ggp-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

COMMISSION FILE NUMBER 1-34948

Brookfield Property REIT Inc.

(Exact name of registrant as specified in its charter)


Delaware			27-2963337
(State or other jurisdiction of incorporating or organization)			(I.R.S. Employer Identification Number)

250 Vesey Street, 15th Floor	New York	NY	10281-1023
(Address of principal executive offices)			(Zip Code)

(212) 417-7000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Stock, par value $.01 per share	BPYU	Nasdaq Global Select Market
6.375% Series A Cumulative Perpetual Redeemable Preferred Stock, par value $0.01 per share	BPYUP	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


☐	Large accelerated filer	☒	Accelerated filer
☐	Non-accelerated filer	☐	Smaller reporting company
		☐	Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

The number of shares of Class A Stock, $.01 par value, outstanding on May 5, 2021 was 38,346,260.

Brookfield Property REIT Inc.

INDEX


			PAGE NUMBER

Part I	FINANCIAL INFORMATION

	Item 1: Financial Statements

		Consolidated Balance Sheets as of March 3 1 , 202 1 and December 31, 20 20 (Unaudited)	3

		Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 3 1 , 202 1 and 20 20 (Unaudited)	4

		Consolidated Statements of Equity for the three months ended March 3 1 , 202 1 and 20 20 (Unaudited)	6

		Consolidated Statements of Cash Flows for the three months ended March 3 1 , 202 1 and 20 20 (Unaudited)	8

		Notes to Consolidated Financial Statements (Unaudited)	10

		Note 1: Organization	10

		Note 2: Summary of Significant Accounting Policies	11

		Note 3: Acquisitions, Sales and Joint Venture Activity	18

		Note 4: Fair Value	19

		Note 5: Unconsolidated Real Estate Affiliates	21

		Note 6: Mortgages, Notes and Loans Payable	24

		Note 7: Leases	27

		Note 8: Income Taxes	30

		Note 9: Equity and Redeemable Noncontrolling Interests	30

		Note 10: Earnings Per Share	36

		Note 11: Stock-Based Compensation Plans	37

		Note 12: Accounts Receivable, net	38

		Note 13: Notes Receivable	39

		Note 14: Prepaid Expenses and Other Assets	39

		Note 15: Accounts Payable and Accrued Expenses	40

		Note 16: Litigation	40

		Note 17: Commitments and Contingencies	41

		Note 18: Subsequent Events	41

	Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations		42

		Liquidity and Capital Resources	44

	Item 3: Quantitative and Qualitative Disclosures about Market Risk		53

	Item 4: Controls and Procedures		54

Part II	OTHER INFORMATION

	Item 1: Legal Proceedings		55

	Item 1A: Risk Factors		55

	Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		56

	Item 3: Defaults Upon Senior Securities		56

	Item 4: Mine Safety Disclosures		56

	Item 5: Other Information		56

	Item 6: Exhibits		57

SIGNATURES			58

PART I FINANCIAL INFORMATION

ITEM I FINANCIAL STATEMENTS

Brookfield Property REIT Inc.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	March 31, 2021		December 31, 2020
	(Dollars in thousands, except share and per share amounts)
Assets:
Investment in real estate:
Land	$	3,601,549	$	3,620,513
Buildings and equipment	13,778,850		13,968,906
Less accumulated depreciation	(2,978,657)		(2,967,879)
Construction in progress	270,992		256,510
Net property and equipment	14,672,734		14,878,050
Investment in Unconsolidated Real Estate Affiliates	4,256,378		4,342,995
Net investment in real estate	18,929,112		19,221,045
Cash and cash equivalents	189,183		204,541
Accounts receivable, net	406,241		524,982
Notes receivable	38,244		45,553
Deferred expenses, net	156,751		158,633
Prepaid expenses and other assets (see Notes 7 and 14)	866,199		827,746
Deferred tax assets, net	652,053		655,060
Assets held for disposition	—		242,404
Total assets	$	21,237,783	$	21,879,964
Liabilities:
Mortgages, notes and loans payable (including related party debt - see Note 6)	$	16,049,687	$	16,114,586
Investment in Unconsolidated Real Estate Affiliates	153,247		151,095
Accounts payable and accrued expenses (see Notes 7 and 15)	935,544		993,617
Dividend payable	68		903


Junior subordinated notes	206,200		206,200
Liabilities held for disposition	—		263,141
Total liabilities	17,344,746		17,729,542
Redeemable Class A equity interests	823,477		839,143
Redeemable noncontrolling interests	60,453		60,826




Total redeemable interests	883,930		899,969

Equity:
Class B Stock & Series B Preferred Stock (collectively, "Combined Class B Stock"): 5,907,500,000 shares authorized, $0.01 par value, 527,421,814 and 526,042,279 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (see Note 9)	5,275		5,261
Class C Stock: 1,000,000,000 shares authorized, $0.01 par value, 640,051,301 issued and outstanding as of March 31, 2021 and December 31, 2020	6,401		6,401

Preferred Stock: 500,000,000 shares authorized, $0.01 par value, 10,000,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020	242,042		242,042
Additional paid-in capital	7,392,558		7,363,064
Accumulated deficit	(5,918,536)		(5,674,064)
Accumulated other comprehensive loss	(98,374)		(99,418)
Total stockholders' equity	1,629,366		1,843,286
Noncontrolling interests in Consolidated Real Estate Affiliates	12,577		13,444
Noncontrolling interests of the Operating Partnership	1,367,164		1,393,723
Total equity	3,009,107		3,250,453
Total liabilities, redeemable interests and equity	$	21,237,783	$	21,879,964

The accompanying notes are an integral part of these consolidated financial statements.

Brookfield Property REIT Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands, except per share amounts)
Revenues:
Rental revenues, net	$	326,923	$	351,829
Management fees and other corporate revenues	31,501		35,338
Other	9,974		16,463
Total revenues	368,398		403,630
Operating Expenses:
Real estate taxes	51,093		47,807
Property maintenance costs	9,803		9,146
Marketing	808		764
Other property operating costs	48,877		49,821

Property management and other costs	49,283		60,975
General and administrative	5,237		4,890

Provision for note receivable loss	7,911		—
Provision for impairment	106,991		—
Depreciation and amortization	151,537		157,346
Total operating expenses	431,540		330,749

Interest and dividend income	1,374		3,096
Interest expense	(169,194)		(178,802)


Gain on extinguishment of debt	13,123		—
Gain from changes in control of investment properties and other, net	1,824		—
Loss before income taxes, equity in income (loss) of Unconsolidated Real Estate Affiliates and related gain on investment, and allocation to noncontrolling interests	(216,015)		(102,825)
Provision for income taxes	(2,943)		(5,428)
Equity in loss of Unconsolidated Real Estate Affiliates	(34,453)		(4,843)
Unconsolidated Real Estate Affiliates - (loss) gain on investment, net	(2,140)		12,647


Net loss	(255,551)		(100,449)
Allocation to noncontrolling interests	26,430		18,622
Net loss attributable to Brookfield Property REIT Inc.	$	(229,121)	$	(81,827)


Class A Stock Earnings Per Share (See Note 10):
Basic & Diluted Earnings Per Share	$	0.3325	$	0.3325

Brookfield Property REIT Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Continued)

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands, except per share amounts)
Comprehensive Loss, Net:
Net loss	$	(255,551)	$	(100,449)
Other comprehensive income (loss)
Foreign currency translation	1,102		(14,381)

Net unrealized gain (losses) on other financial instruments	52		(1)
Other comprehensive income (loss)	1,154		(14,382)
Comprehensive loss	(254,397)		(114,831)
Comprehensive loss allocated to noncontrolling interests	26,320		18,622
Comprehensive loss attributable to Brookfield Property REIT Inc.	$	(228,077)	$	(96,209)

The accompanying notes are an integral part of these consolidated financial statements.

Brookfield Property REIT Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


	Combined Class B Stock		Class C Stock		Preferred Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Noncontrolling Interests in Consolidated Real Estate Affiliates and Operating Partnership		Total Equity		Redeemable Class A Stock
	(Dollars in thousands, except for per share and share amounts)
Balance at January 1, 2020	$	4,937	$	6,401	$	242,042	$	6,670,844	$	(5,076,455)	$	(85,402)	$	1,532,740	$	3,295,107	$	1,354,234

Net income (loss)									(102,334)				(19,532)		(121,866)		20,507

Acquisition/disposition of partner's noncontrolling interests in consolidated Real Estate Affiliates													(195)		(195)
Buyback of Class A Stock									2,082						2,082		(17,955)
Buyback of Class B-1 Stock															—
Series K Preferred Unit redemption									1,868				(28,975)		(27,107)
Preferred stock dividend ($0.3984 per share)									(3,984)						(3,984)
Other comprehensive loss											(14,382)				(14,382)
Restricted stock grants, net of forfeitures (814,702 Class A Stock)							—								—		1,257
Class A Conversion to Class B-1 (7,326,917 Class A Shares converted to 5,153,748 Class B-1 Shares)	51						110,187		43,629						153,867		(153,867)
Dividends on Class A Stock ($0.3325 per share)															—		(20,507)

Balance at March 31, 2020	$	4,988	$	6,401	$	242,042	$	6,781,031	$	(5,135,194)	$	(99,784)	$	1,484,038	$	3,283,522	$	1,183,669


Brookfield Property REIT Inc. CONSOLIDATED STATEMENTS OF EQUITY (Continued) (UNAUDITED)
	Combined Class B Stock		Class C Stock		Preferred Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Noncontrolling Interests in Consolidated Real Estate Affiliates and Operating Partnership		Total Equity		Redeemable Class A Stock
	(Dollars in thousands, except for per share and share amounts)
Balance at January 1, 2021	$	5,261	$	6,401	$	242,042	$	7,363,064	$	(5,674,064)	$	(99,418)	$	1,407,167	$	3,250,453	$	839,143

Net income (loss)									(242,632)				(27,354)		(269,986)		13,511

Acquisition/disposition of partner's noncontrolling interests in consolidated Real Estate Affiliates													(182)		(182)
Long Term Incentive Plan & Stock Option Expense									23						23
Buyback of Class A Stock									2,055						2,055		(17,681)

Series K Preferred Unit redemption									47						47
Preferred stock dividend ($0.3984 per share)									(3,984)						(3,984)
Other comprehensive loss											1,044		110		1,154
Restricted stock grants, net of forfeitures (855,051 Class A Stock)									17						17		2,025
Class A Conversion to Class B-1 (479 Class A Shares converted to 385 Class B-1 Shares)							8		2						10		(10)
Dividends on Class A Stock ($0.3325 per share)															—		(13,511)
Class B-1 Equity Issuance	14						29,486								29,500

Balance at March 31, 2021	$	5,275	$	6,401	$	242,042	$	7,392,558	$	(5,918,536)	$	(98,374)	$	1,379,741	$	3,009,107	$	823,477

The accompanying notes are an integral part of these consolidated financial statements.

Brookfield Property REIT Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Cash Flows (used in) provided by Operating Activities:
Net (loss) income	$	(255,551)	$	(100,449)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Equity in loss of Unconsolidated Real Estate Affiliates	34,453		4,843
Distributions received from Unconsolidated Real Estate Affiliates	6,327		17,305
Provision for doubtful accounts	(171)		4,973
Depreciation and amortization	151,537		157,346
Amortization/write-off of deferred finance costs	9,153		7,906
Accretion/write-off of debt market rate adjustments	(406)		(336)
Amortization of intangibles other than in-place leases	(3,712)		8,054
Amortization of right-of-use assets	2,397		2,930
Straight-line rent amortization	(14,098)		(4,476)
Deferred income taxes	3,007		6,419


Unconsolidated Real Estate Affiliates - loss (gain) on investment, net	2,140		(12,647)
Gain from changes in control of investment properties and other, net	(1,824)		—
Provision for impairment	106,991		—
Gain on extinguishment of debt	(13,123)		—
Provision for loan loss	7,911		—

Net changes:
Accounts and notes receivable, net	132,177		(8,732)
Prepaid expenses and other assets (see Notes 7 and 14)	22,298		3,420
Deferred expenses, net	(4,780)		(1,433)

Accounts payable and accrued expenses (see Notes 7 and 15)	(30,549)		(68,036)
Other, net	1,439		(6,104)
Net cash (used in) provided by operating activities	155,616		10,983
Cash Flows (used in) Investing Activities:

Development of real estate and property improvements	(67,333)		(83,623)



Proceeds from repayment of loans to joint venture and joint venture partners	10		—
Net proceeds from sales of investment properties and Unconsolidated Real Estate Affiliates	(1,940)		81,024
Contributions to Unconsolidated Real Estate Affiliates	(22,767)		(20,831)
Distributions received from Unconsolidated Real Estate Affiliates in excess of income	68,633		34,685



Net cash (used in) investing activities	(23,397)		11,255
Cash Flows provided by Financing Activities:
Proceeds from refinancing/issuance of mortgages, notes and loans payable (including related party debt - see Note 6)	40,177		246,000
Principal payments on mortgages, notes and loans payable - (including related party debt - see Note 6)	(113,820)		(222,687)
Payment of deferred finance costs	(221)		—
Issuances of Class B Stock	29,500		—
Buyback of Class A Stock	(15,625)		(15,873)

Series K preferred unit redemptions	(326)		(28,387)

Cash contributions from noncontrolling interests in consolidated real estate affiliates	—		31,688

Cash distributions paid to stockholders	(13,511)		(20,507)

Cash distributions paid to preferred stockholders	(3,984)		—
Cash distributions and redemptions paid to unit holders	(1,941)		(1,104)

Net cash provided by financing activities	(79,751)		(10,870)

Net change in cash, cash equivalents and restricted cash	52,468		11,368
Cash, cash equivalents and restricted cash at beginning of period	368,610		275,512
Cash, cash equivalents and restricted cash at end of period	$	421,078	$	286,880


Brookfield Property REIT Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	134,253	$	169,715
Interest capitalized	2,509		1,687
Income taxes paid (refund)	(96)		571
Accrued capital expenditures included in accounts payable and accrued expenses	253,425		279,545
Cash paid for amounts included in the measurement of lease liabilities	2,377		2,336

The accompanying notes are an integral part of these consolidated financial statements.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

NOTE 1 ORGANIZATION

Readers of this Quarterly Report on Form 10-Q (this "Quarterly Report") should refer to the Company's (as defined below) audited consolidated financial statements for the year ended December 31, 2020 which are included in the Company's Annual Report on Form 10-K (our "Annual Report") for the fiscal year ended December 31, 2020 (Commission File No. 001-34948), as certain footnote disclosures which would substantially duplicate those contained in our Annual Report have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary for a fair presentation (which include only normal recurring adjustments) have been included in this Quarterly Report. Unless context otherwise requires, capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

General

Brookfield Property REIT Inc. (referred to herein as "BPYU" or the "Company"), formerly known as GGP Inc. ("GGP"), a Delaware corporation, was organized in July 2010 and is an externally managed real estate investment trust ("REIT").

On March 26, 2018, GGP and Brookfield Property Partners L.P. ("BPY") entered into an agreement and plan of merger (as amended by the amendment thereto dated June 25, 2018, the "Merger Agreement") pursuant to which BPY acquired all of the shares of GGP common stock, par value $0.01 per share, that BPY and its affiliates did not already own through a series of transactions (collectively, the "BPY Transaction of 2018"), including, among other things, the exchange of all shares of GGP common stock owned by certain affiliates of BPY and any subsidiary of GGP for a newly authorized series of preferred stock of GGP designated Series B Preferred Stock (the "Class B Exchange") and the payment of a special dividend payable to certain holders of record of GGP common stock pursuant to the terms of the Merger Agreement (the "Pre-Closing Dividend").

BPYU is an indirect subsidiary of BPY, one of the world's largest commercial real estate companies. In these notes, the terms "we," "us" and "our" refer to BPYU and its subsidiaries. BPYU, through its subsidiaries and affiliates, is an owner and operator of retail properties. As of March 31, 2021, we were the owner, either entirely or with joint venture partners, of 119 retail properties in the United States.

Substantially all of our business is conducted through BPR OP, LP ("BPROP"), which we sometimes refer to herein as the Operating Partnership, and its subsidiaries. As of March 31, 2021, BPYU held approximately 99% of the common equity of BPROP, while the remaining 1% was held by limited partners and certain previous contributors of properties to BPROP.

In addition to holding ownership interests in various joint ventures, the Operating Partnership generally conducts its operations through BPR REIT Services LLC ("BPRRS"), Brookfield Properties Retail Inc. ("BPRI") and General Growth Management, Inc. ("GGMI"). Each of GGMI and BPRI is a taxable REIT subsidiary ("TRS"), which earn real estate management, leasing, development, and financing fees for other ancillary services for a majority of our Unconsolidated Real Estate Affiliates (defined below) and for substantially all of our Consolidated Properties (defined below). BPRI also serves as a contractor to GGMI for these services and provides fee-based services to other affiliates of BPY. BPRRS generally provides financial, accounting, tax, legal, development, and other services to our Consolidated Properties.

We refer to our ownership interests in properties in which we own a majority or controlling interest and are consolidated under accounting principles generally accepted in the United States of America ("GAAP") as the "Consolidated Properties." We also own interests in certain properties through joint venture entities in which we own a noncontrolling interest ("Unconsolidated Real Estate Affiliates") and we refer to those properties as the "Unconsolidated Properties".

On April 1, 2021, Brookfield Asset Management Inc. ("Brookfield Asset Management" or "BAM") announced an agreement to acquire all of the limited partnership units of BPY that it does not already own ("BPY units") at a value of $18.17 per BPY unit, or $6.5 billion in total value. Under the agreement, BPY unitholders are expected to have the ability to elect to receive, per BPY unit and subject to pro ration, a combination of (i) 0.3979 Class A limited voting shares of BAM ("Brookfield Shares"), (ii) $18.17 in cash, and/or (iii) 0.7268 of BPY preferred units with a liquidation preference of $25.00 per unit. Pro-ration will be based on a maximum cash consideration of approximately 50% of the total value of the BPY units ($3.27 billion in total cash payable to public unitholders), a maximum amount of Brookfield Shares equal to approximately 42% of the total value of the BPY units (59.3 million Brookfield Shares payable to public unitholders), and a maximum amount of BPY preferred units with

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

a liquidation value of approximately 8% of the total value of the BPY units ($500 million in liquidation preference of BPY preferred units payable to public unitholders).

In accordance with the terms of the Company's charter, any holders of the Company's Class A Stock at the closing of the transaction will receive the same per share consideration as will be received by BPY unitholders who have not made an election, being a combination of approximately 50% cash, 42% Brookfield Shares and 8% BPY preferred units (subject to pro-ration). The aggregate consideration of $6.5 billion payable to BPY unitholders in the transaction includes the amount payable to the public holders of shares of the Company's Class A Stock. It is also expected that the Company's 6.375% Series A Cumulative Redeemable Preferred Stock will be redeemed at its par value of $25.00 per share, plus any accrued and unpaid dividends, at or around the closing of the transaction.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of BPYU, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the noncontrolling partner's share of the assets, liabilities and operations of the joint ventures (generally computed as the joint venture partner's ownership percentage) is included in noncontrolling interests in consolidated real estate affiliates as permanent equity of the Company. Intercompany balances and transactions have been eliminated. Noncontrolling interests are included on our Consolidated Balance Sheets related to the Common, Preferred, and LTIP Units of BPROP and are presented either as redeemable noncontrolling interests or as noncontrolling interests in our permanent equity. The Operating Partnership and each of our consolidated joint ventures are variable interest entities as the limited partners do not have substantive kick-out rights or substantive participating rights. However, as the Company holds a majority voting interest in the Operating Partnership and our consolidated joint ventures, it qualifies for the exemption from providing certain of the disclosure requirements associated with variable interest entities.

We operate in a single reportable segment, which includes the operation, development and management of retail and other rental properties. Our portfolio is targeted to a range of market sizes and consumer tastes. Each of our operating properties is considered a separate operating segment, as each property earns revenues and incurs expenses, individual operating results are reviewed and discrete financial information is available. The Company's chief operating decision maker is comprised of a team of several members of executive management who use property operations in assessing segment operating performance. We do not distinguish or group our consolidated operations based on geography, size or type for purposes of making property operating decisions. Our operating properties have similar economic characteristics and provide similar products and services to our tenants. There are no individual operating segments that are greater than 10% of combined revenue or combined assets. When assessing segment operating performance, certain non-cash and non-comparable items such as straight-line rent, depreciation expense and intangible asset and liability amortization are excluded from property operations, which are a result of GGP's emergence from bankruptcy, acquisition accounting and other capital contribution or restructuring events. Further, all material operations are within the United States and no customer or tenant comprises more than 10% of consolidated revenues. As a result, the Company's operating properties are aggregated into a single reportable segment.

Acquisitions of Operating Properties (Note 3)

The fair values of tangible assets are determined on an "if vacant" basis. The "if vacant" fair value is allocated to land, where applicable, buildings, equipment and tenant improvements based on comparable sales and other relevant information with respect to the property. Specifically, the "if vacant" value of the buildings and equipment was calculated using a cost approach utilizing published guidelines for current replacement cost or actual construction costs for similar, recently developed properties; and an income approach. Assumptions used in the income approach to the value of buildings include: capitalization and discount rates, lease-up time, market rents, make ready costs, land value, and site improvement value.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The estimated fair value of in-place tenant leases includes lease origination costs (costs we would have incurred to lease the property to the current occupancy level of the property) and the lost revenues during the period necessary to lease-up from vacant to current occupancy level. Such estimates include the fair value of leasing commissions, legal costs and tenant coordination costs that would be incurred to lease the property to this occupancy level. Additionally, we evaluate the time period over which such occupancy level would be achieved and include an estimate of the net operating costs (primarily real estate taxes, insurance, and utilities) incurred during the lease-up period, which generally ranges up to one year. The fair value of the acquired in-place tenant leases is included in the balance of buildings and equipment and amortized over the remaining lease term for each tenant.

Identifiable intangible assets and liabilities are calculated for above-market and below-market tenant and ground leases where we are the lessor or the lessee. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including significantly below-market renewal options for which exercise of the renewal option appears to be reasonably certain. The remaining term of leases with renewal options at terms significantly below market reflect the assumed exercise of such below-market renewal options and assume the amortization period would coincide with the extended lease term.

The gross asset balances and accumulated amortization of the in-place value of tenant leases are included in buildings and equipment in our Consolidated Balance Sheets.


	Gross Asset		Accumulated Amortization		Net Carrying Amount

As of March 31, 2021
Tenant leases:
In-place value	$	273,556	$	(95,810)	$	177,746

As of December 31, 2020
Tenant leases:
In-place value	$	302,296	$	(107,210)	$	195,086

The above-market tenant leases are included in prepaid expenses and other assets (Note 14); the below-market tenant leases are included in accounts payable and accrued expenses (Note 15) in our Consolidated Balance Sheets.

Amortization/accretion of all intangibles, including the intangibles in Note 14 and Note 15, had the following effects on our income from continuing operations:


	Three Months Ended March 31,
	2021		2020
Amortization/accretion effect on continuing operations	$	(13,629)	$	(29,059)

Future amortization/accretion of all intangibles, including the intangibles in Note 14 and Note 15, is estimated to decrease results from continuing operations as follows:


Year	Amount
2021 Remaining	$	29,775
2022	31,049
2023	23,649
2024	19,514
2025	16,967

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Revenue Recognition and Related Matters

Accounting for real estate sales distinguishes between sales to a customer or non-customer for purposes of revenue recognition. Once we, as the seller, determine that we have a contract, we will identify each distinct non-financial asset promised to the counter-party and whether the counter-party obtains control and transfers risks and rewards of ownership of each non-financial asset to determine if we should derecognize the asset.

Leases

We have entered into lease arrangements for the land and buildings at certain properties, as well as for the use of office space in Chicago, Illinois. We account for leases under Accounting Standards Update ("ASU") 2016-02, Leases ("ASC 842", "Topic 842", or "the new leasing standard").

The new leasing standard requires lessees to record a right-of-use ("ROU") asset and a related lease liability for the rights and obligations associated with all lessee leases. Accounting Standards Codification ("ASC") 842 also modified the lease classification criteria through the elimination of "bright-line" tests, the removal of historical real estate specific lease provisions, and changes to lessor accounting to align with the new revenue recognition standard ASC 606, Revenue from Contracts with Customers.

We elected to use the following additional practical expedients permitted by the new leasing standard:

•The short-term lease election that allows a lessee not to apply the balance sheet recognition requirements to leases with a term of 12 months or less; lease payments associated with these leases are recognized on a straight-line basis as an expense over the lease term and are not material.

•The practical expedient which allows a lessee to not separate lease and non-lease components. We have elected to apply this election to all classes of underlying assets.

Lessee arrangements

To account for leases for which we are the lessee under the new leasing standard, contracts must be analyzed upon inception to determine if the arrangement is, or contains, a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification tests and measurement procedures are performed at the lease commencement date. Differences in lease classification will affect only the pattern and classification of expense recognition in our Consolidated Statements of Operations and Comprehensive Income (Loss).

The lease liability is initially measured as the present value of the lease payments over the lease term, discounted using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the lessee’s incremental borrowing rate is used. The lease liability balance is subsequently amortized using the effective interest method. The incremental borrowing rate is determined using an approach based on the rate of interest that the lessee would pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. We utilized a market-based approach to estimate the Incremental Borrowing Rate ("IBR") for each individual lease. The approach required significant judgment. Therefore, we utilized different data sets to estimate base IBRs via an analysis of (i) yields on outstanding public debt of BPYU, as well as comparable companies, (ii) observable mortgage rates, and (iii) unlevered property yields and discount rates. We then applied adjustments to account for considerations related to (i) term and (ii) security that may not be fully incorporated by the aforementioned data sets. Based on individual characteristics of each lease, we selected an IBR taking into consideration how each data approach and adjustments thereto incorporate term, currency and security.

The lease term is the noncancelable period of the lease, and includes any renewal and termination options we are reasonably certain to exercise. The reasonably certain threshold is evaluated at lease commencement and is typically met if substantial economic incentives or termination penalties are identified.

Lease payments measured at the commencement date include fixed payments, in-substance fixed payments, variable lease payments dependent on a rate or index (using the index or rate in effect at lease commencement), any purchase option the lessee is reasonably certain to exercise, and payments of penalties for terminating the lease if the lease term reflects the lessee

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

exercising the termination option. Fully variable lease payments without an in-substance fixed component are not included in the measurement of the lease liability and are recognized in the period in which the underlying contingency is resolved.

The lease liability is remeasured when the contract is modified, upon the resolution of a contingency such that variable payments become fixed or if our assessment of exercising an extension, termination or purchase option changes. Once remeasured, an adjustment is made to the ROU asset. However, if the carrying amount of the right-of-use asset is reduced to zero, any remaining amount of the remeasurement is recognized in earnings.

The ROU asset balance is initially measured as the lease liability amount, adjusted for any lease payments made prior to the commencement date, initial direct costs, estimated costs to dismantle, remove, or restore the underlying asset and incentives received.

Our current lessee lease portfolio is comprised primarily of operating leases. If we enter into a finance lease, the new leasing standard requires us to initially recognize and measure these leases using the same method as described above for operating leases. Subsequent to initial recognition, each lease payment would be allocated between interest expense and a reduction of the lease liability. This expense would be recognized over the lease term using the interest method to produce a constant periodic rate of interest on the remaining balance of the liability for each period and would be included in interest expense in our Consolidated Statements of Operations and Comprehensive Income (Loss). The ROU asset would be amortized on a straight-line basis over the lease term, with depreciation recorded in depreciation and amortization in our Consolidated Statements of Operations and Comprehensive Income (Loss).

The ROU assets in our operating leases are evaluated for impairment in a manner similar to our operating properties, as described below under "Impairment".

Lessor arrangements

At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. When the terms of a lease effectively transfer control of the underlying asset, the lease is classified as a sales-type lease. When a lease does not effectively transfer control of the underlying asset to the lessee, but we obtain a guarantee for the value of the asset from a third party, we classify the lease as a direct financing lease. All other leases are classified as operating leases. Control of the underlying asset is transferred to the lessee if any of the following criteria are met: (i) transfer of ownership to the lessee prior to or shortly after the end of the lease term, (ii) lessee has an option to purchase the underlying property that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the underlying property’s remaining economic life, (iv) the present value of the sum of lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments is equal to or exceeds substantially all of the fair value of the leased property or (v) the underlying property is of such a specialized nature that it is expected to have no alternative use at the end of the lease term. As of March 31, 2021, we do not have any material sales-type or direct financing leases.

For operating leases with minimum scheduled rent increases, we recognize rental income on a straight-line basis, including the effect of any free rent periods, over the lease term when collectability of lease payments (and, if applicable, any amounts necessary to satisfy a residual value guarantee) is probable. Variable lease payments are recognized as rental income in the period when the changes in facts and circumstances on which the variable lease payments are based occur. Variable lease payments include overage rent, which is paid by a tenant when the tenant's sales exceed an agreed upon minimum amount, is recognized once tenant sales exceed contractual tenant lease thresholds and is calculated by multiplying the sales in excess of the minimum amount by a percentage defined in the lease.

Our leases also contain provisions for tenants to reimburse us for real estate taxes and insurance, as well as for other property operating expenses, marketing costs, and utilities, which are considered to be non-lease components. These tenant reimbursements are most often established in the leases or in less frequent cases computed based upon a formula. We have elected the practical expedient to not separate non-lease components from the lease component for all classes of underlying assets and determined that the lease component is the predominant component in the contract; therefore, these recoveries are recognized in a manner similar to minimum rents and variable rents within rental revenues on our Consolidated Statements of Operations and Comprehensive Income (Loss).

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Recognizing rental and related income on a straight-line basis results in a difference in the timing of revenue recognition from what is contractually due from tenants. Straight-line rents are recorded in accounts receivable, net in our Consolidated Balance Sheets. For leases where collectability of substantially all the lease payments is probable, we establish an allowance for doubtful accounts against the portion of accounts receivable, net, including straight-line rents, which is estimated to be uncollectible. Such estimates are based on our previous recovery experience and expectations of future lease concessions. Lease concessions are generally considered a lease modification and thus are recognized prospectively over the remaining lease term. However, the Company does include its estimate of potential lease concessions when establishing its general reserve, based on its best estimates of total lease concessions expected, recognizing the portion of the total concession that is deemed attributable to the current period through consideration of weighted average remaining lease terms. Changes in the general allowance are recognized in rental income on our Consolidated Statements of Operations and Comprehensive Income (Loss). If we determine that collectability of substantially all the lease payments is not probable, we record a current-period adjustment to rental income to amount of cash collected from the lessee. This adjustment effectively reduces cumulative income recognized since lease commencement from an accrual basis to cash basis. In addition, future revenue recognition is limited to amounts paid by the lessee. We will generally return to an accrual basis of accounting, if and when, all delinquent payments become current under the terms of the lease agreement and collectability of substantially all the remaining contractual lease payments is reasonably probable.

With respect to our consolidated properties, for the three months ended March 31, 2021, our balance associated with potentially uncollectible revenues decreased by $3.7 million. With respect to our Unconsolidated Real Estate Affiliates, for the three months ended March 31, 2021, our balance associated with potentially uncollectible revenues for our Unconsolidated Real Estate Affiliates decreased by $1.6 million, which includes $0.7 million for straight-line rent receivables. Of these amounts for the three months ended March 31, 2021, our share totaled $0.6 million which includes $0.3 million for straight-line rent receivables.

With respect to our consolidated properties, for the year ended December 31, 2020, we have recorded $42.3 million, associated with potentially uncollectible revenues, which includes $5.3 million, for straight-line rent receivables. With respect to our Unconsolidated Real Estate Affiliates, for the year ended December 31, 2020, our Unconsolidated Real Estate Affiliates have recorded $68.7 million, associated with potentially uncollectible revenues, which includes $8.6 million, for straight-line rent receivables. Of these amounts for the year ended December 31, 2020, our share totaled $33.8 million, which includes $4.2 million, for straight-line rent receivables.

As of March 31, 2021, the Company, including consideration of our share of Unconsolidated Real Estate Affiliates, has collected approximately 86% of first quarter rents. While working to preserve our profitability and cash flow, we are also working with our tenants regarding requests for lease concessions and other forms of assistance. The Company continues to make meaningful progress in its negotiations with national and local tenants to secure rental payments, despite a significant portion of the Company's tenants requesting rental assistance, whether in the form of deferral or rent reduction. As of March 31, 2021, in response to the COVID-19 pandemic, the Company granted rent deferrals and rent abatements of 1% and 3% of rents, respectively. The rent abatements granted were considered lease modifications and will be recognized prospectively over the remaining lease terms from the period of the rent that was abated. While we anticipate that we may grant further rent concessions, such as the deferral or abatement of lease payments, such rent concession requests are evaluated on a case-by-case basis. Not all requests for rent relief will be granted as the Company does not intend to forgo its legally enforceable contractual rights that exist under its lease agreements.

Rental revenues also includes lease termination income collected from tenants to allow for the tenant to vacate their space prior to their scheduled termination dates, as well as accretion related to above-market and below-market tenant leases on acquired properties and properties that were recorded at fair value at the emergence from bankruptcy.

In leasing tenant space, we may provide funding to the lessee through a tenant allowance. To account for a tenant allowance, we determine whether the allowance represents funding for the construction of leasehold improvements and evaluate the control and ownership of such improvements. If we are considered the owner of the leasehold improvements, we capitalize the amount of the tenant allowance and depreciate it over the shorter of the useful life of the leasehold improvements or the related lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event we are not considered the owner of the leasehold improvements, the allowance is capitalized to deferred expenses and considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue on a straight-line basis.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Deferred expenses

The new leasing standard defines initial direct costs as incremental costs of a lease that would not have been incurred if the lease had not been obtained. These initial direct costs (consisting primarily of leasing commissions) are recognized as deferred expenses on our Consolidated Balance Sheet and are amortized using the straight-line method over the life of the leases. Other leasing costs which do not meet the definition of initial direct costs (consisting primarily of internal legal and leasing overhead costs) are expensed as incurred and included in property management and other costs in our Consolidated Statements of Operations and Comprehensive Income (Loss).

Management Fees and Other Corporate Revenues

Management fees and other corporate revenues primarily represent real estate management and leasing fees, development fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates. Management fees are reported at 100% of the revenue earned from the joint venture in management fees and other corporate revenues on our Consolidated Statements of Operations and Comprehensive Income (Loss). Our share of the management fee expense incurred by the Unconsolidated Real Estate Affiliates is reported within equity in income (loss) of Unconsolidated Real Estate Affiliates on our Consolidated Statements of Operations and Comprehensive Income (Loss) and in property management and other costs in the Condensed Combined Statements of Income in Note 5. The following table summarizes the management fees from affiliates and our share of the management fee expense:


	Three Months Ended March 31,
	2021		2020
Management fees from affiliates	$	31,501	$	35,338
Management fee expense	(11,027)		(11,286)
Net management fees from affiliates	$	20,474	$	24,052

Management Fee Expense

Following the BPY Transaction of 2018, certain BAM owned entities provide certain management and administration services to BPYU. BPYU and its affiliates pay a management fee based on market capitalization and metrics defined by management. For the first twelve months following closing of the BPY Transaction of 2018, BAM agreed to waive management fees payable by BPYU. For the three months ended March 31, 2021 and 2020, respectively, the Company accrued base management fees of $4.1 million and $4.5 million due to BAM; which are included in the accounts payable and accrued expenses on the Consolidated Balance Sheets and in property management and other costs on the Consolidated Statements of Operations and Comprehensive Loss.

Following the BPY Transaction of 2018, an affiliate of BAM is entitled to receive incentive distributions based on an amount by which quarterly distributions exceed specified target levels. There were no such amounts payable for the three months ended March 31, 2021 and 2020.

Impairment

Operating Properties

We regularly review our Consolidated Properties for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment indicators are assessed separately for each property and include, but are not limited to, significant decreases in real estate property net operating income, significant decreases in occupancy, debt maturities, changes in management's intent with respect to the properties and prevailing market conditions.

If an indicator of potential impairment exists, the property is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flows. Although the carrying amount may exceed the estimated fair value of certain properties, a real estate asset is only considered to be impaired when its carrying amount cannot be recovered through estimated

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

future undiscounted cash flows. To the extent an impairment provision is determined to be necessary, the excess of the carrying amount of the property over its estimated fair value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset group. The adjusted carrying amount, which represents the new cost basis of the property, is depreciated over the remaining useful life of the property.

Although we may market a property for sale, there can be no assurance that the transaction will be complete until the sale is finalized. However, GAAP requires us to utilize the Company's expected holding period of our properties when assessing recoverability. If we cannot recover the carrying value of these properties within the planned holding period, we will estimate the fair values of the assets and record impairment charges for properties when the estimated fair value is less than their carrying value.

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development and construction in progress, are assessed by project and include, but are not limited to, significant changes in the Company's plans with respect to the project, significant changes in projected completion dates, tenant demand, anticipated revenues or cash flows, development costs, market factors and sustainability of development projects.

Impairment charges are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss) when the carrying value of a property is not recoverable and it exceeds the estimated fair value of the property, which can occur in accounting periods preceding disposition and/or in the period of disposition. The Company continues to evaluate its strategies as to individual assets which could impact the evaluation and timing of when an impairment is recorded.

During the three months ended March 31, 2021,we recorded an impairment charge of $107.0 million on our Consolidated Statements of Operations and Comprehensive Loss. Specifically, $77.5 million of impairment was recognized for two operating properties where the Company’s expected holding period for the assets changed due to an increased probability of a near-term disposition and $29.5 million of impairment was recognized based on an update to the Company’s estimated probability of obtaining concessions from the creditor at an operating property for which the Company has suspended funding equity contributions to make contractual interest and/or principal payments.

During the three months ended March 31, 2020, no provisions for impairment were recognized.

A significant judgment is made as to if and when impairment should be taken. The Company’s assessment of impairment as of March 31, 2021 was based on the most current information available to the Company. Based upon current market conditions, certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’s plans with respect to those properties, the Company believes that their carrying amounts are recoverable and therefore, under applicable GAAP guidance, no impairment charges were recognized. If the operating conditions mentioned above deteriorate or if the Company’s expected holding period for assets change, subsequent tests for impairment could result in impairment charges in the future.

Investment in Unconsolidated Real Estate Affiliates

A series of operating losses of an investee or other factors may indicate that an other-than-temporary decline in value of our investment in an Unconsolidated Real Estate Affiliate has occurred. The investment in each of the Unconsolidated Real Estate Affiliates is evaluated for valuation declines below the carrying amount. Accordingly, in addition to the property-specific impairment analysis that we performed for such joint ventures (as part of our operating property impairment process described above), we also considered whether there were other-than-temporary declines with respect to the carrying values of our Unconsolidated Real Estate Affiliates. Refer to Note 5 for more information.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We are exposed to credit risk with respect to cash held at various financial institutions and access to our credit facility. Our credit risk exposure with regard to our cash and the $1.5 billion available under our credit facility is spread among a diversified group of investment grade financial institutions. We had $985.0 million and $1,015.0 million outstanding under our credit facility as of March 31, 2021 and December 31, 2020, respectively.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Recently Issued Accounting Pronouncements

Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic ("COVID-19" or "the global economic shutdown" or "the shutdown"), lessors may provide rent deferrals and other lease concessions to lessees. In April 2020, the Financial Accounting Standards Board ("FASB") staff issued a question and answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of the global economic shutdown. Under existing lease guidance, economic relief that is agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor would be required to apply the respective modification frameworks. However, if the lessee was entitled to the economic relief because of either contractual or legal rights, the relief would be accounted for outside of the modification framework. Although the original lease modification guidance in ASC 842, Leases remain appropriate to address routine lease modifications, the Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to the global economic shutdown. The Lease Modification Q&A allows the Company, if certain criteria have been met, to make an accounting policy election to account for COVID-19 related lease concessions as either a lease modification or a negative variable adjustment to rental revenue. Such election is required to be applied consistently to leases with similar characteristics and similar circumstances.

The Company has elected to apply such relief and will avail itself of the election to treat leases as lease modifications, thereby avoiding performing a lease by lease analysis for the lease concessions that were (1) granted as relief due to the shutdown and (2) result in the cash flows remaining substantially the same or less than the original contract. The adoption of this standard did not materially impact the Company's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. This temporary guidance is effective as of March 12, 2020 through December 31, 2022 to ease potential burdens related to the accounting for, or recognizing the effects of, reference rate reform on financial reporting. The guidance provides optional expedients for applying existing GAAP to contract modifications and hedging relationships affected by the move of global capital markets away from interbank offered rates, most notably the London Interbank Offered Rate (LIBOR). The Company has not adopted any of the optional expedients or exceptions as of March 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been made with respect to allocating the purchase price of real estate acquisitions, the useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables and deferred taxes, provision for loan loss, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets, litigation related accruals and disclosures and fair value of debt. Actual results could differ from these and other estimates.

NOTE 3 ACQUISITIONS, SALES AND JOINT VENTURE ACTIVITY

During the three months ended March 31, 2021, BPR Cumulus LLC (an indirect subsidiary of the Company) purchased an additional 1,118,060 shares of Class A Units in PFC Associates LLC (P.F. Chang's) (par value $0.01 per share) at a price of $1.00 per share, for a $1.1 million additional investment and a total investment of $11.5 million. P.F. Chang's is a tenant at certain properties for which we receive rental income included in rental revenues on the Consolidated Statements of Operations and Comprehensive Loss. The investment is accounted for using the cost method as the Company has neither control nor significant influence over P.F. Chang's and is included in Investment in Unconsolidated Real Estate Affiliates on the Consolidated Balance Sheets.

As of January 1, 2021, the Company conveyed North Point Mall to the property's lender in satisfaction of $247.0 million in outstanding debt. Accordingly, the Company recognized a gain of $13.1 million and $1.8 million included in gain on extinguishment of debt and gain on changes in control of investment properties, respectively on our Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

As of January 1, 2021, the Company conveyed Florence Mall to the property's lender in satisfaction of $90.0 million in outstanding debt. Accordingly, the Company recognized a loss of $4.2 million included in Unconsolidated Real Estate Affiliates - gain (loss) on investment, net on our Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021.

On March 11, 2020, BPR Nimbus LLC (an indirect subsidiary of the Company) purchased 690,427 shares of Series B Convertible Preferred Stock in Camp NYC, Inc. (par value $0.01 per share) at a price of approximately of $7.24 per share, for a $5.0 million total investment, resulting in a 5.5% ownership interest in Camp NYC, Inc. The investment is accounted for using the cost method (adjusted for impairment and observable price changes) as the Company has neither control nor significant influence over Camp NYC, Inc. and is included in Investment in Unconsolidated Real Estate Affiliates on the Consolidated Balance Sheets.

On February 21, 2020, the Company completed the sale of eight outparcels for a gross sales price of $12.1 million, which resulted in a gain of $7.8 million included in Other Revenues on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020. All of the eight outparcels were located at consolidated entities.

On February 7, 2020, our joint venture partner at the SoNo Collection contributed $70.8 million in additional capital to the joint venture, resulting in a dilution of the Company’s ownership interest from 17.0% to 12.9%.

On January 14, 2020, BPR Cumulus LLC (an indirect subsidiary of the Company) purchased 758,725 shares of Common Stock in Allied Esports Entertainment, Inc. (par value $0.01 per share) at a price of $6.59 per share, for a $5.0 million total investment. The investment was marked to fair value as of March 31, 2021, which resulted in a gain of $1.0 million and a loss of $3.8 million included in Unconsolidated Real Estate Affiliates - (loss) gain on investment, net on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020, respectively. This investment resulted in a 3.2% ownership interest in Allied Esports Entertainment, Inc. The investment is accounted for at fair value as the Company has neither control nor significant influence over Allied Esports Entertainment, Inc. and is included in Investment in Unconsolidated Real Estate Affiliates on the Consolidated Balance Sheets.

On January 9, 2020, the Company completed the sale of its 27.0% interest in Aero OpCo LLC ("Aeropostale") for a gross sales price of $36.0 million, which resulted in a gain on the sale of $15.1 million included in Unconsolidated Real Estate Affiliates - (loss) gain on investment, net on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020.

On January 9, 2020, the Company completed the sale of its 1.2% interest in Authentic Brands Group LLC ("ABG") for a gross sales price of $33.5 million, which resulted in a gain on the sale of $1.4 million included in Unconsolidated Real Estate Affiliates - (loss) gain on investment, net on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020.

NOTE 4 FAIR VALUE

Nonrecurring Fair Value Measurements

We estimate fair value relating to impairment assessments based upon discounted cash flow and direct capitalization models that include all projected cash inflows and outflows over a specific holding period, or the negotiated sales price, if applicable. Such projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Capitalization rates and discount rates utilized in these models are based on a reasonable range of current market rates for each property analyzed. Based upon these inputs, we determined that our valuations of properties using a discounted cash flow or a direct capitalization model were classified within Level 3 of the fair value hierarchy. For our properties for which the estimated fair value was based on negotiated sales prices, we determined that our valuation was classified within Level 2 of the fair value hierarchy.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The following table summarizes certain of our assets that are measured at fair value on a nonrecurring basis as a result of impairment charges recorded. During the three months ended March 31, 2021, we recognized $107.0 million in impairment charges. There were no impairment charges recorded during the three months ended March 31, 2020.


	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Provisions for Impairment


Three months ended March 31, 2021
Investments in real estate (1)	$	117,411	$	—	$	38,000	$	79,411	$	106,991
Three months ended March 31, 2020
Investments in real estate (1)	$	—	$	—	$	—	$	—	$	—

(1) The impairment recorded on the Investments in real estate balance represents a loss incurred at a consolidated property. Refer to Note 5 for information regarding the impairment losses recorded on our Unconsolidated Real Estate Affiliates.


Unobservable Quantitative Input						Rate
Three months ended March 31, 2021
Discount rate						14.00%
Terminal capitalization rate						9.50%


Three months ended March 31, 2020
Discount rates						N/A
Terminal capitalization rate						N/A

Disclosure of Fair Value of Financial Instruments

The fair values of our financial instruments approximate their carrying amount in our consolidated financial statements except for debt. Management's estimates of fair value are presented below for our debt as of March 31, 2021 and December 31, 2020.


	March 31, 2021				December 31, 2020
	Carrying Amount (1)		Estimated Fair Value		Carrying Amount (2)		Estimated Fair Value
Fixed-rate debt	$	8,558,327	$	8,516,331	$	8,581,538	$	8,556,275
Variable-rate debt	7,491,360		7,543,802		7,533,048		7,583,107
	$	16,049,687	$	16,060,133	$	16,114,586	$	16,139,382

(1) Includes net market rate adjustments of $2.7 million and deferred financing costs of $96.8 million, net.

(2) Includes net market rate adjustments of $3.2 million and deferred financing costs of $105.9 million, net.

The fair value of our junior subordinated notes approximates their carrying amount as of March 31, 2021 and December 31, 2020. We estimated the fair value of mortgages, notes and other loans payable using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current LIBOR, U.S. treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and assume that the debt is outstanding through maturity. We have utilized market information as available or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

NOTE 5 UNCONSOLIDATED REAL ESTATE AFFILIATES

Following is summarized financial information for all of our real estate related Unconsolidated Real Estate Affiliates accounted for using the equity method and a reconciliation to our total investment in Unconsolidated Real Estate Affiliates. The reconciliation to our total investment in Unconsolidated Real Estate Affiliates is inclusive of investments accounted for using the cost method (adjusted for impairment and observable price changes) (Note 2).


	March 31, 2021		December 31, 2020
Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates
Assets:
Land	$	3,432,054	$	3,436,531
Buildings and equipment	21,814,067		21,861,373
Less accumulated depreciation	(4,749,001)		(4,584,222)
Construction in progress	383,079		360,681


Net investment in real estate	20,880,199		21,074,363
Cash and cash equivalents	594,774		601,138
Accounts receivable, net	605,614		684,035
Notes receivable	20,637		20,490
Deferred expenses, net	376,640		387,073
Prepaid expenses and other assets	581,907		592,288
Total assets	$	23,059,771	$	23,359,387
Liabilities and Owners' Equity:	\
Mortgages, notes and loans payable	$	14,552,203	$	14,648,187
Accounts payable, accrued expenses, and other liabilities	978,257		996,380

Cumulative effect of foreign currency translation ("CFCT")	(33,821)		(29,453)
Owners' equity, excluding CFCT	7,563,132		7,744,273
Total liabilities and owners' equity	$	23,059,771	$	23,359,387
Investment in Unconsolidated Real Estate Affiliates, Net:
Owners' equity	$	7,529,311	$	7,714,820
Less: joint venture partners' equity	(4,230,516)		(4,317,525)
Plus: excess investment/basis differences	769,130		761,503
Investment in Unconsolidated Real Estate Affiliates, net (equity method)	4,067,925		4,158,798
Investment in Unconsolidated Real Estate Affiliates, net (securities)	35,206		33,102

Investment in Unconsolidated Real Estate Affiliates, net	$	4,103,131	$	4,191,900
Reconciliation - Investment in Unconsolidated Real Estate Affiliates:
Asset - Investment in Unconsolidated Real Estate Affiliates	$	4,256,378	$	4,342,995
Liability - Investment in Unconsolidated Real Estate Affiliates	(153,247)		(151,095)
Investment in Unconsolidated Real Estate Affiliates, net	$	4,103,131	$	4,191,900

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2021		2020
Condensed Combined Statements of Loss - Unconsolidated Real Estate Affiliates
Revenues:
Rental revenues, net	$	462,366	$	550,595
Condominium sales	—		16,215
Other	9,816		18,144
Total revenues	472,182		584,954
Operating Expenses:
Real estate taxes	50,005		58,359
Property maintenance costs	12,530		12,930
Marketing	5,196		6,326
Other property operating costs	68,883		75,983
Condominium cost of sales	—		9,918

Property management and other costs (1)	25,995		25,509
General and administrative	783		408
Provision for impairment	6,677		—
Depreciation and amortization	210,707		230,394
Total operating expenses	380,776		419,827

Interest income	251		2,551
Interest expense	(165,832)		(169,817)
Provision for income taxes	(299)		(503)

Loss from continuing operations	(74,474)		(2,642)

Allocation to noncontrolling interests	148		(12)
Net loss attributable to the ventures	$	(74,326)	$	(2,654)
Equity In Loss of Unconsolidated Real Estate Affiliates:
Net loss attributable to the ventures	$	(74,326)	$	(2,654)
Joint venture partners' share of loss	42,295		3,798


Amortization of capital or basis differences	(2,422)		(5,987)
Equity in loss of Unconsolidated Real Estate Affiliates	$	(34,453)	$	(4,843)

(1) Includes management fees charged to the unconsolidated joint ventures by BPRRS and BPRI.

The Unconsolidated Real Estate Affiliates represent our investments in real estate joint ventures that are not consolidated. We hold interests in 23 domestic joint ventures, comprising 57 U.S. retail properties and one joint venture in Brazil, which was sold subsequent to March 31, 2021 (Note 18). Generally, we share in the profits and losses, cash flows and other matters relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. We manage most of the properties owned by these joint ventures. We account for investments in joint ventures where we own a non-controlling joint interest using either the equity method or the cost method (adjusted for impairment and observable price changes). If we have significant influence but not control over the investment, we utilize the equity method. If we have neither control nor significant influence, we utilize the cost method. If we control the joint venture, we account for the venture as a consolidated investment.

As of March 31, 2021, the balance of ROU assets was $67.4 million, net and lease liabilities of $69.6 million for 24 ground leases in the Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates under Topic 842, included in prepaid

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

expenses and other assets and accounts payable, accrued expenses, and other liabilities, respectively. As of December 31, 2020, the balance of ROU assets was $67.7 million, net and lease liabilities was $69.9 million for 24 ground leases in the Condensed Combined Balance Sheets - Unconsolidated Real Estate Affiliates under Topic 842, included in prepaid expenses and other assets and accounts payable, accrued expenses, and other liabilities, respectively. All of these leases are operating leases; we do not have any finance leases.

During the three months ended March 31, 2021, we recorded $6.7 million of impairment charges on our Condensed Combined Statements of Income (Loss) - Unconsolidated Real Estate Affiliates related to one operating property. During the three months ended March 31, 2020, no provisions for impairment were recognized.

Unconsolidated Mortgages, Notes and Loans Payable, and Retained Debt

Our proportionate share of the mortgages, notes and loans payable of the unconsolidated joint ventures was $6.9 billion as of March 31, 2021 and $6.9 billion as of December 31, 2020, including Retained Debt (as defined below). There can be no assurance that the Unconsolidated Properties will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.

As of January 1, 2021, the Company conveyed Florence Mall to the lender in satisfaction of $90.0 million in outstanding debt. Accordingly, the Company recognized a loss of $4.2 million included in Unconsolidated Real Estate Affiliates - gain (loss) on investment, net on our Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021.

On February 28, 2020, the Company closed a new loan at the Miami Design District joint venture in the amount of $500.0 million with an interest rate of 4.13%, which matures on March 1, 2030. The loan replaced the previous debt of $480.0 million with an interest rate of LIBOR plus 2.50% that was scheduled to mature on May 14, 2021. As a result of the refinancing, the joint venture incurred $3.7 million of deferred financing costs that were capitalized.

During the three months ended March 31, 2021, the Company suspended equity contributions to make contractual interest and/or principal payments on six property level mortgages. During the year ended December 31, 2020, the Company suspended equity contributions to make contractual interest and/or principal payments on eight property level mortgages. The Company is currently engaging in negotiations with the creditors on these mortgages to obtain potential lender concessions or other relief. If the Company is unsuccessful in obtaining concessions from these creditors, it is possible that the property securing these loans would be transferred to the lenders. In such circumstances, the carrying value of the property may no longer be recoverable and may trigger an impairment charge. These mortgages are non-recourse and the creditors do not have security claims against the Company aside from the collateral property. During the three months ended March 31, 2021, the Company accrued $8.4 million of default interest related to these mortgages per contractual debt agreements. As of December 31, 2020, the Company had accrued $26.8 million of default interest related to these mortgages per contractual debt agreements.

In total at share, the Company suspended equity contributions to make contractual interest and/or principal payments on a total of $484.1 million of property level mortgages and the related Investment in Real Estate securing these loans has a carrying value of $451.2 million.

We have debt obligations in excess of our pro rata share of the debt for one of our Unconsolidated Real Estate Affiliates ("Retained Debt"). This Retained Debt represents distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our pro rata share of the non-recourse mortgage indebtedness. The proceeds of the Retained Debt which were distributed to us are included as a reduction in our investment in Unconsolidated Real Estate Affiliates. We had Retained Debt of $79.9 million at one property as of March 31, 2021, and $79.7 million as of December 31, 2020. We are obligated to contribute funds on an ongoing basis, as needed, to our Unconsolidated Real Estate Affiliates in amounts sufficient to pay debt service on such Retained Debt. If we do not contribute such funds, our interest in or our distributions from such Unconsolidated Real Estate Affiliates could be reduced to the extent of such deficiencies. As of March 31, 2021, we do not anticipate an inability to perform on our obligations with respect to Retained Debt.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

NOTE 6 MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable and the weighted-average interest rates are summarized as follows:


	March 31, 2021 (1)		Weighted-Average Interest Rate (2)		December 31, 2020 (3)		Weighted-Average Interest Rate (2)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	7,625,076	4.20	%	$	7,649,040	4.19	%
Senior secured notes - silver bonds	933,251		5.75	%	932,498		5.75	%
Total fixed-rate debt	8,558,327		4.37	%	8,581,538		4.36	%
Variable-rate debt:
Collateralized mortgages, notes and loans payable (4)	2,527,295		3.84	%	2,534,781		4.01	%
Unsecured corporate debt (5)	4,964,065		2.76	%	4,998,267		2.80	%
Total variable-rate debt	7,491,360		3.12	%	7,533,048		3.21	%
Total Mortgages, notes and loans payable	$	16,049,687	3.79	%	$	16,114,586	3.82	%
Junior subordinated notes	$	206,200	1.66	%	$	206,200	1.66	%

(1) Includes $2.7 million of market rate adjustments and $96.8 million of deferred financing costs, net.

(2) Represents the weighted-average interest rates on our principal balances, excluding the effects of market rate adjustments and deferred financing costs.

(3) Includes $3.2 million of market rate adjustments and $105.9 million of deferred financing costs, net.

(4) $1.3 billion of the variable-rate balance is cross-collateralized.

(5) Includes deferred financing costs, which are shown as a reduction to the debt balance. See table below for the balance excluding deferred financing costs.

Collateralized Mortgages, Loan Extension, Notes and Loans Payable

As of March 31, 2021, $15.3 billion of land, buildings and equipment (before accumulated depreciation) and construction in progress have been pledged as collateral for our mortgages, notes and loans payable. Certain of these consolidated secured loans, representing $1.3 billion of debt, are cross-collateralized. Although a majority of the $10.2 billion of fixed and variable rate collateralized mortgages, notes and loans payable are non-recourse, $707.7 million of such mortgages, notes and loans payable are recourse to the Company as guarantees on secured financings. In addition, certain mortgage loans contain other credit enhancement provisions which have been provided by BPYU. Certain mortgages, notes and loans payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.

During the three months ended March 31, 2021, the Company suspended equity contributions to make contractual interest and/or principal payments on seven consolidated property level mortgages, including one mortgage that is in maturity default. During the year ended December 31, 2020, the Company suspended equity contributions to make contractual interest and/or principal payments on ten property level mortgages. The Company is currently engaging in negotiations with the creditors on these mortgages to obtain potential lender concessions or other relief. If the Company is unsuccessful in obtaining concessions from these creditors, it is possible that the property securing these loans would be transferred to the lenders. In such circumstances, the carrying value of the property may no longer be recoverable and may trigger an impairment charge. These mortgages are non-recourse and the creditors do not have security claims against the Company aside from the collateral property. During the three months ended March 31, 2021, the Company accrued $4.8 million of default interest related to these mortgages per contractual debt agreements. As of December 31, 2020, the Company had accrued $19.8 million of default interest related to these mortgages per contractual debt agreements.

As of March 31, 2021, the Company suspended equity contributions to make contractual interest and/or principal payments on a total of $723.8 million of consolidated property level mortgages and the related investment in real estate securing these loans has a carrying value of $697.4 million.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

During the year ended December 31, 2020, the Company completed the following transactions:

•Three-year extension of the indebtedness on Fox River Mall in amount of $187.0 million with a maturity date of June 1, 2024. The transaction incurred fees in the amount of $3.1 million, due on December 31, 2020.

•One-year extension of a $1.3 billion loan secured by cross-collateralized mortgages on 15 properties with an interest rate of LIBOR plus 1.75%, which matured on April 25, 2021. An extension fee of $1.6 million was paid in conjunction with the extension. Refer to Note 18 for additional information.

Corporate and Other Unsecured Loans

We have certain debt obligations, the terms of which are described below:


	March 31, 2021 (1)		Weighted-Average Interest Rate		December 31, 2020 (2)		Weighted-Average Interest Rate
Corporate debt:
Senior secured corporate debt	$	5,024,904	2.76	%	$	5,064,522	2.80	%
Senior secured notes - silver bonds	945,360		5.75	%	945,360		5.75	%
Total corporate debt	$	5,970,264	3.23	%	6,009,882		3.26	%

(1) Excludes deferred financing costs of $72.9 million in 2021 that decrease the total amount that appears outstanding in our Consolidated Balance Sheets.

(2) Excludes deferred financing costs of $79.1 million in 2020 that decrease the total amount that appears outstanding in our Consolidated Balance Sheets.

On May 1, 2019, the Company and BPR Cumulus LLC, BPR Nimbus LLC and GGSI Sellco LLC (each, an indirect subsidiary of the Company) issued $1.0 billion aggregate principal amount of 5.75% Senior Secured Notes - Silver Bonds due 2026. The notes bear interest at an annual rate of 5.75% payable on May 15 and November 15 of each year, beginning on November 15, 2019 and will mature on May 15, 2026. During the year ended December 31, 2020, the Company made principal payments totaling $54.6 million. The remaining outstanding balance as of March 31, 2021 was $945.4 million.

On June 25, 2019, the Company secured a $70.5 million subordinated unsecured note with Brookfield BPY Holdings Inc., a related party. The note bore interest at a rate equal to LIBOR plus 2.75% and was scheduled to mature on June 25, 2029. During the year ended December 31, 2020, the Company repaid this loan in full. On February 10, 2020, the Company secured an additional $27.0 million subordinated unsecured note with Brookfield BPY Holdings Inc. The note bears interest at rate equal to LIBOR plus 2.75%, and matures on February 10, 2030. On August 27, 2020, the Company made a principal payment of $19.5 million. On March 25, 2020, the Company secured another $29.0 million note. The note bears interest at rate equal to LIBOR plus 2.75%, and matures on March 25, 2030. On May 19, 2020, the Company secured an additional $25.0 million subordinated unsecured note with Brookfield BPY Holdings Inc., and another $45.0 million on May 22, 2020. The notes were repaid in full on June 18, 2020 and July 16, 2020, respectively. On June 25, 2020, the Company secured another $25.0 million subordinated unsecured note at an interest rate equal to LIBOR plus 1.94% that is scheduled to mature on August 27, 2022. The total outstanding balance of the notes as of March 31, 2021 was $63.4 million, including $1.9 million of payment-in-kind interest.

The Company entered into a new credit agreement (the "Credit Agreement") dated as of August 24, 2018 consisting of a revolving credit facility (the "Facility"), Term A-1 and A-2 loans, and a Term B loan. The Facility provides for revolving loans of up to $1.5 billion and borrowings bear interest at a rate equal to LIBOR plus 2.25%. The Facility is scheduled to mature in August 2022 and had outstanding borrowings of $985.0 million as of March 31, 2021. The Term A-1 Loan has a total

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

commitment outstanding of $900.0 million, with $700.0 million attributable to BPYU and $200.0 million attributable to an affiliate, and is scheduled to mature in August 2021, bearing interest at a rate equal to LIBOR plus 2.25%. During the quarter ended March 31, 2021, the Company made a principal payment in the amount of $4.8 million, and the remaining outstanding balance as of March 31, 2021 was $21.0 million. The Term A-2 Loan has a total commitment outstanding of $2.0 billion and is scheduled to mature in August 2023, bearing interest at a rate equal to LIBOR plus 2.25%, and the outstanding balance at March 31, 2021 was $2.0 billion. The Term B Loan has a total commitment outstanding of $2.0 billion and is scheduled to mature in August 2025 bearing interest at a rate equal to LIBOR plus 2.50%. During the quarter ended March 31, 2021, the Company made a principal payment in the amount of $5.0 million. The total outstanding balance of the Term B loan as of March 31, 2021 was $1,945.0 million. The Term A-1, A-2, and B Loans are contractually obligated to be prepaid through net proceeds from property level refinances and asset sales as outlined in the Credit Agreement.

The Credit Agreement contains certain restrictive covenants which limit material changes in the nature of our business conducted, including, but not limited to, mergers, dissolutions or liquidations, dispositions of assets, liens, incurrence of additional indebtedness, dividends, transactions with affiliates, prepayment of subordinated debt, negative pledges and changes in fiscal periods. In addition, we are required to maintain compliance with certain financial covenants related to a maximum net debt-to-value ratio and a minimum fixed-charge-coverage ratio, as defined in the Credit Agreement.

On July 29, 2020, the Company entered into the First Amendment of its Credit Agreement in order to give effect to certain amendments, including, but not limited to the following:

•The lenders have agreed to certain covenant relief in respect of the financial covenants through the fiscal quarter ending June 30, 2021 (the “Covenant Relief Period”). The maximum total indebtedness to value ratio financial maintenance covenant is being eliminated permanently. The minimum fixed charge coverage ratio is being reduced to 1.20x during the Covenant Relief Period and increasing to 1.35x thereafter.

•The applicable margin for the Term A Loans and the Facility will be LIBOR plus 3.00% during the Covenant Relief Period – and thereafter, will be LIBOR plus 3.00% if the total net indebtedness to value ratio is greater than 70%.

•The Company agreed to maintain an ongoing liquidity covenant (set at $500 million) which will be tested as of the last day of each month against the amount of unrestricted cash, undrawn available amounts under the Facility and undrawn amounts under the new Brookfield Liquidity Facility. The Company will enter into and maintain a $500 million Brookfield Liquidity Facility (the “Brookfield Liquidity Facility”) and prior to the date the Company demonstrates compliance with the financial covenants in effect under the Credit Agreement prior to the First Amendment, any interest and principal payments thereunder must be paid-in-kind.

•The Company will be required to "match-fund" drawings under the Facility in excess of $1.0 billion using proceeds of either the Brookfield Liquidity Facility or issuances of qualified equity interests. The match-funding requirement will be required to be made (i) monthly, whereby any drawing during that month is in excess of the prior highest balance of the revolver (in excess of $1.0 billion), (ii) within 10 business days of a request from the agent if as of any day during a month, the excess draw amount would exceed $10 million and (iii) at any time of request for a revolving loan that the excess would be $100 million or greater (which would be match-funded substantially concurrently with the requested revolving loan draw).

•The Company will also be required to make additional prepayments of the Term A loans with proceeds of certain equity, debt issuances and asset sales.

•The Company also agreed to a number of additional restrictions, including restrictions on incurring additional indebtedness, making of certain restricted payments and the use of proceeds under the revolving facility, which will apply either through the end of the Covenant Relief Period – and in the case of certain provisions, until the Company demonstrates compliance with the financial covenants in effect under the Credit Agreement prior to the First Amendment.

As of March 31, 2021, we are not aware of any instances of non-compliance with such covenants. Though there is potential for a risk of default (See Note 17 for discussion specific to COVID-19), in the event the Company fails to maintain compliance with its financial covenants, the Credit Agreement provides for a cure period, during which the Company has the opportunity to raise additional cash and reduce net debt balance, such as through capital contributions from BPY, or disposition of assets. Management has determined that in the event of a default, it is probable that these market-based alternatives would be available,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

and that these actions would provide the necessary cash flows to prevent or cure an event of default, although there is no guarantee that these market-based alternatives would be available.

Junior Subordinated Notes

GGP Capital Trust I, a Delaware statutory trust (the "Trust"), completed a private placement of $200.0 million of trust preferred securities ("TRUPS") in 2006. The Trust also issued $6.2 million of common securities to BPROP. The Trust used the proceeds from the sale of the TRUPS and common securities to purchase $206.2 million of floating rate junior subordinated notes of BPROP due 2036. Distributions on the TRUPS are equal to LIBOR plus 1.45%. Distributions are cumulative and accrue from the date of original issuance. The TRUPS mature on April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of junior subordinated notes. The junior subordinated notes bear interest at LIBOR plus 1.45% and are fully recourse to the Company. We have recorded the junior subordinated notes as a liability and our common equity interest in the Trust as prepaid expenses and other assets in our Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.

Letters of Credit and Surety Bonds

We had outstanding letters of credit and surety bonds of $49.8 million as of March 31, 2021 and $50.1 million as of December 31, 2020. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

We are not aware of any instances of material non-compliance with our financial covenants related to our mortgages, notes and loans payable as of March 31, 2021.

NOTE 7 LEASES

Lessee arrangements

We are the lessee in several ground lease agreements for the land under some of our owned buildings. Generally, we own the land underlying the properties; however, at certain properties, all or part of the underlying land is owned by a third party that leases the land to us through a long-term ground lease. In addition, we lease office space for our corporate headquarters and field offices. Our material consolidated leases have reasonably certain lease terms ranging from four years to forty years. Certain leases provide the lessee with two to three renewal options which are considered to be termination options unless it is reasonably certain that the Company will elect to renew and generally range from five years to ten years each, with renewal rent payments based on a predetermined annual increase, market rates at the time of exercise of the renewal, or changes in the Consumer Price Index ("CPI").

As of March 31, 2021, the balance of ROU assets was $390.3 million, net and lease liabilities of $73.9 million for seven ground leases and one office lease in the Consolidated Balance Sheets under Topic 842, included in prepaid expenses and other assets and accounts payable and accrued expenses, respectively.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The maturity of our operating lease liabilities as of March 31, 2021 is as follows:


Year	Amount
Remainder of 2021	$	7,093
2022	9,704
2023	9,968
2024	10,200
2025	10,439
2026	10,684
2027 and thereafter	144,328
Total undiscounted lease payments	202,416
Less: Present value adjustment	(128,514)
Total lease liability	$	73,902

Straight-line rent expense recognized for our consolidated operating leases is as follows:


	Three Months Ended March 31, 2021	Three Months Ended March 31, 2020
Ground leases	1,774	2,399
Office leases	1,964	1,964

Straight-line rent expense is included in other property operating costs for ground leases and property management and other costs for the office lease, respectively, in the Consolidated Statements of Operations and Comprehensive Income (Loss). Several lease agreements include variable lease payments which vary based on factors such as sublease income received, the revenues or net operating income of the properties constructed on the leased premises, increases in CPI, and changes in market rents. In addition, our leases require us to reimburse the lessor for the lessor’s tax, insurance and common area costs. Variable lease payments and short-term lease costs recognized as rent expense for operating leases were not significant for each of the three months ended March 31, 2021 and 2020 and are included in other property operating costs in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The following summarizes additional information related to our operating leases as of March 31, 2021 and March 31, 2020:


	March 31, 2021	March 31, 2020
Weighted-average remaining lease term (years)	23.3	23.2
Weighted-average discount rate	7.69%	7.67%

Supplemental disclosure for the consolidated statements of cash flows:
Cash paid for amounts included in the measurement of lease liabilities	$2,377	$2,336

Lessor arrangements

We own a property portfolio comprised primarily of Class A retail properties and lease this retail space to tenants. As of March 31, 2021, we own a controlling interest in and consolidated 62 retail properties located throughout the United States comprising approximately 54 million square feet of GLA. We enter into operating leases with a variety of tenants, the majority of which are national and regional retail chains and local retailers. These operating leases expire starting in the remainder of year 2021 and typically include renewal options, which are generally exercisable only by the tenant. Certain leases also include early termination options which are typically exercisable only by the tenant. Our leases do not allow the tenant to purchase the retail space.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The maturity analysis of the lease payments we expect to receive from our operating leases as of March 31, 2021 is as follows:


Year	Amount
Remainder of 2021	$	750,388
2022	923,135
2023	808,919
2024	685,504
2025	568,089
2026	473,326
Subsequent	1,391,642
	$	5,601,003

All lease-related income is reported as a single line item, rental revenues, in our Consolidated Statements of Operations and Comprehensive Income (Loss). Effective January 1, 2019, with the adoption of Topic 842, rental revenues is presented net of provision for doubtful accounts. Rental income recognized on a straight-line basis consists primarily of fixed and in-substance fixed lease payments (including lease payments related to non-lease components which have been combined with the lease component). Variable rental income represents variable lease payments, which consist primarily of overage rents; reimbursements for tenants’ pro rata share of real estate taxes, insurance, property operating and marketing expenses, and utilities; lease payments related to CPI-based escalations and market rent resets; and lease termination income.

In accordance with the terms of our operating leases, we bill our tenants separately for minimum rents, tenant recoveries, overage rents and lease termination income as shown below for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Minimum rents, billed	$	235,301	$	253,509
Tenant recoveries, billed	91,290		99,045
Lease termination income, billed	10,339		854
Overage rent, billed	6,593		5,394
COVID-19 rent abatements granted	(36,159)		—
Total contractual operating lease billings	307,364		358,802
Adjustment to recognize contractual operating lease billings on a straight-line basis	14,098		4,476
Above and below-market tenant leases, net	5,290		(6,476)
Less provision for doubtful accounts	171		(4,973)
Total rental revenues, net	$	326,923	$	351,829

As a result of the COVID-19 pandemic, a significant portion of the Company’s tenants requested rental assistance, whether in the form of deferral or rent reduction. Lease concessions granted in response to the COVID-19 pandemic are accounted for as a lease modification and are recognized prospectively over the remaining lease term when they become legally enforceable. However, prior to the legal execution of the lease concession, when establishing its general allowance, the Company recognizes the portion of estimated concessions that is deemed attributable to the current period through consideration of weighted average remaining lease terms. In the table above, contractual operating lease billings are reduced by rent abatements executed during the period. Such rent abatements, net of estimated lease concessions previously recognized in the general allowance, are recognized as an increase to straight-line rent receivables. In the table above, such amounts are included in the adjustment to recognize contractual operating lease billings on a straight-line basis.

Of the total contractual rental revenues we have billed, 71.2% and 79.4% are fixed lease payments for the three months ended March 31, 2021, and 2020, respectively.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

NOTE 8 INCOME TAXES

The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. We intend to maintain REIT status. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our taxable ordinary income. In addition, the Company is required to meet certain asset and income tests.

As a REIT, we will generally not be subject to corporate level Federal income tax on taxable income we distribute currently to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income or property, and to Federal income and excise taxes on our undistributed taxable income and capital gains. Depending on the extended due date for partnership and corporate income tax returns, we are statutorily open to audit by the Internal Revenue Service for the years ended December 31, 2017 through 2020 and are generally statutorily open to audit by state taxing authorities for the years ended December 31, 2016 through 2020.

We have no unrecognized tax benefits recorded pursuant to uncertain tax positions as of March 31, 2021.

NOTE 9 EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS

Allocation to Noncontrolling Interests

Noncontrolling interests consists of the redeemable interests related to BPROP Common, Preferred, and LTIP Units and the noncontrolling interest in our consolidated joint ventures. The following table reflects the activity included in the allocation to noncontrolling interests.


	Three Months Ended March 31,
	2021		2020
Distributions to preferred BPROP units ("Preferred Units")	$	(924)	$	(910)


Net loss allocated to noncontrolling interest in consolidated real estate affiliates	53,913		9,030
Net loss allocated to noncontrolling interest of the Operating Partnership (1)	(26,559)		10,502
Allocation to noncontrolling interests	26,430		18,622

Other comprehensive loss allocated to noncontrolling interests	(110)		—
Comprehensive loss allocated to noncontrolling interests	$	26,320	$	18,622

_______________________________________________________________________________

(1) Represents the noncontrolling interest of our institutional investor.

Noncontrolling Interests

The noncontrolling interest related to the Common, Preferred, and LTIP Units of BPROP are presented either as redeemable noncontrolling interests in mezzanine equity or as noncontrolling interests in our permanent equity on our Consolidated Balance Sheets. Classification as redeemable or permanent equity is considered on a tranche-by-tranche basis and is dependent on whether we could be required, under certain events outside of our control, to redeem the securities for cash by the holders of the securities. Those tranches for which we could be required to redeem the security for cash are included in redeemable equity. If we control the decision to redeem the securities for cash, the securities are classified as permanent equity.

The redeemable Common and Preferred Units of BPROP are recorded at the greater of the carrying amount adjusted for the noncontrolling interest’s share of the allocation of income or loss (and its share of other comprehensive income or loss) and dividends or their redemption value (i.e. fair value) as of each measurement date. The excess of the fair value over the carrying amount from period to period is recorded within additional paid-in capital in our Consolidated Balance Sheets. Allocation to noncontrolling interests is presented as an adjustment to net income (loss) to arrive at net income (loss) attributable to BPYU. The preferred redeemable noncontrolling interests have been recorded at carrying value.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Holders of Series B Preferred Units, Series D Preferred Units, Series E Preferred Units and Series G Preferred Units of BPROP are each entitled to periodic distributions at the rates set forth in the Sixth Amended and Restated Agreement of Limited Partnership of BPROP. Generally, each Series K Preferred Unit of BPROP entitles its holder to distributions and a liquidation preference identical to those established for each share of BPYU's Class A Stock. The holders of Series L Preferred Units of BPROP are generally entitled to a pro rata distribution of an aggregate cash amount equal to the sum of (i) the aggregate cash dividends declared on all outstanding shares of BPYU's Class B Stock and (ii) the aggregate cash dividends declared on all outstanding shares of BPYU's Series B Preferred Stock. Holders of Common Units of BPROP are entitled to distributions of all or a portion of BPROP’s remaining net operating cash flow, when and as declared by BPROP’s general partner. However, the Sixth Amended and Restated Agreement of Limited Partnership of BPROP permits distributions solely to BPYU if such distributions were required to allow the Company to comply with the REIT distribution requirements or to avoid the imposition of excise tax.

Noncontrolling Interests - Permanent

As of March 31, 2021, there were 9,717.658 Series B Preferred Units of BPROP outstanding. The Series B Preferred Units have a carrying value of $50 per unit.

Also, as of March 31, 2021, there were 776,734.3886 Common Units of BPROP outstanding and 315,992.1238 Series K Preferred Units of BPROP (held by former common unit holders). These Series K Units were established at $21 per unit and are not subject to adjustment based on fair value.

Noncontrolling Interests - Redeemable

The Series D Preferred Units of BPROP are convertible based on a conversion ratio of 1.50821, which is the quotient of the Series D Preferred Unit’s $50 liquidation preference and $33.151875 conversion price. Upon conversion, each Series D Preferred Unit entitles its holder to (i) $21.9097 in cash, (ii) a number of Series K Preferred Units of BPROP equal to (x) 0.40682134 Series K Preferred Units (which is subject to adjustment), multiplied by (y) the Series D conversion ratio; and (iii) a number of Common Units of BPROP equal to (x) one Common Unit (which is subject to adjustment), multiplied by (y) the Series D conversion ratio. As of March 31, 2021, there were 532,749.6574 Series D Preferred Units of BPROP outstanding.

The Series E Preferred Units of BPROP are convertible based on a conversion ratio of 1.29836, which is the quotient of the Series E Preferred Unit’s $50 liquidation preference and $38.51 conversion price. Upon conversion, each Series E Preferred Unit entitles its holder to (i) $18.8613 in cash, (ii) a number of Series K Preferred Units of BPROP equal to (x) 0.40682134 Series K Preferred Units (which is subject to adjustment), multiplied by (y) the Series E conversion ratio; and (iii) a number of Common Units of BPROP equal to (x) one Common Unit (which is subject to adjustment), multiplied by (y) the Series E conversion ratio. As of March 31, 2021, there were 502,657.8128 Series E Preferred Units of BPROP outstanding.

The holder of each Series K Preferred Unit of BPROP issued upon conversion of Series D Preferred Units or Series E Preferred Units of BPROP has the right to redeem such Series K Preferred Unit for a cash amount equal to the average closing price of BPYU’s Class A Stock for the five consecutive trading days ending on the date of the notice of redemption, provided that BPYU may elect to satisfy such redemption by delivering one share of BPYU’s Class A Stock. The holder of each Common Unit of BPROP issued upon conversion of Series D Preferred Units or Series E Preferred Units of BPROP has the right to redeem such Common Unit for a cash amount equal to $0.324405869, subject to adjustment.

Each LTIP Unit of BPROP is convertible into, and, except for the level of preference, entitles its holder to regular and liquidating distributions equivalent to that of 0.016256057 Series K Preferred Units, subject to adjustment. Each Series K Preferred Unit received by an LTIP holder in connection with the BPY Transaction of 2018 is redeemable for a cash amount equal to the average closing price of BPYU's Class A Stock for five consecutive trading days ending on the date of the notice of redemption, provided that BPYU may elect to satisfy such redemption by delivering one share of BPYU's Class A Stock. If the holders had requested redemption of the Class A Stock and Preferred Units as of March 31, 2021, the aggregate amount of cash the Company would have paid would have been $694.0 million and $56.2 million, respectively.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The following table reflects the activity of the common redeemable noncontrolling interests for the three months ended March 31, 2021 and 2020.


Balance at January 1, 2020	$	62,235
Net income	(441)
Series K Preferred Unit redemption	(388)
Balance at March 31, 2020	61,406

Balance at January 1, 2021	$	60,826

Series K Preferred Unit redemption	(373)
Balance at March 31, 2021	$	60,453

Redeemable Class A Stock

Class A Stock refers to the Company's Class A Stock, par value $0.01 per share, authorized and issued to GGP common stockholders that were unaffiliated with BPY as part of the BPY Transaction of 2018. The Company's Class A Stock is listed on the Nasdaq Global Select Market ("Nasdaq"). Our Class A Stock has traded on Nasdaq under the symbol "BPYU" since March 2, 2020, prior to which it traded under the symbol "BPR".

Each share of Class A Stock is entitled to cumulative dividends per share in a cash amount equal in value to the amount of any distribution made on a BPY limited partnership unit ("BPY unit"). In addition, each share of Class A Stock is exchangeable for one BPY unit or its cash equivalent (the form of payment to be determined by BPY or an affiliate, in its sole discretion). Such exchange and distribution rights are subject to adjustment in the event of certain dilutive or other capital events by BPY or BPYU. If and to the extent declared by the Company's board of directors, the record and payment dates for the dividends or other distributions upon the shares of Class A Stock, to the extent not prohibited by applicable law, is expected to be the same as the record and payment dates for the dividends or other distributions upon the BPY units. Pursuant to the terms of the Company's charter, all such dividends to holders of Class A Stock will be paid prior and in preference to any dividends or distributions on the Class B Stock, Series B Preferred Stock or Class C Stock will be fully declared and paid before any dividends are declared and paid or any other distributions are made on any Class B Stock, Series B Preferred Stock or Class C Stock. The holders of Class A Stock shall not be entitled to any dividends from BPYU other than the Class A dividend.

Upon any liquidation, dissolution or winding up of the Company that is not a Market Capitalization Liquidation Event (as defined below) or substantially concurrent with the liquidation, dissolution or winding up of BPY, the holders of Class A Stock are entitled to a cash amount, for each share of Class A Stock, equal to the market price of one BPY unit (subject to adjustment in the event of certain dilutive or other capital events by BPY or BPYU) on the date immediately preceding announcement of such liquidation, dissolution or winding up, plus all declared and unpaid dividends. If, upon any such liquidation, dissolution or winding up, the assets of BPYU are insufficient to make such payment in full, then the assets of BPYU will be distributed among the holders of Class A Stock ratably in proportion to the full amounts to which they would otherwise be respectively entitled to receive.

If the market capitalization of the Class A Stock (i.e., if the price per share of Class A Stock, multiplied by the number of shares of Class A Stock outstanding) averages, over any period of 30 consecutive trading days, less than one (1) billion dollars, the BPYU board will have the right to liquidate BPYU’s assets and wind up BPYU’s operations (a "Market Capitalization Liquidation Event"). Upon any Market Capitalization Liquidation Event, the holders of Class A Stock shall be entitled to a cash amount, for each share of Class A Stock, equal to the dollar volume-weighted average price of one BPY unit over the ten (10) trading days immediately following the public announcement of such Market Capitalization Liquidation Event, plus all declared and unpaid dividends. If, upon any such Market Capitalization Liquidation Event, the assets of BPYU are insufficient to make such payment in full, then the assets of BPYU will be distributed among the holders of Class A Stock ratably in proportion to the full amounts which they would otherwise be respectively entitled to receive. Notwithstanding the foregoing, upon any Market Capitalization Liquidation Event, BPY may elect to exchange all of the outstanding shares of the Class A Stock for BPY units on a one-for-one basis, subject to adjustment in the event of certain dilutive or other capital events by BPY or BPYU.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Holders of Class A Stock shall have the right to exchange all or a portion of their Class A Stock for cash at a price equal to the value of an equivalent number of BPY units, subject to adjustment in the event of certain dilutive or other capital events by BPY or BPYU. Upon receipt of a request for exchange, BPYU will deliver a notice of exchange to BPY within one (1) business day and will have ten (10) business days to deliver the cash amount to the tendering holder. Upon receipt of the notice of exchange, BPY or an affiliate may elect to satisfy BPYU’s exchange obligation by exchanging all of the shares of the Class A Stock tendered for BPY units on a one-for-one basis. This initial one-for-one conversion factor is subject to adjustment in the event of certain dilutive or other capital events by BPY or BPYU. If so elected, BPY will have to satisfy such obligation within ten (10) business days from the date of the notice of exchange. If BPY exercises its right to assume the exchange obligation, units of BPY units will be delivered in exchange for the Class A Stock and such Class A Stock will automatically be converted into Class B Stock.

As there are certain events outside of the Company’s control whereby it could be required to redeem the Class A Stock for cash by the holders of the securities, the Class A Stock is included in redeemable equity. Accordingly, the Class A Stock are recorded at the greater of the carrying amount or their redemption value (i.e. fair value) as of each measurement date. The excess of the fair value over the carrying amount from period to period is recorded within additional paid-in capital in the Company’s Consolidated Balance Sheets. There is no adjustment within additional paid-in capital for the Class A stock when the fair value is less than the carrying value.

Class B Stock

The Company’s shareholders approved the amendment and restatement of the Company’s charter at its annual stockholder meeting on June 19, 2019 (the "Restated Charter"), which became effective on June 26, 2019 and, among other things, authorized the Company’s issuance of up to 965,000,000 shares of a new class of stock called Class B-2 Stock, par value of $0.01 per share. Each share of Class B-2 Stock shall have terms (including the same powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions) identical to the terms of a share of Class B-1 Stock other than voting rights. The following description sets forth certain general terms and provisions of the Company's Class B-1 Stock and Class B-2 Stock (together the "Class B Stock").

Pursuant to the Restated Charter and subject to the prior rights of holders of all classes, including the Class A Stock, and any series of preferred stock at the time outstanding having prior rights as to dividends, each share of Class B Stock entitles its holder to cumulative dividends per share in a cash amount at a rate of 6.5% per year of the Class B liquidation amount per share (which rate was 10.0% per year until the effective date of the Restated Charter on June 26, 2019) equal to $21.39 per share. On October 18, 2018, each holder of the Class B-1 Stock hereby irrevocably waived, all of its right, title and interest in and to 2.5% of the dividend rate, including without elimination all rights and entitlement to payment of such amounts. This partial dividend waiver resulted in a 7.5% effective rate per year of the Class B Liquidation Amount per share and was terminated upon the effectiveness of the Restated Charter. Dividends on the Class B Stock may also be paid by an in-kind distribution of additional shares of Class B Stock or any other class of shares of capital stock of BPYU ranking junior to the Class A Stock. Dividends on the Class B Stock shall be cumulative and shall be payable quarterly in arrears, when, as and if declared by the Company's Board of Directors with respect to dividends on the Class B Stock.

Holders of the Class B Stock are not entitled to receive dividends, redemptions or other distributions: (i) unless and until (a) BPYU has paid the aggregate dividends owed to the holders of Class A Stock and (b) the dividend coverage ratio (as defined below) is equal to or greater than 1.25:1, (ii) if any tendering holder of Class A Stock has not received the cash or BPY units due upon exchange or (iii) if holders of Class A Stock are owed cash in the event of an adjustment to the conversion factor. The dividend coverage ratio is referred to as a ratio of (i) BPYU’s funds from operations, as calculated in accordance with the definition of funds from operations used by the National Association of Real Estate Investment Trusts ("Nareit"), for the immediately preceding fiscal quarter, to (ii) the product of (a) the amount of the most recent regular quarterly distribution declared by BPY on each BPY unit, times (b) the number of shares of Class A Stock outstanding at such time.

Series B Preferred Stock

The following description sets forth certain general terms and provisions of the Series B Preferred Stock, par value $0.01 per share, of the Company (the "Series B Preferred Stock").

Pursuant to the Restated Charter and subject to the prior rights of holders of all classes, including the Class A Stock, Class B Stock and any series of preferred stock at the time outstanding having prior rights as to dividends, each share of Series B

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Preferred Stock will entitle its holder to cumulative dividends per share in a cash amount at a rate of 8.65% per year of the Class B liquidation amount per share (which rate was 10.0% until the effective date of the Restated Charter on June 26, 2019), with such Class B liquidation amount per share equal to $21.39. Dividends on the Series B Preferred Stock may also be paid by an in-kind distribution of additional shares of Series B Preferred Stock or any other class of shares of capital stock of BPYU ranking junior to the Class A Stock and Class B Stock. Dividends on the Series B Preferred Stock shall be cumulative and shall be payable quarterly in arrears, when, as and if declared by the Company's Board of Directors with respect to dividends on the Series B Preferred Stock.

Holders of the Series B Preferred Stock are not entitled to receive dividends, redemptions or other distributions: (i) unless and until (a) BPYU has paid the aggregate dividends owed to the holders of Class A Stock and Class B Stock and (b) the dividend coverage ratio (as defined below) is equal to or greater than 1.25:1, (ii) if any tendering holder of Class A Stock has not received the cash or BPY units due upon exchange or (iii) if holders of Class A Stock are owed cash in the event of an adjustment to the conversion factor. The dividend coverage ratio is referred to as a ratio of (i) BPYU’s funds from operations, as calculated in accordance with the definition of funds from operations used by Nareit, for the immediately preceding fiscal quarter, to (ii) the product of (a) the amount of the most recent regular quarterly distribution declared by BPY on each BPY unit, times (b) the number of shares of Class A Stock outstanding at such time.

Class C Stock

Class C Stock refers to the Company's Class C Stock, par value $0.01 per share, authorized as part of the BPY Transaction of 2018. Pursuant to the amended charter and subject to the prior rights of holders of all classes, including the holders of Class A Stock, Class B Stock, Series B Preferred Stock and any series of preferred stock at the time outstanding having prior rights as to dividends, each share of Class C Stock will entitle its holder to dividends when, as and if declared by the Company's Board of Directors out of any assets of BPYU legally available therefore. The record and payment date for dividends on shares of Class C Stock shall be such date that the Company's Board of Directors shall designate.

Notwithstanding the foregoing, holders of the Class C Stock are not entitled to receive dividends, redemptions or other distributions: (i) unless and until (a) BPYU has paid the aggregate dividends owed to the holders of Class A Stock and (b) the dividend coverage ratio is equal to or greater than 1.25:1, (ii) if any tendering holder of Class A Stock has not received the cash or BPY units due upon exchange, (iii) if holders of Class A Stock are owed cash in the event of an adjustment to the conversion factor or (iv) unless and until the full cumulative dividends on the Class B Stock and Series B Preferred Stock for all past dividend periods and any current dividend periods have been (or contemporaneously are) (a) declared or paid in cash or (b) declared and a sum sufficient for the payment thereof in cash is set apart for such payment.

Voting Rights


Stock Class	Authorized	Issued	Shares Outstanding	Votes per Share
Class A Stock	4,517,500,000	40,633,040	38,662,115	1:1
Class B-1 Stock	4,517,500,000	203,779,976	203,779,976	1:1
Class B-2 Stock	965,000,000	121,203,654	121,203,654	0:1
Series B Preferred Stock	425,000,000	202,438,184	202,438,184	1:1
Class C Stock	1,000,000,000	640,051,301	640,051,301	1:1

All share counts in table above are as of March 31, 2021.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Class A Stock Dividend

Our Board of Directors declared Class A Stock dividends during 2021 and 2020 as follows:

Declaration Date

Record Date

Payment Date

Dividend Per Share

2021

February 1

February 26, 2021

March 31, 2021

0.3325

2020

November 5

November 30, 2020

December 31, 2020

0.3325

August 5

August 31, 2020

September 30, 2020

0.3325

May 7

May 29, 2020

June 30, 2020

0.3325

February 5

February 28, 2020

March 31, 2020

0.3325

Class A Stock Repurchases and Conversions

In the first quarter of 2020, BPYU purchased 855,000 shares of Class A Stock and deposited them in a trust account maintained by the Company's transfer agent for the benefit of individuals who received grants of restricted shares of Class A Stock pursuant to the Brookfield Property Group Restricted BPR Class A Stock Plan (the "Restricted Stock Plan"). These shares were purchased at an average price of $18.57 per share for an aggregate cost of approximately $15.87 million.

On August 5, 2020, the Company’s Board of Directors authorized the repurchase of the greater of (i) 5% of the Company’s

Class A Stock that are issued or outstanding or (ii) 10% of its public float of Class A Stock over the next 12 months from time

to time as market conditions warrant.

On August 18, 2020, a total of 7,321,155 shares of Class A stock were properly tendered for an aggregate cost of approximately $87.9 million, equal to $12.00 per share.

In the third quarter of 2020, BPYU purchased for cancellation 2,606,289 shares of Class A Stock at an average purchase price of $11.46 per share for an aggregate cost of approximately $29.87 million.

During the three months ended March 31, 2021, there were 479 shares of Class A Stock converted to 385 shares of Class B-1 Stock, at a weighted average price of $17.17 and $21.39, respectively.

In the first quarter of 2021, BPYU purchased 841,950 shares of Class A Stock and deposited them in a trust account maintained by the Company's transfer agent for the benefit of individuals who received grants of restricted shares of Class A Stock pursuant to the Restricted Stock Plan. These shares were purchased at an average price of $18.56 per share for an aggregate cost of approximately $15.63 million.

Class B Stock and Series B Preferred Stock Dividends

Our Board of Directors did not declare dividends on Class B-1 Stock, Class B-2 Stock, or Series B Preferred Stock during the three months ended March 31, 2021 or in 2020.

Class B-1 Stock Issuance & Repurchase

In the third quarter 2020, BPYU issued 19,367,288 shares of Class B-1 Stock to BPR FIN I Subco LLC, a related party, due to total contributions of $414.3 million, equal to $21.39 per share.

During the three months ended March 31, 2021, BPYU issued 1,379,150 shares of Class B-1 Stock to BPR FIN I Subco LLC, a related party, due to total contributions of $29.5 million, equal to $21.39 per share.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Preferred Stock

On February 13, 2013, we issued, in a public offering, 10,000,000 shares of 6.375% Series A Cumulative Perpetual Preferred Stock (the "Pre-Merger Preferred Stock") at a price of $25.00 per share, resulting in net proceeds of $242.0 million after issuance costs. In connection with the BPY Transaction of 2018, each share of Pre-Merger Preferred Stock was converted into one share of 6.375% Series A cumulative redeemable preferred stock of BPYU (the "Series A Preferred Stock"). The Company's Series A Preferred Stock is listed on Nasdaq. Our Series A Preferred Stock has traded on Nasdaq under the symbol "BPYUP" since March 2, 2020, prior to which it traded under the symbol "BPRAP". The Series A Preferred Stock is recorded net of issuance costs within equity on our Consolidated Balance Sheets, and accrues a quarterly dividend at an annual rate of 6.375%. The dividend is paid in arrears in preference to dividends on our Class A Stock, and reduces net income available to stockholders, and therefore, earnings per share.

The Series A Preferred Stock does not have a stated maturity date but we may redeem the Series A Preferred Stock for $25.00 per share plus all accrued and unpaid dividends. Upon certain circumstances surrounding a change of control, holders of Series A Preferred Stock may elect to convert each share of their Series A Preferred Stock into a number of shares of Class A Stock or Class C Stock, at the option of the holder, equivalent to $25.00 plus accrued and unpaid dividends, but not to exceed a cap of 2.4679 shares of Class A Stock or Class C Stock (subject to certain adjustments related to splits, subdivisions, or combinations). The BPY Transaction of 2018 did not meet the definition of a change in control per the certificate of designation governing the Series A Preferred Stock.

Our Board of Directors declared preferred stock dividends during 2021 and 2020 as follows:

Declaration Date

Record Date

Payment Date

Dividend Per Share

2021

May 6

June 15, 2021

July 1, 2021

0.3984

February 1

March 15, 2021

April 1, 2021

0.3984

2020

November 5

December 15, 2020

January 1, 2021

0.3984

August 5

September 15, 2020

October 1, 2020

0.3984

May 7

June 15, 2020

July 1, 2020

0.3984

February 5

March 15, 2020

April 1, 2020

0.3984

Accumulated Other Comprehensive Loss

The following table reflects the components of accumulated other comprehensive loss as of March 31, 2021 and 2020:


	March 31, 2021		March 31, 2020
Net unrealized gains on financial instruments	$	81	$	(10)
Foreign currency translation	(99,724)		(99,774)
AOCI - minority interest	1,269		—
Accumulated other comprehensive loss	$	(98,374)	$	(99,784)

NOTE 10 EARNINGS PER SHARE

Class A Stock

Income available to Class A stockholders is limited to distributed income or dividends declared. Additionally, for purposes of allocating earnings to Class A Stock, the portion of the change in the carrying amount of Class A Stock that reflects a redemption in excess of fair value is considered a dividend to the Class A stockholders. As the Class A Stock redemption value approximates its fair value, basic and diluted earnings per share ("EPS") for Class A Stock is equivalent to the dividends declared for the period January 1, 2021 through March 31, 2021. There were 39,127,335 and 38,662,115 shares of Class A

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Stock outstanding as of December 31, 2020 and March 31, 2021, respectively. EPS is not presented for Class B Stock, Series B Preferred Stock or Class C Stock as these classes of stock are not publicly traded.

NOTE 11 STOCK-BASED COMPENSATION PLANS

The GGP Inc. 2010 Equity Plan (the "Equity Plan"), renamed as the Amended and Restated Brookfield Property REIT Inc. 2010 Equity Incentive Plan on August 28, 2018 in connection with the BPY Transaction of 2018, reserves for the issuance of 4% of outstanding Class A Stock on a fully diluted basis. The Equity Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, other stock-based awards and performance-based compensation (collectively, the "Awards"). The Company's directors, officers and other employees and those of its subsidiaries and affiliates are eligible for the Awards. The Equity Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended. No participant may be granted more than 4,000,000 shares, or the equivalent dollar value of such shares, in any year. Options granted under the Equity Plan will be designated as either nonqualified stock options or incentive stock options. An option granted as an incentive stock option will, to the extent it fails to qualify as an incentive stock option, be treated as a nonqualified option. The exercise price of an option may not be less than the fair value of a share of BPYU's Class A Stock on the date of grant. The term of each option will be determined prior to the date of grant, but may not exceed 10 years. In addition to the Equity Plan, effective February 20, 2019, the Brookfield Property Group Restricted BPR Class A Stock Plan and Brookfield Property L.P. FV LTIP Unit Plan (the "2019 Plans") provide for grants of Restricted Class A Shares of BPR, now BPYU, stock and FV LTIP Units of Brookfield Property L.P. respectively. Officers and employees of any member of the Brookfield Properties Group and of their respective affiliates are eligible for Awards under these plans.

In connection with the BPY Transaction of 2018, the Equity Plan was amended and certain outstanding awards were modified. All outstanding GGP in and out of the money options were canceled and replaced with Class A Stock of BPYU and BPY options, respectively. Certain existing appreciation only LTIP awards were canceled and replaced with substitute awards of a BPY affiliate. Outstanding restricted GGP shares were replaced with restricted shares of Class A Stock. As the awards were modified in conjunction with an equity restructuring, they were accounted for as modifications. Incremental compensation cost was measured as the excess of the fair value of the replacement awards over the fair value of the original awards immediately before the terms were modified. Total compensation cost measured at the date of modification was the grant-date fair value of the original awards for which the requisite service is expected to be rendered (or has already been rendered) plus the incremental cost associated with the replacement awards. For vested awards, incremental compensation cost was recognized on the modification date. For unvested awards, incremental compensation cost is being recognized over the remaining service period.

Compensation expense related to stock-based compensation plans for the three months ended March 31, 2021 and 2020 is summarized in the following table in thousands:


	Three Months Ended March 31,
	2021		2020
Stock options - Property management and other costs	$	—	$	—
Stock options - General and administrative	—		—
Restricted stock - Property management and other costs	1,294		851
Restricted stock - General and administrative	754		402
LTIP Units - Property management and other costs	8		3
LTIP Units - General and administrative	15		6
Total	$	2,071	$	1,262

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

The following tables summarize stock option, LTIP Unit and restricted stock activity for the Equity Plan and the 2019 Plans for the three months ended March 31, 2021 and 2020:


	2021			2020
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Stock options Outstanding at January 1,	136,662	$	26.05	175,799	$	25.66
Granted	—	—		—	—
Exercised	—	—		—	—
Forfeited	—	—		—	—
Expired (1)	(4,790)	26.05		—	—
Stock options Outstanding at March 31,	131,872	$	26.05	175,799	$	25.66

(1) The expired options shown expired in 2020 but were not reported until Q1 2021.


	2021			2020
	Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
LTIP Units Outstanding at January 1,	1,763,921	$	23.99	2,177,668	$	24.11
Granted (1)	—	—		24,251	18.56
Exercised	(42,013)	27.38		(35,820)	26.54
Forfeited	—	—		—	—
Expired	(296,190)	22.54		—	—
LTIP Units Outstanding at March 31,	1,425,718	$	24.20	2,166,099	$	24.00

(1) Granted by an affiliated operating partnership of the Company.


	2021			2020
	Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Restricted Stock Outstanding at January 1,	1,414,558	$	19.48	1,149,164	$	20.98
Granted	910,721	18.53		851,102	18.57
Vested	(378,135)	20.13		(255,801)	22.08
Forfeited	(55,670)	19.04		(36,400)	19.94
Restricted Stock Outstanding at March 31,	1,891,474	$	18.90	1,708,065	$	19.63

NOTE 12 ACCOUNTS RECEIVABLE, NET

The following table summarizes the significant components of accounts receivable, net.


	March 31, 2021		December 31, 2020
Trade receivables	$	248,513	$	384,464
Short-term tenant receivables	6,446		6,703
Straight-line rent receivable	202,969		188,950
Other accounts receivable	14,680		14,894
Total accounts receivable	472,608		595,011
Provision for doubtful accounts	(66,367)		(70,029)
Total accounts receivable, net	$	406,241	$	524,982

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

Receivables related to legally executed rent deferrals are presented within trade receivables in the table above.

At the time of the legal execution of a lease concession that abates previously recognized trade receivables, such amounts (net of estimated lease concessions previously recognized in the provision for doubtful accounts) are reclassified to straight-line rent receivables. Refer to Notes 2 and 7 for additional information regarding the Company's consideration of the collectability of accounts receivable.

NOTE 13 NOTES RECEIVABLE

The following table summarizes the significant components of notes receivable.


	March 31, 2021		December 31, 2020
Notes receivable	$	34,011	$	40,999
Accrued interest	4,233		4,554
Total notes receivable	$	38,244	$	45,553

During the three months ended March 31, 2021, the Company wrote off notes receivable deemed uncollectible in the amount of $7.9 million.

NOTE 14 PREPAID EXPENSES AND OTHER ASSETS

The following table summarizes the significant components of prepaid expenses and other assets.


	March 31, 2021						December 31, 2020
	Gross Asset		Accumulated Amortization		Balance		Gross Asset		Accumulated Amortization		Balance
Intangible assets:
Above-market tenant leases, net	$	128,754	$	(55,144)	$	73,610	$	133,220	$	(54,922)	$	78,298

Real estate tax stabilization agreement, net	111,506		(65,594)		45,912		111,506		(64,016)		47,490
Total intangible assets	$	240,260	$	(120,738)	$	119,522	$	244,726	$	(118,938)	$	125,788
Remaining prepaid expenses and other assets:
Restricted cash					231,895						164,069
Security and escrow deposits					1,164						1,160
Prepaid expenses					31,276						45,266
Other non-tenant receivables					63,229						70,916
Operating lease right of use assets, net					390,263						392,634
Finance lease right of use assets, net					7,847						7,873
Other					21,003						20,040
Total remaining prepaid expenses and other assets					746,677						701,958
Total prepaid expenses and other assets					$	866,199					$	827,746

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

NOTE 15 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The following table summarizes the significant components of accounts payable and accrued expenses.


	March 31, 2021						December 31, 2020
	Gross Liability		Accumulated Accretion		Balance		Gross Liability		Accumulated Accretion		Balance
Intangible liabilities:
Below-market tenant leases, net	201,969		(61,879)		$	140,090	222,432		(72,364)		$	150,068


Total intangible liabilities	$	201,969	$	(61,879)	$	140,090	$	222,432	$	(72,364)	$	150,068
Remaining accounts payable and accrued expenses:
Accrued interest					92,993						63,693
Accounts payable and accrued expenses					64,421						83,041
Accrued real estate taxes					66,756						76,401
Deferred gains/income					99,216						94,752
Accrued payroll and other employee liabilities					30,480						57,134
Construction payable					253,425						272,080
Tenant and other deposits					14,754						14,644
Insurance reserve liability					12,477						12,793
Finance lease obligations					9,093						9,093
Conditional asset retirement obligation liability					2,375						2,342
Lease liability right of use					73,902						74,896
Other					75,562						82,680
Total remaining Accounts payable and accrued expenses					795,454						843,549
Total Accounts payable and accrued expenses					$	935,544					$	993,617

NOTE 16 LITIGATION

In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity.

The Company is subject to litigation related to the BPY Transaction of 2018. The Company cannot predict the outcome of pending litigation, nor can it predict the amount of time and expense that will be required to resolve such litigation.

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Brookfield Property REIT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

NOTE 17 COMMITMENTS AND CONTINGENCIES

We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale of the property by the landlord. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. The following is a summary of our contractual rental expense as presented in our Consolidated Statements of Operations and Comprehensive Loss:


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Contractual rent expense, including participation rent	$	4,314	$	3,310
Contractual rent expense, including participation rent and excluding amortization of above and below-market ground leases and straight-line rent	3,376		3,310

We expect to be able to refinance the majority of debt obligations maturing in the near term or to exercise contractual extension options thereon, although there is no guarantee we will be able to do so. In certain instances, we plan to seek certain modifications to mortgages, including lease restructuring approvals and technical default waivers, and potentially interest deferrals.

In addition, certain debt obligations are subject to financial covenants. As a result, in the shorter-term, the global economic shutdown may negatively impact our ability to meet such covenants. We are reviewing the financial covenants of each debt instrument and, where applicable, working with our lenders to address debt instruments which may potentially approach or breach covenant limits. Such adjustments may include, but are not limited to, adjustment to the covenant limits, interest payment holidays, and temporary suspension of covenant testing.

In order to maintain financial flexibility, we maintain capacity under the Facility. As of March 31, 2021, the available liquidity under such credit facility was $515.0 million. We believe we will be able to continue to borrow funds on the Facility when and as required.

NOTE 18 SUBSEQUENT EVENTS

On April 16, 2021, BPYU issued 9,911,174 shares of Class B-1 Stock to BPR FIN I Subco LLC, a related party, due to total contributions of $212.0 million, equal to $21.39 per share.

On April 20, 2021, we completed a three year extension, of a $1.0 billion loan secured by cross-collateralized mortgages on 16 properties with an interest rate of LIBOR plus 3.25%, which matures on April 20, 2024. As part of the negotiations, certain hurdles need to be met after the initial two year term to warrant another year extension. The transaction included a $240.0 million pay down and secures an additional property as collateral.

On April 23, 2021, we completed the sale of 35% interest in Shopping Leblon for a gross sale price of $85.2 million.

On April 27, 2021, we paid off the Term A-1 loan in the amount of $21.0 million.

On April 27, 2021, we made a principal payment in the amount of $48.1 million on the Term A-2 loan. The remaining outstanding balance is $1,952.0 million.

On April 29, 2021, we secured a $100.0 million note with Brookfield BPY Holdings Inc., a related party. The note was used to pay down our Facility. We expect to repay the note in full during the second quarter of 2021.

On May 6, 2021, the Company closed on a new loan at Whalers Village in the amount of $83.5 million with an interest rate of LIBOR plus 2.5%, which matures on May 4, 2024.

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements included in this Quarterly Report and whose descriptions are incorporated into the applicable response by reference. The following discussion should be read in conjunction with such Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in this Management's Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as in such Notes.

Brookfield Property REIT Inc. ("the Company" or "BPYU") is an indirect subsidiary of Brookfield Property Partners L.P. ("BPY"), one of the world's largest commercial real estate companies. As used herein, the terms "we", "us" and "our" refer to BPYU and its subsidiaries. BPYU, through its subsidiaries and affiliates, is an owner and operator of retail properties.

Overview—Introduction

We own a property portfolio comprised primarily of Class A regional malls (defined primarily by sales per square foot). As of March 31, 2021, we were the owner, either entirely or with joint venture partners, of 119 retail properties located throughout the United States comprising approximately 117 million square feet of gross leasable area, or GLA.

Our primary objective is to be an owner and operator of best-in-class retail properties that provide an outstanding environment and experience for our communities, retailers and consumers. Our strategy includes:

•increasing the permanent occupancy of our regional mall portfolio by converting temporary leases to permanent leases and leasing vacant space;

•renewing or replacing expiring leases at greater rental rates;

•actively recycling capital through the disposition of assets; investing in whole or partial interests in high-quality regional malls, anchor pads, and our development pipeline and repaying debt; and

•continuing to execute on our existing redevelopment projects and seeking additional opportunities within our portfolio for redevelopment.

Despite the recent economic disruption caused by COVID-19, we expect that the high quality nature of our stabilized properties and associated cash flows will continue to be in demand from investors, although our ability to execute on recycling of capital initiatives will likely be impacted in the short term.

As of March 31, 2021, the portfolio was 91.5% leased, compared to 95.4% leased at March 31, 2020. On a suite-to-suite basis, the leases commencing occupancy in the trailing 12 months exhibited initial rents that were 0.3% lower than the final rents paid on expiring leases.

Overview—BPY Transaction of 2021

On April 1, 2021, Brookfield Asset Management Inc. (“Brookfield Asset Management” or “BAM”) announced an agreement to acquire all of the limited partnership units of BPY that it does not already own (“BPY units”) at a value of $18.17 per BPY unit, or $6.5 billion in total value (the “BPY Transaction”). Under the agreement, BPY unitholders are expected to have the ability to elect to receive, per BPY unit and subject to pro ration, a combination of (i) 0.3979 Class A limited voting shares of BAM (“Brookfield Shares”), (ii) $18.17 in cash, and/or (iii) 0.7268 of BPY preferred units with a liquidation preference of $25.00 per unit. Pro-ration will be based on a maximum cash consideration of approximately 50% of the total value of the BPY units ($3.27 billion in total cash payable to public unitholders), a maximum amount of Brookfield Shares equal to approximately 42% of the total value of the BPY units (59.3 million Brookfield Shares payable to public unitholders), and a maximum amount of BPY preferred units with a liquidation value of approximately 8% of the total value of the BPY units ($500 million in liquidation preference of BPY preferred units payable to public unitholders).

In accordance with the terms of the Company’s charter, any holders of the Company’s Class A stock (“BPYU Shareholders”) at the closing of the BPY Transaction will receive the same per share consideration as will be received by BPY unitholders who have not made an election, being a combination of approximately 50% cash, 42% Brookfield Shares and 8% BPY preferred units (subject to pro-ration) (the “Default Consideration”). The aggregate consideration of $6.5 billion payable to BPY

unitholders in the BPY Transaction includes the amount payable to the public holders of shares of the Company’s Class A Stock. BPYU Shareholders will not be entitled to any other consideration or payment in connection with the BPY Transaction, the BPY Transaction will not be subject to a vote of BPYU Shareholders and BPYU Shareholders will not be entitled to appraisal rights.

Any BPYU Shareholders who wish to elect their preferred form of consideration rather than the Default Consideration, vote in favor of or against the BPY Transaction and/or exercise dissent rights in respect of the BPY Transaction, may convert their shares of Company Class A Stock into BPY units (pursuant to the terms of the Company’s charter) before the election deadline if they wish to make an election and/or before the record date for the meeting of BPY unitholders if they wish to vote in favor of or against the BPY Transaction or exercise dissent rights. To exercise dissent rights, BPY units must be held in registered form. The election deadline and the meeting record date have yet to be determined and such dates will be publicly announced by BPY once set. Additional information on the BPY Transaction, including the circular pertaining to the BPY Transaction and announcements regarding the election deadline and the meeting record date, will be posted on the BPY website at https://bpy.brookfield.com/reports-and-filings/regulatory-filings when filed with the SEC. The information on BPY’s website is not a part of or incorporated by reference into this Quarterly Report on Form 10-Q or the Company’s other filings with the SEC.

If the BPY Transaction is approved by the BPY unitholders and closes, the shares of the Company’s Class A Stock shall no longer be deemed outstanding and all of the BPYU Shareholder’s rights as stockholders of the Company shall terminate. The Company’s Class A Stock will also no longer trade on the Nasdaq Global Select Market after the close of the BPY Transaction. If the BPY Transaction is not approved by the BPY Unitholders or otherwise fails to close, the Company’s Class A Stock will remain outstanding.

It is also expected that the BPYU 6.375% Series A Cumulative Redeemable Preferred Stock will be redeemed at its par value of $25.00 per share, plus any accrued and unpaid dividends, at or around the closing of the BPY Transaction.

Overview—Financial

The COVID-19 pandemic has spread globally, and has caused a global economic shutdown. The actions taken in response to the shutdown have interrupted business activities and supply chains; disrupted travel; contributed to significant volatility in the financial markets, resulting in a general decline in equity prices and lower interest rates; impacted social conditions; and adversely impacted local, regional, national and international economic conditions, as well as the labor markets. Accordingly, we caution you that our financial position and consolidated performance presented below may not be indicative of our results in future periods as a result of the ongoing and developing COVID-19 pandemic and its resulting impact on the global economy.

Net loss attributable to BPYU increased from $81.8 million for the three months ended March 31, 2020 to $229.1 million for the three months ended March 31, 2021 primarily due to the increase in equity in loss of unconsolidated real estate affiliates and the decrease in gains on the sale of unconsolidated properties from the three months ended March 31, 2020 compared to the three months ended March 31, 2021.

See Non-GAAP Supplemental Financial Measures below for a discussion of funds from operations ("FFO"), along with a reconciliation to Net (loss) income attributable to BPYU.

Operating Metrics

The following table summarizes selected operating metrics for our portfolio.


	March 31, 2021 (1)			March 31, 2020 (1)



In-Place Rents Per Square Foot (all less anchors) (2)	$	82.94		$	80.92
In-Place Rents Per Square Foot (<10K square feet) (2)	$	61.79		$	62.28




Percentage Occupied for Total Retail Properties	90.6		%	94.5		%
Percentage Leased for Total Retail Properties	91.5		%	95.4		%

(1) Metrics exclude properties acquired in the year ended December 31, 2020 and the three months ended March 31, 2021, reductions in ownership as a result of sales or other transactions, and certain redevelopments and other properties.

(2) Rent is presented on a cash basis and consists of base minimum rent and common area costs.

Lease Spread Metrics

The following table summarizes signed leases compared to expiring leases in the same suite, for leases where (1) the downtime between new and previous tenant was less than 24 months, (2) the occupied space between the previous tenant and new tenant did not change by more than 10,000 square feet and (3) the new lease is at least a year.


	# of Leases	SF (in thousands)	Term (in years)	Initial Rent PSF (1)		Expiring Rent PSF (2)		Initial Rent Spread		% Change
Trailing 12 Month Commencements	526	1,788	6.3	$	51.56	$	51.82	$	(0.17)	(0.3)	%

(1) Represents initial annual rent over the lease consisting of base minimum rent and common area maintenance.

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

Results of Operations

Three months ended March 31, 2021 and 2020

Rental revenues decreased $24.9 million, primarily due to the net impact of COVID rent relief of $36.2 million in the first quarter of 2021, which related primarily to 2020 rents. This is partially offset due to the $9.5 million increase in termination income in the first quarter of 2021 compared to the first quarter of 2020.

Management fees and other corporate revenue decreased $3.8 million, primarily due to a decrease in gross receipts across the portfolio during the first quarter of 2021 compared to the first quarter of 2020.

Provision for note receivable loss of $7.9 million during the first quarter of 2021 is primarily related to the write off of a note from our joint venture partner that was deemed uncollectible.

The provision of impairment of $107.0 million during the first quarter of 2021 is related to an impairment charges recorded on three operating properties. Specifically, $77.5 million of impairment was recognized for two operating properties where the Company’s expected holding period for the assets changed due to an increased probability of a near-term disposition and $29.5 million of impairment was recognized based on an update to the Company’s estimated probability of obtaining concessions from the creditor at an operating property for which the Company has suspended funding equity contributions to make contractual interest and/or principal payments.

Gain on extinguishment of debt of $13.1 million is related to the conveyance of interest of one operating property that occurred in the first quarter of 2021 (Note 3). The property was one of the properties where the Company strategically skipped debt service during 2020.

Equity in loss of Unconsolidated Real Estate Affiliates decreased $29.6 million during the first quarter of 2021, primarily related to the loss of revenues across the unconsolidated joint ventures. Additionally, there was an impairment charge of $3.4 million recorded on one unconsolidated operating property (Note 5).

Unconsolidated Real Estate Affiliates - loss on investment during the first quarter of 2021 is primarily due to the conveyance of interest of one unconsolidated joint venture. The Unconsolidated Real Estate Affiliates - gain on investment during the three months ended March 31, 2020 is primarily due to the sales of remaining interests in ABG and Aeropostale (Note 3).

Liquidity and Capital Resources

Our primary source of cash is from the ownership and management of our properties and strategic dispositions. In addition, we will also use financings as a source of capital. We may generate cash from refinancings or borrowings under our revolving credit facility (the "Facility"). Our primary uses of cash include payment of operating expenses, debt service, reinvestment in and redevelopment of properties, tenant allowances, dividends, share repurchases and strategic acquisitions.

We anticipate maintaining financial flexibility by managing our future maturities and amortization of debt coming due at the corporate and property levels. At March 31, 2021, we have debt coming due of $3.9 billion in the next twelve months. We believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $189.2 million of consolidated unrestricted cash and $515.0 million of available capacity under our revolving credit facility as of March 31, 2021, as well as anticipated cash provided by operations.

Our key financing objectives include:

•to obtain property-secured debt with laddered maturities; and

•to minimize the amount of debt that is cross-collateralized and/or recourse to us.

We may raise capital through public or private issuances of debt securities, preferred stock, Class A Stock, Common Units of BPR OP, LP ("BPROP"), or other capital raising activities. In addition, we or our affiliates may repurchase our shares or corporate debt and bonds.

In addition, certain debt obligations are subject to financial covenants. As a result, in the shorter-term, the shutdown may negatively impact our ability to meet such covenants. We are reviewing the financial covenants of each debt instrument and, where applicable, working with our lenders to address debt instruments which may potentially approach or breach covenant limits. Such adjustments may include, but are not limited to, adjustment to the covenant limits, interest payment holidays, and temporary suspension of covenant testing.

In order to maintain financial flexibility, we maintain capacity under our Facility. As at March 31, 2021, the available capacity under such credit facility was $515.0 million. We believe we will be able to continue to borrow funds on the Facility when and as required.

The Company entered into a new credit agreement (the "Credit Agreement") dated as of August 24, 2018 consisting of the Facility, Term A-1 and A-2 loans, and a Term B loan. The Facility provides for revolving loans of up to $1.5 billion and borrowings bear interest at a rate equal to LIBOR plus 2.25%. The Facility is scheduled to mature in August 2022 and had outstanding borrowings of $985.0 million as of March 31, 2021. The Term A-1 Loan has a total commitment outstanding of $900.0 million, with $700.0 million attributable to BPYU and $200.0 million attributable to an affiliate, and is scheduled to mature in August 2021, bearing interest at a rate equal to LIBOR plus 2.25%. During the quarter ended March 31, 2021, the Company made a principal payment in the amount of $4.8 million, and the remaining outstanding balance was $21.0 million. The Term A-2 Loan has a total commitment outstanding of $2.0 billion and is scheduled to mature in August 2023, bearing interest at a rate equal to LIBOR plus 2.25%, and the outstanding balance at March 31, 2021 was $2.0 billion. The Term B Loan has a total commitment outstanding of $2.0 billion and is scheduled to mature in August 2025 bearing interest at a rate equal to LIBOR plus 2.50%. During the quarter ended March 31, 2021, the Company made a principal payment in the total amount of $5.0 million. The total outstanding balance of the Term B Loan as of March 31, 2021 was $1,945.0 million. The Term A-1, A-2, and B Loans are contractually obligated to be prepaid through net proceeds from property level refinances and asset sales as outlined in the Credit Agreement.

On July 29, 2020, the Company entered into the First Amendment of its Credit Agreement in order to give effect to certain amendments, including, but not limited to the following:

compliance with the financial covenants in effect under the Credit Agreement prior to the First Amendment, any interest and principal payments thereunder must be paid-in-kind.

•The Company will also be required to make additional prepayments of the Term A loans with proceeds of certain equity, debt issuances and asset sales.

As of March 31, 2021, we are not aware of any instances of non-compliance with such covenants. Though there is potential for a risk of default, in the event the Company fails to maintain compliance with its financial covenants, the Credit Agreement provides for a cure period, during which the Company has the opportunity to raise additional cash and reduce net debt balance, such as through capital contributions from BPY, or disposition of assets. Management has determined that in the event of a default, it is probable that these market-based alternatives would be available, and that these actions would provide the necessary cash flows to prevent or cure an event of default, although there is no guarantee that these market-based alternatives would be available.

During the three months ended March 31, 2021, the Company suspended equity contributions to make contractual interest and/or principal payments on thirteen consolidated and unconsolidated property level mortgages, including one mortgage that is in maturity default. During the year ended December 31, 2020, Company suspended equity contributions to make contractual interest and/or principal payments on eighteen consolidated and unconsolidated property level mortgages, including one mortgage that is in maturity default. The Company is currently engaging in negotiations with the creditors on these mortgages to obtain potential lender concessions or other relief. If the Company is unsuccessful in obtaining concessions from these creditors, it is possible that the property securing these loans would be transferred to the lenders. In such circumstances, the carrying value of the property may no longer be recoverable and may trigger an impairment charge. These mortgages are non-recourse and the creditors do not have security claims against the Company aside from the collateral property. During the three months ended March 31, 2021, the Company accrued $13.2 million of default interest related to these mortgages per contractual debt agreements. As of December 31, 2020, the Company has accrued $46.6 million of default interest related to these mortgages per contractual debt agreements.

As of March 31, 2021, the Company has suspended equity contributions to make contractual interest and/or principal payments on a total of $1.2 billion of property level mortgages and the related Investment in Real Estate securing these loans has a carrying value of $1.1 billion.

As of January 1, 2021, the Company conveyed North Point Mall to the lender in satisfaction of $247.0 million in outstanding debt. Accordingly, the Company recognized a gain of $13.1 million included in gain on extinguishment of debt on our Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021.

investment, net on our Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021.

On February 5, 2021 the Company closed on a new loan at Kenwood Towne Centre in the amount of $210.0 million. The new loan matures on February 9, 2024, and bears the interest rate at LIBOR plus 3.40%. The new loan replaced the previous debt of $194.0 million which was scheduled to mature on February 9, 2021. The origination of the new loan incurred fees of $5.0 million, which were capitalized.

As of March 31, 2021, we had $9.1 billion of debt pre-payable at our proportionate share without penalty. We may pursue opportunities to refinance this debt at lower interest rates and longer maturities.

As of March 31, 2021, our proportionate share of total debt aggregated $23.2 billion. Our total debt includes our consolidated debt of $16.3 billion and our share of unconsolidated real estate affiliates debt of $6.9 billion. Of our proportionate share of total debt, $6.9 billion is recourse to the Company or its subsidiaries (including the Facility) due to guarantees or other security provisions for the benefit of the note holder.

The amount of debt due in the next three years represents 49.7% of our total debt at maturity. The maximum amount due in any one of the next ten years is no more than $4.1 billion at our proportionate share or approximately 17.8% of our total debt at maturity.

The following table illustrates the scheduled payments for our proportionate share of total debt as of March 31, 2021. The $206.2 million of junior subordinated notes are due in 2036, but we may redeem them any time after April 30, 2011 (Note 6). As we do not expect to redeem the notes prior to maturity, they are included in the consolidated debt maturing subsequent to 2026.


	Consolidated		Unconsolidated
	(Dollars in thousands)
Remainder of 2021 (1)	$	2,836,601	$	849,164
2022	2,498,212		1,259,286
2023(2)	2,819,689		1,216,775
2024	2,383,165		1,724,617
2025(3)	3,154,745		497,516
2026	1,208,232		212,919
Subsequent	1,355,243		1,103,076
Total	$	16,255,887	$	6,863,353

(1) Includes the Term A-1 Loan (Note 6).

(2) Includes the Term A-2 Loan (Note 6).

(3) Includes the Term B Loan (Note 6).

We believe we will be able to extend the maturity date, repay under our available line of credit or refinance the consolidated debt that is scheduled to mature in 2021. We also believe that the joint ventures will be able to refinance the debt of our unconsolidated real estate affiliates upon maturity; however, there can be no assurance that we will be able to refinance or restructure such debt on acceptable terms or otherwise, or that joint venture operations or contributions by us and/or our partners will be sufficient to repay such loans.

Reserves

With respect to our consolidated properties, for the year ended December 31, 2020, we recorded $42.3 million, associated with potentially uncollectible revenues, which includes $5.3 million, for straight-line rent receivables. With respect to our Unconsolidated Real Estate Affiliates, for the year ended December 31, 2020, our Unconsolidated Real Estate Affiliates recorded $68.7 million, associated with potentially uncollectible revenues, which includes $8.6 million, for straight-line rent receivables. Of these amounts for the year ended December 31, 2020, our share totaled $33.8 million, which includes $4.2 million, for straight-line rent receivables.

As of March 31, 2021, the Company, including consideration of our share of Unconsolidated Real Estate Affiliates, had collected approximately 86% of first quarter rents. While working to preserve our profitability and cash flow, we are also working with our tenants regarding requests for lease concessions and other forms of assistance. The Company continues to make meaningful progress in its negotiations with national and local tenants to secure rental payments, despite a significant

portion of the Company's tenants requesting rental assistance, whether in the form of deferral or rent reduction. As of March 31, 2021, in response to the COVID-19 pandemic, the Company granted rent deferrals and rent abatements of 1% and 3% of 2021 rents, respectively. The rent abatements granted were considered lease modifications and will be recognized prospectively over the remaining lease terms from the period of the rent that was abated. While we anticipate that we may grant further rent concessions, such as the deferral or abatement of lease payments, such rent concession requests are evaluated on a case-by-case basis. Not all requests for rent relief will be granted as the Company does not intend to forgo its legally enforceable contractual rights that exist under its lease agreements.

Acquisitions and Joint Venture Activity

From time-to-time we may acquire whole or partial interests in high-quality retail properties or make strategic dispositions. Refer to Note 3 for more information.

Developments and Redevelopments

We are currently redeveloping several consolidated and unconsolidated properties primarily to improve the productivity and value of the property, convert large-scale anchor boxes into smaller leasable areas and to create new in-line retail space and new restaurant venues. The execution of these redevelopment projects within our portfolio was identified as providing compelling risk-adjusted returns on investment.

We have development and redevelopment activities totaling approximately $462.0 million under construction and $311.0 million in the pipeline. We continue to evaluate a number of other redevelopment projects to further enhance the quality of our assets. Expected returns are based on the completion of current and future redevelopment projects, and the success of the leasing and asset management plans in place for each project. Expected returns are subject to a number of variables, risks, and uncertainties including those disclosed within Part II, Item 1A of this Quarterly Report and those previously disclosed in our Annual Report. We also refer the reader to our disclosure related to forward-looking statements, below. The following table illustrates our planned redevelopments:


			Stabilized Year	Proportionate Cost (1)
Property	Location	Description		Total		To-Date
Major Development Summary (in millions, at share unless otherwise noted)




Active redevelopments

Tysons Galleria	McLean, VA	Macy's Redevelopment for theater and multi level small shop expansion	2023	$	108	$	46
Alderwood	Lynnwood, WA	Sears Redevelopment - Residential	2023	13		7
Stonestown Galleria	San Francisco, CA	Anchor Redevelopment for Retail and Entertainment	2023	151		115
Other Projects	Various		2021-2024	190		114
Active developments/redevelopments				$	462	$	282
In planning

Oxmoor Center	Louisville, KY	Sears Redevelopment for Entertainment and Restaurants	2024	$	15	$	1
Cumberland	Atlanta, GA	Residential	2025	73		—
Northridge	Northridge, CA	Residential	2025	50		—
Ala Moana	Honolulu, HI	Residential Tower	2026	166		2
Other Projects	Various		2021-2025	7		5
In planning				$	311	$	8
Total retail developments				$	773	$	290

(1) Costs are at BPYU's ownership share post August 28, 2018, with closing of new joint venture partnerships.

Our investment in these projects for the three months ended March 31, 2021 increased from December 31, 2020 in conjunction with the applicable development plan and as projects near completion. The continued progression of redevelopment projects resulted in increases to our investment to date. Prior to the COVID-19 pandemic, our current projects were generally progressing in accordance with their timeline and budget. The impact of the pandemic and associated restrictions that have been put in place by local governments may cause delays in construction and may impact our ability to progress pre-leasing efforts.

Capital Expenditures, Capitalized Interest and Overhead (at share)

The following table illustrates our capital expenditures, capitalized interest, and internal costs associated with leasing and development overhead, which primarily relate to ordinary capital projects at our operating properties. In addition, we incurred tenant allowances and capitalized leasing costs for our operating properties as outlined below. Capitalized interest is based upon qualified expenditures and interest rates; capitalized leasing and development costs are based upon time expended on these activities. These costs are amortized over lives which are consistent with the related asset.


	Three Months Ended March 31,
	2021		2020
	(Dollars in thousands)
Operating capital expenditures (1)	$	11,903	$	36,259
Tenant allowances and capitalized leasing costs (2)	21,447		28,916
Capitalized interest and capitalized overhead	6,012		5,272
Total	$	39,362	$	70,447

(1)Reflects only non-tenant operating capital expenditures.

(2)Tenant allowances paid on 1.1 million square feet for the quarter ended March 31, 2021 and 1.9 million square feet for the quarter ended March 31, 2020.

Class A Stock Dividend

Our Board of Directors declared Class A Stock dividends during 2021 and 2020 as follows:

Declaration Date

Record Date

Payment Date

Dividend Per Share

2021

February 1

February 26, 2021

March 31, 2021

0.3325

2020

November 5

November 30, 2020

December 31, 2020

0.3325

August 5

August 31, 2020

September 30, 2020

0.3325

May 7

May 29, 2020

June 30, 2020

0.3325

February 5

February 28, 2020

March 31, 2020

0.3325

Class B Stock Dividend

Our Board of Directors did not declare dividends on Class B-1 Stock, Class B-2 Stock, or Series B Preferred Stock during the three months ended March 31, 2021 or during the three months ended March 31, 2020.

Preferred Stock Dividends

On February 13, 2013, GGP issued, under a public offering, 10,000,000 shares of 6.375% Series A Cumulative Stock at a price of $25.00 per share. In connection with the BPY Transaction of 2018, each share was converted into one share of 6.375% Series A Preferred Stock. Our Board of Directors declared preferred stock dividends during 2021 and 2020 as follows:

Declaration Date

Record Date

Payment Date

Dividend Per Share

2021

May 6

June 15, 2021

July 1, 2021

0.3984

February 1

March 15, 2021

April 1, 2021

0.3984

2020

November 5

December 15, 2020

January 1, 2021

0.3984

August 5

September 15, 2020

October 1, 2020

0.3984

May 7

June 15, 2020

July 1, 2020

0.3984

February 5

March 15, 2020

April 1, 2020

0.3984

Summary of Cash Flows

Cash Flows from Operating Activities

Net cash (used in) provided by operating activities was $155.6 million for the three months ended March 31, 2021 and $11.0 million for the three months ended March 31, 2020. Significant components of net cash (used in) provided by operating activities include:

•in 2021, Net (loss) income of $(255.6) million;

•in 2021, equity in loss of Unconsolidated Real Estate Affiliates of $34.5 million;

•in 2021, depreciation and amortization of $151.5 million;

•in 2021, unconsolidated real estate affiliates - loss on investment, net of $2.1 million;

•in 2021, gain from changes in control of investment properties and other, net of $(1.8) million;

•in 2021, provision for impairment of $107.0 million;

•in 2021, gain on extinguishment of debt of $(13.1) million;

•in 2021, accounts and notes receivable, net of $132.2 million;

•in 2021, prepaid expenses and other assets of $22.3 million;

•in 2021, account payable and accrued expenses of $(30.5) million;

•in 2020, Net (loss) income of $(100.4) million;

•in 2020, depreciation and amortization of $157.3 million; and

•in 2020, unconsolidated real estate affiliates - gain on investment, net of $(12.6) million.

Cash Flows from Investing Activities

Net cash (used in) investing activities was $(23.4) million for the three months ended March 31, 2021 and $11.3 million for the three months ended March 31, 2020. Significant components of net cash (used in) investing activities include:

•in 2021, development of real estate and property improvements of $(67.3) million;

•in 2021, proceeds from sales of investment properties and unconsolidated real estate affiliates of $(1.9) million;

•in 2021, contributions to unconsolidated real estate affiliates of $(22.8) million;

•in 2021, distributions received from unconsolidated real estate affiliates in excess of income of $68.6 million;

•in 2020, development of real estate and property improvements of $(83.6) million;

•in 2020, proceeds from sales of investment properties and unconsolidated real estate affiliates of $81.0 million; and

•in 2020, distributions received from unconsolidated real estate affiliates in excess of income of $34.7 million.

Cash Flows from Financing Activities

Net cash provided by financing activities was $(79.8) million for the three months ended March 31, 2021 and $(10.9) million for the three months ended March 31, 2020. Significant components of net cash provided by financing activities include:

•in 2021, proceeds from the refinancing or issuance of mortgages, notes and loans payable of $40.2 million;

•in 2021, principal payments on mortgages, notes, and loans payable of $(113.8) million;

•in 2021, buyback of Class A Stock of $(15.6) million;

•in 2021, issuance of Class B Stock of $29.5 million;

•in 2021, cash distributions paid to stockholders of $(13.5) million;

•in 2020, proceeds from the refinancing or issuance of mortgages, notes and loans payable of $246.0 million;

•in 2020, principal payments on mortgages, notes, and loans payable of $(222.7) million;

•in 2020, payment received on note receivable of $31.7 million;

•in 2020, buyback of Class A Stock of $(15.9) million;

•in 2020, series K preferred units redemption of $(28.4) million; and

•in 2020, cash distributions paid to stockholders of $(20.5) million.

Seasonality

Although we have a year-long temporary leasing program, occupancies for short-term tenants and, therefore, rental income recognized, are higher during the fourth quarter of the year. In addition, the majority of our tenants have December or January lease years for purposes of calculating annual overage rent amounts. Accordingly, overage rent thresholds are most commonly achieved in the fourth quarter. As a result, revenue production is generally highest in the fourth quarter of each year.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations is based on our consolidated interim financial statements, which have been prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the preparation of the consolidated financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A disclosure of our critical accounting policies which affect our more significant judgments and estimates used in the preparation of our consolidated financial statements is included in our Annual Report in Management's Discussion and Analysis of Financial Condition and Results of Operations.

For the three months ended March 31, 2021, there were no significant changes to these policies, except for the policies related to the application of lease modification guidance in Accounting Standards Update ("ASU") 2016-02, Leases ("ASC 842", "Topic 842", or "the new leasing standard") as a result of the COVID-19 pandemic as described in Note 2 and below.

Topic 842 - Lease Modification Q&A

Due to the business disruptions and challenges severely affecting the global economy caused by the global economic shutdown, lessors may provide rent deferrals and other lease concessions to lessees. In April 2020, the Financial Accounting Standards Board staff issued a question and answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of the shutdown. Under existing lease guidance, economic relief that is agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor would be required to apply the respective modification frameworks. However, if the lessee was entitled to the economic relief because of either contractual or legal rights, the relief would be accounted for outside of the modification framework. Although the original lease modification guidance in Accounting Standards Codification (“ASC”) 842, Leases remain appropriate to address routine lease modifications, the Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to the shutdown. The Lease Modification Q&A allows the Company, if certain criteria have been met, to make an accounting policy election to account for COVID-19 related lease concessions as either a lease modification or a negative variable adjustment to rental revenue. Such election is required to be applied consistently to leases with similar characteristics and similar circumstances.

Refer also to the accounting policies discussed in Note 2 of the Consolidated Financial Statements.

REIT Requirements

In order to remain qualified as a REIT for Federal income tax purposes, we must distribute at least 90% of our taxable ordinary income to stockholders. We are also subject to federal income tax to the extent we distribute less than 100% of our REIT taxable income, including capital gains. See Note 8 to the Consolidated Financial Statements for more detail on our ability to remain qualified as a REIT.

Recently Issued Accounting Pronouncements

Refer to Note 2 of the Consolidated Financial Statements for recently issued accounting pronouncements.

Non-GAAP Supplemental Financial Measures and Definitions

Funds From Operations ("FFO")

The Company determines FFO based upon the definition set forth by National Association of Real Estate Investment Trusts ("Nareit"). The Company determines FFO to be its share of consolidated net income (loss) attributable to common stockholders and redeemable non-controlling common unit holders computed in accordance with GAAP, adjusted for real estate related depreciation and amortization, excluding gains and losses from extraordinary items, excluding cumulative effects of accounting changes, excluding gains and losses from the sales of, or any impairment charges related to, previously depreciated operating properties, plus the allocable portion of FFO of unconsolidated joint ventures based upon the Company's economic ownership interest, and all determined on a consistent basis in accordance with GAAP.

The Company considers FFO a helpful supplemental measure of the operating performance for equity REITs and a complement to GAAP measures because it is a recognized measure of performance by the real estate industry. FFO facilitates an understanding of the operating performance of the Company's properties between periods because it does not give effect to real estate depreciation and amortization since these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company's operating performance.

We calculate FFO in accordance with standards established by Nareit, which may not be comparable to measures calculated by other companies who do not use the Nareit definition of FFO or do not calculate FFO in accordance with Nareit guidance. In addition, although FFO is a useful measure when comparing our results to other REITs, it may not be helpful to investors when comparing us to non-REITs.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

In order to provide a better understanding of the relationship between the Company's non-GAAP financial measures of FFO, a reconciliation of GAAP net income attributable to BPYU to FFO has been provided. The Company’s non-GAAP financial measure does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to GAAP net income (loss) attributable to BPYU and is not necessarily indicative of cash flow. In addition, the Company has presented such financial measures on a consolidated and unconsolidated basis (at the Company's proportionate share) as the Company believes that given the significance of the Company's operations that are owned through investments accounted for by the equity method of accounting, the detail of the operations of the Company's unconsolidated properties provides important insights into the income and FFO produced by such investments.

The following table reconciles GAAP net income attributable to BPYU to FFO for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020

Net loss Attributable to BPYU	$	(229,121)	$	(81,827)


Provision for impairment excluded from FFO - Consolidated Properties	106,991		—
Provision for impairment excluded from FFO - Unconsolidated Properties	3,405		—

Unconsolidated Real Estate Affiliates - gain on investment	4,211		—

Gain on sales of investment properties	(1,024)		(6,759)
Above and below market ground rent	939		1,566
Preferred stock dividends	(3,984)		(3,984)
Loss (gain) from changes in control of investment properties and other	(1,824)		—
Depreciation and amortization of capitalized real estate costs - Consolidated Properties	147,151		152,588
Depreciation and amortization of capitalized real estate costs - Unconsolidated Properties	104,524		117,659
Allocation of noncontrolling interests (1)	(36,800)		(26,269)
FFO	$	94,468	$	152,974

(1) Noncontrolling interest holders' share of adjustments including depreciation, impairment, gain (loss) from changes in control of investment properties and other, Unconsolidated Real Estate Affiliates - gain on investment and gain on sales of investment properties.

Forward-Looking Statements

Certain statements made in this section or elsewhere in this report may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that do not relate to historical or current facts or matters are forward-looking statements. When used, the words "may," "will," "seek," "expects," "anticipates," "believes," "targets," "intends," "should," "estimates," "could," "continue," "assume," "projects," "plans," or similar expressions, are intended to identify forward-looking statements. Although we believe the expectations reflected in any forward-looking statement are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks, uncertainties and other factors. Accordingly, investors should use caution in relying on forward-looking statements.

Some of the other risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:

•the market price of BPY units and the combined business performance of BPY as a whole;

•general volatility of conditions affecting the retail sector;

•the effects of the COVID-19 pandemic and the possibility of future outbreaks of highly infectious or contagious diseases;

•our inability to acquire and maintain tenants or to lease space on terms favorable to us;

•risks related to the bankruptcy or store closures of national tenants with chains of stores in many of our properties;

•our inability to sell real estate quickly;

•risks related to perceptions by retailers and shoppers of the convenience and attractiveness of our retail properties;

•risks related to the development, expansion and acquisitions of properties;

•risks related to competition in our business;

•risks related to natural disasters, pandemics/epidemics or terrorist attacks;

•risks related to cyber and data security breaches or information technology failures;

•environmental uncertainties and related costs, including costs resulting from uninsured potential losses;

•general risks related to inflation or deflation;

•discontinuation of LIBOR;

•risks relating to impairment charges for our real estate assets;

•risks related to conflicts of interest with BPY and our status as a "controlled company" within the meaning of the rules of Nasdaq;

•our dependence on our subsidiaries for cash;

•risks related to our joint venture partners, including risks related to conflicts of interests, potential bankruptcies, tax-related obligations and financial support relating to such joint venture partners;

•our inability to maintain status as a REIT, and possible adverse changes to tax laws;

•risks related to our indebtedness and debt restrictions and covenants;

•our inability to refinance, extend, restructure or repay near and indeterminate debt;

•our inability to raise capital through financing activities or asset sales; and

•risks related to the structure and trading of Class A Shares.

We discuss these and other risks and uncertainties in our Annual Report and our quarterly periodic reports filed with the Securities and Exchange Commission. The Company may update that discussion in its periodic reports, but otherwise takes no duty or obligation to update or revise these forward-looking statements, whether as a result of new information, future developments, or otherwise.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In July 2017, the Financial Conduct Authority ("FCA") announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR. On March 5, 2021 the FCA announced that USD-LIBOR will no longer be published after June 30, 2023. The Company anticipates that LIBOR will continue to be available substantially in its current form at least until June 30,

2023. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

The Company has contracts that are indexed to LIBOR and is monitoring and evaluating the related risks, which include interest amounts on our variable rate debt and the swap rate for our interest rate swaps as discussed in Note 6 - Mortgages, Notes and Loans Payable. In the event that LIBOR is discontinued, the interest rates will be based on a fallback reference rate specified in the applicable documentation governing such debt or swaps or as otherwise agreed upon. Such an event would not affect the Company’s ability to borrow or maintain already outstanding borrowings or swaps, but the alternative reference rate could be higher and more volatile than LIBOR.

Certain risks arise in connection with transitioning contracts to an alternative reference rate, including any resulting value transfer that may occur. The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require substantial negotiation with each respective counterparty.

If a contract is not transitioned to an alternative reference rate and LIBOR is discontinued, the impact is likely to vary by contract. If LIBOR is discontinued or if the method of calculating LIBOR changes from its current form, interest rates on our current or future indebtedness may be adversely affected.

While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

ITEM 4 CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the persons performing the functions of principal executive and principal financial officers for us pursuant to the Master Services Agreement, dated August 27, 2018, among us, BAM and other parties thereto (the "Master Services Agreement"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act). Based on that evaluation, the persons performing the functions of principal executive and principal financial officers for us pursuant to the Master Services Agreement have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

PART II OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

ITEM 1A RISK FACTORS

For a discussion of our potential risks and uncertainties, please refer to the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed on February 26, 2021. Other than the risks related to the BPY Transaction of 2021 set forth below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Risks Related to the BPY Transaction of 2021

The Default Consideration will not be adjusted in the event of any change in the unit or share prices of either BPY or BAM.

Upon the consummation of the BPY Transaction, each outstanding share of our Class A Stock will receive the same per share Default Consideration (as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—BPY Transaction in Part I, Item 2 of this Quarterly Report on Form 10-Q) as will be received by BPY unitholders who have not made an election. The Default Consideration will not be adjusted for changes in the market prices of either BPY units or the Brookfield Shares. Changes in the market price of the Brookfield Shares prior to the closing of the BPY Transaction will affect the market value of the Default Consideration. Market price changes may result from a variety of factors (many of which are beyond the control of BPY and BAM), including market reaction to the announcement of the BPY Transaction, changes in the respective businesses, operations, assets, financial position of BPY and BAM, or changes in market assessments thereof, and other factors described or referred to elsewhere in this “Risk Factors” section.

Completion of the BPY Transaction of 2021 is subject to many closing conditions and if these conditions are not satisfied or waived, the BPY Transaction of 2021 will not be completed.

The consummation of the BPY Transaction is subject to certain conditions, including (a) the approval of the BPY Transaction by the holders of a majority of the outstanding BPY units (excluding the BPY units held directly or indirectly by BAM and its subsidiaries and certain other units required to be excluded), (b) the absence of any temporary restraining order, injunction or other legal order, and no change in law being enacted, which would have the effect of making illegal or otherwise prohibiting preventing the consummation of the BPY Transaction and (c) other customary conditions.

There can be no assurance that the conditions to closing of the BPY Transaction will be satisfied or waived or that the BPY Transaction will be completed. Failure to consummate the BPY Transaction may adversely affect our results of operations and business prospects for the following reasons, among others: (i) we and BPY will incur certain transaction costs, regardless of whether the proposed BPY Transaction closes, which could adversely affect our financial condition, results of operations and ability to make distributions to our unitholder and stockholders; and (ii) the proposed BPY Transaction, whether or not it closes, will divert the attention of management and other key employees from ongoing business activities, including the pursuit of other opportunities that could be beneficial to the Company.

Failure to complete the BPY Transaction of 2021 could negatively impact our stock price, future business and financial results.

If the BPY Transaction is not completed, our ongoing business could be adversely affected and we will be subject to a variety of risks associated with the failure to complete the BPY Transaction, including (i) having to pay certain costs relating to the proposed BPY Transaction, such as legal, accounting, financial advisor, filing, printing and mailing fees and (ii) diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the BPY Transaction. If the BPY Transaction is not completed, these risks could materially affect our business, financial results and stock price.

The pendency of the BPY Transaction of 2021 could adversely affect our business and operations.

Prior to the effective time of the BPY Transaction, some of our customers, prospective customers or vendors may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of us, regardless of whether the BPY Transaction is completed.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Period	(a) Total number of shares (or units) purchased			(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
January 1 - January 31, 2021	$	—		$	—	$	—	(1)
February 1 - February 28, 2021	841,950		(3)	18.56		—		(1)
March 1 - March 31, 2021	—			—		—		(1)
Total	$	841,950		$	18.56	$	—	(2)

(1)On August 5, 2020, the Company’s Board of Directors authorized the repurchase of the greater of (i) 5% of the Company’s Class A Stock that are issued or outstanding or (ii) 10% of its public float of Class A Stock over the next 12 months from time to time as market conditions warrant.

(2)As of August 5, 2020, the number of shares of Class A Stock comprising 10% of the Company's public float was greater than 5% of the Company's issued and outstanding Class A Stock, and was equal to 5,219,854 shares of Class A Stock. As of March 31, 2021, zero shares of Class A Stock were available for repurchase under the Company's stock repurchase plan.

(3)The 841,950 shares of Class A stock were repurchased by the company and deposited in a trust maintained by the Company's transfer agent for the benefit of individuals who have received grants of restricted shares of Class A stock. Shares will be released to such individuals upon vesting in accordance with the terms of the Brookfield Property Group Restricted BPR Class A Stock plan and the applicable agreements. These shares were repurchased at an average price of $18.56, for an aggregate purchase price of $15.63 million

In the first quarter 2021, BPYU issued 1,379,150 shares of Class B-1 Stock to BPR FIN I Subco LLC, a related party, due to total contributions of $29.5 million, equal to $21.39 per share. These Shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 OTHER INFORMATION

None.

ITEM 6 EXHIBITS

Incorporated by Reference Herein

Exhibit Number

Description

Form

Exhibit

Filing Date

File No.

31.1*

Certification of Brian W. Kingston, Chief Executive Officer, Brookfield Property Group LLC, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Bryan K. Davis, Chief Financial Officer, Brookfield Property Group LLC, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

Certification of Brian W. Kingston, Chief Executive Officer, Brookfield Property Group LLC, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

Certification of Bryan K. Davis, Chief Financial Officer, Brookfield Property Group LLC, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

104*

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*).

*Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Brookfield Property REIT Inc.

Date: May 7, 2021	By:	/s/ Michelle Campbell
		Michelle Campbell
		Secretary

Date: May 7, 2021	By:	/s/ Bryan K. Davis
		Bryan K. Davis
		Chief Financial Officer*
		Brookfield Property Group LLC

* Mr. Davis performs the functions of chief financial officer for Brookfield Property REIT Inc. (the "Company") pursuant to a Master Services Agreement, dated August 27, 2018, among Brookfield Asset Management Inc., the Company and certain other parties thereto.