FORM 20-F/A Brookfield Property Partners L.P. - Brookfield Asset ...

(b) Common control transactionsIFRS does not include specific measurement guidance for transfers of businesses or subsidiaries between entitiesunder common control. The company has developed a policy to account for such transactions for the purposes ofpreparing the unaudited pro forma financial statements taking into consideration other guidance in the IFRSframework and pronouncements of other standard-setting bodies. Consistent with the policy applied in theBrookfield Carve-out financial statements, the company’s policy is to record assets and liabilities recognized as aresult of transfers of businesses or subsidiaries between entities under common control at the carrying value inthe transferor’s financial statements immediately prior to such transfer.4. PRO FORMA ADJUSTMENTSThis note should be read in conjunction with Note 2 to the unaudited pro forma financial statements, Basis ofPresentation. The unaudited pro forma financial statements adjust the Brookfield Carve-out financial statementsto give effect to the reorganization and the spin-off, the transactions set out below and the resulting tax effects:• Acquisition of interests in Brookfield’s Australian assets through participating loan notes• Issuance of $750 million of Capital Securities to Brookfield as partial consideration for the Businessacquired by the company• Issuance of $15 million of Preferred Shares by certain holding entities• Issuance of partnership units by the company as partial consideration for the business acquired by thecompany• Reorganization of the legal structure through which the Business is held, including the issuance ofcertain inter-company debt between the property partnership and the Holding Entities, resulting inchanges in the effective tax rate and the tax basis of certain investments• Annual Management Fees of $50 million paid by the company to Brookfield pursuant to a MasterServices Agreement• Exclusion of Brookfield’s 2% investment in HHCIntegration costs, if any, that may be incurred upon consummation of the acquisition and other transactions havebeen excluded from the unaudited pro forma statements of income. As the principal operating entities comprisingthe Business generally maintain their own independent management and infrastructure which are expected to beretained following the reorganization and spin-off, the integration costs are not expected to be significant.(a) Acquisition of interests in Brookfield’s Australian assets through participating loan interestsThe Holding Entities will hold economic interests in Brookfield’s commercial and other real property inAustralia (the “referenced properties”) in the form of participating loan agreements with Brookfield, which arehybrid instruments comprising an interest bearing note, a total return swap and an option to acquire direct orindirect legal ownership to the referenced properties. The initial principal amount of the participating loaninterests will be the fair value of Brookfield’s net interest in the referenced properties. The participating loaninterests will provide the Holding Entities with an interest in the results of operations and changes in fair value ofthe referenced properties. At the date of the spin-off, Brookfield will continue to hold legal title to the referencedproperties through a wholly-owned subsidiary that is not part of the Business in order to preserve existingfinancing arrangements. These participating loan notes will be convertible by the Holding Entities, at any time,into direct ownership interests in the referenced properties or the entities that have direct ownership of suchproperties (the “Australian property subsidiaries”). Certain of these participating loan notes will provide theHolding Entities with control over the Australian property subsidiaries and, accordingly, the assets, liabilities andresults of those property subsidiaries will be consolidated by the Holding Entities. Where the participating loaninterest does not provide the Holding Entities with control over an Australian property subsidiary, it will beaccounted for as a loan receivable with related interest income reflecting the operating cash flows of theunderlying property. Included in the participating loan notes that are accounted for as loans receivable is anembedded derivative representing the Holding Entities’ right to participate in the changes in value of thereferenced properties, such embedded derivative will be measured at fair value with changes in value reflected inearnings in the period when they occur.PF-8