Brookfield Prime Property Fund : Half Year Results 2017

2017

INTERIM REPORT

Brookfield Prime ProPerty fund

ARSN 110 096 663

Responsible Entity

Brookfield Capital Management Limited

ACN 094 936 866

AFSL 223809

Message froM the ChairMan

On behalf of the Board of Brookfield Capital Management Limited (BCML), enclosed is the Brookfield Prime Property Fund (Fund) interim financial report for the six-month period to 31 December 2016.

finAnCiAl reSultS

The Fund reported a net profit of $65.7 million for the period, compared to a net profit of $111.1 million for the same period last year. The decrease was mainly due to net gains from the sale of the Fund's interests in Southern Cross East and West in the prior period. As at 31 December 2016, net assets of the Fund was $433.4 million (30 June 2016: $373.6 million) or $8.84 per unit (30 June 2016: $7.62 per unit).

As announced on 8 February 2017, American Express International Inc. renewed their lease at 12 Shelley Street, Sydney for 10 years from 1 January 2019. BCML obtained an independent valuation which was $9.0 million higher than the valuation prior to the renewal of $178.0 million. As a result of the valuation uplift and assuming the remainder of assets and liabilities of the Fund are unaltered from the 31 December 2016 financial statements, the Fund's net assets increased to $442.3 million or $9.02 per unit and the portfolio weighted average lease expiry (WALE) by ownership and income increased to 6.8 years.

ProPerty Portfolio

The Fund's three properties were valued at $707.0 million as at 31 December 2016. Portfolio occupancy was 91% (30 June 2016: 92%) and WALE was 4.7 years (30 June 2016: 3.6 years). Post the American Express lease renewal, the

portfolio WALE increased to 6.8 years. During the period, a number of new lease transactions were executed, maximising the Fund's operating performance.

outlook And CAPitAl mAnAGement

The Board continues to closely monitor the ongoing cash requirements within the Fund's portfolio of properties and will make adjustments to its current distribution policy where appropriate.

On behalf of the Board, thank you for your ongoing support.

F. Allan McDonald, Independent Chairman

ContentS

Message from the Chairman 1

Half Year Review 2

Portfolio Analysis 5

Property Analysis 6

Condensed Consolidated Interim Statement of Profit or Loss and

Other Comprehensive Income 9

Condensed Consolidated Interim Statement of

Financial Position 10

Corporate Directory ........................ IBC

brookfield prime property fund interim report 2017 1

half Year in review

Brookfield Capital Management Limited (BCML), the Responsible Entity of Brookfield Prime Property Fund (Fund) provides a review of the half year ended

31 December 2016.

finAnCiAl reSultS

Key financial results as at 31 December 2016 are:

• net assets of $433.4 million (30 June 2016: $373.6 million) or net assets per unit of $8.84 per unit (30 June 2016: $7.62);

• portfolio value of $707.0 million (30 June 2016:

  $644.5 million); and

• portfolio occupancy of 91% (30 June 216: 92%) with WALE by income and by ownership of 4.7 years

(30 June 2016: 3.6 years).

As announced on 8 February 2017, American Express International Inc. renewed their lease at 12 Shelley Street, Sydney for 10 years from 1 January 2019. BCML obtained an independent valuation which was $9.0 million higher than the valuation prior to the lease renewal of $178.0 million.

eArninGS

Net profit for the half year ended 31 December 2016 decreased to $65.7 million (31 December 2015:

$111.1 million) due to net gains made from the sale of the Fund's interests in Southern Cross East and West in the prior period.

diStriButionS

During the period, the Fund declared $5.9 million in distributions reflecting a quarterly distribution rate of

6.0 cents per unit.

ProPerty Portfolio

All three properties were externally valued as at

31 December 2016. The Fund's property portfolio increased in value to $707.0 million from $644.5 million in 30 June 2016, a 9.7% increase during the six-month period.

To arrive at an opinion of value, external valuations were undertaken using a number of methodologies, including the discounted cash flow approach, capitalisation approach and direct comparison.

As at 31 December 2016, the Fund's portfolio occupancy rate was 91% (30 June 2016: 92%).

The Fund's portfolio WALE by ownership and income was

4.7 years (30 June 2016: 3.6 years). Post the American Express lease renewal, the portfolio WALE increased to

6.8 years.

The Fund's Sydney properties benefited from continued yield compression for investment grade properties during the period to 31 December 2016. The Fund's Perth asset has maintained value, benefitting from recent lease extensions and an increasing appetite from investors

for quality assets with strong lease profiles.

680 George Street and 50 Goulburn Street, Sydney

During the period, 680 George Street and 50 Goulburn Street recorded a 19% increase in their combined value to

$363.0 million from $305.0 million as at 30 June 2016. This reflects continued yield compression for prime grade properties in the Sydney CBD, coupled with strong

leasing outcomes achieved.

The combined WALE as at 31 December 2016 was 6.0 years and the combined occupancy rate was 97%.

Asset management and leasing initiatives during the period to 31 December 2016 resulted in 39.1% of the NLA previously leased to EY being re-leased to new tenants. As at 31 December 2016, EY's lease represented 7.4% of the NLA at 680 George Street compared to 46.5% of NLA at

30 June 2016.

The 31 December 2016 valuation for 680 George Street and 50 Goulburn Street takes into account leasing risks associated with current vacant space, as well as the EY expiry and other pending lease expirations. Allowances for leasing costs and capital expenditure have been factored into the valuation and the adopted yield has been adjusted for risks associated with re-leasing.

American express House, 12 Shelley Street, Sydney

During the period, the value of 12 Shelley Street increased to $178.0 million from $174.5 million. The property benefited from continued yield compression and strong leasing fundamentals for quality office properties located in the Sydney CBD, after taking into account leasing risks associated with American Express's pending lease expiry on 31 December 2018.

The WALE at 12 Shelley Street as at 31 December 2016 was

1.9 years. Post the American Express lease renewal for

a 10 year term from 1 January 2019, the WALE increased to 10.7 years. The property's occupancy rate at

31 December 2016 was 99%.

108 St Georges terrace, Perth

The value of 108 St Georges Terrace increased to

$166.0 million from $165.0 million during the period. The increase can be attributed to a combination of the property's relatively strong WALE of 4.8 years as at

31 December 2016, strong passing income and increasing appetite from the investors for quality assets with strong lease profiles. The occupancy rate as at 31 December 2016 was approximately 78%.

Despite leasing conditions in the Perth market continuing to be restrained by low net tenant demand, subdued office market net rental growth and high levels of vacancy, domestic and foreign investment demand for tenanted assets with good lease profiles is increasing. Incentive allowances and leasing up periods appropriate to the

level of vacancy within the building have been factored into the property's valuation.

2 mAnAGement SerViCeS AGreement

After expiry of the initial term on 16 September 2016, the Fund's Management Services Agreement with Brookfield Multiplex Capital Pty Ltd continues in accordance with the PDS.

deBt

As at 31 December 2016, the Fund's $340.0 million senior bank debt facility was drawn to $315.0 million and the Fund's $50.0 million subordinated debt facility with the Brookfield Group remains undrawn and the Fund is compliant with all debt covenants.

There is no requirement to hedge interest rates under the senior facility, BCML will continue to monitor this position.

tAX PoSition

The Fund currently does not qualify as a Managed Investment Trust for the purposes of the Tax Act. Therefore, taxable distributions (not including interest, dividends, royalties) made by the Fund to non-resident unitholders will be subject to a non-final withholding tax of 30% or the highest marginal tax rate (depending on the tax profile of the unitholder). Resident unitholders should not be adversely affected.

SummAry

ProPerty loCAtion

fund SHAre %

VAlue AS At 31 deCemBer

2016 $m

VAlue AS At

30 June

2016 $m

% CHAnGe

6 montHS

680 George Street and 50 Goulburn Street Sydney 50	363.0	305.0 19.0
American Express House, 12 Shelley Street Sydney 100	178.0	174.5 2.0
108 St Georges Terrace Perth 50	166.0	165.0 0.6
Total	707.0	644.5 9.7

net ASSetS reConCiliAtion

Net Assets per unit ($)

10 0.22 0.03 0.01 (0.12) (0.15) (0.05) 1.288.84
9
7.62 8
7
6
5
4
3
2
1

0 Net assets	Share of	Net	Revaluation	Investment	Distributions	Finance	Management	Net assets
30 June 2016	net profits	property	of	income	declared	costs	fees	31 December
in	income	investment	2016
associates	properties

brookfield prime property fund interim report 2017 3