Filed by Brookfield Property Partners L.P.

Pursuant to Rule 425 under the Securities Act of 1933, as amended

Subject Company: Brookfield Office Properties Inc.

Commission File Number: 001-14916

Date: February 6, 2014

 

 

News Release

 

BROOKFIELD PROPERTY PARTNERS REPORTS

SOLID 2013 FOURTH QUARTER & FULL-YEAR RESULTS

 

February 6, 2014 — Brookfield Property Partners L.P. (NYSE: BPY; TSX: BPY.UN) today announced financial results for the quarter and year ended December 31, 2013.

 

Pro Forma Financial Results(1)

 

 

 

Three months ended Dec. 31,

 

Year ended Dec. 31,

 

US$ millions (except per unit amounts)

 

2013

 

2012

 

2013

 

2012

 

Fully-diluted FFO (2) (3)

 

$

150

 

$

135

 

$

561

 

$

506

 

- per unit

 

$

0.29

 

$

0.29

 

$

1.17

 

$

1.09

 

 

 

 

 

 

 

 

 

 

 

Net income (2)

 

$

190

 

$

312

 

$

995

 

$

1,343

 

- per unit

 

$

0.37

 

$

0.67

 

$

2.10

 

$

2.88

 

 


(1)Pro forma financial results reflect the International Financial Reporting Standards (“IFRS”) financial statements of Brookfield Property Partners L.P. with adjustments to give effect to the spinoff of the Partnership from Brookfield Asset Management Inc. for the periods presented prior to April 15, 2013, when the spinoff was effectuated.

(2) Fully-diluted FFO, and net income represent interests attributable to LP units and REUs (defined as Redeemable/Exchangeable and special limited partner units of the operating partnership). The interests attributable to REUs are presented as non-controlling interests in the IFRS statement of income. See “Reconciliation of Non-IFRS Measures” below in this news release for the components.

(3) Non IFRS measure. See definition under “Basis of Presentation”

 

Brookfield Property Partners reported fully-diluted FFO of $561 million ($1.17 per unit) for the year ended December 31, 2013 versus $506 million ($1.09 per unit) in 2012.

 

For the quarter ended December 31, 2013, fully-diluted FFO increased to $150 million ($0.29 per unit) versus $135 million ($0.29 per unit) for the same period in 2012.  These results reflect a strong performance from the Partnership’s retail assets and significant investments in its retail and industrial platforms, which were offset by the expiration of a significant lease within its office platform.

 

For the year ended December 31, 2013, net income was $995 million ($2.10 per unit) versus $1,343 million ($2.88 per unit) in 2012.  Net income was $190 million ($0.37 per unit) for the quarter ended December 31, 2013 versus $312 million ($0.67 per unit) in the same period in 2012.  The Partnership booked fair value gains of $872 million and $95 million, respectively, for the year and the quarter ended December 31, 2013, which were less than the fair value gains in comparable periods in 2012, primarily accounting for the decrease in net income.

 

“In 2013 we made significant progress advancing our vision of becoming the leading globally-diversified owner and operator of high-quality real estate assets.  We made a number of acquisitions that expanded the footprints of our industrial and multi-family platforms, and we invested $1.4 billion to increase our stake in General Growth

 

1



 

Properties,” said Ric Clark, Chief Executive Officer. “Looking forward to 2014, we are excited to formally launch our offer to acquire “any and all” of the shares of Brookfield Office Properties that we don’t own, and we are optimistic that we will be able to acquire 100% of BPO, which will further accelerate our business plan.”

 

2



 

Segment Performance

 

Brookfield Property Partners’ office platform generated fully-diluted FFO of $339 million for the year ended December 31, 2013 versus $364 million in 2012. This is primarily due to a $26 million decrease in dividends received on our investment in Canary Wharf Group plc in 2013.  Excluding Canary Wharf dividends, fully diluted FFO was $325 million for the year ended December 31, 2013 versus $324 million in 2012.  The results reflected a significant reduction in interest expense as a result of refinancing activities offset by a major lease expiry at Brookfield Place New York in Q4 2013.  In the fourth quarter of 2013, fully diluted FFO was $81 million versus $85 million in the same period last year as a $14 million dividend from Canary Wharf in Q4 2013 largely offset the impact of the aforementioned lease expiration.

 

The Partnership’s retail platform produced fully-diluted FFO of $325 million for the year ended December 31, 2013 versus $262 million in 2012.  In the fourth quarter of 2013, fully-diluted FFO was $110 million versus $88 million in same quarter of 2012. The increase in results for the quarter and year were driven by the acquisition of additional interests in General Growth Properties Inc. (GGP) and Rouse Properties Inc. (RSE) in November 2013, higher occupancy levels, which improved to 95.9%, a 10% increase in suite-to-suite lease spreads, and interest expense savings from refinancings.

 

Brookfield Property Partners’ multi-family, industrial and other platform posted fully-diluted FFO of $50 million for the year ended December 31, 2013 compared with $7 million in 2012.  In the fourth quarter of 2013, fully-diluted FFO was nil compared with a loss of $6 million in the same period in 2012. The increase in results for the quarter and the year was largely due to acquisitions of industrial and multi-family assets during the year, in which the Partnership deployed approximately $325 million of equity.

 

 

 

Three months ended Dec. 31,

 

Year ended Dec. 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

US$ millions

 

BPY

 

BPY
Pro forma

 

BPY
Pro forma

 

BPY
Pro forma

 

Fully-diluted FFO by segment

 

 

 

 

 

 

 

 

 

Office

 

81

 

85

 

339

 

364

 

Retail

 

110

 

88

 

325

 

262

 

Multi-Family, Industrial, and Other

 

 

(6

)

50

 

7

 

Corporate

 

(41

)

(32

)

(153

)

(127

)

Fully-diluted FFO (1) (2)

 

$

150

 

$

135

 

$

561

 

$

506

 

 

 

 

 

 

 

 

 

 

 

Net income by segment

 

 

 

 

 

 

 

 

 

Office

 

$

69

 

$

160

 

$

723

 

$

701

 

Retail

 

198

 

179

 

445

 

720

 

Multi-Family, Industrial, and Other

 

(3

)

(14

)

50

 

(27

)

Corporate

 

(74

)

(13

)

(223

)

(51

)

Net income (1)

 

$

190

 

$

312

 

$

995

 

$

1,343

 

 


(1) Fully-diluted FFO and net income represent interests attributable to LP units and REUs (defined as Redeemable/Exchangeable and special limited partner units of the operating partnership). The interests attributable to REUs are presented as non-controlling interests in the IFRS statement of income. See “Reconciliation of Non-IFRS Measures” below in this news release for the components.

(2) Non IFRS measure. See definition under “Basis of Presentation”.

 

Update on Brookfield Office Properties (“BPO”) Acquisition

 

In September of 2013, Brookfield Property Partners announced its intention to make an offer to acquire “any and all” of the outstanding shares of BPO that it does not own in exchange for a combination of BPY units and cash (the “Offer”).  In December, the Partnership agreed to increase the cash portion of the Offer.  Under the terms of the Offer, BPO shareholders can elect to receive consideration for each BPO common share tendered of either 1.0 Limited Partnership Unit of Brookfield Property Partners or $20.34 in cash, subject in each case to proration based on the maximum number of BPY Limited Partnership Units and the maximum cash consideration equating to 67% and 33%, respectively, of the total number of BPO common shares that are tendered under the Offer.  Brookfield Property Partners is pleased to report that the BPO Board of Directors intends to unanimously recommend the Offer and that the mid-point of the value of our units and the value of the cash consideration in the Offer are each higher than the mid-point of the value of the BPO common shares, as determined by BPO’s independent valuator.

 

3



 

Brookfield Property Partners has filed its offer documents with the U.S. Securities and Exchange Commission (the “SEC”), and it plans to formally launch the Offering shortly.

 

Significant Transactions during the Fourth Quarter

 

During the fourth quarter of 2013, Brookfield Property Partners, directly or through affiliates, disposed of 23 assets, raising $190 million of net proceeds and generating $8 million of nets gains above its IFRS carrying value for these assets.  Brookfield Property Partners recycled this capital into 22 acquisitions, deploying $2.2 billion of net equity.  Highlights from the quarter include:

 

Office

 

·                  Acquired One North End Avenue, which is a  509,000 square foot office building in downtown Manhattan that will be integrated in Brookfield Place New York; acquired the remaining 50% interest in 125 Old Broad Street in London.

·                  Closed on the acquisition of MPG Office Trust, Inc. through a fund, with institutional investors, which now owns seven Class A office properties totaling 8.3 million square feet in Downtown Los Angeles.

 

Retail

 

·                  Closed on the acquisition of additional interests in GGP and RSE for $1.4 billion, increasing ownership on a fully-diluted basis to 32% and 39%, respectively.

·                  Completed over 2.1 million square feet of regional mall acquisitions in the U.S.

 

Multi-family, Industrial and Other

 

·                  Closed acquisition of Industrial Developments International with institutional partners for an aggregate investment of $1.1 billion.

·                  Closed on the acquisition of 17 apartment communities adding approximately 4,300 multi-family units located primarily in the southeastern United States.

 

Distribution Declaration

 

The Board of Directors has declared a quarterly distribution of $0.25 per unit payable on March 31, 2014 to unitholders of record at the close of business on February 28, 2014. Unitholders resident in the United States will receive payment in U.S. dollars and unitholders resident in Canada will receive their distributions in Canadian dollars at the exchange rate on the record date, unless they elect otherwise. The distribution represents an annualized distribution of $1.00 per unit.

 

Additional Information

 

Further details regarding the operations of Brookfield Property Partners are set forth in regulatory filings. A copy of the filings may be obtained through the website of the SEC at www.sec.gov and on Brookfield Property Partners’ SEDAR profile at www.sedar.com.

 

Brookfield Property Partners’ Supplemental Information Package and Letter to Unitholders can be accessed before the market open on February 6, 2014 at www.brookfieldpropertypartners.com.  This additional information should be read in conjunction with this press release.

 

Conference Call

 

Analysts, investors and other interested parties are invited to participate in Brookfield Property Partners’ live conference call reviewing 2013 fourth quarter and full-year results on Thursday, February 6, 2014 at 11:00 a.m. eastern time. Scheduled speakers are Ric Clark, chief executive officer, John Stinebaugh, chief financial officer and

 

4



 

Brian Kingston, president & chief investment officer. Managements presentation will be followed by a question and answer period.

 

To participate in the conference call, please dial toll free 888.334.3034 or toll 719.457.2602, pass code 7707759, five minutes prior to the scheduled start of the call. Live audio of the call will also be available via webcast at www.brookfieldpropertypartners.com. A replay of this call can be accessed through March 6, 2014 by dialing toll free 888.203.1112 or toll 719.457.0820, pass code 7707759. A replay of the webcast, as well as a podcast download, will be available at www.brookfieldpropertypartners.com for one year.

 

* * * * *

 

Basis of Presentation

 

This press release and accompanying financial information make reference to net operating income (“NOI”), funds from operations (“FFO”) (on a total and per unit basis) and equity per unit. NOI, FFO, fully-diluted funds from operations (“fully-diluted FFO”) (on a total and per unit basis) and equity per unit do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. NOI is defined as revenues from commercial and hospitality operations of consolidated properties less direct commercial property and hospitality expenses, with the exception of depreciation and amortization of real estate assets. FFO is defined as income, including equity accounted income, before realized gains (losses) from the sale real estate property, fair value gains (losses) (including equity accounted fair value gains (losses)), depreciation and amortization of real estate assets, income tax expense (benefit), and less non-controlling interests of others in consolidated subsidiaries, but before non-controlling interests in the REUs. Fully-diluted FFO is defined as FFO plus the FFO that would have been attributable to the partnerships shares of GGP, if all outstanding warrants of GGP were exercised on a cash-less basis. It also includes dilution adjustments to undiluted FFO as a result of the net settled warrants. The Partnership uses NOI, FFO and fully-diluted FFO to assess its operating results. NOI is important in assessing operating performance and FFO is a widely-used measure to analyze real estate. The Partnership provides the components of NOI and a full reconciliation from net income to FFO and fully-diluted FFO with the financial information accompanying this press release. The partnership reconciles FFO to net income as opposed to cash flow from operating activities as it believes net income is the most comparable measure. We believe that our performance is best assessed by considering these two components in aggregate, and over the long term, because that is the basis on which we make investment decisions and operate the business. In fact, if we were solely focused on short-term financial results, it is quite likely that we would operate the business very differently and, in our opinion, in a manner that would produce lower long-term returns.

 

Forward-Looking Statements

 

This news release contains “forward-looking information” within the meaning of Canadian provincial securities laws and applicable regulations. 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.

 

5



 

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: the Offer will be subject to conditions, which may not be satisfied; if the Offer is not accepted by a sufficient number of BPO common shareholders, some of the benefits to Brookfield Property Partners may not be realized; the length of time necessary to consummate the Offer may be longer than anticipated; BPO shareholders who would like to exchange their common shares for limited partnership units of Brookfield Property Partners may receive cash in lieu of up to 33% of their shares; problems may arise in successfully integrating the business of Brookfield Property Partners and BPO; we may not realize the anticipated synergies and other benefits following the Offer; the Offer may involve unexpected costs; the business of Brookfield Property Partners and BPO may suffer as a result of uncertainty surrounding the offer; 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 favourable 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.

 

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.

 

Additional Important Information

 

This News Release relates, in part, to Brookfield Property Partners’ previously announced proposal to acquire BPO through a tender offer for any or all of the common shares of BPO that it does not currently own (the “Offer”). Brookfield Property Partners has filed a Registration Statement on Form F-4 and a Transaction Statement on Schedule 13e-3, and intends to file a Tender Offer Statement on Schedule 14D-1F (collectively, with the accompanying letter of transmittal and related documents, the “Exchange Offer Documents”), with the Securities and Exchange Commission (the “SEC”) in connection with the Offer. The Offer has not yet formally commenced and may not be completed until the registration statement filed with the SEC is effective. This communication is for informational purposes only and does not constitute an offer to exchange, or a solicitation of an offer to exchange, any securities, nor is it a substitute for the Exchange Offer Documents. The Offer will be made only through the Exchange Offer Documents.

 

Security holders and investors will be able to obtain free copies of the Exchange Offer Documents (when they become available), as well as other filings containing information about Brookfield Property Partners, BPO and the Offer, without charge, at the SEC’s web site at www.sec.gov, at the Canadian securities regulatory authorities’ web site at www.sedar.com and from Brookfield Property Partners. These documents will also be available for inspection and copying at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, US. For further information about the public reference room, call the SEC at 1-800-732-0330. SECURITY HOLDERS AND INVESTORS ARE URGED TO READ ANY SUCH DOCUMENTS CAREFULLY IN THEIR ENTIRETY BEFORE MAKING ANY INVESTMENT DECISION WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.

 

6



 

Brookfield Property Partners is a commercial real estate owner, operator and investor operating globally. Our diversified portfolio includes interests in over 300 office and retail properties encompassing approximately 250 million square feet. In addition, we have interests in over 25,000 multi-family units, 68 million square feet of industrial space and a 19 million square foot office development pipeline. Our goal is to be the leading global investor in best in class commercial property assets. For more information, please visit www.brookfieldpropertypartners.com.

 

Contact:

 

Melissa Coley

Vice President, Investor Relations & Communications

Tel: 212-417-7215

Email: melissa.coley@brookfield.com

 

7



 

Consolidated Balance Sheet

 

 

 

BPY

 

BPY-Pro forma

 

BPY

 

(US$ Millions) 

 

Dec. 31, 2013

 

Dec. 31, 2012

 

Dec. 31, 2012

 

Assets

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Investment properties

 

$

34,153

 

$

30,956

 

$

31,696

 

Equity accounted investments

 

9,281

 

7,470

 

8,038

 

Other non-current assets

 

5,981

 

6,381

 

5,606

 

Loans and notes receivable

 

20

 

246

 

246

 

 

 

49,435

 

45,053

 

45,586

 

Current assets

 

 

 

 

 

 

 

Loans and notes receivable

 

608

 

212

 

212

 

Accounts receivable and other

 

1,035

 

989

 

989

 

Cash and cash equivalents

 

1,368

 

891

 

894

 

 

 

3,011

 

2,092

 

2,095

 

Total assets

 

$

52,446

 

$

47,145

 

$

47,681

 

Liabilities and equity

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Property debt

 

$

16,520

 

$

15,916

 

16,442

 

Capital securities

 

2,181

 

1,914

 

664

 

Other non-current liabilities

 

250

 

439

 

439

 

Deferred tax liability

 

1,532

 

1,075

 

973

 

 

 

 20,483

 

19,344

 

18,518

 

Current liabilities

 

 

 

 

 

 

 

Property debt

 

5,120

 

3,366

 

3,366

 

Capital securities

 

188

 

202

 

202

 

Accounts payable and other liabilities

 

1,665

 

1,559

 

1,592

 

 

 

6,973

 

5,127

 

5,160

 

Total liabilities

 

27,456

 

24,471

 

23,678

 

Equity

 

 

 

 

 

 

 

Limited partners

 

2,528

 

2,028

 

 

General partner

 

4

 

4

 

 

Brookfield Asset Management Inc.

 

 

 

13,163

 

Non-controlling interests attributable to:

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

11,092

 

9,777

 

 

Interests of others in operating subsidiaries

 

11,366

 

10,865

 

10,840

 

Total equity

 

24,990

 

22,674

 

24,003

 

Total liabilities and equity

 

$

52,446

 

$

47,145

 

$

47,681

 

 

See Appendix A “Reconciliation of the Partnership’s financial results to pro forma financial results” for an explanation of the adjustments.

 

8



 

Consolidated Statements of Income

 

 

 

BPY

 

BPY Pro-Forma

 

(US$ Millions) Three months ended December 31,

 

2013

 

2012

 

2012

 

Commercial property and hospitality revenue

 

$

944

 

$

975

 

$

954

 

Investment and other revenue

 

77

 

39

 

56

 

Total revenue

 

1,021

 

1,014

 

1,010

 

Direct commercial property and hospitality expense

 

552

 

545

 

540

 

Interest expense

 

270

 

278

 

287

 

Administration and other expense

 

114

 

40

 

52

 

Total expenses

 

936

 

863

 

879

 

Fair value gains, net

 

95

 

206

 

206

 

Share of equity accounted income

 

292

 

253

 

242

 

Income before income taxes

 

472

 

610

 

579

 

Income tax expense

 

146

 

25

 

92

 

Net income

 

$

326

 

$

585

 

$

487

 

Net income attributable to:

 

 

 

 

 

 

 

Limited partners

 

$

35

 

$

 

$

56

 

General partner

 

 

 

 

Brookfield Asset Management Inc.

 

 

410

 

 

Non-controlling interests:

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

155

 

 

256

 

Interests of others in operating subsidiaries

 

136

 

175

 

175

 

Net income

 

$

326

 

$

585

 

$

487

 

 

 

 

BPY

 

BPY-Pro forma

 

(US$ Millions) Year ended December 31,

 

2013

 

2012

 

2013

 

2012

 

Commercial property and hospitality revenue

 

$

4,078

 

$

3,601

 

$

4,059

 

$

3,523

 

Investment and other revenue

 

209

 

167

 

222

 

221

 

Total revenue

 

4,287

 

3,768

 

4,281

 

3,744

 

Direct commercial property and hospitality expense

 

2,285

 

1,876

 

2,280

 

1,858

 

Interest expense

 

1,088

 

1,020

 

1,100

 

1,052

 

Administration and other expense

 

355

 

205

 

370

 

255

 

Total expenses

 

3,728

 

3,101

 

3,750

 

3,165

 

Fair value gains, net

 

870

 

1,227

 

872

 

1,227

 

Share of equity accounted income

 

835

 

1,235

 

824

 

1,196

 

Income before income taxes

 

2,264

 

3,129

 

2,227

 

3,002

 

Income tax expense

 

501

 

489

 

376

 

494

 

Net income

 

$

1,763

 

$

2,640

 

$

1,851

 

$

2,508

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

Limited partners

 

$

118

 

$

 

$

173

 

$

233

 

General partner

 

 

 

 

 

Brookfield Asset Management Inc.

 

232

 

1,476

 

 

 

Non-controlling interests:

 

 

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

557

 

 

822

 

1,110

 

Interests of others in operating subsidiaries

 

856

 

1,164

 

856

 

1,165

 

Net income

 

$

1,763

 

$

2,640

 

$

1,851

 

$

2,508

 

 

See Appendix A “Reconciliation of the Partnership’s financial results to pro forma financial results” for an explanation of the adjustments.

 

9



 

Reconciliation of Non-IFRS Measures

 

 

 

BPY

 

BPY Pro-Forma

 

(US$ Millions) Three months ended December 31,

 

2013

 

2012

 

2012

 

Commercial property and hospitality revenue

 

$

944

 

$

975

 

$

954

 

Direct commercial property and hospitality expense

 

(552

)

(545

)

(540

)

Depreciation and amortization of real estate assets(1)

 

27

 

16

 

16

 

NOI

 

419

 

446

 

430

 

Investment and other revenue

 

77

 

39

 

56

 

Share of equity accounted income excluding fair value gains and income tax expense

 

133

 

128

 

117

 

Interest expense

 

(270

)

(278

)

(287

)

Administration and other expense

 

(114

)

(40

)

(52

)

Non-controlling interests of others in operating subsidiaries in funds from operations

 

(103

)

(130

)

(130

)

FFO (2,3)

 

142

 

165

 

134

 

FFO from General Growth Properties Inc. Warrants

 

8

 

1

 

1

 

Fully-diluted FFO (2,3)

 

150

 

166

 

135

 

FFO from General Growth Properties Inc. Warrants

 

(8

)

(1

)

(1

)

Depreciation and amortization of real estate assets(1)

 

(27

)

(16

)

(16

)

Fair value gains, net

 

95

 

206

 

206

 

Share of equity accounted fair value gains

 

159

 

125

 

125

 

Income tax expense

 

(146

)

(25

)

(92

)

Share of equity accounted income tax expense

 

 

 

 

Non-controlling interests of others in operating subsidiaries in non-FFO items

 

(33

)

(45

)

(45

)

Net income before non-controlling interests of others in operating subsidiaries

 

190

 

410

 

312

 

Net income attributable to non-controlling interests of others in operating subsidiaries

 

136

 

175

 

175

 

Net income (3)

 

$

326

 

$

585

 

$

487

 

 


(1) Depreciation and amortization of real estate assets is a component of direct hospitality expense that is added back to NOI and is deducted in the net income calculation.

(2) FFO and Fully-diluted FFO represent interests attributable to LP units and REUs (defined as Redeemable/Exchangeable and special limited partner units of the operating partnership). The interests attributable to REUs are presented as non-controlling interests in the IFRS statement of income.

(3) For the BPY columns FFO and net income are also attributable to Brookfield Asset Management Inc. for the period prior to the spin-off of BPY (April 15, 2013).

 

 

 

BPY

 

BPY-Pro forma

 

(US$ Millions) Year ended December 31,

 

2013

 

2012

 

2013

 

2012

 

Commercial property and hospitality revenue

 

$

4,078

 

$

3,601

 

$

4,059

 

$

3,523

 

Direct commercial property and hospitality expense

 

(2,285

)

(1,876

)

(2,280

)

(1,858

)

Depreciation and amortization of real estate assets(1)

 

124

 

49

 

124

 

49

 

NOI

 

1,917

 

1,774

 

1,903

 

1,714

 

Investment and other revenue

 

209

 

167

 

222

 

221

 

Share of equity accounted income excluding fair value gains and income tax expense

 

435

 

427

 

424

 

388

 

Interest expense

 

(1,088

)

(1,020

)

(1,100

)

(1,052

)

Administration and other expense

 

(355

)

(205

)

(370

)

(255

)

Non-controlling interests of others in operating subsidiaries in funds from operations

 

(536

)

(512

)

(536

)

(512

)

FFO (2,3)

 

582

 

631

 

543

 

504

 

FFO from General Growth Properties Inc. Warrants

 

18

 

2

 

18

 

2

 

Fully-diluted FFO (2,3)

 

600

 

633

 

561

 

506

 

FFO from General Growth Properties Inc. Warrants

 

(18

)

(2

)

(18

)

(2

)

Depreciation and amortization of real estate assets(1)

 

(124

)

(49

)

(124

)

(49

)

Fair value gains, net

 

870

 

1,227

 

872

 

1,227

 

Share of equity accounted fair value gains

 

414

 

808

 

414

 

808

 

Income tax expense

 

(501

)

(489

)

(376

)

(494

)

Share of equity accounted income tax expense

 

(14

)

 

(14

)

 

Non-controlling interests of others in operating subsidiaries in non-FFO items

 

(320

)

(652

)

(320

)

(653

)

Net income before non-controlling interests of others in operating subsidiaries

 

907

 

1,476

 

995

 

1,343

 

Net income attributable to non-controlling interests of others in operating subsidiaries

 

856

 

1,164

 

856

 

1,165

 

Net income (3)

 

$

1,763

 

$

2,640

 

$

1,851

 

$

2,508

 

 


(1) Depreciation and amortization of real estate assets is a component of direct hospitality expense that is added back to NOI and is deducted in the net income calculation.

(2) FFO and Fully-diluted FFO represent interests attributable to LP units and REUs (defined as Redeemable/Exchangeable and special limited partner units of the operating partnership). The interests attributable to REUs are presented as non-controlling interests in the IFRS statement of income.

(3) For the BPY columns FFO and net income are also attributable to Brookfield Asset Management Inc. for the period prior to the spin-off of BPY (April 15, 2013).

 

See Appendix A “Reconciliation of the Partnership’s financial results to pro forma financial results” for an explanation of the adjustments.

 

10



 

Appendix A: Reconciliation of the Partnership’s financial results to pro forma financial results

 

 

 

Brookfield

 

Pro Forma Adjustments

 

Pro Forma

 

As at December 31, 2012
(US$ Millions)

 

Property
Partners
L.P.

 

Australian
Investments
(a)

 

Capital
Securities
(b)

 

Preferred
Shares
(c)

 

Equity
(d)

 

Tax Impact of
Reorganization
(e)

 

Total Pro
Forma
Adjustments

 

Brookfield
Property
Partners L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment properties

 

$

31,696

 

$

(740

)

$

 

$

 

$

 

$

 

$

(740

)

$

30,956

 

Equity accounted investments

 

8,038

 

(568

)

 

 

 

 

(568

)

7,470

 

Other non-current assets

 

5,606

 

775

 

 

 

 

 

775

 

6,381

 

Loans and notes receivable

 

246

 

 

 

 

 

 

 

246

 

 

 

45,586

 

(533

)

 

 

 

 

(533

)

45,053

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and notes receivable

 

212

 

 

 

 

 

 

 

212

 

Accounts receivable and other

 

989

 

 

 

 

 

 

 

989

 

Cash and cash equivalents

 

894

 

(3

)

 

 

 

 

(3

)

891

 

 

 

2,095

 

(3

)

 

 

 

 

(3

)

2,092

 

Total assets

 

$

47,681

 

$

(536

)

$

 

$

 

$

 

$

 

$

(536

)

$

47,145

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property debt

 

$

16,442

 

$

(526

)

$

 

$

 

$

 

$

 

$

(526

)

$

15,916

 

Capital securities

 

664

 

 

1,250

 

 

 

 

1,250

 

1,914

 

Other non-current liabilities

 

439

 

 

 

 

 

 

 

439

 

Deferred tax liability

 

973

 

59

 

 

 

 

43

 

102

 

1,075

 

 

 

18,518

 

(467

)

1,250

 

 

 

43

 

826

 

19,344

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property debt

 

3,366

 

 

 

 

 

 

 

3,366

 

Capital securities

 

202

 

 

 

 

 

 

 

202

 

Accounts payable and other liabilities

 

1,592

 

(33

)

 

 

 

 

(33

)

1,559

 

 

 

5,160

 

(33

)

 

 

 

 

(33

)

5,127

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

 

 

 

 

2,028

 

 

2,028

 

2,028

 

General partner

 

 

 

 

 

4

 

 

4

 

4

 

Brookfield Asset Management Inc.

 

13,163

 

(36

)

(1,250

)

(25

)

(11,809

)

(43

)

(13,163

)

 

Non-controlling interests attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

 

 

 

 

9,777

 

 

9,777

 

9,777

 

Interests of others in operating subsidiaries

 

10,840

 

 

 

25

 

 

 

25

 

10,865

 

Total equity

 

24,003

 

(36

)

(1,250

)

 

 

(43

)

(1,329

)

22,674

 

Total liabilities and equity

 

$

47,681

 

$

(536

)

$

 

$

 

$

 

$

 

$

(536

)

$

47,145

 

 

See notes for an explanation of each adjustment.

 

11



 

 

 

Brookfield

 

Pro Forma Adjustments

 

Pro Forma

 

 

 

Property

 

Australian

 

Capital

 

 

 

Tax Impact of

 

Management

 

Total Pro

 

Brookfield

 

For the year ended December 31, 2013

 

Partners

 

Investments

 

Securities

 

Equity

 

Reorganization

 

Fee

 

Forma

 

Property

 

(US$ Millions)

 

L.P.

 

(a)

 

(b)

 

(d)

 

(e)

 

(f)

 

Adjustments

 

Partners L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property and hospitality revenue

 

4,078

 

(19

)

 

 

 

 

(19

)

4,059

 

Investment and other revenue

 

209

 

13

 

 

 

 

 

13

 

222

 

Total revenue

 

4,287

 

(6

)

 

 

 

 

(6

)

4,281

 

Direct commercial property and hospitality expense

 

2,285

 

(5

)

 

 

 

 

(5

)

2,280

 

Interest expense

 

1,088

 

(10

)

22

 

 

 

 

12

 

1,100

 

Administration and other expense

 

355

 

 

 

 

 

15

 

15

 

370

 

Total expenses

 

3,728

 

(15

)

22

 

 

 

15

 

22

 

3,750

 

Fair value gains

 

870

 

2

 

 

 

 

 

2

 

872

 

Share of net earnings from equity accounted investments

 

835

 

(11

)

 

 

 

 

(11

)

824

 

Income before income taxes

 

2,264

 

 

(22

)

 

 

(15

)

(37

)

2,227

 

Income tax (expense) benefit

 

(501

)

 

 

 

122

 

3

 

125

 

(376

)

Net income

 

$

1,763

 

$

 

$

(22

)

$

 

$

122

 

$

(12

)

$

88

 

$

1,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

$

118

 

$

 

$

 

$

55

 

$

 

$

 

$

55

 

$

173

 

General partner

 

 

 

 

 

 

 

 

 

Brookfield Asset Management Inc.

 

232

 

 

(22

)

(320

)

122

 

(12

)

(232

)

 

Non-controlling interests attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

557

 

 

 

265

 

 

 

265

 

822

 

Interests of others in operating subsidiaries

 

856

 

 

 

 

 

 

 

856

 

 

 

$

1,763

 

$

 

$

(22

)

$

 

$

122

 

$

(12

)

$

88

 

$

1,851

 

 

 

 

Brookfield

 

Pro Forma Adjustments

 

Pro Forma

 

 

 

Property

 

Australian

 

Capital

 

 

 

Tax Impact of

 

Management

 

Total Pro

 

Brookfield

 

For the three months ended December 31, 2012

 

Partners

 

Investments

 

Securities

 

Equity

 

Reorganization

 

Fee

 

Forma

 

Property

 

(US$ Millions)

 

L.P.

 

(a)

 

(b)

 

(d)

 

(e)

 

(f)

 

Adjustments

 

Partners L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property and hospitality revenue

 

975

 

(21

)

 

 

 

 

(21

)

954

 

Investment and other revenue

 

39

 

17

 

 

 

 

 

17

 

56

 

Total revenue

 

1,014

 

(4

)

 

 

 

 

(4

)

1,010

 

Direct commercial property and hospitality expense

 

545

 

(5

)

 

 

 

 

(5

)

540

 

Interest expense

 

278

 

(10

)

19

 

 

 

 

9

 

287

 

Administration and other expense

 

40

 

 

 

 

 

12

 

12

 

52

 

Total expenses

 

863

 

(15

)

19

 

 

 

12

 

16

 

879

 

Fair value gains

 

206

 

 

 

 

 

 

 

206

 

Share of net earnings from equity accounted investments

 

253

 

(11

)

 

 

 

 

(11

)

242

 

Income before income taxes

 

610

 

 

(19

)

 

 

(12

)

(31

)

579

 

Income tax (expense) benefit

 

(25

)

 

 

 

(70

)

3

 

(67

)

(92

)

Net income

 

$

585

 

$

 

$

(19

)

$

 

$

(70

)

$

(9

)

$

(98

)

$

487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

$

 

$

 

$

 

$

56

 

$

 

$

 

$

56

 

$

56

 

General partner

 

 

 

 

 

 

 

 

 

Brookfield Asset Management Inc.

 

410

 

 

(19

)

(312

)

(70

)

(9

)

(410

)

 

Non-controlling interests attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

 

 

 

256

 

 

 

256

 

256

 

Interests of others in operating subsidiaries

 

175

 

 

 

 

 

 

 

175

 

 

 

$

585

 

$

 

$

(19

)

$

 

$

(70

)

$

(9

)

$

(98

)

$

487

 

 

See notes for an explanation of each adjustment.

 

12



 

 

 

Brookfield

 

Pro Forma Adjustments

 

Pro Forma

 

For the year ended December 31, 2012
(US$ Millions)

 

Property
Partners
L.P.

 

Australian
Investments
(a)

 

Capital
Securities
(b)

 

Preferred
Shares
(c)

 

Equity
(d)

 

Tax Impact of
Reorganization
(e)

 

Management
Fee
(f)

 

Total Pro
Forma
Adjustments

 

Brookfield
Property
Partners L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial property and hospitality revenue

 

3,601

 

(78

)

 

 

 

 

 

(78

)

3,523

 

Investment and other revenue

 

167

 

54

 

 

 

 

 

 

54

 

221

 

Total revenue

 

3,768

 

(24

)

 

 

 

 

 

(24

)

3,744

 

Direct commercial property and hospitality expense

 

1,876

 

(18

)

 

 

 

 

 

(18

)

1,858

 

Interest expense

 

1,020

 

(45

)

77

 

 

 

 

 

32

 

1,052

 

Administration and other expense

 

205

 

 

 

 

 

 

50

 

50

 

255

 

Total expenses

 

3,101

 

(63

)

77

 

 

 

 

50

 

64

 

3,165

 

Fair value gains

 

1,227

 

 

 

 

 

 

 

 

1,227

 

Share of net earnings from equity accounted investments

 

1,235

 

(39

)

 

 

 

 

 

(39

)

1,196

 

Income before income taxes

 

3,129

 

 

(77

)

 

 

 

(50

)

(127

)

3,002

 

Income tax (expense) benefit

 

(489

)

 

 

 

 

(18

)

13

 

(5

)

(494

)

Net income

 

$

2,640

 

$

 

$

(77

)

$

 

$

 

$

(18

)

$

(37

)

$

(132

)

$

2,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

 

$

 

$

 

$

 

$

 

$

233

 

$

 

$

 

$

233

 

$

233

 

General partner

 

 

 

 

 

 

 

 

 

 

Brookfield Asset Management Inc.

 

1,476

 

 

(77

)

(1

)

(1,343

)

(18

)

(37

)

(1,476

)

 

Non-controlling interests attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable/exchangeable and special limited partner units of the operating partnership held by Brookfield Asset Management Inc.

 

 

 

 

 

1,110

 

 

 

1,110

 

1,110

 

Interests of others in operating subsidiaries

 

1,164

 

 

 

1

 

 

 

 

1

 

1,165

 

 

 

$

2,640

 

$

 

$

(77

)

$

 

$

 

$

(18

)

$

(37

)

$

(132

)

$

2,508

 

 

See notes for an explanation of each adjustment.

 

Notes regarding pro forma financial information:

 

The pro forma financial information in this release has been prepared to give effect to the acquisition by Brookfield Property Partners of Brookfield’s commercial property operations (the “spinoff”), including its office, retail, multi-family, industrial and other assets, located in the United States, Canada, Australia, Brazil and Europe, that have historically been owned and operated, both directly and through its operating entities. The commercial property operations transferred to the partnership through the spinoff include all of the commercial property operations of Brookfield included in the financial statements.

 

In addition, the pro forma information was prepared reflecting adjustments for the following:

 


(a)         Acquisition of interests in Brookfield’s Australian properties through participating loan interests.

(b)         Issuance of $1.25 billion of Capital Securities to Brookfield as partial consideration for the business acquired by the partnership.

(c)          Issuance of $25 million of Preferred Shares by certain holding entities of Brookfield Property Partners.

(d)         Issuance of partnership units by Brookfield Property Partners as partial consideration for the business acquired, and issuance of approximately 80 million units of the partnership in the spinoff based on the number of Class A limited voting shares and Class B limited voting shares of Brookfield.

(e)          Reorganization of the legal structure through which the business is held, including the issuance of certain inter-company debt between the property partnership and the holding entities, resulting in changes in the effective tax rate and the tax basis of certain investments.

(f)           Annual management fees of $50 million paid by the partnership to Brookfield pursuant to a Master Services Agreement.

 

The unaudited pro forma information has been prepared based upon currently available information and assumptions deemed appropriate by management. The unaudited pro forma financial information is provided for information purposes only and is not intended to represent, or be indicative of, the results that would have occurred had the transactions reflected in the pro forma adjustments been effected on the dates indicated.

 

13