OVERVIEW OF THE BUSINESS

We are Brookfield Asset Management’s primary vehicle to make investments across all strategies in real estate. Our goal is to be a leading global owner and operator of high-quality real estate, that generates sustainable and growing distributions to our Unitholders and capital appreciation of our asset base over the long term. With approximately 17,000 employees involved in Brookfield Asset Management’s real estate businesses around the globe, we have built operating platforms in various real estate sectors, including in our:

    Our diversified Core portfolios consists of high-quality office and retail assets in some of the world’s most dynamic markets which have stable cash flow as a result of their long-term leases. We target between a 10% and 12% total return on our Core portfolios. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, that should generate strong same-property net operating income (“NOI”) growth without significant capital investment. Furthermore, we expect to earn between 8% and 11% unlevered, pre-tax returns on construction costs for our development and redevelopment projects. We currently have approximately 11 million square feet of active development projects underway with another 9 million square feet in planning stages. Our development track record reflects successful completions on time and on budget. This portion of our balance sheet will be meaningful to earnings growth in our Core businesses throughout the next five to ten years as projects reach completion and begin to contribute rental revenue to our earnings.

Our LP Investments portfolio includes our equity invested in Brookfield-sponsored real estate opportunity funds, which target high-quality assets with operational upside across various real estate sectors, including office, retail, multifamily, industrial, hospitality, triple net lease, self-storage, student housing and manufactured housing. We target an average 20% total return on our LP Investments portfolio and a 2.0x multiple of capital on the equity we invest into these vehicles. These investments, unlike our Core portfolios, have a defined hold period and typically generate the majority of profits from a gain recognized from realization events including the sale of an asset or portfolio of assets, or exit of the entire investment. The combination of these gains and FFO earned represent our earnings on capital invested in these funds and provide liquidity to support our target distributions.

 

Overall, we seek to earn leveraged after-tax total returns of 12% to 15% on our invested capital. These returns will be comprised of current cash flow, distribution growth and capital appreciation. With our diversified cash flow profile from our Core Office, Core Retail, and LP Investments portfolios, our goal is to pay an attractive annual distribution to our Unitholders and to grow our distribution by 5% to 8% per annum. Capital appreciation will be reflected in the fair value gains that flow through our income statement as a result of our revaluation of investment properties in accordance with IFRS to reflect initiatives that increase property level cash flows, change the risk profile of the asset, reflect changes in market conditions, or portfolio premiums realized upon sale of these assets. From time to time, we will convert some or all of these unrealized gains to cash through asset sales, joint ventures or refinancings.

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

PERFORMANCE MEASURES

We expect to generate returns to Unitholders from a combination of healthy distributions and capital appreciation. Furthermore, if we are successful in increasing cash flow earned from our operations and realizing gains through the sale of assets in our LP Investments portfolio, we will be able to increase distributions at the targeted 5% to 8% per annum to Unitholders to provide them with an attractive total return on their investment.

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

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

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

To measure our performance against these targets, as described above, we focus on NOI, same-property NOI, funds from operations (“FFO”), Company FFO, net income attributable to Unitholders and equity attributable to Unitholders. We use NOI, same-property NOI, FFO and Company FFO to evaluate our operating performance. Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies.

We define each of these measures as follows:

NOI is a key indicator of our ability to impact the operating performance of our properties. We seek to grow NOI through pro-active management and leasing of our properties. Same-property NOI in our Core Office and Core Retail segments allows us to segregate the impact of leasing and operating initiatives on the portfolio from the impact of investing activities and “one-time items”, which for the historical periods presented consist primarily of lease termination income. We reconcile NOI to net income on page 14.

We also consider FFO an important measure of our operating performance. FFO is a widely recognized measure that is frequently used by securities analysts, investors and other interested parties in the evaluation of real estate entities, particularly those that own and operate income producing properties. Our definition of FFO includes all of the adjustments that are outlined in the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, including the exclusion of gains (or losses) from the sale of investment properties, the add back of any depreciation and amortization related to real estate assets and the adjustment for unconsolidated partnerships and joint ventures. In addition to the adjustments prescribed by NAREIT, we also make adjustments to exclude any unrealized fair value gains (or losses) that arise as a result of reporting under IFRS, and income taxes that arise as certain of our subsidiaries are structured as corporations as opposed to real estate investment trusts (“REITs”). These additional adjustments result in an FFO measure that is similar to that which would result if our partnership was organized as a REIT that determined net income in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which is the type of organization on which the NAREIT definition is premised. Our FFO measure will differ from other organizations applying the NAREIT definition to the extent of certain differences between the IFRS and U.S. GAAP reporting frameworks, principally related to the timing of revenue recognition from lease terminations and sale of properties. Because FFO excludes fair value gains (losses), including equity accounted fair value gains (losses), realized gains (losses) on the sale of investment properties, depreciation and

amortization of real estate assets and income taxes, it provides a performance measure that, when compared year-over-year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and interest costs, providing perspective not immediately apparent from net income. We reconcile FFO to net income on page 14 as we believe net income is the most comparable measure. We do not use FFO as a measure of cash flow generated from operating activities.

In addition, we consider Company FFO a useful measure for securities analysts, investors and other interested parties in the evaluation of our partnership’s performance. Company FFO, similar to FFO discussed above, provides a performance measure that reflects the impact on operations of trends in occupancy rates, rental rates, operating costs and interest costs. In addition, the adjustments to Company FFO relative to FFO allow the partnership insight into these trends for the real estate operations, by adjusting for non-real estate components. We reconcile net income to Company FFO on page 14.

Net income attributable to Unitholders and Equity attributable to Unitholders are used by the partnership to evaluate the performance of the partnership as a whole as each of the Unitholders participates in the economics of the partnership equally. In calculating Net income attributable to Unitholders per unit and Equity attributable to Unitholders per unit, the partnership excludes the impact of mandatorily convertible preferred units in determining the average number of units outstanding as the holders of mandatorily convertible preferred units do not participate in current earnings. We reconcile Net income attributable to Unitholders to net income on page 14 and Equity attributable to Unitholders to total equity on page 15.

FAIR VALUE OF INVESTMENT AND HOSPITALITY PROPERTIES

Investment properties

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

Substantially all of our investment properties are valued using one of two accepted income approaches, the discounted cash flow approach or the direct capitalization approach. The valuation methodology utilized is generally determined by asset class. Our office, retail and industrial assets are typically valued using a discounted cash flow methodology while our multifamily, triple net lease, self-storage, student housing and manufactured housing assets are typically valued using a direct capitalization methodology.

Under the discounted cash flow approach, cash flows for each property are forecast for an assumed holding period, generally, ten-years. A capitalization rate is applied to the terminal year net operating income and an appropriate discount rate is applied to those cash flows to determine a value at the reporting date. The forecast cash flows include assumptions prepared at the property level for lease renewal probabilities, downtime, capital expenditures, future leasing rates and associated leasing costs. The majority of property cash flows consist of contracted leases as a result of our core real estate portfolio having a combined 93.8% occupancy level and an average seven year lease life. Valuation assumptions, such as discount rates and terminal value multiples, are determined by the relevant investment professionals and applied to the cash flows to determine the values.

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

Hospitality properties

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

Valuation methodology

All of our valuations are subject to various layers of review and controls as part of our financial reporting processes. These controls are part of our system of internal control over financial reporting that is assessed by management on an annual basis. Under the discounted cash flow model, the base cash flows are determined as part of our annual business planning process, prepared within each operating business and reviewed by the senior management teams responsible for each segment, along with senior investment professionals responsible for the relevant asset classes. Valuation assumptions such as discount rates and terminal capitalization rates are compared to market data, third party reports, research material and broker opinions as part of the review process.

External valuations

We have a number of properties externally appraised each year to support our valuation process and for other business purposes. We compare the results of those external appraisals to our internally prepared values and reconcile significant differences when they arise. During the three months ended September 30, 2018 , we obtained external appraisals of 28 of our properties representing a gross property value of $12 billion (or 7% of the portfolio). These external appraisals were within 1% of management’s valuations. In addition, in connection with the acquisition of GGP, we engaged an external appraiser to value our Core Retail portfolio as of the date of the transaction, August 28, 2018. Also, each year we sell a number of assets, which provides support for our valuations, as we typically contract at prices comparable to IFRS values.

FINANCIAL STATEMENTS ANALYSIS

REVIEW OF CONSOLIDATED FINANCIAL RESULTS

In this section, we review our financial position and consolidated performance as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017 . Further details on our results from operations and our financial positions are contained within the “ Segment Performance ” section beginning on page 17.

The following acquisitions and dispositions of consolidated properties affected our consolidated results in the comparative periods for the three and nine months ended September 30, 2018 and 2017 :

 

In our Core Office segment:

In our Core Retail segment:

In our LP Investments segment:

The following acquisitions and dispositions of our equity accounted investments affected our income from unconsolidated properties results in the comparative periods ended September 30, 2018 and 2017:

In our Core Office segment:

For the purposes of the following comparison between the three and nine months ended September 30, 2018 and 2017 , the above transactions are referred to as the property transactions. In addition to the property transactions, we will use same-property NOI from our Core Office and Core Retail segments to evaluate our operating results.

Net income for the three months ended September 30, 2018 increased  to $722 million  from  $659 million  for the same period in the prior year. Net income per unit attributable to Unitholders for the three months ended September 30, 2018 was $0.44  compared with  $0.22  in the prior year. The increase is primarily attributable to incremental NOI from property transactions since prior year. Also contributing higher NOI is leasing activity from our existing investments, particularly in our India office portfolio, and our Core Office assets in Downtown New York and Toronto at average rents higher than expiring rents, as well as our hospitality assets from property upgrades in the prior year. There were also fair value gains recognized in our LP investments segment, primarily on our office portfolio in India due to the completion of several developments and leasing activity as well as our industrial portfolio, due to strengthened market conditions.

Net income for the nine months ended September 30, 2018 increased  to $2,796 million  from  $1,510 million  for the same period in prior year. Net income per unit attributable to Unitholders for the nine months ended September 30, 2018 was $1.79  compared with  $0.31  in the prior year. The increase is primarily attributable to the reasons mentioned above as well as the extinguishment of debt associated with the sale of a hospitality asset, the impact of property transactions, same-property growth in Core Office driven by leasing activity in London, in addition to Downtown New York and Toronto, at average rents higher than expiring rents and fair value gains in our LP Investments segment.

FFO decreased to $123 million during the three months ended September 30, 2018 compared with $197 million during the same period in the prior year. The decrease was driven by higher interest expense due to the GGP acquisition and property transactions. Also contributing to the decrease are higher transaction costs primarily due to the acquisition of 666 Fifth Avenue and general and administrative costs from the other property transactions and the negative impact of foreign currency translation. These decreases were partially offset by incremental NOI as mentioned above.

FFO decreased to $561 million during the nine months ended September 30, 2018 compared with $626 million during the same period in the prior year. The decrease was driven by the reasons mentioned above as well as a decrease in investment and other revenue recorded from the sale of develop-for-sale assets in our multifamily and industrial businesses in the prior period as these types of sales are sporadic in nature.

    

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

Commercial property revenue and direct commercial property expense

For the three months ended September 30, 2018 , commercial property revenue increased by $185 million compared to the same period in the prior year due to the GGP acquisition, property acquisitions in our LP Investments segment, same-property growth in our Core Office segment and leasing activity in our LP Investments portfolio, primarily in India, offset by property dispositions in our Core Office segment and the negative impact of foreign currency translation. The GGP acquisition resulted in consolidation of the investment which is contributing $129 million to commercial property revenue as compared to nil in the prior periods as the investment was previously accounted for under the equity method. The property transactions contributed to a $76 million increase in revenue. Our Core Office portfolio generated 5.1% same-property growth, largely driven by leasing activity in Downtown New York and Toronto.

Direct commercial property expense increased by $59 million largely due to the acquisition of GGP and additional expenses relating to the property transactions. The GGP acquisition resulted in consolidation of the investment which is contributing $36 million to commercial property expense as compared to nil in the prior periods as the investment was previously accounted for under the equity method. Margins in 2018 were 61.8% , an increase of 1% over 2017 .

For the nine months ended September 30, 2018 , commercial property revenue increased by $367 million compared to the same period in the prior year due to the GGP acquisition, property transactions, and same-property growth in our Core Office segment. The GGP acquisition resulted in consolidation of the investment which is contributing $129 million to commercial property revenue as compared to nil in the prior periods as the investment was previously accounted for under the equity method. Property transactions contributed to a $254 million increase in revenue. Our Core Office portfolio generated 4.6% same-property growth, largely driven by leasing activity in Downtown New York, London and Toronto. These increases were partially offset by the negative impact of foreign currency translation.

Direct commercial property expense increased by $107 million largely due to additional expenses relating to property transactions. Margins in 2018 were 62.4% , an increase of 1% over 2017 .

Commercial property NOI increased by $126 million to $773 million during the three months ended September 30, 2018 compared with $647 million during the same period in the prior year. For the nine months ended September 30, 2018 , commercial property NOI increased by $260 million to $2,170 million compared with $1,910 million during the same period in the prior year. The increases was primarily driven by property transactions and same-property growth.

Hospitality revenue and direct hospitality expense

For the three months ended September 30, 2018 , hospitality revenue increased by $92 million compared to the same period in the prior year. This increase was primarily a result of property transactions and the impact of redevelopment initiatives as well as lower revenues from the impact of Hurricane Irma at the Atlantis during the third quarter of 2017. Direct hospitality expense increased to $315 million for the three months ended September 30, 2018 , compared to $249 million in the same period in the prior year.

For the nine months ended September 30, 2018 , hospitality revenue increased by $246 million compared to the same period in the prior year. This increase was due to the reasons noted above, offset by the disposition of the Hard Rock Hotel and Casino in Las Vegas.

Direct hospitality expense increased to $942 million for the nine months ended September 30, 2018 , compared to $788 million in the same period in the prior year primarily due to acquisitions, and the impact of foreign exchange, offset by the renovations mentioned above. Margins were 37.3% and 35.5% for the three and nine ended September 30, 2018 , respectively, representing a decrease of 2.0% and an increase of 0.4% , respectively.

Hospitality NOI increased by $26 million to $187 million during the three months ended September 30, 2018 compared to $161 million during the same period in the prior year. For the nine months ended September 30, 2018 , hospitality NOI increased by $92 million to $518 million compared to $426 million during the same period in the prior year. The increase is primarily due to property transactions partially offset by the negative impact of foreign currency translation.

Investment and other revenue and investment and other expense

Investment and other revenue includes management fees, leasing fees, development fees, interest income and other non-rental revenue. Investment and other revenue increased by $41 million and decreased by $71 million for the three and nine months ended September 30, 2018 , respectively, as compared to the same period in the prior year. The increase for the three months ended September 30, 2018 is primarily due to increased property management fee revenue from our continued management of 245 Park Avenue following its sale in the second quarter of 2017 and One Liberty Plaza in New York following the partial disposition in the fourth quarter of 2017 as well as increased asset management fees from development projects. The decrease for the nine months ended September 30, 2018 is primarily due to revenue recorded from the sale of develop-for-sale assets in our multifamily and industrial businesses in the prior periods compared to nil in the current periods, as these types of sales are sporadic in nature.

Investment and other expense increased by $16 million and decreased by $106 million for the three and nine months ended September 30, 2018 , respectively, as compared to the same period in the prior year. The increase for the three months ended September 30, 2018 was primarily due to expenses due to our manufactured housing home sales. The decrease compared to the nine months ended September 30, 2017 is primarily due to expenses associated with the sale of develop-for-sale assets in our multifamily and industrial businesses in the prior periods as mentioned above.

Interest expense

Interest expense increased by $139 million for the three months ended September 30, 2018 as compared to the same period in the prior year. Interest expense increased by $214 million for the nine months ended September 30, 2018 as compared to the same period in the prior year. These increases were due to the assumption of debt obligations as a result of GGP acquisition and property transactions, incremental debt raised from temporary drawdowns on our credit facilities to source the capital required for acquisitions and through refinancings on individual properties, as well as an increase in the weighted average variable interest rate during the year. These increases were partially offset by disposition activity.

General and administrative expense

General and administrative expense increased by $94 million for the three months ended September 30, 2018 as compared to the same period in the prior year. General and administrative expense increased by $139 million for the nine months ended September 30, 2018 as compared to the same period in the prior year. These increases were primarily attributable to operating and transaction costs related to property transactions.

Fair value gains, net

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

In addition, for the three months ended September 30, 2018 , we recorded fair value gains , net of nil ( 2017 - fair value losses , net of $9 million ) and for the nine months ended September 30, 2018 we recorded fair value gains , net of $200 million ( 2017 - fair value losses , net of $35 million ), primarily related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the quarter.

Share of net earnings from equity accounted investments

Our most material equity accounted investments are Canary Wharf and Manhattan West in our Core Office sector, Ala Moana Center in Hawaii, Fashion Show and Grand Canal Shoppes in Las Vegas in our Core Retail segment and the Diplomat hotel and our interest in the second value-add multifamily fund in our LP Investments segment.

Reconciliation of Non-IFRS measures

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

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

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

As of September 30, 2018 , we had $111,583 million in total assets, compared with $84,347 million at December 31, 2017 . This $27,236 million increase reflects the aforementioned acquisition activity since the prior year, primarily due to the GGP acquisition.

Commercial properties are commercial, operating, rent-producing properties. Commercial properties increased from $48,780 million at the end of 2017 to $69,940 million at September 30, 2018 . The increase was largely due to the GGP acquisition and property transactions, as well as incremental capital spent to maintain or enhance properties, and valuation gains within our LP Investments portfolio. This was offset by the full or partial disposition of certain assets during the current year and the negative impact of foreign currency translation based on closing spot rates.

Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $4,017 million at September 30, 2018 , an increase of $1,440 million from the balance at December 31, 2017 . The increase is primarily attributable to the GGP acquisition and property transactions, incremental capital spend on our active developments, and a gain recognized at 100 Bishopsgate in London as the development is nearing completion.

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

Equity accounted investments increased by $2,179 million since December 31, 2017 . In connection with the acquisition of GGP, our former equity accounted investment balance derecognized as of August 28, 2018, as the investment was consolidated as of this date. In advance of the acquisition, GGP entered into a number of joint venture arrangements related to the sale of partial interests in certain properties, which are now accounted for under the equity method. In addition, this net increase was offset by the weakening of the British Pound against the U.S. Dollar, primarily impacting our investment in Canary Wharf, and return of capital and distributions received during the period.

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

Property, plant and equipment increased by $1,406 million since December 31, 2017 , primarily as a result of property transactions. These increases were offset by the negative impact of foreign currency translation related to our Center Parcs UK portfolio and depreciation expense during the current year.

As of September 30, 2018 , assets held for sale primarily included two Core Office buildings in Canada: Queens Quay Terminal in Toronto; and an interest in Jean Edwards Tower in Ottawa. These assets were sold in the fourth quarter of 2018.

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

Our debt obligations increased to $54,381 million at September 30, 2018 from $36,884 million at December 31, 2017 . Contributing to this increase was the addition of property-specific borrowings related to acquisition activity during the period, primarily from the GGP acquisition, as noted above, as well as higher funds subscription facilities and corporate debt facilities. These increase s were partially offset by the disposition of encumbered assets during the period and the repayment of certain subsidiary borrowings.

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

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

Equity attributable to Unitholders was $28,274 million at September 30, 2018 , an increase of $6,088 million from the balance at December 31, 2017 . The increase was a primarily due to the issuance of LP Units and BPR Units relating to the GGP acquisition and net income during the period partially offset by distributions. Assuming the conversion of mandatorily convertible preferred shares, equity attributable to Unitholders decreased to $28.60 per unit at September 30, 2018 from $30.74 per unit at December 31, 2017 .

 

Interests of others in operating subsidiaries and properties was $17,484 million at September 30, 2018 , an increase of $4,546 million from the balance of $12,938 million at December 31, 2017 . The increase was primarily a result of the GGP acquisition as well as new LP Investments through Brookfield Asset Management-sponsored funds in which the partnership is a limited partner.

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

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

Core Office

Overview

Our Core Office portfolio consists of interests in 150 high-quality office properties totaling approximately 99 million square feet, which are located primarily in the world’s leading commercial markets such as New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, and Berlin, as well as approximately 11 million square feet of active office and multifamily developments. These assets have a stable cash flow profile due to long-term leases in place. We target between a 10% and 12% total return on our Core Office portfolio. The drivers of these targets include the mark-to-market of rents upon lease expiry, escalation provisions in leases and projected increases in occupancy, that should generate strong same-property NOI growth without significant capital investment. Furthermore, we expect to earn between 8% and 11% unlevered, pre-tax returns on construction costs from our development pipeline.

FFO from our Core Office segment was $114 million for the three months ended September 30, 2018 as compared to $113 million in the same period in the prior year. This increase is largely attributable to property transactions and same-property growth, offset by the negative impact of foreign translation.

FFO from our Core Office segment was $374 million for the nine months ended September 30, 2018 as compared to $408 million in the same period in the prior year. This decrease is largely attributable to dispositions as mentioned in property transactions, higher transaction costs relating to property transactions and the negative impact of foreign currency translation. These decreases were partially offset by same-property growth.

Net income attributable to Unitholders increased by $316 million to $383 million during the three months ended September 30, 2018 as compared to $67 million during the same period in 2017 . The increase was primarily a result of fair value gains recorded in the current period related to properties in Toronto and Sydney as a result of changes in valuation metrics as well as higher share of net earnings from equity accounted investments as detailed in property transactions.

 

Net income attributable to Unitholders increased by $652 million to $678 million during the nine months ended September 30, 2018 as compared to $26 million during the same period in 2017 . The increase is largely attributable to fair value gains recorded at our properties in Toronto, Sydney and London portfolios as a result of changes in valuation metrics, a gain resulting from a change in the tax status of Canary Wharf and fair value gains realized on the dispositions of Bay Adelaide Centre East and West Towers in Toronto and 1801 California Street in Denver compared to fair value losses in Downtown New York in the first quarter of 2017.