	$	1
	Interest rate swaps of US$ LIBOR debt	483		0.6% - 2.2%	Dec 2015 - Nov 2020	(7		)
	Interest rate swaps of £ LIBOR debt	204		1.1%	Sep 2017	(1		)
	Interest rate swaps of A$ BBSW/BBSY debt	548		3.5% - 5.9%	Jan 2016 - Jul 2017	(26		)
	Interest rate swaps of € EURIBOR debt	150		0.3% - 1.4%	Oct 2017 - Feb 2021	(3		)
	Forecast fixed rate debt interest rate swaps	1,995		2.3% - 5.1%	May 2025 - Jun 2029	(262		)

For the three and six months ended June 30, 2015 and 2014, 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 following table provides the partnership’s outstanding derivatives that are designated as net investments in foreign subsidiaries as of June 30, 2015 and December 31, 2014:

(US$ Millions)	Hedging item	Notional		Rates	Maturity dates	Fair value
Jun 30, 2015	Net investment hedges	£	2,206	£0.63/$ - £0.68/$	Jul 2015 - May 2016	$	(108	)
	Net investment hedges	€	353	€0.80/$ - €0.95/$	Jul 2015 - Sep 2016	(12		)
	Net investment hedges	A$	726	A$1.24/$ - A$1.34/$	Jul 2015 - Apr 2016	(13		)
Dec 31, 2014	Net investment hedges	£	1,170	£0.59/$ - £0.65/$	Apr 2015 - Jan 2016	$	36
	Net investment hedges	€	353	€0.75/$ - €0.80/$	Jan 2015 - Jun 2016	35
	Net investment hedges	A$	1,750	A$1.10/$ - A$1.27/$	Apr 2015 - Mar 2016	22

In addition to the above, the partnership has designated foreign currency forwards and zero cost collars as net investment hedges which include the following:

(US$ Millions)	Hedging item	Notional		Forward rates	Call Strike Prices	Put Strike Prices	Maturity Dates	Fair Value
Jun 30, 2015	Zero cost collar(1)	A$	1,250	A$1.29/$ - A$1.31/$	A$1.22/$ - A$1.25/$	A$1.39/$ - A$1.47/S	Dec 2015 - Apr 2016	$	8
	Zero cost collar(1)	£	570	£0.68/$	£0.65/$	£0.71/$	Jan 2016 - Mar 2016	(53		)

⁽¹⁾  Zero cost collar consists of bought call and sold put together with foreign currency forward agreements.

In connection with these hedges, $(2) and $(13) million relating to the time value component of their valuation has been recorded in fair value gains, net in the condensed consolidated income statement for the three and six months ended June 30, 2015, respectively.

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Other Derivatives

The following table presents details of the partnership’s other derivatives that have been entered into to manage financial risks as of June 30, 2015 and December 31, 2014:

(US$ Millions)	Derivative type	Notional		Maturity dates	Rates		Fair value (gain)/loss		Classification of gain/loss
Jun 30, 2015	Interest rate caps	$	381	Mar 2016	3.65	%	$	—	General and administrative expense
	Interest rate caps	350		Jul 2017	3.25	%	—		General and administrative expense
	Interest rate caps	51		Sep 2015	2.81% - 3.01%		—		General and administrative expense
	Interest rate caps	13		Oct 2015	3.00	%	—		General and administrative expense
	Interest rate caps	34		Jan 2016	3.00	%	—		General and administrative expense
	Interest rate caps	75		Feb 2016	2.94	%	—		General and administrative expense
Dec 31, 2014	Interest rate caps	$	382	Mar 2016	3.65	%	$	—	General and administrative expense
	Interest rate caps	350		Jul 2017	3.25	%	—		General and administrative expense
	Interest rate caps	51		Sep 2015	2.81% - 3.01%		—		General and administrative expense
	Interest rate caps	13		Oct 2015	3.00	%	—		General and administrative expense
	Interest rate caps	34		Jan 2016	3.00	%	—		General and administrative expense
	Interest rate caps	75		Feb 2016	2.94	%	—		General and administrative expense
	Interest rate caps	74		Mar 2016	2.94	%	—		General and administrative expense
	Interest rate caps	68		Jul 2015	3.00	%	—		General and administrative expense

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

RELATED PARTIES

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

The immediate parent of the partnership is the general partner, Brookfield Property Partners Limited. 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, certain joint ventures and associates accounted for under the equity method, as well as their directors and spouses.

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 providers equal to $12.5 million per quarter ($50.0 million annually). The base management fee for the three and six months ended June 30, 2015 was $12.5 million (2014 - $12.5 million) and $25.0 million (2014 - $25.0 million), respectively.

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 that immediately followed the spin-off of Brookfield Asset Management’s commercial property operations on April 15, 2013, 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 New York Stock Exchange (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 LP Units on the last of those days (assuming full conversion of Brookfield Asset Management’s interest in the partnership into LP Units), 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 months ended June 30, 2015 was $19.7 million (2014 – $12.4 million) and $46.5 million (2014 - $18.3 million), respectively.

In connection with the issuance of Preferred Equity Units to QIA, Brookfield Asset Management has contingently agreed to acquire the seven-year and ten-year tranches of Preferred Equity Units from QIA for the initial issuance price plus accrued and unpaid distributions and to exchange such units for Preferred Equity Units with terms and conditions substantially similar to the twelve-year tranche to the extent that the market price of the LP Units is less than 80% of the exchange price at maturity.

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The following table summarizes transactions with related parties:

(US$ Millions)	Jun 30, 2015			Dec 31, 2014
Balances outstanding with related parties:
Participating loan interests	$	607		$	609
Loans and notes receivable(1)	77			82
Receivables and other assets	45			143
Property-specific debt obligations	(463		)	(491		)
Corporate debt obligations	(1,000		)	(570		)
Other liabilities	(137		)	(174		)
Capital securities held by Brookfield Asset Management	(1,250		)	(1,250		)
Preferred shares held by Brookfield Asset Management	(25		)	(25		)

⁽¹⁾  Includes a $77 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 interests.

	Three months ended Jun 30,				Six months ended Jun 30,
(US$ Millions)	2015		2014		2015		2014
Transactions with related parties:
Commercial property revenue(1)	$	3	$	6	$	8	$	7
Participating loan interests (including fair value gains, net)	30		32		60		42
Interest expense	12		2		25		8
Interest on capital securities held by Brookfield Asset Management	19		19		38		38
General and administrative expense(2)	49		33		100		82
Construction costs(3)	68		50		138		89

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

⁽²⁾  Includes amounts paid to Brookfield Asset Management and its subsidiaries for management fees, management fees associated with our private funds, and administrative services.

⁽³⁾  Includes amounts paid to Brookfield Asset Management and its subsidiaries for construction costs of development properties.

On August 3, 2015, the board of directors of the partnership approved an amendment to the base management fee and equity enhancement distribution calculations. Pursuant to this amendment, the annual base management fee paid by the partnership to Brookfield Asset Management will be changed from $50 million, subject to annual inflation adjustments, to 0.5% of the total capitalization of the partnership, subject to an annual minimum of $50 million. The calculation of the equity enhancement distribution will be amended to reduce the distribution by the amount by which the revised base management fee is greater than $50 million per annum plus annual inflation adjustment. The amendment will take effect in the third quarter of 2015. The partnership anticipates the total combined amount of the base management fee and equity enhancement distribution payable to Brookfield Asset Management to remain substantially the same under the previous and amended base management fee and equity enhancement distribution calculations.

On June 5, 2015, 9165789 Canada Inc. acquired $12 million of voting preferred shares of an indirect subsidiary of the partnership, BOP Management Holdings Inc., representing a 60% voting interest. 9165789 Canada Inc. was formed by BPO and 16 individuals who are senior officers of BPO and other Brookfield Asset Management subsidiaries, who were given the opportunity to invest in 9165789 Canada Inc. as part of the partnership's goal of retaining its top executives and aligning executives’ interests with those of the partnership. The senior officers acquired an aggregate of $2 million of common shares of 9165789 Canada Inc. for investment purposes in exchange for cash in an amount equal to the fair value of the shares. BPO also holds a $10 million non-voting preferred share interest in 9165789 Canada Inc. BOP Management Holdings Inc. indirectly owns 33% of BPO’s economic interest in DTLA and an interest in BPO’s U.S. asset management and certain promote fee streams.

On February 18, 2015, Brookfield Global FM Limited Partnership (“FM Co.”) sold its interest in Brookfield Johnson Controls Australia and Brookfield Johnson Controls Canada to a subsidiary of Brookfield Asset Management. FM Co. is accounted for in accordance with the equity method as an investment in associate.

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PART IV – ADDITIONAL INFORMATION

CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGEMENTS

USE OF ESTIMATES

The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of our ongoing evaluation of these estimates forms the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

For further reference on accounting policies and critical judgments and estimates, see our significant accounting policies contained in Note 2 to the December 31, 2014 consolidated financial statements.

TREND INFORMATION

We will seek to increase the cash flows from our office and retail property activities through continued leasing activity as described below. In particular, we are operating below our historical office occupancy level in the United States, which provides the opportunity to expand cash flows through higher occupancy. In addition, we believe that most of our markets have favorable outlooks, which we believe also provides an opportunity for strong growth in lease rates. We do, however, still face a meaningful amount of office lease rollover in 2015 and 2016, which may restrain FFO growth from this part of our portfolio in the near future. Our beliefs as to the opportunities for our partnership to increase its occupancy levels, lease rates and cash flows are based on assumptions about our business and markets that management believes are reasonable in the circumstances. There can be no assurance as to growth in occupancy levels, lease rates or cash flows. See “Statement Regarding Forward-looking Statements And Use Of Non-IFRS Measures”.

Transaction activity is picking up across our global real estate markets and we are considering a number of different opportunities to acquire single assets, development sites and portfolios at attractive returns. In our continued effort to enhance returns through capital reallocation, we are also looking to divest all of, or a partial interest in, a number of mature assets to capitalize on existing market conditions.

Given the small amount of new office and retail development that occurred over the last decade and the near total development halt during the global financial crisis, we see an opportunity to advance our development inventory in the near term in response to demand we are seeing in our major markets. In addition, we continue to reposition and redevelop existing retail properties, in particular, a number of the highest performing shopping centers in the United States.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

CONTROLS AND PROCEDURES

INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes made in our internal control over financial reporting that have occurred during the six months ended June 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Corporate Information

CORPORATE PROFILE

Brookfield Property Partners is one of the world’s largest commercial real estate companies. Our goal is to be the leading global owner, operator and investor in best-in-class commercial property assets. Our diversified portfolio includes interests in over 100 premier office properties and over 150 best-in-class retail malls around the globe. We also hold interests in multifamily, industrial, hotel and triple net lease assets through Brookfield-managed private funds. For more information, please visit www.brookfieldpropertypartners.com.

BROOKFIELD PROPERTY PARTNERS

73 Front Street, 5^th Floor

Hamilton, HM 12

Bermuda

Tel: (441) 294-3309

www.brookfieldpropertypartners.com

UNITHOLDERS INQUIRIES

Brookfield Property Partners welcomes inquiries from Unitholders, analysts, media representatives and other interested parties. Questions relating to investor relations or media inquiries can be directed to Matt Cherry, Vice President, Investor Relations and Communications at (212) 417-7488 or via e-mail at matthew.cherry@brookfield.com. Inquiries regarding financial results can be directed to Bryan Davis, Chief Financial Officer at (212) 417-7166 or via e-mail at bryan.davis@brookfield.com. Unitholder questions relating to distributions, address changes and unit certificates should be directed to the partnership’s transfer agent, CST Trust Company, as listed below.

CST TRUST COMPANY

By mail:         P.O. Box 4229

Station A

Toronto, Ontario, M5W 0G1

Tel:         (416) 682-3860; (800) 387-0825

Fax:         (888) 249-6189

E-mail:         inquiries@canstockta.com

Web site:        www.canstockta.com

COMMUNICATIONS

We strive to keep our Unitholders updated on our progress through a comprehensive annual report, quarterly interim reports and periodic press releases.

Brookfield Property Partners maintains a website, www.brookfieldpropertypartners.com, which provides access to our published reports, press releases, statutory filings, supplementary information and unit and distribution information as well as summary information on the partnership.

We maintain an investor relations program and respond to inquiries in a timely manner. Management meets on a regular basis with investment analysts and Unitholders to ensure that accurate information is available to investors.

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