Brookfield DTLA Fund Office Trust Investor Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2015
	or
¨	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: 001-36135

________________________

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

(Exact name of registrant as specified in its charter)



Maryland		46-2616226
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(212) 417-7000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 12, 2015, 100% of the registrant’s common stock (all of which is privately owned and is not traded on any public market) was held by Brookfield DTLA Holdings LLC.

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS



			Page
PART I—FINANCIAL INFORMATION

	Item 1.	Financial Statements.
		Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2015 and December 31, 2014	1
		Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2015 and 2014	3
		Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2015 and 2014	4
		Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) for the nine months ended September 30, 2015 and 2014	5
		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2015 and 2014	6
		Notes to Condensed Consolidated Financial Statements (unaudited)	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	44
	Item 4.	Controls and Procedures.	44

PART II—OTHER INFORMATION

	Item 1.	Legal Proceedings.	45
	Item 1A.	Risk Factors.	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	49
	Item 3.	Defaults Upon Senior Securities.	50
	Item 4.	Mine Safety Disclosures.	50
	Item 5.	Other Information.	50
	Item 6.	Exhibits.	50
	Signatures		51

		Exhibit 31.1
		Exhibit 31.2
		Exhibit 32.1
		Exhibit 101 Instance Document
		Exhibit 101 Schema Document
		Exhibit 101 Calculation Linkbase Document
		Exhibit 101 Definition Linkbase Document
		Exhibit 101 Label Linkbase Document
		Exhibit 101 Presentation Linkbase Document

Table of Contents

PART I—FINANCIAL INFORMATION


Item 1.	Financial Statements.

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands)



	September 30, 2015		December 31, 2014

ASSETS
Investments in real estate:
Land	$	227,555	$	229,555
Buildings and improvements	2,159,736		2,155,040
Tenant improvements	264,969		234,827
	2,652,260		2,619,422
Less: accumulated depreciation	239,276		189,108
Investments in real estate, net	2,412,984		2,430,314

Cash and cash equivalents	108,762		125,004
Restricted cash	57,351		47,118
Rents, deferred rents and other receivables, net	86,036		74,332
Due from affiliates, net	939		—
Intangible assets, net	105,455		125,827
Deferred charges, net	71,767		63,825
Prepaid and other assets, net	3,719		11,516
Total assets	$	2,847,013	$	2,877,936

LIABILITIES AND DEFICIT
Liabilities:
Mortgage loans, net	$	2,114,031	$	2,111,135
Accounts payable and other liabilities	88,894		85,125
Due to affiliates, net	—		2,749
Intangible liabilities, net	31,729		37,725
Total liabilities	$	2,234,654	$	2,236,734

Commitments and Contingencies (See Note 13)

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Unaudited; in thousands, except share amounts)



	September 30, 2015			December 31, 2014

LIABILITIES AND DEFICIT (continued)
Mezzanine Equity:
7.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value, 9,730,370 shares issued and outstanding as of September 30, 2015 and December 31, 2014	$	371,560		$	357,649
Noncontrolling Interests:
Series A-1 preferred interest	344,780			331,871
Senior participating preferred interest	54,976			50,080
Total mezzanine equity	771,316			739,600

Stockholders’ Deficit:
Common stock, $0.01 par value, 1,000 shares issued and outstanding as of September 30, 2015 and December 31, 2014	—			—
Additional paid-in capital	191,710			191,710
Accumulated deficit	(164,435		)	(137,339		)
Accumulated other comprehensive loss	(3,833		)	(2,066		)
Noncontrolling interest – Series B common interest	(182,399		)	(150,703		)
Total stockholders’ deficit	(158,957		)	(98,398		)
Total liabilities and deficit	$	2,847,013		$	2,877,936

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands)



	For the Three Months Ended						For the Nine Months Ended
	Sept. 30, 2015			Sept. 30, 2014			Sept. 30, 2015			Sept. 30, 2014
Revenue:
Rental income	$	41,211		$	38,232		$	119,200		$	113,983
Tenant reimbursements	21,545			25,062			66,756			70,671
Parking	8,746			8,790			26,238			25,452
Interest and other	3,059			3,613			13,313			8,626
Total revenue	74,561			75,697			225,507			218,732

Expenses:
Rental property operating and maintenance	24,893			25,817			71,106			73,426
Real estate taxes	6,934			9,746			26,412			28,602
Parking	2,119			1,903			5,948			5,352
Other expense	405			1,289			1,773			2,233
Depreciation and amortization	25,618			28,399			74,191			82,509
Interest	23,939			23,447			71,213			68,238
Total expenses	83,908			90,601			250,643			260,360

Net loss	(9,347		)	(14,904		)	(25,136		)	(41,628		)
Net loss attributable to noncontrolling interests:
Series A-1 preferred interest – current dividends	4,303			4,303			12,909			12,909
Senior participating preferred interest – current dividends	608			2,232			1,792			9,467
Senior participating preferred interest – redemption measurement adjustment	804			97			3,104			1,225
Series B common interest – allocation of net loss	(10,310		)	(13,699		)	(29,756		)	(41,422		)
Net loss attributable to Brookfield DTLA	(4,752		)	(7,837		)	(13,185		)	(23,807		)
Series A preferred stock – current dividends	4,637			4,637			13,911			13,911
Net loss available to common interest holders of Brookfield DTLA	$	(9,389	)	$	(12,474	)	$	(27,096	)	$	(37,718	)

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)



	For the Three Months Ended						For the Nine Months Ended
	Sept. 30, 2015			Sept. 30, 2014			Sept. 30, 2015			Sept. 30, 2014

Net loss	$	(9,347	)	$	(14,904	)	$	(25,136	)	$	(41,628	)

Other comprehensive loss:
Derivative transactions:
Derivative holding (losses) gains	(3,579		)	882			(3,707		)	(2,993		)

Comprehensive loss	(12,926		)	(14,022		)	(28,843		)	(44,621		)
Comprehensive loss attributable to noncontrolling interests	6,468			6,605			13,891			19,388
Comprehensive loss available to common interest holders of Brookfield DTLA	$	(6,458	)	$	(7,417	)	$	(14,952	)	$	(25,233	)

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited; in thousands, except share amounts)



	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Non- controlling Interest			Total Stockholders’ Deficit
	Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Non- controlling Interest			Total Stockholders’ Deficit

Balance, December 31, 2014	1,000	$	—	$	191,710	$	(137,339	)	$	(2,066	)	$	(150,703	)	$	(98,398	)
Net loss						(13,185		)				(11,951		)	(25,136		)
Other comprehensive loss									(1,767		)	(1,940		)	(3,707		)
Dividends on Series A preferred stock, Series A-1 preferred interest and senior participating preferred interest						(13,911		)				(17,805		)	(31,716		)
Balance, September 30, 2015	1,000	$	—	$	191,710	$	(164,435	)	$	(3,833	)	$	(182,399	)	$	(158,957	)



	Number of Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Stockholders’ Equity (Deficit)
	Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Stockholders’ Equity (Deficit)

Balance, December 31, 2013	1,000	$	—	$	191,710	$	(89,177	)	$	480		$	(95,014	)	$	7,999
Net loss						(23,807		)				(17,821		)	(41,628		)
Other comprehensive loss									(1,426		)	(1,567		)	(2,993		)
Dividends on Series A preferred stock, Series A-1 preferred interest and senior participating preferred interest						(13,911		)				(23,601		)	(37,512		)
Balance, September 30, 2014	1,000	$	—	$	191,710	$	(126,895	)	$	(946	)	$	(138,003	)	$	(74,134	)

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)



	For the Nine Months Ended
	Sept. 30, 2015			Sept. 30, 2014
Cash flows from operating activities:
Net loss	$	(25,136	)	$	(41,628	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of land held for investment	(28		)	—
Depreciation and amortization	74,191			82,509
Provision for doubtful accounts	72			—
Amortization of below-market leases/ above-market leases	(2,214		)	(1,722		)
Straight-line rent amortization	(14,036		)	(16,631		)
Amortization of tenant inducements	1,916			854
Amortization of debt discounts	2,896			3,394
Amortization of deferred financing costs	901			950
Changes in assets and liabilities:
Rents, deferred rents and other receivables	343			(8,582		)
Due (from) to affiliates, net	(3,688		)	8,485
Deferred charges	(16,243		)	(5,973		)
Prepaid and other assets	7,797			10,316
Accounts payable and other liabilities	5,978			8,102
Net cash provided by operating activities	32,749			40,074
Cash flows from investing activities:
Proceeds from sale of land held for investment	2,028			—
Expenditures for improvements to real estate	(40,743		)	(26,586		)
Increase in restricted cash	(10,233		)	(15,746		)
Net cash used in investing activities	(48,948		)	(42,332		)
Cash flows from financing activities:
Proceeds from mortgage loans	—			435,000
Principal payments on mortgage loans	—			(214,512		)
Distributions to senior participating preferred interest	—			(207,231		)
Dividends paid to senior participating preferred interest	—			(12,769		)
Due to affiliates	—			(25,000		)
Financing fees paid	(43		)	(1,288		)
Net cash used in financing activities	(43		)	(25,800		)
Net change in cash and cash equivalents	(16,242		)	(28,058		)
Cash and cash equivalents at beginning of period	125,004			196,071
Cash and cash equivalents at end of period	$	108,762		$	168,013

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited; in thousands)



	For the Nine Months Ended
	Sept. 30, 2015			Sept. 30, 2014
Supplemental disclosure of cash flow information:
Cash paid for interest	$	67,425		$	64,378

Supplemental disclosure of non-cash activities:
Accrual for real estate improvements	$	12,633		$	19,091
Accrual for deferred leasing costs	5,257			2,656
Decrease in fair value of interest rate swap	(3,707		)	(2,993		)

See accompanying notes to condensed consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Organization and Description of Business

Brookfield DTLA Fund Office Trust Investor Inc. (“Brookfield DTLA” or the “Company”) is a Maryland corporation and was incorporated on April 19, 2013. Brookfield DTLA was formed for the purpose of consummating the transactions contemplated in the Agreement and Plan of Merger dated as of April 24, 2013, as amended (the “Merger Agreement”), and the issuance of shares of 7.625% Series A Cumulative Redeemable Preferred Stock (the “Series A preferred stock”) in connection with the acquisition of MPG Office Trust, Inc. and MPG Office, L.P. (together, “MPG”). Brookfield DTLA is a direct subsidiary of Brookfield DTLA Holdings LLC (“Brookfield DTLA Holdings”), a Delaware limited liability company, and an indirect subsidiary of Brookfield Office Properties Inc. (“BPO”).

Brookfield DTLA owns BOA Plaza, EY Plaza, Wells Fargo Center–North Tower, Wells Fargo Center–South Tower, Gas Company Tower and 777 Tower, each of which are Class A office properties located in the Los Angeles Central Business District (the “LACBD”).

Brookfield DTLA receives its income primarily from rental income (including tenant reimbursements) generated from the operations of its office and retail properties, and to a lesser extent, from its parking garages.

Note 2—Basis of Presentation

As used in these consolidated and combined financial statements and related notes, unless the context requires otherwise, the terms “Brookfield DTLA,” the “Company,” “us,” “we” and “our” refer to Brookfield DTLA Fund Office Trust Investor Inc.

Principles of Consolidation and Combination and Basis of Presentation

The unaudited condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10‑Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments, consisting of only those of a normal and recurring nature, considered necessary for a fair presentation of the financial position and interim results of Brookfield DTLA as of and for the periods presented have been included. The results of operations for interim periods are not necessarily indicative of those that may be expected for a full fiscal year.

The condensed consolidated balance sheet data as of December 31, 2014 has been derived from Brookfield DTLA’s audited financial statements; however, the accompanying notes to the condensed consolidated financial statements do not include all disclosures required by GAAP.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The financial information included herein should be read in conjunction with the consolidated financial statements and related notes included in Brookfield DTLA’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2015.

Reclassifications

We had reported $220,000 of distributions to Brookfield DTLA Holdings in the condensed consolidated statement of cash flows for the nine months ended September 30, 2014. We have reclassified this total to show $207,231 as distributions to senior participating preferred interest and $12,769 as dividends paid to senior participating preferred interest so as to conform to the 2015 presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. For example, estimates and assumptions have been made with respect to fair values of assets and liabilities for applying the acquisition method of accounting, the useful lives of assets, recoverable amounts of receivables, impairment of long-lived assets and fair value of debt. Actual results could ultimately differ from such estimates.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014‑08, Presentation of Financial Statements and Property, Plant, and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires entities to disclose only disposals representing a strategic shift in operations as discontinued operations. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The guidance in ASU 2014-08 became effective for Brookfield DTLA beginning January 1, 2015. The implementation of this pronouncement did not have a material impact on Brookfield DTLA’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2014-09 on Brookfield DTLA’s consolidated financial statements.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This topic provides guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and requires related footnote disclosures. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-15 on Brookfield DTLA’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis to ASC Topic 810, Consolidation. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. We are currently evaluating the impact of the adoption of ASU 2015-02 on Brookfield DTLA’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. We are currently evaluating the impact of the adoption of ASU 2015-03 on Brookfield DTLA’s consolidated financial statements.

Income Taxes

Brookfield DTLA has elected to be taxed as a real estate investment trust (“REIT”) pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its tax period ended December 31, 2013. Brookfield DTLA intends to conduct its operations so as to continue to qualify as a REIT. Accordingly, Brookfield DTLA is not subject to U.S. federal income tax, provided that it continues to qualify as a REIT and distributions to its stockholders, if any, generally equal or exceed its taxable income.

Qualification and taxation as a REIT depends upon Brookfield DTLA’s ability to meet the various qualification tests imposed under the Code related to annual operating results, asset diversification, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that Brookfield DTLA will be organized or be able to operate in a manner so as to continue to qualify as a REIT. If Brookfield DTLA fails to qualify as a REIT in any taxable year, it will be subject to federal and state income tax on its taxable income at regular corporate tax rates, and it may be ineligible to qualify as a REIT for four subsequent tax years. Brookfield DTLA may also be subject to certain state or local income taxes, or franchise taxes on its REIT activities.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Brookfield DTLA made no provision for income taxes in its condensed consolidated financial statements for the three and nine months ended September 30, 2015 and 2014, respectively. Brookfield DTLA’s taxable income or loss is different than its financial statement income or loss.

Brookfield DTLA recognizes tax benefits from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition threshold. Brookfield DTLA had no unrecognized tax benefits as of September 30, 2015 and December 31, 2014, and Brookfield DTLA does not expect its unrecognized tax benefits balance to change during the next 12 months. Brookfield DTLA’s 2013 tax period and 2014 tax year remain open due to the statute of limitations and may be subject to examination by federal, state and local authorities. The 2011 and 2012 tax years as well as the short tax period ended October 15, 2013 for Brookfield DTLA and its subsidiaries remain open due to the statute of limitations and may be subject to examination by federal, state and local tax authorities.

Note 3—Rents, Deferred Rents and Other Receivables, Net

Brookfield DTLA’s rents, deferred rents and other receivables are presented net of the following amounts in the condensed consolidated balance sheets (in thousands):



	September 30, 2015		December 31, 2014
Allowance for doubtful accounts	$	454	$	382
Accumulated amortization of tenant inducements	5,794		3,878

Brookfield DTLA recorded a $0.2 million provision for doubtful accounts during the three months ended September 30, 2015 and no provision for doubtful accounts during the three months ended September 30, 2014. Brookfield DTLA recorded a provision for doubtful accounts of $0.1 million during the nine months ended September 30, 2015 and no provision for doubtful accounts during the nine months ended September 30, 2014.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 4—Intangible Assets and Liabilities

Brookfield DTLA’s intangible assets and liabilities are summarized as follows (in thousands):



	September 30, 2015		December 31, 2014
Intangible Assets
In-place leases	$	110,519	$	110,519
Tenant relationships	46,248		46,248
Above-market leases	39,936		39,936
	196,703		196,703
Less: accumulated amortization	91,248		70,876
Intangible assets, net	$	105,455	$	125,827

Intangible Liabilities
Below-market leases	$	76,344	$	76,344
Less: accumulated amortization	44,615		38,619
Intangible liabilities, net	$	31,729	$	37,725

The impact of the amortization of acquired below-market leases, net of acquired above-market leases, on rental income and of acquired in-place leases and tenant relationships on depreciation and amortization expense is as follows (in thousands):



	For the Three Months Ended				For the Nine Months Ended
	Sept. 30, 2015		Sept. 30, 2014		Sept. 30, 2015		Sept. 30, 2014
Rental income	$	943	$	474	$	2,214	$	1,722
Depreciation and amortization expense	5,819		6,143		16,591		22,626

As of September 30, 2015, the estimate of the amortization/accretion of intangible assets and liabilities during the remainder of 2015, the next four years and thereafter is as follows (in thousands):



	In-Place Leases		Other Intangible Assets		Intangible Liabilities
Remainder of 2015	$	3,733	$	2,012	$	1,523
2016	13,438		7,633		5,521
2017	10,335		6,293		4,870
2018	7,608		5,196		4,064
2019	6,511		4,361		3,639
Thereafter	20,925		17,410		12,112
	$	62,550	$	42,905	$	31,729

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 5—Deferred Charges, Net

Brookfield DTLA’s deferred charges are presented net of the following amounts in the condensed consolidated balance sheets (in thousands):



	September 30, 2015		December 31, 2014
Accumulated amortization of leasing costs	$	35,702	$	28,270
Accumulated amortization of deferred financing costs	2,009		1,108

Note 6—Mortgage Loans

Brookfield DTLA’s debt is as follows (in thousands, except percentage amounts):



	Contractual Maturity Date			Principal Amount as of
	Contractual Maturity Date	Interest Rate		Sept. 30, 2015		Dec. 31, 2014
Floating-Rate Debt
Variable-Rate Loans:
Wells Fargo Center–South Tower (1)	12/1/2016	2.00	%	$	290,000	$	290,000
777 Tower (2)	11/1/2018	1.90	%	200,000		200,000
Figueroa at 7th (3)	9/10/2017	2.45	%	35,000		35,000
Total variable-rate loans				525,000		525,000

Variable-Rate Swapped to Fixed-Rate Loan:
EY Plaza (4)	11/27/2020	3.93	%	185,000		185,000
Total floating-rate debt				710,000		710,000

Fixed-Rate Debt:
Wells Fargo Center–North Tower	4/6/2017	5.70	%	550,000		550,000
Gas Company Tower	8/11/2016	5.10	%	458,000		458,000
BOA Plaza	9/1/2024	4.05	%	400,000		400,000
Total fixed-rate debt				1,408,000		1,408,000

Total debt				2,118,000		2,118,000
Less: debt discounts				3,969		6,865
Total debt, net				$	2,114,031	$	2,111,135

__________


(1)	This loan bears interest at LIBOR plus 1.80%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 4.75%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).


(2)	This loan bears interest at LIBOR plus 1.70%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 5.75%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).

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(Unaudited)


(3)	This loan bears interest at LIBOR plus 2.25%. Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of 12 months, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).


(4)	This loan bears interest at LIBOR plus 1.75%. As required by the loan agreement, we have entered into an interest rate swap agreement to hedge this loan, which effectively fixes the LIBOR portion of the interest rate at 2.178%. The effective interest rate of 3.93% includes interest on the swap.

Debt Maturities

As of September 30, 2015, our debt to be repaid during the remainder of 2015, the next four years and thereafter is as follows (in thousands):



Remainder of 2015	$	311
2016	751,831
2017	589,026
2018	204,232
2019	4,449
Thereafter	568,151
	$	2,118,000

As of September 30, 2015, $220.0 million of our debt may be prepaid without penalty, $458.0 million may be defeased (as defined in the underlying loan agreements), $550.0 million may be prepaid with prepayment penalties or defeased (as defined in the underlying loan agreement) at our option, $290.0 million may be prepaid with prepayment penalties, $200.0 million is locked out from prepayment until November 1, 2015, and $400.0 million locked out from defeasance until September 30, 2016.

As Brookfield DTLA’s debt matures, principal payment obligations present significant future cash requirements. Brookfield DTLA currently intends to refinance the $458.0 million mortgage loan secured by Gas Company Tower on or about its August 11, 2016 maturity with new debt with a target leverage ratio of approximately 60% to 65%. We do not have a commitment from the lenders to extend the maturity date of or to refinance this loan.

This loan will most likely require a paydown upon extension or refinancing (depending on market conditions), funding of additional reserve amounts, or both. As the leverage ratio for this loan is significantly above such targeted leverage ratio, Brookfield DTLA anticipates the need for additional cash to complete the refinancing. We may use cash on hand to make any such payments or cash received as a capital contribution from Brookfield DTLA Holdings. If we are unable or unwilling to use cash on hand or do not use cash contributed by Brookfield DTLA Holdings to make such payments, we may face challenges in repaying, extending or refinancing this loan on favorable terms or at all, and we may be forced to give back the asset to the lenders.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Funding of Wells Fargo Center–North Tower Collateral Reserve

In connection with the MPG acquisition, Brookfield DTLA Holdings assumed the mortgage loan secured by the Wells Fargo Center–North Tower office property. In connection with loan assumption, Brookfield DTLA Holdings agreed to deposit a total of $10.0 million into a collateral reserve account held by the lender, of which $5.0 million was deposited when the loan was assumed during 2013 and $1.25 million was funded by Brookfield DTLA in April 2014, October 2014, April 2015 and October 2015, respectively.

Non-Recourse Carve Out Guarantees

All of Brookfield DTLA’s $2.1 billion of mortgage debt is subject to “non-recourse carve out” guarantees that expire upon elimination of the underlying loan obligations. Under these guarantees, these otherwise non‑recourse loans can become partially or fully recourse against Brookfield DTLA Holdings if certain triggering events occur as defined in the loan agreements.

Debt Reporting

Pursuant to the terms of certain of our mortgage loan agreements, Brookfield DTLA is required to report a debt service coverage ratio (“DSCR”) calculated using the formulas specified in the underlying loan agreements. We have submitted the required reports to the lenders for the measurement periods ended September 30, 2015 and were in compliance with the amounts required by the loan agreements, with the exception of Gas Company Tower.

Under the Gas Company Tower mortgage loan, we reported a DSCR of 0.71 to 1.00, calculated using actual debt service under the loan, and a DSCR of 0.57 to 1.00, calculated using actual debt service plus a hypothetical principal payment using a 30-year amortization schedule. Because the reported DSCR using the actual debt service plus a hypothetical principal payment was less than 1.00 to 1.00, the lender could seek to remove Brookfield Properties Management (CA) Inc. as property manager of Gas Company Tower, which is the only recourse available to the lender as a result of such breach.

Pursuant to the terms of the Gas Company Tower, Wells Fargo Center–South Tower, Wells Fargo Center–North Tower, EY Plaza, and Figueroa at 7th mortgage loan agreements, we are required to provide annual audited financial statements of Brookfield DTLA Holdings to the lenders or agents. The receipt of any opinion other than an “unqualified” audit opinion on our annual audited financial statements is an event of default under the loan agreements for the properties listed above. If an event of default occurs, the lenders have the right to pursue the remedies contained in the loan documents, including acceleration of all or a portion of the debt and foreclosure.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 7—Mezzanine Equity

Mezzanine equity in the condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014 is comprised of the Series A preferred stock, a Series A-1 preferred interest and a senior participating preferred interest (the “Preferred Interests”). The Series A-1 preferred interest and senior participating preferred interest are held by a noncontrolling interest holder. The Preferred Interests are classified in mezzanine equity because they are callable and the holder of the Series A-1 preferred interest and senior participating preferred interest (which also owns some of the Series A preferred stock) indirectly controls the ability to elect to redeem such instruments, through its controlling interest in the Company and its subsidiaries. There is no commitment or obligation on the part of Brookfield DTLA or Brookfield DTLA Holdings to redeem the Preferred Interests.

The Preferred Interests included within mezzanine equity were recorded at fair value on the date of issuance and have been adjusted to the greater of their carrying amount or redemption value as of September 30, 2015 and December 31, 2014. Adjustments to increase the carrying amount to redemption value are recorded in the consolidated statement of operations as a redemption measurement adjustment.

During the year ended December 31, 2014, the Company paid distributions and dividends totaling $220.0 million to Brookfield DTLA Holdings related to the senior participating preferred interest using proceeds from the refinancing of EY Plaza and BOA Plaza. Other than these distributions, Brookfield DTLA has not paid any cash dividends in the past. Any future dividends declared would be at the discretion of Brookfield DTLA’s board of directors and would depend on its financial condition, results of operations, contractual obligations and the terms of its financing agreements at the time a dividend is considered, and other relevant factors.

Series A Preferred Stock

As of September 30, 2015 and December 31, 2014, 9,730,370 shares of Series A preferred stock were outstanding, of which 9,357,469 shares were issued to third parties and 372,901 shares were issued to DTLA Fund Holding Co., a subsidiary of Brookfield DTLA Holdings.

No dividends were declared on the Series A preferred stock during the nine months ended September 30, 2015 and 2014. Dividends on the Series A preferred stock are cumulative, and therefore, will continue to accrue at an annual rate of $1.90625 per share. As of September 30, 2015, the cumulative amount of unpaid dividends totals $128.3 million and has been reflected in the carrying amount of the Series A preferred stock.

On October 28, 2015, the Maryland State Court issued an order granting final approval of the settlement of litigation involving the Series A preferred stock. As part of the settlement, holders of record will receive a payment of $2.25 per share of Series A preferred stock. The dividend will reduce the amount of accumulated and unpaid dividends on the Series A preferred stock, and the terms of the Series A preferred stock will otherwise remain unchanged. See Note 13 “Commitments and Contingencies—Litigation—Merger-Related Litigation” for additional information regarding the dividend payment.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The Series A preferred stock does not have a stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series A preferred stock will rank senior to our common stock with respect to the payment of distributions. We may, at our option, redeem the Series A preferred stock, in whole or in part, for cash at a redemption price of $25.00 per share, plus all accumulated and unpaid dividends on such Series A preferred stock up to and including the redemption date. The Series A preferred stock is not convertible into or exchangeable for any other property or securities of Brookfield DTLA.

As of September 30, 2015, the Series A preferred stock is reported at its redemption value of $371.6 million calculated using the redemption price of $25.00 per share plus all accumulated and unpaid dividends on such Series A preferred stock through September 30, 2015.

Series A-1 Preferred Interest

On October 15, 2013, Brookfield DTLA Fund Properties II LLC (“New OP”) issued a Series A-1 preferred interest to Brookfield DTLA Holdings or wholly owned subsidiaries of Brookfield DTLA Holdings with a stated value of $225.7 million in connection with the formation of Brookfield DTLA and the MPG acquisition.

The Series A-1 preferred interest has mirror rights to the Series A preferred interests issued by New OP, which are held by a wholly owned subsidiary of Brookfield DTLA, but only with respect to their respective preferred liquidation preferences, and share pro rata with 48.13% to the Series A-1 preferred interest and 51.87% to the Series A preferred interest based on their current liquidation preferences in accordance with their respective preferred liquidation preferences in distributions from New OP, until their preferred liquidation preferences have been reduced to zero. Thereafter, distributions will be made 47.66% to the Series A preferred interest and 52.34% to the Series B preferred interest, which is held by Brookfield DTLA Holdings. The economic terms of the Series A preferred stock mirror those of the New OP Series A preferred interests, including distributions in respect of the preferred liquidation preference.

As of September 30, 2015, the Series A-1 preferred interest is reported at its redemption value of $344.8 million calculated using its liquidation value of $225.7 million plus $119.1 million of accumulated and unpaid dividends on such Series A-1 preferred interest through September 30, 2015.

Senior Participating Preferred Interest

On October 15, 2013, Brookfield DTLA Fund Properties III LLC (“DTLA OP”) issued a senior participating preferred interest to Brookfield DTLA Holdings in connection with the formation of Brookfield DTLA and the MPG acquisition. The senior participating preferred interest was comprised of $240.0 million in preferred interests with a 7.0% coupon and a 4.0% participating interest in the residual value of DTLA OP, which owns 333 South Hope Co. LLC and EYP Realty LLC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

BOA Plaza and EY Plaza were contributed to DTLA OP, directly and indirectly, by Brookfield DTLA in connection with the merger. As of the merger date, these properties had a leverage ratio that was lower than the leverage ratio of the MPG properties acquired, as well as the target leverage ratio that the Company’s management sought to achieve for its properties, as they were refinanced, of approximately 60% to 65%. The size of the preferred interest component of the senior participating preferred interest issued to Brookfield DTLA was based, in part, on the expected net proceeds from the refinancing of the properties owned by 333 South Hope LLC (which holds BOA Plaza) and EYP Realty LLC (which holds EY Plaza) at a leverage ratio in this range and represented a portion of the approximately $595 million fair market value as of the merger date of BOA Plaza and EY Plaza, reduced by the outstanding principal balances of the mortgage loans secured by BOA Plaza and EY Plaza and the $25.0 million promissory note due to BOP Management Inc.

As of September 30, 2015, the senior participating preferred interest is reported at its redemption value of $55.0 million calculated using the value of the preferred and participating interests totaling $52.4 million plus $2.6 million of accumulated and unpaid dividends on the preferred interest through September 30, 2015.

Change in Mezzanine Equity

A summary of the change in mezzanine equity for the nine months ended September 30, 2015 is as follows (in thousands, except share amounts):



	Number of Shares of Series A Preferred Stock	Series A Preferred Stock		Noncontrolling Interests				Total Mezzanine Equity
	Number of Shares of Series A Preferred Stock	Series A Preferred Stock		Series A-1 Preferred Interest		Senior Participating Preferred Interest		Total Mezzanine Equity

Balance, December 31, 2014	9,730,370	$	357,649	$	331,871	$	50,080	$	739,600
Current dividends		13,911		12,909		1,792		28,612
Redemption measurement adjustment						3,104		3,104
Balance, September 30, 2015	9,730,370	$	371,560	$	344,780	$	54,976	$	771,316

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 8—Noncontrolling Interests

Mezzanine Equity Component

The Series A-1 preferred interest and senior participating preferred interest consist of equity interests of New OP and DTLA OP, respectively, which are owned directly by Brookfield DTLA Holdings. These noncontrolling interests are presented as mezzanine equity in the condensed consolidated balance sheet. See Note 7 “Mezzanine Equity.”

Stockholders’ Deficit Component

The Series B common interest ranks junior to the Series A preferred stock as to dividends and upon liquidation and is presented in the condensed consolidated balance sheet as noncontrolling interest.

Note 9—Accumulated Other Comprehensive Loss

A summary of the change in accumulated other comprehensive loss related to Brookfield DTLA’s cash flow hedges is as follows (in thousands):



	For the Three Months Ended						For the Nine Months Ended
	Sept. 30, 2015			Sept. 30, 2014			Sept. 30, 2015			Sept. 30, 2014
Balance at beginning of period	$	(4,465	)	$	(2,868	)	$	(4,337	)	$	1,007
Other comprehensive (loss) gain before reclassifications	(3,579		)	882			(3,707		)	(2,993		)
Amounts reclassified from accumulated other comprehensive (loss) gain	—			—			—			—
Net current-period other comprehensive (loss) gain	(3,579		)	882			(3,707		)	(2,993		)
Balance at end of period	$	(8,044	)	$	(1,986	)	$	(8,044	)	$	(1,986	)

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 10—Fair Value Measurements

The valuation of Brookfield DTLA’s interest rate swap is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flow of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We have incorporated credit valuation adjustments to appropriately reflect both our own and the respective counterparty’s non-performance risk in the fair value measurements.

Brookfield DTLA’s (liabilities) assets measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, are as follows (in thousands):



				Fair Value Measurements Using
	Total Fair Value			Quoted Prices in Active Markets for Identical (Liabilities) Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest rate swap at:
September 30, 2015	$	(8,044	)	$	—	$	(8,044	)	$	—
December 31, 2014	(4,337		)	—		(4,337		)	—

Interest rate caps at:
September 30, 2015	$	13		$	—	$	13		$	—
December 31, 2014	190			—		190			—

Note 11—Financial Instruments

Derivative Financial Instruments

A summary of the fair value of Brookfield DTLA’s derivative financial instruments is as follows (in thousands):



	Fair Value
	September 30, 2015			December 31, 2014
Derivatives designated as cash flow hedging instruments:
Interest rate swap liability	$	(8,044	)	$	(4,337	)

The interest rate swap liability is included in accounts payable and other liabilities in the condensed consolidated balance sheet.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

A summary of the effect of derivative financial instruments reported in the condensed consolidated financial statements is as follows (in thousands):



	Amount of Loss Recognized in AOCL			Amount of Loss Reclassified from AOCL to Statement of Operations
Derivatives designated as cash flow hedging instruments:
Interest rate swap for the nine months ended:
September 30, 2015	$	(3,707	)	$	—
September 30, 2014	(2,993		)	—

Interest Rate Swap—

As of September 30, 2015 and December 31, 2014, Brookfield DTLA held an interest rate swap with a notional amount of $185.0 million, which was assigned to the EY Plaza mortgage loan. The swap requires net settlement each month and expires on November 2, 2020.

Interest Rate Caps—

Brookfield DTLA holds interest rate caps pursuant to the terms of certain of its mortgage loan agreements with the following notional amounts (in thousands):



	September 30, 2015		December 31, 2014
Wells Fargo Center–South Tower	$	290,000	$	290,000
777 Tower	200,000		200,000
	$	490,000	$	490,000

Other Financial Instruments

The estimated fair value and carrying amount of Brookfield DTLA’s mortgage loans are as follows (in thousands):



	September 30, 2015		December 31, 2014
Estimated fair value	$	2,122,119	$	2,133,158
Carrying amount	2,118,000		2,118,000

We calculated the estimated fair value of our mortgage loans by discounting the future contractual cash flows of the loans using current risk adjusted rates available to borrowers with similar credit ratings. The estimated fair value of mortgage loans is classified as Level 3.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 12—Related Party Transactions

Management Agreements

Brookfield DTLA has entered into arrangements with Brookfield Properties Management LLC, an affiliate of BPO, which is affiliated with the Company through common ownership through BPO, under which the affiliate provides property management and various other services. Property management fees under these agreements are calculated based on 2.75% of rents collected (as defined in the management agreements). In addition, the Company pays BOP Asset Manager LLC an asset management fee, which is calculated based on 0.75% of the capital contributed to Brookfield DTLA Holdings.

A summary of costs incurred by Brookfield DTLA under these arrangements is as follows (in thousands):



	For the Three Months Ended				For the Nine Months Ended
	Sept. 30, 2015		Sept. 30, 2014		Sept. 30, 2015		Sept. 30, 2014
Property management fee expense	$	1,843	$	2,173	$	5,679	$	6,190
Asset management fee expense	1,578		1,540		4,645		4,569
General, administrative and reimbursable expenses	664		586		1,950		1,896
Leasing and construction management fees	2,436		274		5,964		1,959

Insurance Agreements

Brookfield DTLA’s properties are covered under an insurance policy entered into by BPO that provides all risk property and business interruption for BPO’s commercial portfolio with an aggregate limit of $2.5 billion per occurrence as well as an aggregate limit of $300.0 million of earthquake insurance. In addition, Brookfield DTLA’s properties are covered by a terrorism insurance policy that provides aggregate coverage of $4.0 billion for all of BPO’s U.S. properties. Brookfield DTLA is in compliance with the contractual obligations regarding terrorism insurance contained in such policies.

Insurance premiums for Brookfield DTLA are paid by an affiliate company under common control through BPO. Brookfield DTLA reimburses the affiliate company for the actual cost of such premiums.

A summary of costs incurred by Brookfield DTLA under this arrangement is as follows (in thousands):



	For the Three Months Ended				For the Nine Months Ended
	Sept. 30, 2015		Sept. 30, 2014		Sept. 30, 2015		Sept. 30, 2014
Insurance expense	$	2,172	$	2,485	$	6,517	$	6,252

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 13—Commitments and Contingencies

Litigation

General—

Brookfield DTLA and its subsidiaries may be subject to pending legal proceedings and litigation incidental to its business. After consultation with legal counsel, management believes that any liability that may potentially result upon resolution of such matters is not expected to have a material adverse effect on the Company’s business, financial condition or consolidated financial statements as a whole.

Merger-Related Litigation—

Following the announcement of the execution of the Agreement and Plan of Merger dated as of April 24, 2013, as amended (the “Merger Agreement”), seven putative class actions were filed against Brookfield Office Properties Inc. (“BPO”), Brookfield DTLA, Brookfield DTLA Holdings LLC, Brookfield DTLA Fund Office Trust Inc., Brookfield DTLA Fund Properties (collectively, the “Brookfield Parties”), MPG Office Trust, Inc., MPG Office, L.P., and the members of MPG Office Trust, Inc.’s board of directors. Five of these lawsuits were filed on behalf of MPG Office Trust, Inc.’s common stockholders: (i) two lawsuits, captioned Coyne v. MPG Office Trust, Inc., et al., No. BC507342 (the “Coyne Action”), and Masih v. MPG Office Trust, Inc., et al., No. BC507962 (the “Masih Action”), were filed in the Superior Court of the State of California in Los Angeles County (the “California State Court”) on April 29, 2013 and May 3, 2013, respectively; and (ii) three lawsuits, captioned Kim v. MPG Office Trust, Inc. et al., No. 24‑C-13-002600 (the “Kim Action”), Perkins v. MPG Office Trust, Inc., et al., No. 24-C-13-002778 (the “Perkins Action”) and Dell’Osso v. MPG Office Trust, Inc., et al., No. 24‑C-13-003283 (the “Dell’Osso Action”) were filed in the Circuit Court for Baltimore City, Maryland on May 1, 2013, May 8, 2013 and May 22, 2013, respectively (collectively, the “Common Stock Actions”). Two lawsuits, captioned Cohen v. MPG Office Trust, Inc. et al., No. 24-C-13-004097 (the “Cohen Action”) and Donlan v. Weinstein, et al., No. 24‑C-13-004293 (the “Donlan Action”), were filed on behalf of MPG Office Trust, Inc.’s preferred stockholders in the Circuit Court for Baltimore City, Maryland on June 20, 2013 and July 2, 2013, respectively (collectively, the “Preferred Stock Actions”).

In each of the Common Stock Actions, the plaintiffs allege, among other things, that MPG Office Trust, Inc.’s board of directors breached their fiduciary duties in connection with the merger by failing to maximize the value of MPG Office Trust, Inc. and ignoring or failing to protect against conflicts of interest, and that the relevant Brookfield Parties named as defendants aided and abetted those breaches of fiduciary duty. The Kim Action further alleges that MPG Office, L.P. also aided and abetted the breaches of fiduciary duty by MPG Office Trust, Inc.’s board of directors, and the Dell’Osso Action further alleges that MPG Office Trust, Inc. and MPG Office, L.P. aided and abetted the breaches of fiduciary duty by MPG Office Trust, Inc.’s board of directors. On June 4, 2013, the Kim and Perkins plaintiffs filed identical, amended complaints in the Circuit Court for Baltimore City, Maryland. On June 5, 2013, the Masih plaintiffs also filed an amended complaint in the Superior Court of the State of California in Los Angeles County. The three amended complaints, as well as the Dell’Osso Action complaint, allege

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

that the preliminary proxy statement filed by MPG Office Trust, Inc. with the SEC on May 21, 2013 is false and/or misleading because it fails to include certain details of the process leading up to the merger and fails to provide adequate information concerning MPG Office Trust, Inc.’s financial advisors.

In each of the Preferred Stock Actions, which were brought on behalf of MPG Office Trust, Inc.’s preferred stockholders, the plaintiffs allege, among other things, that, by entering into the Merger Agreement and tender offer, MPG Office Trust, Inc. breached the Articles Supplementary, which governs the issuance of the MPG preferred shares, that MPG Office Trust, Inc.’s board of directors breached their fiduciary duties by agreeing to a merger agreement that violated the preferred stockholders’ contractual rights and that the relevant Brookfield Parties named as defendants aided and abetted those breaches of contract and fiduciary duty. On July 15, 2013, the plaintiffs in the Preferred Stock Actions filed a joint amended complaint in the Circuit Court for Baltimore City, Maryland that further alleged that MPG Office Trust, Inc.’s board of directors failed to disclose material information regarding BPO’s extension of the tender offer.

The plaintiffs in the seven lawsuits sought an injunction against the merger, rescission or rescissory damages in the event the merger was consummated, an award of fees and costs, including attorneys’ and experts’ fees, and other relief.

On July 10, 2013, solely to avoid the costs, risks and uncertainties inherent in litigation, the Brookfield Parties and the other named defendants in the Common Stock Actions signed a memorandum of understanding, regarding a proposed settlement of all claims asserted therein. The parties subsequently entered into a stipulation of settlement dated November 21, 2013 providing for the release of all asserted claims, additional disclosures by MPG concerning the merger made prior to the merger’s approval, and the payment, by the defendants, of an award of attorneys’ fees and expenses in an amount not to exceed $475,000. After a hearing on June 4, 2014, the California State Court granted plaintiffs’ motion for final approval of the settlement, and entered a Final Order and Judgment, awarding the plaintiffs’ counsel’s attorneys’ fees and expenses in the amount of $475,000, which was paid by MPG Office LLC on June 18, 2014. BPO is seeking reimbursement for the settlement payment from MPG’s insurers.

In the Preferred Stock Actions, at a hearing on July 24, 2013, the Maryland State Court denied the plaintiffs’ motion for preliminary injunction seeking to enjoin the tender offer. The plaintiffs filed a second amended complaint on November 22, 2013 that added additional arguments in support of their allegations that the new preferred shares do not have the same rights as the MPG preferred shares. The defendants moved to dismiss the second amended complaint on December 20, 2013, and briefing on the motion concluded on February 28, 2014. At a hearing on June 18, 2014, the Maryland State Court heard oral arguments on the defendants’ motion to dismiss and reserved judgment on the decision. On October 21, 2014, the parties sent a joint letter to the Maryland State Court stating that since the June 18 meeting, the parties have commenced discussions towards a possible resolution of the lawsuit, requesting that the court temporarily refrain from deciding the pending motion to dismiss to facilitate the discussions.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

On March 30, 2015, the plaintiff in the Cohen Action and the defendants entered into a memorandum of understanding setting forth an agreement in principle to settle the Preferred Stock Actions on a class-wide basis and dismiss the case with prejudice in exchange for the payment of $2.25 per share of Series A preferred stock of accumulated and unpaid dividends (the “Dividend Payment”) to holders of record on a record date to be set after final approval of the settlement by the Maryland State Court, plus any attorneys’ fees awarded by the Maryland State Court to the plaintiff’s counsel. The dividend will reduce the amount of accumulated and unpaid dividends on the Series A preferred stock, and the terms of the Series A preferred stock will otherwise remain unchanged.

On August 18, 2015, the Maryland State Court entered an order preliminarily approving the settlement and scheduling a fairness hearing for October 27, 2015. On September 28, 2015, the plaintiff filed a motion for final certification of the settlement class, final approval of the class action settlement and approval of attorneys’ fees and reimbursement of expenses, seeking a total fee and expense award of $5,250,000. The Company submitted its opposition to the plaintiff’s fee application on October 13, 2015.

On October 16, 2015, the plaintiff filed a motion seeking discovery related to the valuation of the Dividend Payment in connection with its fee application and served related discovery requests on the defendants. On October 23, 2015, the defendants filed their opposition to this motion and a motion for a protective order precluding discovery. On October 27, 2015, the Maryland State Court held a hearing to decide whether to grant final approval of the settlement and to rule on the parties’ discovery motions. At the hearing, the Maryland State Court ordered limited discovery to occur prior to ruling on the fee application. Once that discovery has been completed, the plaintiff will file a reply brief in support of its fee application, and the Maryland State Court will decide the issue.

On October 28, 2015, the Maryland State Court issued an order granting final approval of the Dividend Payment. The time to appeal the order will expire on November 30, 2015, after which a record date will be set by the Company for the Dividend Payment to be made, and payment will be made 20 days thereafter.

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Item 2.	Management’s Discussion and Analysis of Financial Condition

and Results of Operations.

BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and the related notes thereto that appear in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.

Overview and Background

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources

General

Brookfield DTLA’s business requires continued access to adequate cash to fund its liquidity needs. The amount of cash Brookfield DTLA currently generates from its operations is not sufficient to cover Brookfield DTLA’s operating, financing and investing activities, resulting in a “negative cash burn,” and there can be no assurance that the amount of Brookfield DTLA’s negative cash burn will decrease, or that it will not increase, in the future. If Brookfield DTLA’s operating cash flow and capital are not sufficient to cover our operating costs or to repay our indebtedness as it comes due, we may issue additional debt and/or equity, including to affiliates of Brookfield DTLA, which issuances could further adversely impact the amount of funds available to Brookfield DTLA for any purpose, including for dividends or other distributions to holders of its capital stock, including the Series A preferred stock. In many cases, such securities may be issued if authorized by board of directors of Brookfield DTLA without the approval of the holders of the Series A preferred stock. See “—Potential Uses of Liquidity—Property Operations” below.

Sources and Uses of Liquidity

Brookfield DTLA’s potential liquidity sources and uses are, among others, as follows:



	Sources		Uses
•	Cash on hand;	•	Property operations;
•	Cash generated from operations; and	•	Capital expenditures;
•	Contributions from Brookfield DTLA Holdings.	•	Payments in connection with loans;
		•	Dividend payment in connection with legal settlement; and
		•	Distributions to Brookfield DTLA Holdings.

Potential Sources of Liquidity—

Cash on Hand—

As of September 30, 2015 and December 31, 2014, Brookfield DTLA had cash and cash equivalents totaling $108.8 million and $125.0 million, respectively.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Cash Generated from Operations—

Brookfield DTLA’s cash generated from operations is primarily dependent upon (1) the occupancy level of its portfolio, (2) the rental rates achieved on its leases, and (3) the collectability of rent and other amounts billed to its tenants. Net cash generated from operations is tied to the level of operating expenses, described below under “—Potential Uses of Liquidity.”

Occupancy levels. The following table presents leasing information for Brookfield DTLA for leases in place as of September 30, 2015:



	Square Feet			Leased % and In-Place Rents
Property	Net Building Rentable	% of Net Rentable		% Leased		Total Annualized Rents (1)		Annualized Rent $/RSF (2)

BOA Plaza	1,405,428	18.67	%	93.2	%	$	31,055,001	$	23.71
Wells Fargo Center–North Tower	1,400,639	18.61	%	81.5	%	28,840,235		25.26
Gas Company Tower	1,345,163	17.87	%	88.2	%	27,088,810		22.84
EY Plaza	1,224,967	16.28	%	88.2	%	24,026,139		22.23
Wells Fargo Center–South Tower	1,124,960	14.95	%	74.7	%	20,774,683		24.71
777 Tower	1,024,835	13.62	%	85.6	%	20,371,571		23.23
	7,525,992	100.00	%	85.5	%	$	152,156,439	$	23.64

__________

(1)

Annualized rent represents the annualized monthly contractual rent under existing leases as of September 30, 2015. This amount reflects total base rent before any rent abatements as of September 30, 2015 and is shown on a net basis; thus, for any tenant under a partial gross lease, the expense stop, or under a fully gross lease, the current year operating expenses (which may be estimates as of such date), are subtracted from gross rent. Total abatements for leases in effect as of September 30, 2015 for the twelve months ending September 30, 2016 are approximately $18.4 million, or $2.86 per leased square foot.


(2)	Annualized rent per rentable square foot represents annualized rent as computed above, divided by leased square feet as of the same date.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The following table presents a summary of lease expirations at Brookfield DTLA for leases in place at September 30, 2015, plus currently available space, for the remainder of 2015, each of the nine calendar years beginning January 1, 2016 and thereafter. This table assumes that none of our tenants will exercise renewal options or early termination rights, if any, at or prior to their scheduled expirations.



Year	Total Area in Square Feet Covered by Expiring Leases	Percentage of Leased Square Feet		Annualized Rent (1)		Percentage of Annualized Rent		Current Rent per Leased Square Foot (2)		Rent per Leased Square Foot at Expiration (3)

Remainder of 2015	23,495	0.4	%	$	463,644	0.3	%	$	19.73	$	19.73
2016	205,405	3.2	%	4,456,303		2.9	%	21.70		21.83
2017	466,139	7.2	%	12,462,441		8.2	%	26.74		27.96
2018	669,263	10.4	%	12,138,169		8.0	%	18.14		19.12
2019	469,462	7.3	%	12,474,008		8.2	%	26.57		30.55
2020	317,351	4.9	%	7,975,832		5.2	%	25.13		29.36
2021	387,557	6.0	%	9,359,281		6.2	%	24.15		29.04
2022	817,864	12.7	%	20,360,631		13.4	%	24.89		30.80
2023	711,419	11.1	%	16,114,457		10.6	%	22.65		29.21
2024	391,045	6.1	%	9,441,744		6.2	%	24.14		31.04
Thereafter	1,977,539	30.7	%	46,909,929		30.8	%	23.72		33.48
Total expiring leases	6,436,539	100.0	%	$	152,156,439	100.0	%	$	23.64	$	29.52
Currently available	1,089,453
Total rentable square feet	7,525,992

__________

(1)


(2)	Current rent per leased square foot represents current base rent, divided by total leased square feet as of the same date.


(3)	Rent per leased square foot at expiration represents base rent, including any future rent steps, and thus represents the base rent that will be in place at lease expiration.

Rental Rates and Leasing Activity. Average asking rental rates in the LACBD were essentially flat during the nine months ended September 30, 2015. Management believes that on average the current in‑place rents are generally close to market in the LACBD.

The following table summarizes leasing activity at Brookfield DTLA for the nine months ended September 30, 2015:



	Leasing Activity		Percentage Leased

Leased square feet as of December 31, 2014	6,247,953		83.0	%
Expirations	(923,181	)	(12.3	)%
New leases	361,082		4.8	%
Renewals	750,685		10.0	%
Leased square feet as of September 30, 2015	6,436,539		85.5	%

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Collectability of rent from our tenants. Brookfield DTLA’s rental income depends on collecting rent from its tenants, and in particular from its major tenants. In the event of tenant defaults, Brookfield DTLA may experience delays in enforcing its rights as landlord and may incur substantial costs in pursuing legal possession of the tenant’s space and recovery of any amounts due from the tenant. This is particularly true in the case of the bankruptcy or insolvency of a major tenant or where the Federal Deposit Insurance Corporation is acting as receiver.

Contributions from Brookfield DTLA Holdings—

During the nine months ended September 30, 2015 and 2014, Brookfield DTLA received no contributions from Brookfield DTLA Holdings. To the extent that future contributions are needed, Brookfield DTLA Holdings has made a commitment to contribute up to $260 million in cash or property to Brookfield DTLA Fund Properties II LLC (“New OP”), which directly or indirectly owns the Brookfield DTLA properties, for which it will be entitled to receive a preferred return, if and when called by New OP. As of the date of this report, no capital contributions have been funded under this commitment.

Potential Uses of Liquidity—

The following are the projected uses, and some of the potential uses, of cash in the near term.

Property Operations—

BOA Plaza and EY Plaza have historically generated sufficient cash from operations to fund their operating activities. In the future, should the cash generated by Brookfield DTLA’s properties, including the properties acquired from MPG, not be sufficient to fund their operations, such cash would be provided by Brookfield DTLA Holdings or another source of funds available to the Company or, if such cash were not made available, the Company might not have sufficient cash to fund its operations. Brookfield DTLA Holdings has made a commitment to make future capital contributions in cash or property to New OP, which directly or indirectly owns the Brookfield DTLA properties, for up to $260 million of its future cash needs, for which it would be entitled to receive a preferred return, if and when called by New OP. As of the date of this report, no capital contributions have been funded under this commitment.

Capital Expenditures—

Capital expenditures fluctuate in any given period, subject to the nature, extent and timing of improvements required to maintain Brookfield DTLA’s properties. Leasing costs also fluctuate in any given period, depending upon such factors as the type of property, the length of the lease, the type of lease, the involvement of external leasing agents and overall market conditions.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Brookfield DTLA expects that leasing activities at its properties, including the properties acquired from MPG, will require material amounts of cash for at least several years. Excluding tenant improvements and leasing commissions, Brookfield DTLA projects spending approximately $147 million over the next ten years, with the majority (approximately $115 million) over the next five years. The expected expenditures include, but are not limited to, renovations and physical capital upgrades to Brookfield DTLA’s properties, such as new fire alarm systems, elevator repairs and modernizations, facade work, roof replacement and new turbines.

Payments in Connection with Loans—

As Brookfield DTLA’s debt matures, principal payment obligations present significant future cash requirements. Brookfield DTLA currently intends to refinance the existing mortgage loans on Wells Fargo Center–North Tower and Gas Company Tower on or about their scheduled maturity with new debt with a target leverage ratio of approximately 60% to 65%. As the leverage ratio for these loans is significantly above such targeted leverage ratio, Brookfield DTLA anticipates the need for additional cash of approximately $270 million to complete these refinancings, both of which will occur prior to 2017. There can be no assurance that any of these refinancings can be accomplished or what terms will be available in the market for these type of financings at the time of any refinancing.

Distributions to Brookfield DTLA Holdings—

During the nine months ended September 30, 2015, the Company made no cash distributions to Brookfield DTLA Holdings. During the year ended December 31, 2014, the Company paid distributions and dividends totaling $220.0 million to Brookfield DTLA Holdings related to the senior participating preferred interest using proceeds from the refinancing of EY Plaza and BOA Plaza.

Dividend Payment in Connection with Legal Settlement—

On October 28, 2015, the Maryland State Court issued an order granting final approval of the settlement of litigation involving the Series A preferred stock. As part of the settlement, holders of record will receive a payment of $2.25 per share of Series A preferred stock. The amount of the dividend payment totals $21.9 million based on 9,730,370 shares outstanding as of September 30, 2015. The Company expects to pay the dividend using cash on hand during the fourth quarter of 2015. See Part II, Item 1. “Legal Proceedings—Merger‑Related Litigation” for additional information regarding the dividend payment.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Indebtedness

As of September 30, 2015, Brookfield DTLA’s debt was comprised of mortgage loans secured by seven properties. A summary of our debt as of September 30, 2015 is as follows (in millions, except percentage and year amounts):



	Principal Amount		Percent of Total Debt		Effective Interest Rate		Weighted Average Term to Maturity
Fixed-rate	$	1,408.0	66.49	%	5.04	%	3 years
Variable-rate swapped to fixed-rate	185.0		8.73	%	3.93	%	5 years
Variable-rate	525.0		24.78	%	1.99	%	2 years
	$	2,118.0	100.00	%	4.18	%	3 years

Certain information with respect to our indebtedness as of September 30, 2015 is as follows (in thousands, except percentage amounts):



	Interest Rate		Contractual Maturity Date	Principal Amount (1)		Annual Debt Service
Floating-Rate Debt
Variable-Rate Loans:
Wells Fargo Center–South Tower (2)	2.00	%	12/1/2016	$	290,000	$	5,881
777 Tower (3)	1.90	%	11/1/2018	200,000		3,853
Figueroa at 7th (4)	2.45	%	9/10/2017	35,000		870
Total variable-rate loans				525,000		10,604

Variable-Rate Swapped to Fixed-Rate Loan:
EY Plaza (5)	3.93	%	11/27/2020	185,000		7,368
Total floating-rate debt				710,000		17,972

Fixed-Rate Debt
Wells Fargo Center–North Tower	5.70	%	4/6/2017	550,000		31,769
Gas Company Tower	5.10	%	8/11/2016	458,000		23,692
BOA Plaza	4.05	%	9/1/2024	400,000		16,425
Total fixed-rate rate debt				1,408,000		71,886
Total debt				2,118,000		$	89,858
Less: debt discounts				3,969
Total debt, net				$	2,114,031

__________


(1)	Assuming no payment has been made in advance of its due date.


(2)	This loan bears interest at LIBOR plus 1.80%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 4.75%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).


(3)	This loan bears interest at LIBOR plus 1.70%. As required by the loan agreement, we have entered into an interest rate cap agreement that limits the LIBOR portion of the interest rate to 5.75%. Brookfield DTLA has two options to extend the maturity date of the loan, each for a period of one year, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)


(4)	This loan bears interest at LIBOR plus 2.25%. Brookfield DTLA has two options to extend the maturity date of this loan, each for a period of 12 months, subject to meeting certain debt yield and loan to value ratios (as specified in the loan agreement).


(5)	This loan bears interest at LIBOR plus 1.75%. As required by the loan agreement, we have entered into an interest rate swap agreement to hedge this loan, which effectively fixes the LIBOR portion of the interest rate at 2.178%. The effective interest rate of 3.93% includes interest on the swap.

Debt Maturities

Funding of Wells Fargo Center–North Tower Collateral Reserve

Non-Recourse Carve Out Guarantees

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Debt Reporting

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Results of Operations

Comparison of the Three Months Ended September 30, 2015 to September 30, 2014

Condensed Consolidated Statements of Operations Information

(In millions, except percentage amounts)



	For the Three Months Ended						Increase/ (Decrease)			% Change
	Sept. 30, 2015			Sept. 30, 2014			Increase/ (Decrease)			% Change
Revenue:
Rental income	$	41.2		$	38.2		$	3.0		8	%
Tenant reimbursements	21.6			25.1			(3.5		)	(14	)%
Parking	8.7			8.8			(0.1		)	(1	)%
Interest and other	3.1			3.6			(0.5		)	(14	)%
Total revenue	74.6			75.7			(1.1		)	(1	)%

Expenses:
Rental property operating and maintenance	24.9			25.8			(0.9		)	(3	)%
Real estate taxes	6.9			9.7			(2.8		)	(29	)%
Parking	2.1			1.9			0.2			11	%
Other expense	0.4			1.3			(0.9		)	(70	)%
Depreciation and amortization	25.6			28.4			(2.8		)	(10	)%
Interest	24.0			23.5			0.5			2	%
Total expenses	83.9			90.6			(6.7		)	(7	)%
Net loss	$	(9.3	)	$	(14.9	)	$	5.6

Rental Income

Rental income increased $3.0 million, or 8%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, primarily as a result of higher lease rates as well as an increase in occupancy from 82.0% to 85.5%.

Tenant Reimbursements Revenue

Tenant reimbursements revenue decreased $3.5 million, or 14%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, primarily as a result of a decrease in real estate tax expense passed through to tenants.

Interest and Other Revenue

Interest and other revenue decreased $0.5 million, or 14%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, mainly as a result of a decrease in lease termination income.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Real Estate Taxes Expense

Real estate taxes expense decreased $2.8 million, or 29%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 due to adjusted property tax assessments that were received during the third quarter of 2015 related to the MPG properties acquired in 2013.

Other Expense

Other expense decreased $0.9 million, or 70%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, primarily due to nonrecoverable administrative expenses and bad debt expense in 2014 for which there was no comparable activity during 2015.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased $2.8 million, or 10%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, largely as a result of a decrease in amortization of acquired in-place lease and tenant relationship intangible assets.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Comparison of the Nine Months Ended September 30, 2015 to September 30, 2014

Condensed Consolidated Statements of Operations Information

(In millions, except percentage amounts)



	For the Nine Months Ended						Increase/ (Decrease)			% Change
	Sept. 30, 2015			Sept. 30, 2014			Increase/ (Decrease)			% Change
Revenue:
Rental income	$	119.2		$	114.0		$	5.2		5	%
Tenant reimbursements	66.8			70.7			(3.9		)	(6	)%
Parking	26.2			25.4			0.8			3	%
Interest and other	13.3			8.6			4.7			54	%
Total revenue	225.5			218.7			6.8			3	%

Expenses:
Rental property operating and maintenance	71.1			73.4			(2.3		)	(3	)%
Real estate taxes	26.4			28.6			(2.2		)	(8	)%
Parking	5.9			5.4			0.5			9	%
Other expense	1.8			2.2			(0.4		)	(18	)%
Depreciation and amortization	74.2			82.5			(8.3		)	(10	)%
Interest	71.2			68.2			3.0			4	%
Total expenses	250.6			260.3			(9.7		)	(4	)%
Net loss	$	(25.1	)	$	(41.6	)	$	16.5

Rental Income

Rental income increased $5.2 million, or 5%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily as a result of higher lease rates as well as an increase in occupancy from 82.0% to 85.5%.

Tenant Reimbursements Revenue

Tenant reimbursements revenue decreased $3.9 million, or 6%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily as a result of a decrease in real estate tax expense passed through to tenants.

Interest and Other Revenue

Interest and other revenue increased $4.7 million, or 54%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, mainly as a result of a $3.5 million recovery received related to a property disposed of by MPG prior to the merger and higher lease termination revenue in 2015.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Rental Property Operating and Maintenance Expense

Rental property operating and maintenance expense decreased $2.3 million, or 3%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 as a result of lower utility and insurance costs.

Real Estate Taxes Expense

Real estate taxes expense decreased $2.2 million, or 8%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 due to adjusted property tax assessments that were received during the third quarter of 2015 related to the MPG properties acquired in 2013.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased $8.3 million, or 10%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, largely as a result of a decrease in amortization of acquired in-place lease and tenant relationship intangible assets.

Interest Expense

Interest expense increased $3.0 million, or 4%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily due to the refinancing of BOA Plaza in August 2014.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Cash Flow

The following summary discussion of Brookfield DTLA’s cash flow is based on the condensed consolidated statements of cash flows in Item 1. “Financial Statements” and is not meant to be an all‑inclusive discussion of the changes in its cash flow for the periods presented below.



	For the Nine Months Ended						Increase/ (Decrease)
	Sept. 30, 2015			Sept. 30, 2014			Increase/ (Decrease)
	(In thousands)
Net cash provided by operating activities	$	32,749		$	40,074		$	(7,325	)
Net cash used in investing activities	(48,948		)	(42,332		)	6,616
Net cash used in financing activities	(43		)	(25,800		)	(25,757		)

Operating Activities

Brookfield DTLA’s cash flow from operating activities is primarily dependent upon (1) the occupancy level of its portfolio, (2) the rental rates achieved on its leases, and (3) the collectability of rent and other amounts billed to tenants and is also tied to the level of operating expenses. Net cash provided by operating activities during the nine months ended September 30, 2015 totaled $32.7 million, compared to net cash provided by operating activities of $40.1 million during the nine months ended September 30, 2014. The $7.3 million decrease is primarily related to increases in cash used for deferred charges of $10.3 million and changes in affiliate balances of $12.2 million, which were partially offset by increases in net rental revenue.

Investing Activities

Brookfield DTLA’s cash flow from investing activities is generally impacted by the amount of capital expenditures for its properties. Net cash used in investing activities totaled $48.9 million during the nine months ended September 30, 2015, compared to net cash used in investing activities of $42.3 million during the nine months ended September 30, 2014, as a result of increased expenditures for improvements to its properties during 2015 that were partially offset by reduced deposits to restricted cash and cash received upon the sale of land held for investment.

Financing Activities

Brookfield DTLA’s cash flow from financing activities is generally impacted by our loan activity, less any dividends and distributions paid to stockholders and distributions to affiliated companies, if any. Net cash used in financing activities was de minimus during the nine months ended September 30, 2015, compared to net cash used in financing activities of $25.8 million during the nine months ended September 30, 2014. Distributions and dividends paid totaling $220.0 million to Brookfield DTLA Holdings related to the senior participating preferred interest and the repayment of the $25.0 million intercompany loan, partially offset by proceeds from the refinancing of BOA Plaza and the financing of Figueroa at 7th during the nine months ended September 30, 2014 were the primary components of the cash outflow for financing activities during 2014.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Off-Balance Sheet Arrangements

Brookfield DTLA did not have any off-balance sheet arrangements as of September 30, 2015 and December 31, 2014, respectively.

Contractual Obligations

The following table provides information with respect to Brookfield DTLA’s commitments as of September 30, 2015, including any guaranteed or minimum commitments under contractual obligations (in thousands):



	2015		2016		2017		2018		2019		Thereafter		Total

Principal payments on mortgage loans	$	311	$	751,831	$	589,026	$	204,232	$	4,449	$	568,151	$	2,118,000
Interest payments –
Fixed-rate debt (1)	18,120		62,866		24,781		16,425		16,425		76,770		215,387
Variable-rate swapped to fixed-rate debt	1,838		7,306		7,130		6,985		6,784		6,314		36,357
Variable-rate debt (2)	2,672		10,150		4,456		3,220		—		—		20,498
Tenant-related commitments (3)	23,991		42,470		24,444		9,560		546		15,180		116,191
	$	46,932	$	874,623	$	649,837	$	240,422	$	28,204	$	666,415	$	2,506,433

__________


(1)	Interest payments on fixed-rate debt are calculated based on contractual interest rates and scheduled maturity dates.


(2)	Interest payments on variable-rate debt are calculated based on scheduled maturity dates and the one-month LIBOR rate in place on the debt as of September 30, 2015 plus the contractual spread per the loan agreements.


(3)	Tenant-related commitments include tenant improvements and leasing commissions and are based on executed leases as of September 30, 2015.

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Related Party Transactions

Management Agreements

A summary of costs incurred by Brookfield DTLA under these arrangements is as follows (in thousands):



	For the Three Months Ended				For the Nine Months Ended
	Sept. 30, 2015		Sept. 30, 2014		Sept. 30, 2015		Sept. 30, 2014
Property management fee expense	$	1,843	$	2,173	$	5,679	$	6,190
Asset management fee expense	1,578		1,540		4,645		4,569
General, administrative and reimbursable expenses	664		586		1,950		1,896
Leasing and construction management fees	2,436		274		5,964		1,959

Insurance Agreements

Insurance premiums for Brookfield DTLA are paid by an affiliate company under common control through BPO. Brookfield DTLA reimburses the affiliate company for the actual cost of such premiums.

A summary of costs incurred by Brookfield DTLA under this arrangement is as follows (in thousands):



	For the Three Months Ended				For the Nine Months Ended
	Sept. 30, 2015		Sept. 30, 2014		Sept. 30, 2015		Sept. 30, 2014
Insurance expense	$	2,172	$	2,485	$	6,517	$	6,252

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Litigation

See Part II, Item 1. “Legal Proceedings.”

Critical Accounting Policies

Please refer to Brookfield DTLA’s Annual Report on Form 10-K filed with the SEC on March 31, 2015 for a discussion of our critical accounting policies for “Business Combinations,” “Consolidation,” “Impairment Evaluation,” “Revenue Recognition,” and “Allowance for Doubtful Accounts.” There have been no changes to these policies during the three months ended September 30, 2015.

Recent Accounting Pronouncements

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BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

See Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in Brookfield DTLA’s Annual Report on Form 10-K filed with the SEC on March 31, 2015 for a discussion regarding our exposure to market risk. Our exposure to market risk has not changed materially since year end 2014.


Item 4.	Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Brookfield DTLA maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), Brookfield DTLA carried out an evaluation, under the supervision and with the participation of its management, including its principal executive officer and its principal financial officer, of the effectiveness of the design and operation of Brookfield DTLA’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, Paul L. Schulman, our principal executive officer, and Edward F. Beisner, our principal financial officer, concluded that these disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2015.

Changes in Internal Control over Financial Reporting

There have been no changes in Brookfield DTLA’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2015 that have materially affected, or that are reasonable likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION


Item 1.	Legal Proceedings.

General

Merger-Related Litigation

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Item 1A.	Risk Factors.

Factors That May Affect Future Results

(Cautionary Statement Under the Private Securities Litigation Reform Act of 1995)

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 (as set forth in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding our operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods, and include words such as “expects,” “anticipates,” “plans,” “believes,” “estimates,” “seeks,” “intends,” “targets,” “projects,” “forecasts,” “likely,” or negative versions thereof and other similar expressions, or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

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Although Brookfield DTLA believes that its anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors, many of which are beyond its control, which may cause Brookfield DTLA’s actual results, performance or achievements to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information.

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to:


•	Risks generally incident to the ownership of real property, including the ability to retain tenants and rent space upon lease expirations, the financial condition and solvency of our tenants, the relative illiquidity of real estate and changes in real estate taxes, regulatory compliance costs and other operating expenses;


•	Risks associated with the Downtown Los Angeles market, which is characterized by challenging leasing conditions, including limited numbers of new tenants coming into the market and the downsizing of large tenants in the market such as accounting firms, banks and law firms;


•	Risks related to increased competition for tenants in the Downtown Los Angeles market, including aggressive attempts by competing landlords to fill large vacancies by providing tenants with lower rental rates, increasing amounts of free rent and providing larger allowances for tenant improvements;


•	The impact or unanticipated impact of general economic, political and market factors in the regions in which Brookfield DTLA or any of its subsidiaries does business;


•	The use of debt to finance Brookfield DTLA’s business or that of its subsidiaries;


•	The behavior of financial markets, including fluctuations in interest rates;


•	Uncertainties of real estate development or redevelopment;


•	Global equity and capital markets and the availability of equity and debt financing and refinancing within these markets;


•	Risks relating to Brookfield DTLA’s insurance coverage;


•	The possible impact of international conflicts and other developments, including terrorist acts;


•	Potential environmental liabilities;


•	Dependence on management personnel;

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•	The ability to complete and effectively integrate acquisitions into existing operations and the ability to attain expected benefits therefrom;


•	Operational and reputational risks;


•	Catastrophic events, such as earthquakes and hurricanes; and


•	Other risks and factors relating to the transactions contemplated by the Merger Agreement including, but not limited to:


•	Increases in operating costs resulting from expenses related to the MPG acquisition;


•	Failure to realize the anticipated benefits and synergies of the transactions contemplated by the Merger Agreement, including as a result of an increase in costs associated with integration or difficulty in integrating the businesses of Brookfield DTLA, BOA Plaza and EY Plaza and their respective subsidiaries, and MPG;


•	Risks resulting from any lawsuits that may arise out of or have arisen as a result of the MPG acquisition or other transactions contemplated by the Merger Agreement; and


•	The impact of legislative, regulatory and competitive changes and other risk factors relating to the real estate industry, as detailed from time to time in the reports of Brookfield DTLA and BPO filed with the SEC.

Brookfield DTLA cautions that the foregoing list of important factors that may affect future results is not exhaustive. When relying on Brookfield DTLA’s forward-looking statements or information, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Except as required by law, Brookfield DTLA undertakes no obligation to publicly update or revise any forward‑looking statements or information, whether written or oral, that may be as a result of new information, future events or otherwise.

Additional material risk factors are discussed in other sections of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on March 31, 2015. Those risks are also relevant to our performance and financial condition. Moreover, we operate in a highly competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

None.

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Item 3.	Defaults Upon Senior Securities.

Dividends on the Series A preferred stock are cumulative and therefore will continue to accrue at an annual rate of $1.90625 per share. As of October 31, 2015, the cumulative amount of unpaid dividends totaled $129.8 million.

On October 28, 2015, the Maryland State Court issued an order granting final approval of the settlement of litigation involving the Series A preferred stock. As part of the settlement, holders of record will receive a payment of $2.25 per share of Series A preferred stock. The dividend will reduce the amount of accumulated and unpaid dividends on the Series A preferred stock, and the terms of the Series A preferred stock will otherwise remain unchanged. See Item 1. “Legal Proceedings—Merger‑Related Litigation” for additional information regarding the dividend payment.


Item 4.	Mine Safety Disclosures.

Not applicable.


Item 5.	Other Information.

None.


Item 6.	Exhibits.



Exhibit No.		Exhibit Description
31.1*		Certification of Principal Executive Officer dated November 12, 2015 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Principal Financial Officer dated November 12, 2015 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of Principal Executive Officer and Principal Financial Officer dated November 12, 2015 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

__________



*	Filed herewith.
**	Furnished herewith.


(1)	This exhibit should not be deemed to be “filed” for purposes of Section 18 of the Exchange Act.

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SIGNATURES

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



Date:	As of November 12, 2015



	BROOKFIELD DTLA FUND OFFICE TRUST INVESTOR INC.
	Registrant

	By:	/s/ PAUL L. SCHULMAN
		Paul L. Schulman
		President and Chief Operating Officer,
		U.S. Commercial Operations
		(Principal executive officer)

	By:	/s/ EDWARD F. BEISNER
		Edward F. Beisner
		Chief Financial Officer
		(Principal financial officer)