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INVESTMENT PROPERTIES | 12 Months Ended
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Dec. 31, 2022
Investment property [abstract] |
INVESTMENT PROPERTIES | INVESTMENT PROPERTIES The following table presents the change in the fair value of the company’s investment properties:
AS AT AND FOR THE YEARS ENDED DEC. 31 (MILLIONS) | 2022 |  | 2021
Fair value, beginning of year | $ | 100,865 |  |  | $ | 96,782 |
Additions | 11,580 |  |  | 13,558 |
Acquisitions through business combinations | 9,805 |  |  | 988 |
Changes in basis of accounting | (274) |  |  | 599 |
Dispositions 1 | (4,430) |  |  | (15,017) |
Fair value changes | 629 |  |  | 5,073 |
Foreign currency translation and other | (3,075) |  |  | (1,118) |
Fair value, end of year 2 | $ | 115,100 |  |  | $ | 100,865 |
1.Includes amounts reclassified to held for sale. 2.As at December 31, 2022, the ending balance includes $108.2 billion (December 31, 2021 – $94.9 billion) of investment properties leased to third parties and $4.4 billion of Right-of-use (“ROU”) investment properties (December 31, 2021 – $4.1 billion). Investment properties include the company’s office, retail, multifamily and other properties. Additions and acquisitions of $21.4 billion (2021 - $14.5 billion) primarily relate to the purchases of investment properties within our real estate funds and enhancement of existing assets during the period. Dispositions of $4.4 billion (2021 – $15.0 billion) included the sale of multiple triple net lease investment properties, multifamily and retail assets in the U.S, office assets in the U.K. and Canada, and a portfolio of student housing assets in the U.K. In addition, the current period includes the reclassification of certain assets held within our real estate funds to assets held for sale. Investment properties generated $6.2 billion (2021 – $5.7 billion) in rental income and incurred $2.9 billion (2021 – $2.6 billion) in direct operating expenses. Most of our investment properties are pledged as collateral for the non-recourse borrowings at their respective properties. The following table presents our investment properties measured at fair value:
AS AT DEC. 31 (MILLIONS) | 2022 |  | 2021
Core | $ | 19,267 |  |  | $ | 19,384 |
Transitional and Development | 25,434 |  |  | 28,334 |
LP Investments | 69,501 |  |  | 51,620 |
Other investment properties | 898 |  |  | 1,527 |
| $ | 115,100 |  |  | $ | 100,865 |
Significant unobservable inputs (Level 3) are utilized when determining the fair value of investment properties. The significant Level 3 inputs include:
Valuation Technique |  | Significant Unobservable Inputs |  | Relationship of Unobservable Inputs to Fair Value |  | Mitigating Factors
Discounted cash flow analysis 1 |  | • Future cash flows – primarily driven by net operating income |  | • Increases (decreases) in future cash flows increase (decrease) fair value |  | •Increases (decreases) in cash flows tend to be accompanied by increases (decreases) in discount rates that may offset changes in fair value from cash flows
|  | • Discount rate |  | •Increases (decreases) in discount rate decrease (increase) fair value |  | •Increases (decreases) in discount rates tend to be accompanied by increases (decreases) in cash flows that may offset changes in fair value from discount rates
|  | • Terminal capitalization rate |  | •Increases (decreases) in terminal capitalization rate decrease (increase) fair value |  | •Increases (decreases) in terminal capitalization rates tend to be accompanied by increases (decreases) in cash flows that may offset changes in fair value from terminal capitalization rates
|  | • Investment horizon |  | •Increases (decreases) in the investment horizon decrease (increase) fair value |  | •Increases (decreases) in the investment horizon tend to be the result of changing cash flow profiles that may result in higher (lower) growth in cash flows prior to stabilizing in the terminal year
1.Certain investment properties are valued using the direct capitalization method instead of a discounted cash flow model. Under the direct capitalization method, a capitalization rate is applied to estimated current year cash flows. The company’s investment properties are diversified by asset type, asset class, geography and market. Therefore, there may be mitigating factors in addition to those noted above, such as changes to assumptions that vary in direction and magnitude across different geographies and markets. The following table summarizes the key valuation metrics of the company’s investment properties:
| 2022 |  | 2021
AS AT DEC. 31 | Discount Rate |  | Terminal Capitalization Rate |  | Investment Horizon (years) |  | Discount Rate |  | Terminal Capitalization Rate |  | Investment Horizon (years)
Core | 6.2 | % |  | 4.6 | % |  | 11 |  | 5.9 | % |  | 4.6 | % |  | 11
Transitional and Development 1 | 7.6 | % |  | 5.9 | % |  | 10 |  | 7.3 | % |  | 5.8 | % |  | 10
LP Investments 1 | 8.4 | % |  | 5.7 | % |  | 13 |  | 9.1 | % |  | 5.9 | % |  | 13
Other investment properties 2 | 7.5 | % |  | n/a |  | n/a |  | 8.7 | % |  | n/a |  | n/a
1.The rates presented are for investment properties valued using the discounted cash flow method. These rates exclude multifamily, triple net lease, student housing, manufactured housing and other investment properties valued using the direct capitalization method. 2.Other investment properties include investment properties held in our Infrastructure and Private Equity segments.

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