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 19,000 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:

INVESTMENT STRATEGY

    Our diversified Core portfolios consist 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 target earning between 6% and 11% unlevered, pre-tax returns on construction costs for our development and redevelopment projects. We currently have approximately 13 million square feet of active development projects underway with another 8 million square feet in planning stages. Our development track record reflects successful completions on time and on budget. We expect that 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, logistics, hospitality, triple net lease, self-storage, student housing and manufactured housing. We target an average gross 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 distributions from return of capital and realization events from our LP Investments portfolio, we expect to be able to increase distributions at the targeted rate of 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, and measure our operating performance, we focus on NOI, same-property NOI, funds from operations (“FFO”), Company FFO, net income attributable to Unitholders and equity attributable to Unitholders. Some of these performance metrics do not have standardized meanings prescribed by IFRS and therefore may differ from similar metrics used by other companies.

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 13.

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 13 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 13.

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. We reconcile Net income attributable to Unitholders to net income on page 13 and Equity attributable to Unitholders to total equity on page 16.

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. 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. Additionally, a number of properties are externally appraised each year and the results of those appraisals are compared to the partnership’s internally prepared values.

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 and retail assets are typically valued using a discounted cash flow methodology while our multifamily, triple net lease, self-storage, student housing, logistics and manufactured housing assets are typically valued using a direct capitalization methodology.

Under the discounted cash flow approach, cash flows for each property are forecast for an assumed holding period, generally, ten-years. A capitalization rate is applied to the terminal year net operating income and an appropriate discount rate is applied to those cash flows to determine a value at the reporting date. The forecast cash flows include assumptions prepared at the property level for lease renewal probabilities, downtime, capital expenditures, future leasing rates and associated leasing costs. The majority of property cash flows consist of contracted leases as a result of our core real estate portfolio having a combined 94% occupancy level and an average 6.7 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, 2019, we obtained external appraisals of 21 of our properties representing a gross property value of $9 billion (or 5% of the portfolio). These external appraisals were within less than 1% of management’s valuations. 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, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018. Further details on our results from operations and our financial positions are contained within the “Segment Performance” section beginning on page 16.

The following acquisitions and dispositions affected our consolidated results for the three and nine months ended September 30, 2019 and 2018:

 

In our Core Office segment:

In our Core Retail segment:

In our LP Investments segment:

For the purposes of the following comparison between the three and nine months ended September 30, 2019 and 2018, the above transactions are referred to as the investment activities. In addition to the investment activities, 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, 2019 increased to $870 million from $722 million for the same period in the prior year. The increase is primarily attributable to incremental earnings from an increased ownership in GGP post-acquisition, contributing a full quarter of consolidated results this year compared to one month in the prior year and other investment activity since the prior year. Net income per unit attributable to Unitholders was $0.46 in the current period as compared to $0.44 in the prior year. Net income also increased as a result of same-property growth in Core Office driven by leasing activity, particularly in Downtown New York, Midtown New York, Los Angeles and Toronto at average rents higher than expiring rents and increased fee income and investment gains. This was offset by mark-to-mark losses on derivatives and the impact of a stronger U.S. dollar.

Net income for the nine months ended September 30, 2019 decreased to $1,606 million from $2,796 million for the same period in prior year. Net income per unit attributable to Unitholders for the nine months ended September 30, 2019 was $0.90 compared with $1.79 in the prior year. The decrease is primarily attributable to mark-to-market losses on derivatives and fair value losses recognized on our Core Retail portfolio, reflecting updated cashflow assumptions and valuation metrics, as well as fair value losses on our LP Investments retail portfolio. The prior year benefited from fair value gains associated with our since-sold logistics portfolio in the U.S, our office portfolio in India and a gain on extinguishment of debt associated with the sale of a hospitality asset.

FFO increased to $261 million during the three months ended September 30, 2019 compared with $123 million during the same period in the prior year. These increases were driven by incremental FFO from the GGP acquisition, investment activity since the prior year and leasing activity which resulted in higher NOI. Also contributing to the increase was investment and other revenue recorded on an incentive fee earned on a development with a joint venture partner. These increases were partially offset by higher interest and general and administrative expenses due to the GGP acquisition and other investments and the impact of a stronger U.S. dollar.

For the nine months ended September 30, 2019 FFO increased to $810 million from $561 million in the prior year.

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, 2019, commercial property revenue increased by $129 million compared to the same period in the prior year due to the GGP acquisition, property acquisitions in our LP Investments segment and same-property growth in our Core Office segment, offset by property dispositions in our Core Office and LP Investments segments and the negative impact of foreign currency translation. The GGP acquisition resulted in consolidation of the investment which is contributing $342 million to commercial property revenue as compared to $129 million in the prior period as the investment was previously accounted for under the equity method. Our Core Office portfolio generated 5.2% same-property growth, largely driven by leasing activity in Downtown New York, Midtown New York, Los Angeles and Toronto.

Direct commercial property expense increased by just $3 million as the acquisition of GGP and additional expenses relating to property transactions was offset by Core Office property dispositions and the negative impact of foreign currency translation. The GGP acquisition resulted in consolidation of the investment which is contributing $92 million to commercial property expense as compared to $36 million in the prior periods as the investment was previously accounted for under the equity method. Margins in 2019 were 65.1%, an increase of 3% over 2018.

For the nine months ended September 30, 2019, commercial property revenue increased by $762 million compared to the same period in the prior year due to the GGP acquisition, acquisition activity, and same-property growth in our Core Office segment. The GGP acquisition resulted in consolidation of the investment which is contributing $1,006 million to commercial property revenue as compared to $129 million in the prior periods as the investment was previously accounted for under the equity method. Property transaction acquisitions contributed to a $93 million increase in revenue. Our Core Office portfolio generated 7.1% same-property growth, largely driven by leasing activity in Downtown New York, Midtown New York, Los Angeles, Toronto and London. These increases were partially offset property transaction dispositions and the negative impact of foreign currency translation.

Direct commercial property expense increased by $174 million largely due to additional expenses relating to the GGP acquisition and other investment activity. Margins in 2019 were 65.0%, an increase of 3% over 2018.

Commercial property NOI increased by $126 million to $899 million during the three months ended September 30, 2019 compared with $773 million during the same period in the prior year. For the nine months ended September 30, 2019, commercial property NOI increased by $588 million to $2,758 million compared with $2,170 million during the same period in the prior year. The increase was primarily driven by the GGP acquisition, as well as other investment activity and same-property growth in our Core Office portfolio offset by Core Office dispositions and the impact of foreign currency translation.

Hospitality revenue and direct hospitality expense

For the three months ended September 30, 2019, hospitality revenue decreased by $30 million compared to the same period in the prior year. This decrease reflects the impact of the disposition of the Hard Rock Hotel and Casino in Las Vegas in the prior year and the negative impact of foreign currency translation. Direct hospitality expense decreased to $295 million for the three months ended September 30, 2019, compared to $315 million in the same period in the prior year.

For the nine months ended September 30, 2019, hospitality revenue increased by $6 million compared to the same period in the prior year. This increase was due to strong performance at the Atlantis Paradise Island resort and other North American hotel investments after recent renovations partially offset by the sale of the Hard Rock Hotel and Casino. The impact of Hurricane Dorian in August 2019 had a minimal effect on the Atlantis Paradise Island resort and we did not sustain any material damage to the property.

Direct hospitality expense decreased to $921 million for the nine months ended September 30, 2019, compared to $942 million in the same period in the prior year primarily due to disposition activity and the impact of foreign currency translation. Margins were 37.5% and 37.2% for the three and nine ended September 30, 2019, respectively, representing increases of 0.2% and 1.7%, respectively.

Hospitality NOI decreased by $10 million to $177 million during three months ended September 30, 2019 compared to $187 million during the same period in the prior year. The decrease is attributable to the sale of the Hard Rock Hotel and Casino. For the nine months ended September 30, 2019, hospitality NOI increased by $27 million to $545 million compared to $518 million during the same period in the prior year. The increase is primarily due to incremental NOI from completed renovations at various assets, partially offset by dispositions and 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 $90 million and increased by $249 million for the three and nine months ended September 30, 2019, respectively, as compared to the same periods in the prior year. The increase for the three and nine months ended September 30, 2019 is primarily due to $89 million and $167 million, respectively, of investment and other revenue from Core Retail, primarily consisting of fee revenues earned from our joint ventures arrangements from the GGP acquisition. Also contributing to the increase is higher development management and joint venture partner fees within Core Office as development activity has increased and we have entered into new joint venture arrangements that provide fees. Additionally, we earned a performance-based fee of $51 million for achieving certain milestones at Five Manhattan West during the current year.

Investment and other expense for the three and nine months ended September 30, 2019 remained flat at nil and $10 million, respectively, as compared the same period in the prior year.

Interest expense

Interest expense increased by $106 million and $505 million for the three and nine months ended September 30, 2019 as compared to the same period in the prior year. This increase was primarily due to the assumption of debt obligations and the acquisition debt incurred in connection with the acquisition of GGP. Additionally, interest expense from other property acquisitions and corporate bond issuances contributed to the increase, partially offset by disposition activity, the deconsolidation of our interests in investments held in BSREP III and lower average revolving corporate debt balances.

General and administrative expense

General and administrative expense decreased by $27 million for the three months ended September 30, 2019 as compared to the same period in the prior year. The decrease is driven by the deconsolidation of BSREP III which incurred general and administrative expense of $67 million in the prior year. Our investment in BSREP III was deconsolidated in early 2019 and is now accounted for as a financial asset. This decrease was partially offset by operating costs related to the GGP acquisition and other investment activity. The consolidation of GGP resulted

in general and administrative expense of $63 million for the three months ended September 30, 2019 as compared to $26 million in the same period in the prior year, when we had one month of consolidated results for GGP.

General and administrative expense increased by $63 million for the nine months ended September 30, 2019 as compared to the same period in the prior year. These increases were primarily attributable to operating and transaction costs related to the GGP acquisition and investment activity. The consolidation of GGP resulted in general and administrative expense of $199 million for the nine months ended September 30, 2019 as compared to $26 million in the same period in the prior year, when we had one month of consolidated results for GGP. This increase was offset by the deconsolidation of BSREP III investments which had general and administrative expense of nil in the current period compared to $112 million in the same period in the prior year.

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 and nine months ended September 30, 2019, we recorded fair value losses, net of $62 million and $123 million (2018 - fair value gains, net of nil and $200 million), respectively, related to mark-to-market adjustments of financial instruments and the settlement of derivative contracts during the quarter. The prior year gains related to obtaining control over Brookfield Global Real Estate Special Opportunities Inc. (“BGRESOI”) after converting our loan interest in the entity and becoming the 100% common equity holder.

Share of net earnings from equity accounted investments

Our most material equity accounted investments are:

In the prior year, our then 34% interest in GGP was accounted for under the equity method.

Income tax expense (benefit)    

The increase in income tax expense for the nine months ended September 30, 2019 compared to the prior year is primarily due to the reversal of deferred tax liabilities relating to legislative and entity tax status change, an internal restructuring of the ownership of certain retail investments and the recognition of previously unrecognized net operating losses.

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, 2019 and 2018:

The following table reconciles net income to FFO and Company FFO for the three and nine months ended September 30, 2019 and 2018:

As of September 30, 2019, we had $109,056 million in total assets, compared with $122,520 million at December 31, 2018. This $13,464 million decrease was primarily due to the deconsolidation of BSREP III investments, due to loss of control upon reducing our commitment to the fund on final close; our commitment to the fund is 7% compared to 25% at December 31, 2018.

Commercial properties are commercial, operating, rent-producing properties. Commercial properties decreased from $76,014 million at the end of 2018 to $66,296 million at September 30, 2019. The decrease was largely due to the deconsolidation of BSREP III investments, 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. These decreases were partially offset by the impact of the adoption of IFRS 16, Leases (“IFRS 16”) which requires the recognition of right-of-use assets and increased the balance by $699 million. Additionally, asset acquisitions, incremental capital spent to maintain or enhance properties and valuation gains within our Core Office and LP Investments portfolio, contributed to the offset.

Commercial developments consist of commercial property development sites, density rights and related infrastructure. The total fair value of development land and infrastructure was $4,490 million at September 30, 2019, an increase of $308 million from the balance at December 31, 2018. The increase is primarily due incremental capital spend on our active developments, and a gain recognized at 100 Bishopsgate in London as the development is nearing completion, partially offset by the deconsolidation of BSREP III investments.

 

The following table presents the changes in investment properties from December 31, 2018 to September 30, 2019:

Equity accounted investments decreased by $1,081 million since December 31, 2018 primarily as a result of the deconsolidation of BSREP III during the first quarter of 2019, and the associated interests in properties held through joint ventures, primarily through Forest City Realty Inc.

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

Property, plant and equipment decreased by $737 million since December 31, 2018, primarily due to deconsolidation of BSREP III investments, which include a portfolio of serviced apartments in the United Kingdom and two hotel properties in Florida as well as the negative impact of foreign currency translation. These decreases were offset by capital spend during the current year.

As of September 30, 2019, assets held for sale primarily included nine triple net lease assets and a portfolio of multifamily assets in our LP Investments segment as well as a Core Office asset in Sydney.

The following table presents changes in our assets held for sale from December 31, 2018 to September 30, 2019:

Our debt obligations decreased to $52,402 million at September 30, 2019 from $63,811 million at December 31, 2018. Contributing to this decrease was the deconsolidation of BSREP III due to loss of control as mentioned above as term debt associated with an investment in the fund and the BSREP III credit facilities are no longer being consolidated by the partnership. Also contributing to the decrease was a paydown of the partnership’s credit facilities and the negative impact of foreign currency translation. These decreases were partially offset by the addition of property-specific borrowings and senior secured notes during the period.

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 $27,518 million at September 30, 2019, a decrease of $766 million from the balance at December 31, 2018. The decrease was primarily due to repurchases of LP Units and BPR Units and distributions partially offset by net income during the period. Assuming the conversion of mandatorily convertible preferred shares, equity attributable to Unitholders decreased to $28.61 per unit at September 30, 2019 from $28.72 per unit at December 31, 2018.

 

Interests of others in operating subsidiaries and properties was $17,024 million at September 30, 2019, a decrease of $1,432 million from the balance of $18,456 million at December 31, 2018. The decrease was primarily a result of the deconsolidation of BSREP III.

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, 2019 and December 31, 2018:

Core Office

Overview

Our Core Office portfolio consists of interests in 136 high-quality office properties totaling over 93 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 13 million square feet of active office and multifamily developments and office redevelopments. We believe 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 $130 million for the three months ended September 30, 2019 as compared to $114 million in the same period in the prior year. This increase is largely attributable to same-property growth driven by lease commencements mainly in New York as well as a performance-based fee of $13 million earned in the current period for achieving certain milestones at Five Manhattan West. These increases were partially offset by dispositions as mentioned in property transactions and the negative impact of foreign currency translation.

FFO from our Core Office segment was $419 million for the nine months ended September 30, 2019 as compared to $374 million in the same period in the prior year. This increase is largely attributable to same-property growth as mentioned above and a total of $51 million for a performance-based fee earned at Five Manhattan during the nine months ended September 30, 2019 as well as higher development management and joint venture partner fees as development activity has increased and we have sold interests in assets to a number of joint venture partners. These increases were partially offset by dispositions as mentioned in property transactions and the negative impact of foreign currency translation.

Net income attributable to Unitholders decreased by $172 million to $211 million during the three months ended September 30, 2019 as compared to $383 million during the same period in 2018. The decrease is largely attributable to higher fair value gains recognized in the prior period as well as the impact from dispositions and the negative impact of foreign currency translation. The decrease was partially offset by fair value gains primarily related to 100 Bishopsgate in London as the development nears substantial completion and valuation gains on Australian assets to reflect market conditions.

Net income attributable to Unitholders increased by $226 million to $904 million during the nine months ended September 30, 2019 as compared to $678 million during the same period in 2018. The increase is largely attributable to fair value gains in London and Australia as mentioned above, as well as valuation gains on our New York assets to reflect market conditions. These increases were partially offset by dispositions and the negative impact of foreign currency translation.