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, 2018 and December 31, 2017 and results of operations for the three and six months ended June 30, 2018 and 2017. 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, 2018, included elsewhere in this report, and our annual report for the year ended December 31, 2017 on Form 20-F.

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

This MD&A, particularly “Objectives and Financial Highlights – Overview of the Business” and “Additional Information – Trend Information”, contains “forward-looking information” within the meaning of applicable securities laws and 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.

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 exchange 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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OBJECTIVES AND FINANCIAL HIGHLIGHTS

BASIS OF PRESENTATION

Our sole material asset is our 37% 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. The partnership’s operating segments are organized into four reportable segments: i) Core Office, ii) Core Retail, iii) Opportunistic and iv) Corporate. These segments are independently and regularly reviewed and managed by the Chief Executive Officer, who is considered the Chief Operating Decision Maker.

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 LP Units, Redeemable/Exchangeable Partnership Units, and Exchange LP Units have the same economic attributes in all respects, except that the Redeemable/Exchangeable Partnership Units have provided Brookfield Asset Management Inc. (“Brookfield Asset Management”) the right to request that its units be redeemed for cash consideration. 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 of our partnership. However, given the redemption feature referenced above and the fact that they were issued by our subsidiary, we present the Redeemable/Exchangeable Partnership 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. As a result of this redemption feature, 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, 2018 and includes material information up to August 8, 2018. Financial data has been prepared using accounting policies in accordance with IFRS as issued by the IASB. 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. 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. Canadian Dollars (“C$”), Australian Dollars (“A$”), British Pounds (“£”), Euros (“€”), Brazilian Reais (“R$”), Indian Rupees (“₨”), Chinese Yuan (“C¥”), South Korean Won (“₩”) and United Arab Emirates Dirham (“AED”) are identified where applicable.

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

OVERVIEW OF THE BUSINESS

We are Brookfield Asset Management’s flagship public commercial property entity and the primary vehicle through which it invests in real estate on a global basis. We are a globally-diversified owner and operator of high-quality properties that typically generate stable and sustainable cash flows over the long term. Our goal is to be a leading global owner and operator of real estate, providing investors with a diversified exposure to some of the most iconic properties in the world and to acquire high-quality assets at a discount to replacement cost or intrinsic value. With approximately 17,000 employees involved in Brookfield Asset Management’s real estate businesses around the globe, we have built operating platforms in various real estate sectors, including in our:

• Core Office segment through our direct investments in core office assets and our 50% interest in Canary Wharf Group plc (“Canary Wharf”);

• Core Retail segment through our 34% interest in GGP Inc. (“GGP”); and

• Opportunistic segment through investments in Brookfield Asset Management-sponsored real estate funds.

Through these platforms, we have amassed a portfolio of premier properties and development sites around the globe, including:

• 150 office properties totaling approximately99 million square feet primarily located in the world’s leading commercial markets such as New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, and Berlin;

• Office and urban multifamily development sites that enable the construction of approximately30 million square feet of new properties;

• 125 regional malls and urban retail properties containing over122 million square feet in the United States;

• 138 opportunistic office properties comprising of approximately40 million square feet of office space in the United States, United Kingdom, Brazil, and Asia;

• Approximately29 million square feet of opportunistic retail space across 45 properties across the United States and in select Brazilian markets;

• Over34 million square feet of industrial space across 114industrial properties, primarily consisting of modern logistics assets in North America;

• Approximately25,700 multifamily units across 87 properties throughout the United States;

• 156 hospitality assets with over27,500 rooms across North America, Europe and Australia;

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

• 202 self-storage facilities comprising approximately16 million square feet throughout the United States;

• 45 student housing properties with approximately16,600 beds in the United Kingdom;

• 136 manufactured housing communities with approximately33,200 sites across the United States; and

• Two mixed-use investments with approximately6 million square feet of mixed-use space in South Korea and Germany.

    Our diversified portfolio of high-quality core office and core retail assets in some of the world’s most dynamic markets has a stable cash flow profile due to its long-term leases. In addition, as a result of the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, these 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 and 20% on our equity invested in Brookfield-sponsored real estate opportunity funds. 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 and capital appreciation. 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 to reflect initiatives that increase property level cash flows, change the risk profile of the asset, or to reflect changes in market conditions. From time to time, we will convert some or all of these unrealized gains to cash through asset sales, joint ventures or refinancings.

We believe our global scale and best-in-class operating platforms provide us with a unique competitive advantage as we are able to efficiently allocate capital around the world toward those sectors and geographies where we see the greatest returns. We actively recycle assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further enhancing returns. In addition, due to the scale of our stabilized portfolio and flexibility of our balance sheet, our business model is self-funding and does not require us to access capital markets to fund our continued growth.

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, same-property NOI, funds from operations (“FFO”), Company FFO, fair value changes, net income attributable to Unitholders 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 properties operations less direct commercial property expenses (“Commercial property NOI”) and revenues from our hospitality operations less direct hospitality expenses (“Hospitality NOI”).

• Same-property NOI: a subset of NOI, which excludes NOI that is earned from assets acquired, disposed of or developed during the periods presented, or not of a recurring nature, and from opportunistic assets.

• 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 therein. When determining FFO, we include our proportionate share of the FFO of unconsolidated partnerships and joint ventures and associates, as well as gains (or losses) related to properties developed for sale.

• Company FFO: FFO before the impact of depreciation and amortization of non-real estate assets, transaction costs, gains (losses) associated with non-investment properties, imputed interest associated with financing the partnership’s share of commercial developments accounted for under the equity method and the FFO that would have been attributable to the partnership’s shares of GGP if all outstanding warrants of GGP were exercised. Prior to the third quarter of 2017, the adjustment assumed net settlement of the outstanding warrants. For the third quarter of 2017, the adjustment is based on the cash settlement for all applicable warrants to reflect the partnership's settlement of the warrants on such basis which occurred in the fourth quarter of 2017.

• Fair value changes: includes the increase or decrease in the value of investment properties, as well as our proportionate share of the increase or decrease in the value of investment property held within our unconsolidated partnerships and joint ventures and associates, 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 impact the operating performance of our properties. We seek to grow NOI through pro-active management and leasing of our properties. 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 reconcile NOI to net income on page 12.

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

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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 timing of revenue recognition from lease terminations and sale of properties. 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 on page 12 as we believe net income is the most comparable measure. We do not use FFO as a measure of cash flow generated from operating activities.

In addition, we consider Company FFO a useful measure for securities analysts, investors and other interested parties in the evaluation of our partnership’s performance. Company FFO, similar to FFO discussed above, provides a performance measure that reflects the impact on operations of trends in occupancy rates, rental rates, operating costs and interest costs. In addition, the adjustments to Company FFO relative to FFO allow the partnership insight into these trends for the real estate operations, by adjusting for non-real estate components. We reconcile net income to Company FFO on page 12.

Net income attributable to Unitholders and Equity attributable to Unitholders are used by the partnership to evaluate the performance of the partnership as a whole as each of the Unitholders participates in the economics of the partnership equally. In calculating Net income attributable to Unitholders per unit and Equity attributable to Unitholders per unit, the partnership excludes the impact of mandatorily convertible preferred units in determining the average number of units outstanding as the holders of mandatorily convertible preferred units do not participate in current earnings. We reconcile Net income attributable to Unitholders to net income on page 12 and Equity attributable to Unitholders to total equity on page 13.

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 and pre-leasing pending developments;

• 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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FAIR VALUE OF INVESTMENT AND HOSPITALITY PROPERTIES

We measure all investment properties at fair value, including those held within equity accounted investments. Valuations are prepared at a balance sheet date with changes to those values recognized as gains or losses in the statement of income as mentioned above. Our valuations are prepared at the individual property level by internal investment professionals with the appropriate expertise in the respective industry, geography and asset type. We leverage their extensive expertise and experience in the valuation of properties accumulated through involvement in acquisitions and dispositions, negotiations with lenders and interactions with institutional private fund investors.

Substantially all of our investment properties are valued using one of two accepted income approaches, the discounted cash flow approach or the direct capitalization approach. The valuation methodology utilized is generally determined by asset class. Our office, retail and industrial assets are typically valued using a discounted cash flow methodology while our multifamily, triple net lease, self-storage, student housing and manufactured housing assets are typically valued using a direct capitalization methodology. Under the discounted cash flow approach, cash flows for each property are forecast for an assumed holding period, generally, ten-years. A capitalization rate is applied to the terminal year net operating income and an appropriate discount rate is applied to those cash flows to determine a value at the reporting date. The forecast cash flows include assumptions prepared at the property level for lease renewal probabilities, downtime, capital expenditures, future leasing rates and associated leasing costs. The majority of property cash flows consist of contracted leases as a result of our core real estate portfolio having a combined 94.3% occupancy level and an average seven year lease life. Valuation assumptions, such as discount rates and terminal value multiples, are determined by the relevant investment professionals and applied to the cash flows to determine the values.

Under the direct capitalization method, a capitalization rate is applied to estimated stabilized annual net operating income to determine value. Capitalization rates are determined by our investment professionals based on market data from comparable transactions and third-party reports.

Hospitality properties are valued annually, at December 31, with increases in fair value generally recognized as revaluation surplus in the statement of comprehensive income, unless the increase reverses a previously recognized revaluation loss recorded through prior period net income. Our hospitality properties are valued on an individual location basis using a depreciated replacement cost approach. These valuations are generally prepared by external valuation professionals using information provided by management of the operating business. The fair value estimates for hospitality properties represent the estimated fair value of the property, plant and equipment of the hospitality business only and do not include any associated intangible assets.

All of our valuations are subject to various layers of review and controls as part of our financial reporting processes. These controls are part of our system of internal control over financial reporting that is assessed by management on an annual basis. Under the discounted cash flow model, the base cash flows are determined as part of our annual business planning process, prepared within each operating business and reviewed by the senior management teams responsible for each segment, along with senior investment professionals responsible for the relevant asset classes. Valuation assumptions such as discount rates and terminal capitalization rates are compared to market data, third party reports, research material and broker opinions as part of the review process. We have a number of properties externally appraised each year to support our valuation process and for other business purposes. We compare the results of those external appraisals to our internally prepared values and reconcile significant differences when they arise. During the six months ended June 30, 2018, we obtained external appraisals of 31 of our properties representing a gross property value of $11 billion (or 7% of the portfolio). These external appraisals were within 1% of management’s valuations. Additionally, each year we sell a number of assets, which provides support for our valuations, as we typically contract at prices comparable to IFRS values.

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FINANCIAL STATEMENTS ANALYSIS

REVIEW OF CONSOLIDATED FINANCIAL RESULTS

In this section, we review our financial position and consolidated performance as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017. Further details on our results from operations and our financial positions are contained within the “Segment Performance” section beginning on page 15.

Our investment approach is to acquire high-quality assets at a discount to replacement cost or intrinsic value. We have been actively pursuing this strategy through our flexibility to allocate capital to real estate sectors and geographies with the best risk-adjusted returns and to participate in transactions through our investments in various Brookfield Asset Management-sponsored real estate funds. Some of the more significant transactions are highlighted below:

Significant Developments during the second quarter of 2018

In our Opportunistic segment:

• We acquired an office building in Chicago for consideration of $35 million; and

• We acquired an office portfolio in Mumbai for consideration of ₨2,726 million ($41 million).

Significant Developments during the second quarter of 2017

In our Opportunistic segment:

• We entered into an amended management agreement with our co-investors in our Brazilian retail portfolio, Brookfield Brazil Retail Fundo de Investimento em Participações (“Brazil Retail”). As a result of the terms of the agreement, we now jointly control the portfolio with our co-investors. As such, we no longer consolidate this investment and will account for our investment in Brazil Retail as an equity accounted investment; and

• We acquired an additional portfolio of student housing properties in the United Kingdom for £299 million ($385 million).

In our Core Office segment:

• We sold our equity accounted investment in 245 Park Avenue in Midtown New York for net proceeds of approximately $680 million; and

• We redeemed all of the public units outstanding of Brookfield Canada Office Properties for C$32.50 per unit, or C$516 million.

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Summary Operating Results

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
Commercial property revenue	$	1,130	$	1,050	$	2,227	$	2,045
Hospitality revenue	476		430		958		804
Investment and other revenue	45		39		86		198
Total revenue	1,651		1,519		3,271		3,047
Direct commercial property expense	421		413		830		782
Direct hospitality expense	295		276		627		539
Investment and other expense	—		—		—		122
Interest expense	537		510		1,057		982
Depreciation and amortization	76		69		148		132
General and administrative expense	183		156		352		307
Total expenses	1,512		1,424		3,014		2,864
Fair value gains, net	770		454		1,387		378
Share of earnings from equity accounted investments	288		193		516		526
Income before taxes	1,197		742		2,160		1,087
Income tax expense (benefit)	146		78		86		236
Net income	$	1,051	$	664	$	2,074	$	851
Net income attributable to non-controlling interests of others in operating subsidiaries and properties	517		425		1,010		778
Net income attributable to Unitholders(1)	$	534	$	239	$	1,064	$	73
NOI(1)	$	890	$	791	$	1,728	$	1,528
FFO(1)	$	210	$	227	$	438	$	429
Company FFO(1)	$	246	$	258	$	514	$	495

⁽¹⁾ This is a non-IFRS measure our partnership uses to assess the performance of its operations as described in the “Performance Measures” section on page 3. An analysis of the measures and reconciliation to IFRS measures is included in the “Reconciliation of Non-IFRS measures” section on page 11.

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)	2018		2017		2018		2017
Net income attributable to Unitholders - basic(1)	$	534	$	239	$	1,064	$	73
Dilutive effect of conversion of capital securities - corporate(2)	5		7		11		—
Net income attributable to Unitholders - diluted	$	539	$	246	$	1,075	$	73
Weighted average number of units outstanding - basic(1)	773.1		774.6		773.4		775.8
Conversion of capital securities - corporate and options(2)	19.6		22.3		18.4		0.2
Weighted average number of units outstanding - diluted	792.7		796.9		791.8		776.0
Net income per unit attributable to Unitholders - basic(1)(3)	$	0.69	$	0.31	$	1.38	$	0.09
Net income per unit attributable to Unitholders - diluted(2)(3)	$	0.68	$	0.31	$	1.36	$	0.09

⁽¹⁾ Basic net income attributable to Unitholders per unit 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.

⁽²⁾  The effect of the conversion of capital securities and options is anti-dilutive for the six months ended June 30, 2017.

⁽³⁾  Net income attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 3.

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Commercial property revenue and direct commercial property expense

For the three months ended June 30, 2018, commercial property revenue increased by $80 million compared to the same period in the prior year as a result of incremental capital allocated to higher yielding opportunistic investments and same-property growth in our Core Office segment. Acquisitions made in 2018, including the acquisition of a student housing portfolio in the United Kingdom, 333 West 34th Street in New York, a Class-A office park in Mumbai and 175 West Jackson in Chicago and the impact of acquisitions made in 2017, including office assets in Mumbai, Houston, and San Jose, all of which combined, contributed to a $71 million increase in revenue. These increases were offset by the disposition or partial disposition of mature office assets. In 2018, significant dispositions, full or partial, included: Bay Adelaide Centre East and West Towers in Toronto and 1801 California Street in Denver; in 2017, significant dispositions included: an industrial portfolio in Europe, 20 Canada Square in London and One Liberty Plaza in New York.

Direct commercial property expense increased by $8 million largely due to additional expenses relating to acquisitions during 2018and2017 as mentioned above. These increases were partially offset by the disposition of mature assets and the deconsolidation of certain commercial assets upon partial. Margins in 2018 were 62.7%, an increase of 2% over 2017.

For the six months ended June 30, 2018, commercial property revenue increased by $182 million compared to the same period in the prior year as a result of acquisition activity, as noted above, same-property growth in our Core Office segment, particularly in downtown New York and Toronto as a result of lease commencements and the positive impact of foreign currency translation. Acquisitions made in 2017 and 2018 contributed to a $178 million increase in revenue. These increases were offset by the disposition or partial disposition of mature assets as noted above.

Direct commercial property expense increased by $48 million largely due to additional expenses relating to acquisitions during 2017 and 2018 as mentioned above, partially offset by the disposition of mature assets and the deconsolidation of certain commercial assets. Margins in 2018 were 62.7%, an increase of 1% over 2017.

Hospitality revenue and direct hospitality expense

For the three months ended June 30, 2018, hospitality revenue increased by $46 million compared to the same period in the prior year. This increase was primarily a result of acquisition made in 2018, including a portfolio of extended-stay hotels across the U.S., a portfolio of serviced apartments in the United Kingdom and a hotel property in Florida, and the impact of acquisitions made in 2017, including a hotel in Toronto, and the positive impact of foreign currency translation. These increases were partially offset by the disposition of the Hard Rock Hotel and Casino in Las Vegas in the first quarter of 2018. Direct hospitality expense increased to $295 million for the three months ended June 30, 2018, compared to $276 million in the same period in the prior year.

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For the six months ended June 30, 2018, hospitality revenue increased by $154 million compared to the same period in the prior year. This increase was as a result of acquisition activity and positive foreign currency translation, as noted above, offset by the disposition of the Hard Rock Hotel and Casino in Las Vegas and lower bookings due to renovations at certain properties. Direct hospitality expense increased to $627 million for the six months ended June 30, 2018, compared to $539 million in the same period in the prior year primarily due to acquisitions, and the impact of foreign exchange, offset by the renovations mentioned above. Margins were 38.0% and 34.6% for the three and six ended June 30, 2018, respectively, representing increases of 2.2% and 1.6%, respectively.

Investment and other revenue and investment and other expense

Investment and other revenue includes management fees, leasing fees, development fees, interest income and other non-rental revenue. Investment and other revenue increased by $6 million and decreased by $112 million for the three and six months ended June 30, 2018, respectively, as compared to the same period in the prior year. The increase for the three months ended June 30, 2018 is primarily due to increased property management fee revenue from our continued management of 245 Park Avenue following its sale in the second quarter of 2017 and One Liberty Plaza in New York following the partial disposition in the fourth quarter of 2017 as well as increased asset management fees from development projects. The decrease for the six months ended June 30, 2018 is primarily due to revenue recorded from the sale of develop-for-sale assets in our multifamily and industrial businesses in the prior periods compared to nil in the current periods, as these types of sales are sporadic in nature.

Investment and other expense remained flat and decreasedby $122 million for the three and six months ended June 30, 2018, respectively, as compared to the same period in the prior year. The decrease compared to the six months ended June 30, 2017 is primarily due to expenses associated with the sale of develop-for-sale assets in our multifamily and industrial businesses in the prior periods as mentioned above.

Interest expense

Interest expense increased by $27 million for the three months ended June 30, 2018 as compared to the same period in the prior year. Interest expense increased by $75 million for the six months ended June 30, 2018 as compared to the same period in the prior year. These increases were due to the assumption of debt obligations as a result of acquisition activity, incremental debt raised from temporary drawdowns on our credit facilities to source the capital required for acquisitions and through refinancings on individual properties, as well as an increase in the weighted average variable interest rate during the year. These increases were partially offset by disposition activity.

General and administrative expense

General and administrative expense increased by $27 million for the three months ended June 30, 2018 as compared to the same period in the prior year. General and administrative expense increased by $45 million for the six months ended June 30, 2018 as compared to the same period in the prior year. These increases were primarily attributable to operating and transaction costs related to newly acquired entities as mentioned above.

Fair value gains, net

Fair value gains, net includes valuation gains (losses) on commercial properties and developments as well as mark-to-market adjustments on financial instruments and derivatives and foreign currency gains (losses) on disposal of assets denominated in foreign currencies. While we measure and record our commercial properties and developments using valuations prepared by management in accordance with our policy, external appraisals and market comparables, when available, are used to support our valuations.

Fair value losses, net for our Core Office sector of $48 million were recognized in the three months ended June 30, 2018. These losses primarily related to markdowns of our Downtown New York assets as a result of changes in valuation metrics. Partially offsetting these losses are fair value gains in our UK portfolio. Fair value gains, net for our Core Office segment in the six months ended June 30, 2018 were $29 million. These gains primarily related to our UK portfolio as mentioned above, gains on our Australian portfolio due to leasing activity, and gains from disposition of an interest in Bay Adelaide Centre East and West Towers in Toronto and 1801 California Street in Denver. These gains were partially offset by losses in our Downtown New York portfolio.

The prior year included fair value losses primarily related to properties in Downtown New York as a result of changes in valuation metrics and leasing activity in the first quarter of 2017.

9

No fair value gains (losses), net were recognized for Core Retail in the three and six months ended June 30, 2018, as all of our warrants in GGP were exercised during the fourth quarter of 2017.

In the prior year, Fair value losses, net for the Core Retail segment related to the appreciation or depreciation of our warrants in GGP which fluctuated with changes in the market price of the underlying shares.

Fair value gains, net for the Opportunistic segment in the three and six months ended June 30, 2018 were $818 million and $1,158 million, respectively. We recorded fair value gains from our industrial portfolio due to strengthened market conditions in certain regions and compressed discount rates as our development portfolio nears completion as well as in our office portfolio in India, where we recorded fair value gains, net due to leasing activity and increased density approvals. We also recorded a gain on extinguishment of debt associated with the sale of the Hard Rock Hotel and Casino.

The prior year included gains on the acquisitions of our manufactured housing portfolio and a student housing portfolio of $115 million and $27 million, respectively, as a result of changes in the underlying market conditions since signing the purchase and sale agreements.

In addition, for the three months ended June 30, 2018, we recorded fair value gains, net of nil (2017 - fair value losses, net of $18 million) and for the six months ended June 30, 2018 we recorded fair value gains, net of $200 million (2017 - fair value losses, net of $26 million), primarily related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the quarter.

10

Share of net earnings from equity accounted investments

Our most material equity accounted investments are Canary Wharf and Manhattan West in our Core Office sector, GGP in our Core Retail segment and the Diplomat hotel and our interest in the second value-add multifamily fund in our Opportunistic segment.

Our share of net earnings from equity accounted investments for the three months and six months ended June 30, 2018 of $288 million and $516 million, respectively, represents an increase of $95 million and a decrease of $10 million, respectively compared to the prior year.

The increase compared to the three months ended June 30, 2017 was primarily driven by an increase in ownership coupled with fair value gains in our Core Retail sector.

The decrease compared to the six months ended June 30, 2017 was primarily driven by fair value losses in our Core Retail portfolio as a result of market activity in the first quarter of 2018. This decrease was partially offset by a gain resulting from a tax restructuring at Canary Wharf and the sale of a developed-for-sale asset in the value-add multifamily fund.

Reconciliation of 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.

Commercial property NOI increased by $72 million to $709 million during the three months ended June 30, 2018 compared with $637 million during the same period in the prior year. For the six months ended June 30, 2018, commercial property NOI increased by $134 million to $1,397 million compared with $1,263 million during the same period in the prior year. The increase was primarily driven by new acquisitions, the positive impact of foreign currency translation and same-property growth offset by the disposition of mature assets and the deconsolidation of certain assets following partial dispositions thereof.

Hospitality NOI increased by $27 million to $181 million during the three months ended June 30, 2018 compared to $154 million during the same period in the prior year. For the six months ended June 30, 2018, hospitality NOI increased by $66 million to $331 million compared to $265 million during the same period in the prior year. The increase is primarily due to acquisitions made during 2018 and the positive impact of foreign currency translation.

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The following table reconciles NOI to net income for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Commercial property revenue	$	1,130		$	1,050		$	2,227		$	2,045
Direct commercial property expense	(421		)	(413		)	(830		)	(782		)
Commercial property NOI	709			637			1,397			1,263
Hospitality revenue	476			430			958			804
Direct hospitality expense	(295		)	(276		)	(627		)	(539		)
Hospitality NOI	181			154			331			265
Total NOI	890			791			1,728			1,528
Investment and other revenue	45			39			86			198
Share of net earnings from equity accounted investments	288			193			516			526
Interest expense	(537		)	(510		)	(1,057		)	(982		)
Depreciation and amortization	(76		)	(69		)	(148		)	(132		)
General and administrative expense	(183		)	(156		)	(352		)	(307		)
Investment and other expense	—			—			—			(122		)
Fair value gains, net	770			454			1,387			378
Income before taxes	1,197			742			2,160			1,087
Income tax expense	(146		)	(78		)	(86		)	(236		)
Net income	$	1,051		$	664		$	2,074		$	851
Net income attributable to non-controlling interests	517			425			1,010			778
Net income attributable to Unitholders	$	534		$	239		$	1,064		$	73

The following table reconciles net income to FFO and Company FFO for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Net income	$	1,051		$	664		$	2,074		$	851
Add (deduct):
Fair value gains, net	(770		)	(454		)	(1,387		)	(378		)
Share of equity accounted fair value (gains) losses, net	(84		)	55			(85		)	(66		)
Depreciation and amortization of real estate assets	66			58			131			115
Income tax expense (benefit)	146			78			86			236
Non-controlling interests in above items	(199		)	(174		)	(381		)	(329		)
FFO	$	210		$	227		$	438		$	429
Add (deduct):
Depreciation and amortization of non-real-estate assets, net(1)	6			7			15			13
Transaction costs, net(1)	15			2			33			16
(Gains)/losses associated with non-investment properties, net(1)	3			1			3			—
Imputed interest(2)	12			9			25			14
Net contribution from GGP warrants(3)	—			12			—			23
Company FFO	$	246		$	258		$	514		$	495

⁽¹⁾ Presented net of non-controlling interests.

⁽²⁾  Represents imputed interest associated with financing the partnership’s share of commercial developments accounted for under the equity method.

⁽³⁾ Represents incremental FFO that would have been attributable to the partnership’s share of GGP, if all outstanding warrants of GGP had been exercised. In the three and six months ended June 30, 2017, the adjustment assumed net settlement of the outstanding warrants. All of our outstanding warrants of GGP were exercised and settled in the fourth quarter of 2017.

FFO decreased to $210 million during the three months ended June 30, 2018 compared with $227 million during the same period in the prior year. The decrease was driven by a decrease in investment and other revenue recorded from the sale of develop-for-sale assets in our multifamily and industrial businesses in the prior periods compared to nil in the current periods, as these types of sales are sporadic in nature, dispositions of mature assets throughout the period, higher transaction costs in the current period and an increase in interest expense due to a higher weighted-average interest rate on variable rate secured debt obligations. These decreases were offset by net income from acquisition activity since the prior period.

For the six months ended June 30, 2018, FFO increased to $438 million compared with $429 million during the same period in the prior year. The increase was driven by acquisitions made in 2018, including student housing portfolio, a portfolio of extended-stay hotels in the United States, a portfolio of serviced-apartments in the United Kingdom, our interest in 333 West 34th Street in New York, an office park in Mumbai and 175 West Jackson in Chicago; the impact of acquisitions made in 2017, including office assets in Mumbai, Houston, and San Jose,

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California, and a hotel property in Toronto; as well as the positive impact of foreign currency translation and positive same-property growth in our Core Office segment. These increases were offset by a decrease in investment and other revenue recorded from the sale of develop-for-sale assets, as mentioned above, dispositions of mature assets throughout the period, higher transaction costs in the current period and an increase in interest expense due to a higher weighted-average interest rate on variable rate secured debt obligations.

Statement of Financial Position Highlights and Key Metrics

(US$ Millions)	Jun. 30, 2018		Dec. 31, 2017
Investment properties
Commercial properties	$	49,247	$	48,780
Commercial developments	3,798		2,577
Equity accounted investments	19,462		19,761
Property, plant and equipment	6,774		5,457
Cash and cash equivalents	1,600		1,491
Assets held for sale	1,547		1,433
Total assets	87,971		84,347
Debt obligations	39,351		36,884
Liabilities associated with assets held for sale	924		1,316
Total equity	36,462		35,124
Equity attributable to Unitholders(1)	$	22,534	$	22,186
Equity per unit(2)	$	31.23	$	30.74

⁽¹⁾ Equity attributable to Unitholders is a non-IFRS measure as described in the “Performance Measures” section on page 3.

⁽²⁾  Assumes conversion of mandatorily convertible preferred shares. See page 15 for additional information.

As of June 30, 2018, we had $87,971 million in total assets, compared with $84,347 million at December 31, 2017. This $3,624 millionincrease reflects the aforementioned acquisition activity since the prior year. We also obtained control over Brookfield Global Real Estate Special Opportunities Inc. (“BGRESOI”) after converting our loan interest in the entity.

Our investment properties are comprised of commercial, operating, rent-producing properties and commercial developments including active sites and those in planning for future development and land. Commercial properties increased from $48,780 million at the end of 2017 to $49,247 million at June 30, 2018. The increase was largely due to aforementioned acquisitions, as well as incremental capital spent to maintain or enhance properties, and valuation gains within our opportunistic portfolio. This was offset by the full or partial disposition of certain assets during the current year and the negative impact of foreign currency translation based on closing spot rates.

Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $3,798 million at June 30, 2018, an increase of $1,221 million from the balance at December 31, 2017. The increase is primarily attributable to acquisition activity, incremental capital spend on our active developments, and a gain recognized at 100 Bishopsgate in London as the development is nearing completion.

The following table presents the changes in investment properties from December 31, 2017 to June 30, 2018:

	Jun. 30, 2018
(US$ Millions)	Commercial properties			Commercial developments
Investment properties, beginning of period	$	48,780		$	2,577
Acquisitions	2,441			523
Capital expenditures	357			526
Dispositions(1)	(556		)	(1		)
Fair value gains, net	409			384
Foreign currency translation	(936		)	(64		)
Transfer between commercial properties and commercial developments	145			(145		)
Reclassifications to assets held for sale and other changes	(1,393		)	(2		)
Investment properties, end of period	$	49,247		$	3,798

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

Equity accounted investments decreased by $299 million since December 31, 2017 primarily due to return of capital and distributions received during the period and lower share of net earnings from equity accounted investments driven by valuation losses on our Core Retail portfolio and the weakening of the British Pound against the U.S. Dollar, primarily related to our investment in Canary Wharf.

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The following table presents a roll-forward of changes in our equity accounted investments:

(US$ Millions)	Jun. 30, 2018
Equity accounted investments, beginning of period	$	19,761
Additions	334
Disposals and return of capital distributions	(636		)
Share of net earnings from equity accounted investments	516
Distributions received	(226		)
Foreign currency translation	(196		)
Other comprehensive income and other	(91		)
Equity accounted investments, end of period	$	19,462

Property, plant and equipment increased by $1,317 million since December 31, 2017, primarily as a result of acquisition activity during the period including a portfolio of extended-stay hotels across the U.S., a portfolio of serviced apartments in the United Kingdom and a hotel property in Florida. These increases were offset by the negative impact of foreign currency translation related to our Center Parcs UK portfolio and depreciation expense during the current year.

As of June 30, 2018, assets held for sale included a portfolio of self-storage assets across the United States, and two Core Office buildings in Canada: Queens Quay Terminal in Toronto; and an interest in Jean Edwards Tower in Ottawa. These dispositions are expected to close in the next few months.

The following table presents changes in our assets held for sale from December 31, 2017 to June 30, 2018:

(US$ Millions)	Jun. 30, 2018
Balance, beginning of period	$	1,433
Reclassification to/(from) assets held for sale, net	1,431
Disposals	(1,306		)
Fair value adjustments	35
Foreign currency translation	(17		)
Other	(29		)
Balance, end of period	$	1,547

Our debt obligations increased to $39,351 million at June 30, 2018 from $36,884 million at December 31, 2017. Contributing to this increase was the addition of property-specific borrowings related to acquisition activity during the period, as noted above, as well as higher funds subscription facilities and corporate debt facilities. These increases were partially offset by the disposition of encumbered assets during the period and the repayment of certain subsidiary borrowings.

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

(US$ Millions)	Jun. 30, 2018		Dec. 31, 2017
Corporate borrowings	$	1,725	$	1,359
Funds subscription facilities	1,166		432
Non-recourse borrowings
Property-specific borrowings	35,469		33,401
Subsidiary borrowings	991		1,692
Total debt obligations	$	39,351	$	36,884
Current	5,597		6,135
Non-current	33,754		30,749
Total debt obligations	$	39,351	$	36,884

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

(US$ Millions, except unit information)	Jun. 30, 2018		Dec. 31, 2017
Total equity	$	36,462	$	35,124
Less:
Interests of others in operating subsidiaries and properties	13,928		12,938
Equity attributable to Unitholders	22,534		22,186
Mandatorily convertible preferred shares	1,610		1,597
Total equity attributable to Unitholders	24,144		23,783
Partnership units	703,073,711		703,615,432
Mandatorily convertible preferred shares	70,038,910		70,038,910
Total partnership units	773,112,621		773,654,342
Equity attributable to Unitholders per unit	$	31.23	$	30.74

Equity attributable to Unitholders was $22,534 million at June 30, 2018, an increase of $348 million from the balance at December 31, 2017. The increase was a primarily due to fair value gains on our opportunistic assets partially offset by result of distributions and fair value losses on our Core Retail assets. Assuming the conversion of mandatorily convertible preferred shares, equity attributable to Unitholders increased to $31.23 per unit at June 30, 2018 from $30.74 per unit at December 31, 2017.

Interests of others in operating subsidiaries and properties was $13,928 million at June 30, 2018, an increase of $990 million from the balance of $12,938 million at December 31, 2017. The increase was primarily a result of the acquisition of new investments through Brookfield Asset Management-sponsored funds in which the partnership is a limited partner.

SUMMARY OF QUARTERLY RESULTS

	2018				2017									2016
(US$ Millions, except per unit information)	Q2		Q1		Q4		Q3		Q2		Q1			Q4			Q3
Revenue(1)	$	1,651	$	1,620	$	1,578	$	1,510	$	1,519	$	1,528		$	1,363		$	1,409
Direct operating costs	716		741		707		668		689		632			639			621
Net income	1,045		1,023		958		659		664		187			92			1,616
Net income (loss) attributable to Unitholders	534		530		134		168		239		(166		)	(62		)	1,255
Net income (loss) per share attributable to Unitholders - basic	$	0.69	$	0.69	$	0.17	$	0.22	$	0.31	$	(0.21	)	$	(0.08	)	$	1.61
Net income (loss) per share attributable to Unitholders - diluted	$	0.68	$	0.68	$	0.17	$	0.22	$	0.31	$	(0.21	)	$	(0.08	)	$	1.56

⁽¹⁾  We adopted IFRS 9, Financial Instruments and IFRS 15, Revenues from Contracts with Customers, in 2018 using the modified retrospective method. The comparative information for periods prior to 2018 has not been restated and is reported under the accounting standards effective for those periods.

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 the impact of leasing activity at market net rents. In addition, revenue also fluctuates as a result of changes in foreign exchange rates and seasonality. Seasonality primarily affects our retail assets, wherein the fourth quarter exhibits stronger performance in conjunction with the holiday season. In addition, our North American hospitality assets generally have stronger performance in the winter and spring months compared to the summer and fall months, while our European hospitality assets exhibit the strongest performance during the summer months. Fluctuations in our net income is also impacted by the fair value of properties in the period to reflect changes in valuation metrics driven by market conditions or property cash flows.

SEGMENT PERFORMANCE

Our operations are organized into four operating segments which include Core Office, Core Retail, Opportunistic and Corporate.

The following table presents FFO by segment:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Core Office	$	127		$	148		$	260		$	295
Core Retail	117			119			229			218
Opportunistic	88			80			192			149
Corporate	(122		)	(120		)	(243		)	(233		)
FFO	$	210		$	227		$	438		$	429

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The following table presents equity attributable to Unitholders by segment as of June 30, 2018 and December 31, 2017:

(US$ Millions)	Jun. 30, 2018			Dec. 31, 2017
Core Office	$	14,397		$	13,913
Core Retail	8,723			8,844
Opportunistic	5,825			5,238
Corporate	(6,411		)	(5,809		)
Total	$	22,534		$	22,186

Core Office

Our Core Office segment consists of interests in 150 office properties totaling over 99 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, and Berlin, among others and consists primarily of our direct investments in core office assets and our 50% joint venture interest in Canary Wharf.

The following table presents FFO and net income attributable to Unitholders in our Core Office segment for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
FFO	$	127	$	148	$	260	$	295
Net income attributable to Unitholders	37		149		295		(41		)

FFO from our Core Office segment was $127 million for the three months ended June 30, 2018 as compared to $148 million in the same period in the prior year. For the six months ended June 30, 2018, FFO from our Core Office segment was $260 million as compared to $295 million in the same period in the prior year. This decrease is largely attributable to the impact of full or partial dispositions, including 245 Park Avenue in Midtown New York in the second quarter of 2017, 20 Canada Square in London in the third quarter of 2017, One Liberty Plaza in New York in the fourth quarter of 2017, and Bay Adelaide Centre in Toronto in the first quarter of 2018 as we continue to recycle capital out of core, stable assets into higher-yielding opportunistic investments. These decreases are partially offset by the positive impact of foreign currency translation and same-property growth.

Net income attributable to Unitholders decreased by $112 million to $37 million during the three months ended June 30, 2018 as compared to $149 million during the same period in 2017. The decrease was primarily a result of fair value losses recorded in the current period related to properties in Downtown New York as a result of changes in valuation metrics observed from recent market transactions.

Net income attributable to Unitholders increased by $336 million to $295 million during the six months ended June 30, 2018 as compared to a loss of $41 million during the same period in 2017. The increase is largely attributable to a gain resulting from a change in the tax status of Canary Wharf and fair value gains realized on the dispositions of Bay Adelaide Centre East and West Towers in Toronto and 1801 California Street in Denver compared to fair value losses in Downtown New York in the prior period.

The following table presents key operating metrics for our Core Office portfolio as at and for the three months ended June 30, 2018 and 2017:

	Consolidated						Unconsolidated
(US$ Millions, except where noted)	Jun. 30, 2018			Jun. 30, 2017			Jun. 30, 2018			Jun. 30, 2017
Total portfolio:
NOI(1)	$	267		$	267		$	120		$	108
Number of properties	78			76			72			70
Leasable square feet (in thousands)	49,255			51,488			30,896			28,729
Occupancy	91.7		%	90.9		%	94.5		%	93.6		%
In-place net rents (per square foot)(2)	$	28.46		$	30.82		$	39.58		$	39.13
Same-property:
NOI(1,2)	$	255		$	234		$	107		$	106
Number of properties	73			73			66			66
Leasable square feet (in thousands)	47,162			47,147			26,538			26,527
Occupancy	91.9		%	91.0		%	95.0		%	93.2		%
In-place net rents (per square foot)(2)	$	28.67		$	28.20		$	46.70		$	44.94

⁽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, 2018 exchange rate.

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NOI from our consolidated properties remained unchanged at $267 million during the three months ended June 30, 2018 and 2017. Increased same-property NOI for our consolidated properties was offset by dispositions in New York and Toronto.

Same-property NOI for our consolidated properties for the three months ended June 30, 2018 compared with the same period in the prior year increased by $21 million to $255 million. This increase was primarily the result of lease commencements in Downtown New York and Toronto and higher in-place net rents.

NOI from our unconsolidated properties, which is presented on a proportionate basis, increased by $12 million to $120 million during the three months ended June 30, 2018, compared to $108 million during the period in the prior year. This increase is attributable to the inclusion of One Liberty Plaza in New York in unconsolidated properties following the sale of a 49% interest during the fourth quarter of 2017. This increase was partially offset by the disposition of 245 Park Avenue in the third quarter of 2017.

The following table presents certain key operating metrics related to leasing activity in our Core Office segment for the six months ended June 30, 2018 and 2017:

	Total portfolio
(US$, except where noted)	Jun. 30, 2018		Jun. 30, 2017
Leasing activity (square feet in thousands)
New leases	1,519		2,041
Renewal leases	767		1,875
Total leasing activity	2,286		3,916
Average term (in years)	8.3		8.0
Year one leasing net rents (per square foot)(1)	$	34.45	$	34.53
Average leasing net rents (per square foot)(1)	37.77		37.76
Expiring net rents (per square foot)(1)	33.60		28.81
Estimated market net rents for similar space (per square foot)(1)	38.55		39.40
Tenant improvement and leasing costs (per square foot)	61.16		79.86

⁽¹⁾   Presented using normalized foreign exchange rates, using the June 30, 2018 exchange rate.

For the six months ended June 30, 2018, we leased approximately 2.3 million square feet at average in-place net rents of $37.77 per square foot. Approximately 66% of our leasing activity represented new leases. Our overall Core Office portfolio’s in-place net rents are currently 9% 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, 2018, tenant improvements and leasing costs related to leasing activity were $61.16 per square foot, compared to $79.86 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 fair value gains (losses) from consolidated and unconsolidated investments in our Core Office segment for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,					Six months ended Jun. 30,
(US$ Millions)	2018			2017		2018		2017
Consolidated investments	$	(48	)	$	14	$	29	$	(245	)
Unconsolidated investments(1)	3			9		188		38
Total fair value (losses) gains, net	$	(45	)	$	23	$	217	$	(207	)

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

We recorded fair value losses, net of $45 million in the three months ended June 30, 2018 as compared to fair value gains, net of $23 million in the same period in the prior year. These losses were primarily related to properties in Downtown New York as a result of recent market transactions and changes to valuation metrics.

For the six months ended June 30, 2018, we recorded fair value gains, net of $217 million as compared to $207 million of losses in the same period in the prior year. The gain was driven by a change in the tax status of Canary Wharf and the fair value gains realized on dispositions as mentioned above, as well as the positive impact of foreign currency translation, partially offset by losses on our Downtown New York properties. The prior year included fair value losses on our New York office portfolios, partially offset by fair value gains in our Sydney and Toronto office portfolios.

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The key valuation metrics for commercial properties in our Core Office segment on a weighted-average basis are as follows:

	Jun. 30, 2018					Dec. 31, 2017
	Discount rate		Terminal capitalization rate		Investment horizon	Discount rate		Terminal capitalization rate		Investment horizon
Consolidated properties
United States	7.0	%	5.8	%	12	7.0	%	5.8	%	13
Canada	6.0	%	5.6	%	10	6.1	%	5.5	%	10
Australia	6.9	%	6.1	%	10	7.0	%	6.1	%	10
Brazil	9.8	%	7.6	%	7	9.7	%	7.6	%	7
Unconsolidated properties
United States	6.5	%	5.4	%	11	6.5	%	5.3	%	11
Australia	6.9	%	5.9	%	10	7.0	%	5.8	%	10
Europe(1)	4.8	%	4.9	%	10	4.8	%	4.8	%	10

⁽¹⁾  Certain properties in Europe accounted for 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 horizon 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 Core Office segment as at June 30, 2018 and December 31, 2017:

(US$ Millions)	Jun. 30, 2018		Dec. 31, 2017
Investment properties
Commercial properties	$	20,928	$	21,671
Commercial developments	2,235		1,598
Equity accounted investments	8,158		8,235
Participating loan interests	521		517
Accounts receivable and other	951		766
Cash and cash equivalents	420		360
Assets held for sale	198		648
Total assets	$	33,411	$	33,795
Debt obligations	12,473		13,124
Capital securities	907		813
Accounts payable and other liabilities	1,311		1,404
Deferred tax liability	1,166		1,162
Liabilities associated with assets held for sale	74		288
Non-controlling interests of others in operating subsidiaries and properties	3,083		3,091
Equity attributable to Unitholders	$	14,397	$	13,913

Equity attributable to Unitholders increased by $484 million to $14,397 million at June 30, 2018 from $13,913 million at December 31, 2017. The increase was primarily a result of income earned in the current period.

Commercial properties totaled $20,928 million at June 30, 2018, compared to $21,671 million at December 31, 2017. The decrease was driven by dispositions of 50% of our interest in Bay Adelaide Centre East and West Towers and our 51% interest in 1801 California Street, and the negative impact of foreign currency translation.

Commercial developments increased by $637 million from December 31, 2017 to June 30, 2018. The increase was primarily due to acquisition activity, incremental capital spend on our active developments, and a gain recognized at 100 Bishopsgate in London as the development is nearing completion.

18

The following table summarizes the scope and progress of active developments in our Core Office segment as of June 30, 2018:

	Total square feet under construction (in 000’s)	Proportionate  square feet under construction (in 000’s)	Expected date of accounting stabilization			Cost				Loan
(Millions, except square feet in thousands)				Percent pre-leased		Total(1)		To-date		Total		Drawn
Office:
100 Bishopsgate, London	938	938	Q2 2020	67	%	£	875	£	688	£	515	£	323
655 New York Avenue, Washington, D.C.(2)	766	383	Q3 2020	70	%	$	285	$	200	$	200	$	102
One Manhattan West, Midtown New York(2)	2,117	1,186	Q3 2020	84	%	$	1,063	$	590	$	698	$	175
1 Bank Street, London(2)	715	358	Q4 2020	40	%	£	257	£	171	£	225	£	68
ICD Brookfield Place, Dubai (2)	1,104	552	Q1 2021	6	%	AED	1,256	AED	794	AED	775	AED	288
New District - Office, London(2)	423	211	Q2 2021	33	%	£	125	£	9	£	—	£	—
Multifamily:
Principal Place - Residential, London(2)(3)	303	152	Q1 2019	n/a		£	190	£	141	£	122	£	78
Camarillo, California(2)	413	409	Q2 2019	n/a		$	127	$	117	$	82	$	60
New District - 10 Park Drive, London(2)(3)	269	135	Q4 2019	n/a		£	118	£	62	£	98	£	34
Studio Plaza, Maryland(2)	343	296	Q1 2020	n/a		$	106	$	75	$	69	$	23
Greenpoint Landing Building G, New York(2)	250	238	Q4 2019	n/a		$	273	$	196	$	162	$	73
Southbank Place(2)(3)	669	167	Q4 2019	n/a		£	224	£	129	£	115	£	50
New District - 8 Water Street & 2 George Street, London(2)	371	186	Q4 2020	n/a		£	151	£	83	£	117	£	44
Newfoundland, London(2)	545	273	Q1 2021	n/a		£	249	£	161	£	154	£	42
Greenpoint Landing Building F, New York(2)	310	295	Q2 2021	n/a		$	358	$	124	$	—	$	—
New District-One Park Drive, London(2)(3)	430	215	Q2 2021	n/a		£	221	£	80	£	119	£	—
Total	9,966	5,994

⁽¹⁾  Net of NOI earned during stabilization.

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

⁽³⁾ Represents condominium/market sale developments.

The following table presents changes in our partnership’s equity accounted investments in the Core Office segment from December 31, 2017 to June 30, 2018:

(US$ Millions)	Jun. 30, 2018
Equity accounted investments, beginning of period	$	8,235
Additions	194
Disposals and return of capital distributions	(460		)
Share of net income, including fair value gains	311
Distributions received	(25		)
Foreign currency translation	(126		)
Other	29
Equity accounted investments, end of period	$	8,158

Equity accounted investments decreased by $77 million since December 31, 2017 to $8,158 million at June 30, 2018. The decrease was primarily driven by distributions received and the negative impact of foreign currency translation, partially offset by our share of net income during the period.

Debt obligations decreased from $13,124 million at December 31, 2017 to $12,473 million at June 30, 2018. This decrease is the result of repayment of debt for the dispositions in Toronto and Denver. This decrease is partially offset by refinancing activity of property-level debt related to office properties and drawdowns on existing facilities to fund capital expenditures on development properties.

19

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

(US$ Millions)	Shares outstanding	Cumulative dividend rate		Jun. 30, 2018		Dec. 31, 2017
Brookfield Office Properties Inc. (“BPO”) Class B Preferred Shares:
Series 1(1)	3,600,000	70% of bank prime		—		—
Series 2(1)	3,000,000	70% of bank prime		—		—
BGRESOI Preferred Shares	62,244	4.00	%	62		—
Capital Securities – Fund Subsidiaries				845		813
Total capital securities				$	907	$	813

⁽¹⁾  BPO Class B Preferred Shares, Series 1 and 2 capital securities are owned by Brookfield Asset Management. BPO has an offsetting loan receivable against these securities earning interest at 95% of bank prime.

We had $845 million of capital securities – fund subsidiaries outstanding at June 30, 2018 as compared to $813 million at December 31, 2017. Capital securities – fund subsidiaries includes $803 million (December 31, 2017 - $775 million) of equity interests in Brookfield DTLA Holdings LLC (“DTLA”) held by co-investors in the fund, which have been classified as a liability, rather than as non-controlling interest, as holders of these interests can cause DTLA to redeem their interests in the fund for cash equivalent to the fair value of the interests on October 15, 2023, and on every fifth anniversary thereafter. In addition, capital securities – fund subsidiaries also includes $42 million at June 30, 2018 (December 31, 2017 - $38 million) which represents the equity interests held by the partnership’s co-investor in the Brookfield D.C. Office Partners LLC ("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.

Reconciliation of Non-IFRS Measures – Core Office

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

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Commercial property revenue	$	480		$	509		$	980		$	1,012
Hospitality revenue(1)	4			—			9			—
Direct commercial property expense	(214		)	(242		)	(439		)	(471		)
Direct hospitality expense(1)	(3		)	—			(7		)	—
Total NOI	$	267		$	267		$	543		$	541

⁽¹⁾  Hospitality revenue and direct hospitality expense with our Core Office segment primarily consists of revenue and expenses incurred at a hotel adjacent to the Allen Center in Houston.

The following table reconciles Core Office NOI to net income for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Same-property NOI	$	255		$	234		$	516		$	480
Currency variance	—			(2		)	—			(5		)
NOI related to acquisitions and dispositions	12			35			27			66
Total NOI	267			267			543			541
Investment and other revenue	35			21			62			43
Interest expense	(150		)	(159		)	(307		)	(320		)
Depreciation and amortization on non-real estate assets	(1		)	(4		)	(4		)	(7		)
General and administrative expense	(58		)	(42		)	(99		)	(84		)
Fair value gains (losses), net	(48		)	14			29			(245		)
Share of net earnings from equity accounted investments	68			111			322			230
Income before taxes	113			208			546			158
Income tax (expense) benefit	(49		)	(19		)	(156		)	(110		)
Net income	64			189			390			48
Net income attributable to non-controlling interests	27			40			95			89
Net income attributable to Unitholders	$	37		$	149		$	295		$	(41	)

20

The following table reconciles Core Office net income to FFO for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Net income	$	64		$	189		$	390		$	48
Add (deduct):
Fair value gains, net	48			(14		)	(29		)	245
Share of equity accounted fair value losses (gains), net	(3		)	(9		)	(188		)	(38		)
Depreciation and amortization of real estate assets	1			0			1			—
Income tax expense (benefit)	49			19			156			110
Non-controlling interests in above items	(32		)	(37		)	(70		)	(70		)
FFO	$	127		$	148		$	260		$	295

The following table reconciles Core Office share of net earnings from equity accounted investments for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Unconsolidated properties NOI	$	120		$	108		$	239		$	219
Unconsolidated properties fair value gains, net	3			9			188			38
Other expenses	(55		)	(6		)	(105		)	(27		)
Share of net earnings from equity accounted investments	$	68		$	111		$	322		$	230

Core Retail

Our Core Retail segment consists of 125 regional malls and urban retail properties containing over122 million square feet in the United States through our 34% interest in GGP. Our investment in GGP is accounted for under the equity method.

During the fourth quarter of 2017, we exercised all of our outstanding warrants of GGP. Of these warrants, 16 million were exercised on a cashless basis and the remaining 43 million warrants on a full share settlement basis for approximately $462 million of cash. The exercise resulted in our acquisition of an additional 68 million common shares of GGP, increasing our ownership from 29% to 34%.

During the first quarter of 2018, we entered into a definitive agreement with GGP for our partnership to acquire all of the outstanding shares of common stock of GGP other than those shares currently held by us and our affiliates. See Note 30, Obligations Guarantees, Contingencies and Other in the financial statements for additional information.

The following table presents FFO and net income attributable to Unitholders in our Core Retail segment for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
FFO	$	117	$	119	$	229	$	218
Net income attributable to Unitholders	187		53		29		47

FFO earned in our Core Retail segment for the three months ended June 30, 2018 was $117 million compared to $119 million for the same period in the prior year. The decrease is driven by one-time gains recognized in the prior period on both the sale of develop-for-sale assets and a gain on extinguishment of debt. These decreases were offset by higher FFO in the current period due to an increase in our ownership of GGP from 29% to 34% as a result of the exercise of warrants.

For the six months ended June 30, 2018, FFO earned in our Core Retail segment was $229 million compared to $218 million for the same period in the prior year. FFO increased primarily due to an increase in our ownership of GGP from the exercise of warrants.

Net income attributable to Unitholders increased by $134 million to $187 million for the three months ended June 30, 2018 as compared to $53 million during the same period in the prior year. The increase in net income attributable to Unitholders is primarily attributable to valuation gains as a result of updated valuation models compared to fair value losses on lower earning assets in the prior year.

Net income attributable to Unitholders decreased by $18 million to $29 million for the six months ended June 30, 2018 as compared to $47 million during the same period in the prior year. The decrease in net income attributable to Unitholders is due to valuation losses on our Core Retail portfolio due to recent market activity in the first quarter of 2018.

21

The following table presents key operating metrics in our Core Retail portfolio as at and for the three months ended June 30, 2018 and 2017:

	Unconsolidated
(US$ Millions, except where noted)	Jun. 30, 2018			Jun. 30, 2017
NOI:
Total portfolio(1)	$	195		$	161
Same-property(1)	194			187
Number of malls and urban retail properties	125			126
Leasable square feet (in thousands)	122,214			123,215
Occupancy(2)	94.2		%	94.6		%
In-place net rents (per square foot)(2)	61.92			62.66
NOI Weighted Sales (per square foot)(2)	739			709

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

⁽²⁾   Presented on a same-property basis.

NOI, which is presented on a proportionate basis, increased to $195 million for the three months ended June 30, 2018, due to our increased ownership in GGP. On a same-property basis, NOI on unconsolidated properties increased by $7 million.

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 for the trailing 12 months 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$, except where noted)	Jun. 30, 2018			Jun. 30, 2017
Number of leases	1,266			1,524
Leasing activity (square feet in thousands)	4,086			4,731
Average term in years	6.7			6.9
Initial rent per square foot(1)	$	76.01		$	62.51
Expiring rent per square foot(2)	67.69			56.84
Initial rent spread per square foot	8.32			5.67
% change	12.3		%	10.0		%
Tenant allowances and leasing costs	97			91

⁽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.

Through June 30, 2018, we leased approximately 4.1 million square feet at initial rents approximately 12.3% higher than expiring net rents on a suite-to-suite basis.

Our Core Retail portfolio occupancy rate at June 30, 2018 was 94.2%, down0.4% from the same period of the prior year. In our Core 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 decreased to $61.92 at June 30, 2018 from $62.66 at June 30, 2017.

The following table presents our fair value gains (losses), net from our investment in GGP for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,					Six months ended Jun. 30,
(US$ Millions)	2018		2017			2018			2017
Fair value (losses) gains, net from GGP warrants	$	—	$	39		$	—		$	(102	)
Fair value (losses) gains, net from GGP(1)	70		(105		)	(200		)	(69		)
Total fair value (losses) gains	$	70	$	(66	)	$	(200	)	$	(171	)

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

We recorded total fair value gains, net of $70 million and losses of $66 million in our Core Retail segment for the three months ended June 30, 2018 and 2017, respectively. The increase is driven by an increase in ownership coupled with fair value gains in our Core Retail sector.

We recorded total fair value losses, net of $200 million and losses of $171 million in our Core Retail segment for the six months ended June 30, 2018 and 2017, respectively. The decrease is primarily due to valuation losses on our Core Retail portfolio due to recent market activity. The prior year losses were primarily attributable to depreciation of the GGP warrants as a result of a decrease in the market price of the underlying shares.

22

The key valuation metrics of these properties in our Core Retail segment on a weighted-average basis are presented in the following table. The valuations are most sensitive to changes in the discount rate, terminal capitalization rate, and timing or variability of cash flows.

	Jun. 30, 2018					Dec. 31, 2017
	Discount rate		Terminal capitalization rate		Investment horizon	Discount rate		Terminal capitalization rate		Investment horizon
Unconsolidated properties
United States	7.0	%	5.6	%	10	7.0	%	5.6	%	10

Equity attributable to Unitholders in the Core Retail segment decreased by $(121) million at June 30, 2018 from December 31, 2017 due to a decrease in our equity accounted investments balance.

The following table presents an overview of the financial position of our Core Retail segment as at June 30, 2018 and December 31, 2017:

(US$ Millions)	Jun. 30, 2018		Dec. 31, 2017
Equity accounted investments	$	8,723	$	8,844
Total assets	$	8,723	$	8,844
Total liabilities	—		—
Equity attributable to Unitholders	$	8,723	$	8,844

Equity accounted investments decreased by $121 million driven by dividends received from GGP, partially offset by positive net income during the current period.

The following table presents a roll-forward of our partnership’s equity accounted investments from December 31, 2017 to June 30, 2018:

(US$ Millions)	Jun. 30, 2018
Equity accounted investments, beginning of period	$	8,844
Share of net income, including fair value (losses)	29
Distributions received	(142		)
Foreign currency translation	—
Other	(8		)
Equity accounted investments, end of period	$	8,723

Reconciliation of Non-IFRS Measures – Core Retail

The following table reconciles Core Retail net income to net income attributable to Unitholders for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
Net income	$	187	$	53	$	29	$	47
Net income attributable to non-controlling interests	—		—		—		—
Net income attributable to Unitholders	$	187	$	53	$	29	$	47

23

The following table reconciles Core Retail net income to FFO for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018		2017
Net income	$	187		$	53		$	29	$	47
Add (deduct):
Share of equity accounted fair value (gains), net	(70		)	105			200		69
Fair value losses (gains) losses, net	—			(39		)	—		102
FFO	$	117		$	119		$	229	$	218

The following table reconciles Core Retail share of net earnings from equity accounted investment for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Unconsolidated properties NOI	$	195		$	161		$	384		$	325
Unconsolidated properties fair value (losses) gains, net and income tax expense	70			(105		)	(200		)	(69		)
Other expenses	(78		)	(42		)	(155		)	(107		)
Share of net earnings from equity accounted investments	$	187		$	14		$	29		$	149

Opportunistic

Our Opportunistic segment is comprised of the following:

• 138 office properties comprising approximately40 million square feet of office space in the United States, United Kingdom, Brazil and Asia;

• Approximately29 million square feet of retail space across 45 properties across the United States and in select Brazilian markets;

• Over34 million square feet of industrial space across 114 industrial properties, primarily consisting of modern logistics assets in North America;

• Approximately25,700 multifamily units across 87 properties throughout the United States;

• 156 hospitality assets with over27,500 rooms in North America, Europe and Australia;

• 326 properties that are leased to automotive dealerships across North America on a triple net lease basis;

• 202 self-storage facilities comprising of approximately16 million square feet throughout the United States;

• 45 student housing properties with approximately16,600 beds in the United Kingdom;

• 136 manufactured housing communities with approximately33,200 sites across the United States; and

• Two mixed-use investments with approximately6 million square feet of mixed-use space in South Korea and Germany.

The following table presents NOI, FFO and net income attributable to Unitholders in our Opportunistic segment for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
NOI	$	623	$	524	$	1,185	$	987
FFO	88		80		192		149
Net income attributable to Unitholders	440		186		606		369

Since the prior year, we have made significant investments in our Opportunistic segment. These investments are the primary driver of the increased earnings for the periods presented. These investments include the following:

• Acquired a hotel property in Florida in the second quarter of 2018;

• Acquired a portfolio of mixed-use hospitality properties in Germany in the second quarter of 2018;

• Acquired a Class-A office park in Mumbai in the second quarter of 2018;

• Acquired an office building in downtown Chicago in the second quarter of 2018;

• Acquired a portfolio of 15 student housing properties in the first quarter of 2018;

• Acquired a portfolio of 105 extended-stay hotels across the U.S. in the first quarter of 2018;

• Acquired a United Kingdom based owner and operator of serviced apartments in the first quarter of 2018;

• Acquired a hotel property in Toronto in the fourth quarter of 2017;

• Acquired two office buildings in California in the fourth quarter of 2017;

• Acquired a portfolio of 14 office assets in India in the fourth quarter of 2017; and

• Acquired the Houston Center, a 4.2 million square feet mixed-use complex in the fourth quarter of 2017.

24

Contributing to the increase in NOI for the three and six months ended June 30, 2018 was NOI from the acquisitions noted above and the positive impact of foreign currency translation. These acquisitions contributed incremental NOI of $91 million and $175 million for the three and six months ended June 30, 2018, respectively. These increases were partially offset by the sale of an industrial portfolio in Europe in the fourth quarter of 2017.

FFO increased in the current period compared to the three months ended June 30, 2017 as increases in NOI were offset by increased interest expense and a reduction in investment and other income as the prior period included income earned on developed-for-sale assets.

FFO increased by $43 million for the six months ended June 30, 2018 primarily driven by NOI earned from the acquisitions noted above and the impact of foreign exchange partially offset by higher interest expense and general and administrative expenses relating to the acquisitions noted above.

Net income attributable to Unitholders increased for the three and six months ended June 30, 2018, driven by incremental income relating to the acquisitions as well as fair value gains, particularly related to our industrial portfolio in the U.S., our opportunistic office assets in India, and our manufactured housing assets in the U.S, a gain on extinguishment of debt associated with the sale of the Hard Rock Hotel and Casino and the positive impact of foreign exchange. These increases were partially offset by higher non-controlling interest ownership associated with the acquisitions of new investments through Brookfield Asset Management-sponsored real estate funds, as noted above, as well as incremental interest expense and general and administrative expenses associated with the acquisitions.

The following table presents key operating metrics for our Opportunistic portfolio as at June 30, 2018 and 2017:

	Equity attributable to Unitholders				Jun. 30, 2018
(US$ Millions, except where noted)	Jun. 30, 2018		Dec. 31, 2017		Number of properties	Total area (sq. ft. in thousands)	Units of measure	Occupancy %
Opportunistic Office	$	1,056	$	1,080	138	39,574	Sq. ft.	82.9	%
Opportunistic Retail	1,208		1,285		45	28,603	Sq. ft.	88.0	%
Industrial	446		358		114	34,163	Sq. ft.	92.6	%
Multifamily	849		745		87	25,692	Units	95.1	%
Hospitality	832		573		156	27,532	Rooms	n/a
Triple Net Lease	327		321		326	16,586	Sq. ft.	99.5	%
Self-storage	214		187		202	15,956	Sq. ft.	90.6	%
Student Housing	271		172		45	16,582	Beds	96.6	%
Manufactured Housing	222		191		136	33,169	Sites	86.2	%
Mixed-Use	228		203		7	5,643	Sq. ft.	75.4	%
Finance Funds	172		123		n/a	n/a	n/a	n/a
Total	$	5,825	$	5,238

The following table presents the contributions to fair value gains, net from consolidated and unconsolidated investments in our Opportunistic segment:

	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
Consolidated investments	$	819	$	419	$	1,159	$	751
Unconsolidated investments(1)	11		41		97		97
Total fair value gains, net	$	830	$	460	$	1,256	$	848

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

25

The key valuation metrics of our Opportunistic properties on a weighted-average basis are presented in the following table. The valuations are most sensitive to changes in the discount and terminal capitalization rate and timing or variability of cash flows.

	Jun. 30, 2018					Dec. 31, 2017
	Discount rate		Terminal capitalization rate		Investment horizon	Discount rate		Terminal capitalization rate		Investment horizon
Consolidated properties
Opportunistic Office(1)	10.3	%	7.5	%	6	10.2	%	7.5	%	7
Opportunistic Retail	8.9	%	8.0	%	10	9.0	%	8.0	%	10
Industrial	6.6	%	5.7	%	10	6.8	%	6.2	%	10
Mixed-Use(1)	8.4	%	5.4	%	10	8.4	%	5.3	%	10
Multifamily(2)	4.8	%	n/a		n/a	4.8	%	n/a		n/a
Triple Net Lease(2)	6.5	%	n/a		n/a	6.4	%	n/a		n/a
Self-storage(2)	5.8	%	n/a		n/a	5.8	%	n/a		n/a
Student Housing(2)	5.8	%	n/a		n/a	5.8	%	n/a		n/a
Manufactured Housing(2)	5.4	%	n/a		n/a	5.8	%	n/a		n/a
Unconsolidated properties
Opportunistic Office	6.6	%	5.6	%	10	6.6	%	5.7	%	10
Opportunistic Retail	11.3	%	7.1	%	10	11.5	%	7.2	%	11
Industrial	6.3	%	5.4	%	10	6.4	%	5.8	%	10
Multifamily(2)	5.2	%	n/a		n/a	5.1	%	n/a		n/a

⁽¹⁾ During the second quarter of 2018, the valuation metrics for International Finance Center Seoul (“IFC”) are being reported under the mixed-use sector. The valuation metrics for opportunistic office have been updated for both periods presented.

⁽²⁾ The valuation method used to value multifamily, triple net lease, self-storage, student housing, and manufactured housing 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 Opportunistic segment:

(US$ Millions)	Jun. 30, 2018		Dec. 31, 2017
Investment properties	$	29,882	$	28,088
Property, plant and equipment	6,663		5,358
Equity accounted investments	2,581		2,612
Accounts receivable and other	3,832		3,497
Cash and cash equivalents	844		962
Assets held for sale	1,349		785
Total assets	$	45,151	$	41,302
Debt obligations	23,987		21,970
Capital securities	431		431
Accounts payable and other liabilities	2,637		2,491
Liabilities associated with assets held for sale	850		1,028
Non-controlling interests of others in operating subsidiaries and properties	11,421		10,144
Equity attributable to Unitholders	$	5,825	$	5,238

The increase in investment properties is primarily the result of our acquisition activity, mostly in our student housing and opportunistic office portfolios. Additionally, we had valuation gains from our industrial portfolio in the U.S., our opportunistic office assets in India and our manufactured housing portfolio in the U.S.

The increase in property, plant and equipment is the result of acquisition activity during the period, including a portfolio of extended-stay hotels across the U.S, a portfolio of serviced apartments in the United Kingdom and a hotel property in Florida, capital spend and the positive impact of foreign currency translation, partially offset by depreciation expense.

Equity accounted investments decreased during the six months ended June 30, 2018 primarily due distributions of income and return of capital result during the period and the negative impact of foreign currency translation. These decreases were partially offset by net income from these investments during the period.

Assets held for sale and related liabilities as of June 30, 2018 includes a portfolio of self-storage assets, nine triple-net lease assets in the U.S., three opportunistic office assets in the U.S. and two industrial development sites, as we intend to sell controlling interests in these properties to third parties in the next 12 months.

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Debt obligations increased due to the acquisitions mentioned above.

Reconciliation of Non-IFRS Measures - Opportunistic

The following table reconciles Opportunistic NOI to net income for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Commercial property revenue	$	650		$	541		$	1,247		$	1,033
Hospitality revenue	472			430			949			804
Direct commercial property expense	(207		)	(171		)	(391		)	(311		)
Direct hospitality expense	(292		)	(276		)	(620		)	(539		)
Total NOI	623			524			1,185			987
Investment and other revenue	10			18			23			155
Interest expense	(305		)	(277		)	(588		)	(517		)
General and administrative expense	(72		)	(59		)	(149		)	(120		)
Investment and other expense	—			—			—			(122		)
Depreciation and amortization	(75		)	(65		)	(144		)	(125		)
Fair value gains, net	818			419			1,158			751
Share of net earnings from equity accounted investments	33			68			165			147
Income before taxes	1,032			628			1,650			1,156
Income tax expense	(91		)	(48		)	(108		)	(83		)
Net income	941			580			1,542			1,073
Net income attributable to non-controlling interests	501			394			936			704
Net income attributable to Unitholders	$	440		$	186		$	606		$	369

The following table reconciles Opportunistic net income to FFO for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Net income	$	941		$	580		$	1,542		$	1,073
Add (deduct):
Fair value gains, net	(818		)	(419		)	(1,158		)	(751		)
Share of equity accounted fair value (gains), net	(11		)	(41		)	(97		)	(97		)
Depreciation and amortization of real estate assets	65			58			130			115
Income tax expense	91			48			108			83
Non-controlling interests in above items	(180		)	(146		)	(333		)	(274		)
FFO	$	88		$	80		$	192		$	149

Corporate

The following table presents FFO and net income attributable to Unitholders in our corporate segment for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
FFO	$	(122	)	$	(120	)	$	(243	)	$	(233	)
Net income attributable to Unitholders	(130		)	(149		)	134			(302		)

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

FFO was a loss of $122 million (2017 - loss of $120 million) and $243 million (2017 - loss of $233 million) for the three and six months ended June 30, 2018, respectively.

Interest expense contributes to this loss and for the three months ended June 30, 2018 was $82 million (2017 - $74 million), and consists of $55 million (2017 - $37 million) of interest expense paid on capital securities and $27 million (2017 - $37 million) of interest expense on our credit facilities. For the six months ended June 30, 2018, interest expense totaled $162 million (2017 - $145 million), and consists of $109 million (2017 - $77 million) of interest expense paid on capital securities and $53 million (2017 - $68 million) of interest expense on our credit facilities.

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Another component of FFO is general and administrative expense, which, for the three months ended June 30, 2018 was $53 million (2017 - $55 million) and consists of $24 million (2017 - $27 million) of asset management fees, and $29 million (2017 - $20 million) of other corporate costs. The prior period also included $8 million of equity enhancement fees. For the six months ended June 30, 2018 general and administrative expense was $104 million (2017 - $103 million) and consists of $48 million (2017 - $52 million) of asset management fees and $56 million (2017 - $38 million) of other corporate costs. The prior period also included $13 million of equity enhancement fees.

In addition, during the three and six months ended June 30, 2018, we recorded fair value gains, net of nil and $200 million (2017 - fair value losses of $18 million and $26 million), respectively, primarily related the recognition of net operating tax losses upon consolidation of BGREOSI after converting our loan interest in the entity and becoming sole equity holder. See Note 3, Business Acquisitions and Combinations for more information.

For the three and six months ended June 30, 2018, we also recorded a income tax expense of $7 million and income tax benefit of $177 million (2017 - income tax expense of $11 million and $43 million), respectively, allocated to the corporate segment related to the decrease of deferred tax liabilities of our holding companies and their subsidiaries.

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

(US$ Millions)	Jun. 30, 2018			Dec. 31, 2017
Accounts receivable and other	$	350		$	167
Equity accounted investments	—			70
Cash and cash equivalents	336			169
Total assets	686			406
Debt obligations	2,891			1,790
Capital securities	2,931			2,921
Deferred tax liabilities	268			598
Accounts payable and other liabilities	1,583			1,203
Non-controlling interests	(576		)	(297		)
Equity attributable to Unitholders	$	(6,411	)	$	(5,809	)

The corporate balance sheet includes corporate debt and capital securities from our partnership. The increase in corporate debt obligations is due to an increase in our credit facilities to fund acquisitions in the second Brookfield Asset Management-sponsored real estate opportunity fund during the period.

The change in non-controlling interest is primarily related to non-controlling interests in the second Brookfield Asset Management-sponsored opportunity fund and repayment of certain of our funds’ subscription credit facilities during the period.

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

(US$ Millions)	Shares Outstanding	Cumulative Dividend Rate		Jun. 30, 2018		Dec. 31, 2017
Operating Partnership Class A Preferred Equity Units:
Series 1	24,000,000	6.25	%	$	556	$	551
Series 2	24,000,000	6.50	%	534		529
Series 3	24,000,000	6.75	%	520		517
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
Brookfield Property Split Corp. Senior Preferred Shares:
Class A Series 1	924,390	5.25	%	23		23
Class A Series 2	699,165	5.75	%	13		14
Class A Series 3	909,994	5.00	%	17		18
Class A Series 4	940,486	5.20	%	18		19
Total capital securities - corporate				$	2,931	$	2,921

In addition, as at June 30, 2018, we had $15 million (December 31, 2017 - $15 million) of preferred shares with a cumulative dividend rate of 5% outstanding. The preferred shares were issued by various holding entities of our partnership.

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Reconciliation of Non-IFRS Measures – Corporate

The following table reconciles Corporate net income to net income attributable to Unitholders for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Net income (loss)	$	(141	)	$	(158	)	$	113		$	(317	)
Net income attributable to non-controlling interests	(11		)	(9		)	(21		)	(15		)
Net income (loss) attributable to Unitholders	$	(130	)	$	(149	)	$	134		$	(302	)

The following table reconciles Corporate net income to FFO for the three and six months ended June 30, 2018 and 2017:

	Three months ended Jun. 30,						Six months ended Jun. 30,
(US$ Millions)	2018			2017			2018			2017
Net income (loss)	$	(141	)	$	(158	)	$	113		$	(317	)
Add (deduct):
Fair value (gains) losses, net	—			18			(200		)	26
Income tax expense	7			11			(177		)	43
Non-controlling interests in above items	12			9			21			15
FFO	$	(122	)	$	(120	)	$	(243	)	$	(233	)

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, 2018, capital totaled $80 billion (December 31, 2017 - $76 billion).

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 $4,419 million at June 30, 2018 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.

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(US$ Millions)	Jun. 30, 2018		Dec. 31, 2017
Proportionate cash retained at subsidiaries	$	1,296	$	1,290
Proportionate availability under credit facilities	1,075		1,814
Proportionate availability under construction facilities	2,048		2,777
Group-wide liquidity(1)	$	4,419	$	5,881

⁽¹⁾  This includes liquidity of investments which are not controlled and can only be obtained through distributions which the partnership does not control.

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.

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, 2018
Remainder of 2018	$	1,824
2019	4,840
2020	3,714
2021	4,998
2022	1,947
2023 and thereafter	12,405
Deferred financing costs	(253		)
Secured debt obligations	$	29,475
Loan to value	55.6		%

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 2018-2019.

Our partnership’s operating subsidiaries are subject to limited covenants in respect of their corporate debt and are in full compliance with all such covenants at June 30, 2018. The partnership’s operating subsidiaries are also in compliance with all covenants and other capital requirements related to regulatory or contractual obligations of material consequence to our partnership.

For the three and six month periods ended June 30, 2018 and 2017, the partnership made distributions to Unitholders of $222 million (2017 - $209 million) and $443 million (2017 - $416 million), respectively. This compares to cash flow from operating activities of $401 million and $779 million for each period. The partnership has a number of alternatives at its disposal to fund any difference between the cash flow from operating activities and distributions to Unitholders. The partnership is not a passive investor and typically holds positions of control or significant influence over assets in which it invests, enabling the partnership to influence distributions from those assets. The partnership will, from time to time, convert some or all of the unrealized fair value gains on investment properties to cash through asset sales, joint ventures or refinancings. The partnership may access its credit facilities in order to temporarily fund its distributions as a result of timing differences between the payments of distributions and cash receipts from its investments. Distributions made to Unitholders which exceed cash flow from operating activities in future periods may be considered to be a return of capital to Unitholders as defined in Canadian Securities Administrators’ National Policy 41-201 - Income Trusts and Indirect Offerings.

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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 South America and Asia. A prolonged downturn in the economies of these regions would result in reduced demand for space and number of prospective tenants and will 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, 2017 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 9.1% of our Core Office segment tenant base and, as at June 30, 2018, no one tenant comprises more than this.

The following list shows the largest tenants by leasable area in our Core Office portfolio and their respective credit ratings and exposure as at June 30, 2018:

Tenant	Primary location	Credit rating(1)	Exposure (%)(2)
Government and Government Agencies	Various	AAA/AA+	9.1	%
Barclays	London	BBB-	2.5	%
Morgan Stanley	NY/Toronto	A-	2.5	%
CIBC World Markets(3)	Calgary/NY/Toronto	AA	1.8	%
Suncor Energy Inc.	Calgary	BBB+	1.7	%
Cenovus	Calgary	BB	1.5	%
Bank of Montreal	Calgary/Toronto	AA	1.4	%
Deloitte	Various	Not Rated	1.3	%
Bank of America | Merrill Lynch	Various	A-	1.3	%
Amazon	NY/London	BBB+	1.2	%
Total			24.3	%

⁽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 Core Retail portfolio as at June 30, 2018. The largest ten tenants in our portfolio accounted for approximately 21.4% of minimum rents, tenant recoveries and other.

Tenant	DBA	Exposure (%)(1)
L Brands, Inc.	Victoria's Secret, Bath & Body Works, PINK, Henri Bendel	3.8	%
Foot Locker, Inc.	Footlocker, Champs Sports, Footaction USA, House of Hoops, SIX:02	2.9	%
The Gap, Inc.	Gap, Banana Republic, Old Navy, Athleta	2.5	%
LVMH	Louis Vuitton, Sephora	2.2	%
Forever 21 Retail, Inc.	Forever 21, Riley Rose	2.2	%
Signet Jewelers Limited	Zales, Gordon's, Kay, Jared	1.6	%
Ascena Retail Group	Dress Barn, Justice, Lane Bryant, Maurices, Ann Taylor, Loft	1.6	%
Abercrombie & Fitch Stores, Inc.	Abercrombie, Abercrombie & Fitch, Hollister	1.6	%
Express, Inc.	Express, Express Men	1.5	%
American Eagle Outfitters, Inc.	American Eagle, Aerie, Martin + Osa	1.5	%
Total		21.4	%

⁽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 10% of our office, retail and industrial leases mature annually up to 2021. Our office, retail and industrial portfolio has a weighted average remaining lease life of approximately 6.4 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, 2018, including our unconsolidated investments:

(Sq. ft. in thousands)	Current		2018		2019		2020		2021		2022		2023		2024		2025 and beyond		Total
Core Office	5,819		1,689		3,443		5,186		5,876		5,175		6,060		4,057		42,846		80,151
Total % expiring	7.3	%	2.1	%	4.3	%	6.5	%	7.3	%	6.5	%	7.6	%	5.1	%	53.3	%	100.0	%
Core Retail(1)	2,473		2,215		6,633		5,173		5,045		5,365		5,006		4,366		18,101		54,377
Total % expiring	4.5	%	4.1	%	12.2	%	9.5	%	9.3	%	9.9	%	9.2	%	8.0	%	33.3	%	100.0	%
Opportunistic Office	6,393		1,890		4,149		3,951		4,661		4,024		2,526		968		6,291		34,853
Total % expiring	18.3	%	5.4	%	11.9	%	11.3	%	13.4	%	11.5	%	7.2	%	2.8	%	18.2	%	100.0	%
Opportunistic Retail(1)	1,451		1,101		1,636		1,544		1,326		1,067		971		608		4,317		14,021
Total % expiring	10.3	%	7.9	%	11.7	%	11.0	%	9.5	%	7.6	%	6.9	%	4.3	%	30.8	%	100.0	%
Industrial	2,545		480		1,541		4,828		5,915		2,689		2,231		2,177		11,758		34,164
Total % expiring	7.4	%	1.4	%	4.5	%	14.1	%	17.3	%	7.9	%	6.5	%	6.4	%	34.5	%	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 Risk

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 over six years.

Insurance Risk

Our insurance may not cover some potential losses or may not be obtainable at commercially reasonable rates. 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 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 and to maintain relationships with a large number of lenders to limit exposure to any one counterparty.

Approximately 54% of our outstanding debt obligations at June 30, 2018 are floating rate debt compared to 52% at December 31, 2017. 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 $213 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 $3 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, 2018, our consolidated debt to capitalization was 49% (December 31, 2017 – 48%). 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, 2018, approximately 35% of our assets and 35% 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, Euro, Chinese Yuan, Brazilian Real, Indian Rupee and South Korean Won 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.

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Interest Rate Hedging

The following table provides our 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, 2018 and December 31, 2017:

(US$ Millions)	Hedging item	Notional		Rates	Maturity dates	Fair value
Jun. 30, 2018	Interest rate caps of US$ LIBOR debt	$	4,872	2.3% - 4.2%	Jul. 2018 - Dec. 2020	$	3
	Interest rate swaps of US$ LIBOR debt	1,694		0.7% - 2.7%	Sep. 2018 - Mar. 2022	5
	Interest rate caps of £ LIBOR debt	945		1.3% - 2.0%	Dec. 2019 - Jan. 2021	—
	Interest rate swaps of £ LIBOR debt	69		1.5%	Apr. 2020	(1		)
	Interest rate swaps of € EURIBOR debt	118		1.0% - 1.3%	Apr. 2020 - Apr. 2021	0
	Interest rate caps of C$ LIBOR debt	183		3.0%	Oct. 2020 - Oct. 2022	1
	Interest rate swaps of C$ LIBOR debt	38		3.7% - 4.3%	Nov. 2021	1
	Interest rate swaps on forecasted fixed rate debt	100		4.0%	Jun. 2019	(154		)
Dec. 31, 2017	Interest rate caps of US$ LIBOR debt	$	1,958	2.3% - 3.5%	May 2018 - Oct. 2020	$	1
	Interest rate swaps of US$ LIBOR debt	1,692		0.7% - 2.2%	Jun. 2018 - Mar. 2022	19
	Interest rate caps of £ LIBOR debt	452		1.3%	Dec. 2019	—
	Interest rate swaps of £ LIBOR debt	71		1.5%	Apr. 2020	1
	Interest rate swaps of C$ LIBOR debt	50		3.7% - 4.3%	Nov. 2021	1
	Interest rate swaps on forecasted fixed rate debt	100		4.0%	Jun. 2029	(13		)

For the three and six months ended June 30, 2018, the amount of hedge ineffectiveness recorded in earnings in connection with the our interest rate hedging activities was $17 million and $17 million (2017 - nil and $2 million), respectively.

Foreign Currency Hedging

The following table provides our outstanding derivatives that are designated as net investments of foreign subsidiaries or foreign currency cash flow hedges as of June 30, 2018 and December 31, 2017:

(US$ Millions)	Hedging item		Notional	Rates	Maturity dates	Fair value
Jun. 30, 2018	Net investment hedges	€	322	€0.78/$ - €0.84/$	Sep. 2018 - Aug. 2019	$	21
	Net investment hedges	£	3,556	£0.69/$ - £0.76/$	Jul. 2018 - Oct. 2019	110
	Net investment hedges	A$	687	A$1.27/$ - A$1.36/$	Jul. 2018 - Sep. 2019	14
	Net investment hedges	C¥	1,171	C¥6.34/$ - C¥7.01/$	Jul. 2018 - Jun. 2019	(3		)
	Net investment hedges	C$	118	C$1.31/$	Oct. 2018 - Dec. 2018	4
	Net investment hedges	₩	616,289	₩1,106.90/$ - ₩1,113.04/$	Aug. 2018 - Jan. 2019	—
	Net investment hedges	Rs	19,834	Rs67.44/$ - Rs68.37/$	Feb. 2019 - May 2019	14
	Net investment hedges	£	77	£0.88/€ - £0.92/€	Jan. 2019 - Feb. 2020	—
Dec 31, 2017	Net investment hedges	€	191	€0.83/$ - €0.92/$	Jan. 2018 - Dec. 2018	$	(7	)
	Net investment hedges	£	2,923	£0.73/$ - £0.81/$	Jan. 2018 - Jan. 2019	(237		)
	Net investment hedges	A$	768	A$1.26/$ - A$1.38/$	Jan. 2018 - Feb. 2019	(21		)
	Net investment hedges	C¥	1,165	C¥6.71/$ - C¥7.09/$	Jan. 2018 - Dec. 2018	(7		)
	Net investment hedges	C$	127	C$1.25/$ - C$1.26/$	Oct. 2018 - Dec. 2018	—
	Cash flow hedges	C$	150	C$1.27/$	Apr. 2018	1
	Net investment hedges	₩	616,289	₩1,084.95/$ - ₩1,127.75/$	Aug. 2018 - Jan. 2019	(26		)
	Cash flow hedges	Rs	771	Rs65.24/$	Mar. 2018	—

For the three and six months ended June 30, 2018 and 2017, the amount of hedge ineffectiveness recorded in earnings in connection with our foreign currency hedging activities was not significant.

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Other Derivatives

The following table presents details of our derivatives, not designated as hedges for accounting purposes, that have been entered into to manage financial risks as of June 30, 2018 and December 31, 2017:

(US$ Millions)	Derivative type	Notional		Rates		Maturity dates	Fair value
Jun. 30, 2018	Interest rate caps	$	4,222	2.8% - 4.7%		Oct. 2018 - May 2020	$	—
	Interest rate swaps on forecasted fixed rate debt	1,660		2.3% - 6.0%		Nov. 2018 - Jun. 2030	(10		)
	Interest rate swaps of US$ LIBOR debt	1,489		1.4% - 2.7%		Sep. 2018 - Nov. 2020	(1		)
	Interest rate swaptions	335		1.0	%	Nov. 2018 - Nov. 2018	(1		)
Dec. 31, 2017	Interest rate caps	$	5,351	2.5% - 5.8%		Jan. 2018 - Oct. 2020	$	1
	Interest rate swaps on forecasted fixed rate debt	1,660		1.9% - 6.0%		Jun. 2028 - Dec. 2029	(194		)
	Interest rate swaps of US$ LIBOR debt	1,050		1.4% - 1.6%		Sep. 2018 - Nov. 2020	10
	Interest rate swaptions	560		1.0	%	Jun. 2018 - Nov. 2018	—

For the three and six months ended June 30, 2018, we recognized fair value gains, net of approximately $14 million and $53 million (2017 - losses of $25 million and $27 million) related to the settlement of certain forward starting interest rate swaps that have not been designated as hedges.

RELATED PARTIES

In the normal course of operations, the partnership enters into transactions with related parties. These transactions are recognized in the consolidated financial statements. These transactions have been measured at exchange value and are recognized in the consolidated financial statements. The immediate parent of the partnership is Brookfield Property Partners Limited. The ultimate parent of the partnership is Brookfield Asset Management. Other related parties of the partnership include Brookfield Asset Management’s subsidiaries and operating entities, certain joint ventures and associates accounted for under the equity method, as well as officers of such entities and their spouses.

We have a management agreement with our service providers, wholly-owned subsidiaries of Brookfield Asset Management. Pursuant to a Master Services Agreement, we pay a base management fee (“base management fee”), to the service providers equal to 0.5% of the total capitalization of the partnership, subject to an annual minimum of $50.0 million plus annual inflation adjustments. The amount of the equity enhancement distribution is reduced by the amount by which the base management fee is greater than $50 million per annum, plus annual inflation adjustments.

The base management fee for the three and six months ended June 30, 2018 was $24 million (2017 - $27 million) and $48 million (2017 - $52 million), respectively. The equity enhancement distribution was nil for both the three and six months ended June 30, 2018 (2017 - $8 million and $13 million), respectively.

In connection with the issuance of Preferred Equity Units to QIA in the fourth quarter of 2014, 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.

The following table summarizes transactions with related parties:

(US$ Millions)	Jun. 30, 2018			Dec 31, 2017
Balances outstanding with related parties:
Participating loan interests	$	521		$	517
Net (payables)/receivables within equity accounted investments	(21		)	(49		)
Loans and notes receivable(1)	47			96
Receivables and other assets	7			11
Deposit and promissory note from Brookfield Asset Management	(1,233		)	(633		)
Property-specific debt obligations	(393		)	(415		)
Loans and notes payable and other liabilities	(161		)	(156		)
Capital securities held by Brookfield Asset Management	(1,250		)	(1,250		)
Preferred shares held by Brookfield Asset Management	(15		)	(15		)

⁽¹⁾  At June 30, 2018, includes $47 million (December 31, 2017 - $96 million) receivable from Brookfield Asset Management upon the earlier of our 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.

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	Three months ended Jun. 30,				Six months ended Jun. 30,
(US$ Millions)	2018		2017		2018		2017
Transactions with related parties:
Commercial property revenue(1)	$	5	$	5	$	10	$	10
Management fee income	1		1		3		3
Participating loan interests (including fair value gains, net)	14		32		32		44
Interest expense on debt obligations	12		8		20		18
Interest on capital securities held by Brookfield Asset Management	19		19		38		38
General and administrative expense(2)	46		51		96		100
Construction costs(3)	136		74		225		144

⁽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 the partnership’s private funds, and administrative services.

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

During the first quarter of 2018, we along with BPREP acquired a 25% and 75% interest, respectively, in 333 West 34th Street, an office building in New York for $255 million.

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ADDITIONAL INFORMATION

CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGEMENTS

ADOPTION OF ACCOUNTING STANDARDS

The partnership adopted IFRS 15 effective January 1, 2018. The partnership adopted the standard using the modified retrospective approach with no restatement of comparatives and did not record any adjustment upon adoption. See additional disclosures in Note 20, Commercial Property Revenue, Note 21, Hospitality Revenue and Note 34, Segment Information of the financial statements

The partnership adopted IFRS 9 retrospectively with no restatement of comparatives. The adoption did not result in any material adjustment to the carrying amounts of financial assets, financial liabilities or opening retained earnings.

Refer to Note 2c, Summary of Significant Accounting Policies: Adoption of Accounting Standards of the financial statements for additional information.

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, 2017 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 lease rollover in 2018 and 2019, 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 continues to be high 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.

We continue to make progress on our development pipeline, using our expertise to not only build new Class A core assets but also to reposition and redevelop existing assets in our various other sectors, particularly in retail and hospitality, where we can add value and drive higher returns.

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 endedJune 30, 2018, 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, with over $69 billion in total assets. We are leading owners, operators and investors in commercial property assets, with a diversified portfolio of premier office and retail assets, as well as multifamily, triple net lease, industrial, hospitality, self-storage, student housing and manufactured housing assets. Brookfield Property Partners is listed on the Nasdaq Stock Market and Toronto Stock Exchange. Further information is available at bpy.brookfield.com. Important information may be disseminated exclusively via the website; investors should consult the site to access this information.

Brookfield Property Partners is the flagship listed real estate company of Brookfield Asset Management, a leading global alternative asset manager with over $285 billion in assets under management.

BROOKFIELD PROPERTY PARTNERS

73 Front Street, 5^th Floor

Hamilton, HM 12

Bermuda

Tel: (441) 294-3309

bpy.brookfield.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, Senior 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.

AST TRUST COMPANY (Canada)

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@astfinancial.com

Web site:        www.astfinancial.com/ca

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, bpy.brookfield.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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