Brookfield (BPY)/BPO -- summary under Cash, units or exchangeable units
Overview
This is a second stage transaction (to make BPO wholly-owned with the exception of non-exchanging convertible preferred shareholders) occurring pursuant to a CBCA Plan of Arrangement and on essentially the same terms as the previous February 2014 offer (so that there is an option to receive exchangeable units of a subsidiary LP of BPY) except that BPO shareholders also will have the option of having their BPO shares redeemed by BPO itself for cash or BPY units.
Previous Offer
On February 12, 2014, BPY, which "beneficially owned" approximately 49% of the common shares of BPO, and two of its indirect subsidiaries (Exchange LP and BOP Split), made an "any or all" offering for the remaining common shares of BPO, in consideration for BPY units or cash subject to the overall mix of consideration being fixed at around 67% units and 33% cash. Canadian taxable shareholders of BPO (including individuals) can elect to receive their units consideration in the form of exchangeable LP units of "Exchange LP," i.e., such units were retractable for BPY units subject to an overall call right of BPY but with no direct exchange right against BPY; and the acquired BPO common shares which were not acquired by Exchange LP would be held by BOP Split, which is a B.C. subsidiary of an indirect Canadian subsidiary of BPY and the limited partner of Exchange LP. Exchange LP qualified as a Canadian partnership due to its Canadian direct ownership. On April 1, 2014, BPY announced that it as a result of taking up BPO Common Shares tendered under the Offer, it had increasing its total ownership of BPO Common Shares to 469,393,505 shares, representing 92.5% of the outstanding BPO Common Shares.
Existing Structure
Described and diagrammed in the summary of the February 2014 offer.
Elections by BPO Common Shareholders
Each BPO Common Shareholder may elect to receive for each BPO Common Share tendered, one BPY Unit or $20.34 in cash, subject to pro-ration. The total number of BPY Units that may be issued under the Arrangement shall not exceed 38,814,826 and the total amount of cash available shall not exceed $388,690,066.88, which equates to approximately 67% and 33%, respectively, of the total number of BPO Common Shares to be acquired under Arrangement. Canadian Shareholders can elect to receive, in lieu of BPY Units, Exchange LP Units. Rather than receiving their consideration under the Arrangement from the Purchasers, Canadian Shareholders can also elect to have each of their BPO Common Shares purchased for cancellation by BPO in exchange for one Exchange LP Unit or $20.34 in cash (subject to pro-ration).
Plan of Arrangement
- Each BPO Common Share of a dissenting shareholder will be transferred to BOP Split.
- Each other BPO Common Share held otherwise than by the BPY group will be transferred to the "Applicable Offeror" (based on the operation of the election choices described above) in exchange for $20.34 in cash or the "Unit Consideration" (i.e., one BPY or one Exchange LP unit), as the case may be.
- Each BPO Class A Preferred Share will be redeemed.
- Provided that listing requirements are satisfied, various series of BPO convertible preferred shares Split shares will be transferred by the holder to BOP Split Amalco (which will result from the amalgamation of BOP Split with other BPY subsidiaries) in exchange for shares of a separate series of BOP Split Amalco – with shares not so transferred remaining outstanding as BPO Convertible Preferred Shares, with their share terms modified so that they are convertible into BPY Units.
Canadian tax consequences
S. 97(2) rollover. For BOP Canadian Shareholders who elect to receive Exchange LP Units, GP ULC, the general partner of Exchange LP, will make the necessary s. 97(2) elections with such Canadian Shareholders. The electing holder must provide the relevant information to GP ULC at http://www.brookfieldpropertypartners.com/bpotaxelection on or before the day that is 85 days following the date on which the exchange occurs. The resident holder will be solely responsible for executing its portion of the election and submitting it to CRA. An exchange for BPY units will occur on a non-rollover basis. Upon the purchase for cancellation by BPO of the BPO Common Shares, a Resident BPO Common Shareholder will generally be deemed to have received a taxable dividend on each BPO Common Share equal to the amount, if any, paid by BPO for the BPO Common Share in excess of the paid-up capital of the BPO Common Share at such time, estimated to be C$8.91 per share (subject to s. 55(2).)
Exchange LP SIFT tax
GP ULC expects that Exchange LP will be a ‘‘SIFT partnership'' for each of its taxation years but it does not expect that Exchange LP will be liable for any material amount of SIFT Tax for any taxation year based on taxable dividends on Exchange LP's BPO common shares being essentially its only source of income.
BOP Split Preferred Shares
. As BOP Split is expected to be a mutual fund corporation, gains on proceeds of disposition of BOP Split preferred shares are expected to be capital gains. S. 85.1 will apply to the exchange of BPO convertible preferred shares for such shares.
Qualified investments
Exchange LP Units will not be qualified investments for RRSPs etc.
U.S. tax consequences
S. 721(a) exchange. An exchange by a BPO Shareholder of BPO Common Shares for BPY Units pursuant to the Offer is expected to qualify as an exchange to which Code s. 721(a) applies, i.e., a tax-free exchange in which no gain or loss is recognized. In particular, Torys considers that, under s. 7704, BPY (which has elected to be classified as a partnership) is not a publicly traded partnership that should be treated as a corporation and BPY should not be treated (under s. 721(b)) as a partnership that would be an ‘‘investment company'' if it were incorporated.
It is uncertain whether a U.S. Holder who receives a combination of cash and BPY Units in exchange for its BPO Common Shares pursuant to the Offer will be permitted to specifically identify the BPO Common Shares that are treated as sold for cash and the BPO Common Shares that are treated as transferred to Brookfield Property Partners in exchange for BPY Units. If such specific identification is ineffective, such U.S. Holder will be treated as having sold a single undivided portion of each BPO Common Share exchanged by such Shareholder pursuant to the Offer (equal to the percentage that the amount of the cash consideration received by such shareholder in exchange for its BPO Common Shares pursuant to the Offer bears to the fair market value of the total consideration (that is, cash plus the fair market value of BPY Units) received by such holder in exchange for its BPO Common Shares pursuant to the Offer), and to have contributed to Brookfield Property Partners in exchange for BPY Units the remaining single undivided portion of each BPO Common Share exchanged by such shareholder pursuant to the Offer.
Built-in gain
A former BPO Shareholder that is a U.S. taxpayer could be required under s. 704(c)(1) or 737 to recognize part or all of the ‘‘built-in gain'' in such Shareholder's BPO Common Shares exchanged for BPY Units pursuant to the Offer if BPY (i) sells or otherwise disposes of, in a taxable transaction at any time following the Offer, such BPO Common Shares, (ii) distributes such BPO Common Shares acquired from such Shareholder to another BPY Unitholder within seven years following the Offer, (iii) distributes any BPY property (other than money or BPO Common Shares acquired from such Shareholder) to such BPY Unitholder within seven years of the Offer, or (under s. 707(a)) (iv) makes any distribution (other than an ‘‘operating cash flow distribution'') to such former Shareholder within two years following the Offer. The BPY General Partner intends to use commercially reasonable efforts to ensure that a Shareholder that is a U.S. taxpayer is not required to recognize part or all of the ‘‘built-in gain'' in such Shareholder's BPO Common Shares deferred as a result of the Offer, in the event that Brookfield Property Partners undertakes any of the foregoing transactions.