Brookfield/BBP LP
Overview. Brookfield Asset Management, which is a Canadian-resident corporation listed on the NYSE, NYSE Euronext and TSX, will distribute the (non-voting) LP units of BBP LP to its shareholders as a special dividend, with such distribution being referred to as the spin-off. Brookfield Asset Management will retain an approximate 70% economic interest in the business by virtue of holding approximately 45% of the units of BBP LP directly and by virtue of holding an approximate 45% partnership interest in Holding LP, which will be the subsidiary LP of BBP LP. Holding LP will be Brookfield's primary vehicle for business services and industrial operations, with most of those businesses held (indirectly) outside Canada. BBP LP will apply for TSX and NYSE listings.
Special dividend. Brookfield Asset Management will declare a special dividend, to holders of its Class A limited voting shares and Class B limited voting shares, comprising approximately 55% of the units of Holding LP on the basis of one unit for every 100 Class A or B shares. Holders who otherwise would be entitled to receive a fractional unit will receive a cash payment.
Withholding on special dividend. To satisfy withholding tax liabilities in respect of registered shareholders, Brookfield Asset Management will withhold a portion of the BBP LP units which otherwise would be distributed (plus a portion of the cash distribution), and purchase the withheld units at a price equal to the fair market value of the unit determined by reference to the five day VWAP of the BBP LP units following closing of the spin-off. For non-Canadian beneficial owners, the withholding tax obligations will be satisfied in the ordinary course through arrangements with their brokers or other intermediaries.
BBP LP. BBP LP is a Bermuda exempted limited partnership. It will hold managing general partner units of Holding LP representing an approximate 55% interest therein. The general partner of BBP LP (holding a 0.2% GP interest) is a Bermuda company ("BBP GP") which is a wholly-owned subsidiary of Brookfield Asset Management. It will have sole authority for the management and control of BBP LP. Income allocations will be made on a quarterly basis.
Holding LP. Brookfield Asset Management will hold non-voting units (the "Redemption-Exchange Units"), representing a 45% interest in Holding LP. The Redemption-Exchange Units will be redeemable for cash within two years of the closing, subject to a right of BBP LP to acquire such units in exchange for units of BBP LP. In addition, Brookfield Asset Management will hold Special LP units of Holding LP, entitled to incentive distributions (see below).
Holding Entities. The Holding Entities are three corporations incorporated in Bermuda, Ontario and Delaware held by Holding LP. Brookfield will subscribe for $15 million of preferred shares of each subsidiary. The preferred shares are entitled to receive a cumulative preferential cash dividend equal to 5% of their redemption value as and when declared by the board of the directors of the applicable entity and are redeemable at the option of the applicable entity at any time after the 20th anniversary of their issuance. Each class of preferred shares is entitled to 1% of the total votes of the applicable subsidiary.
Distributions. Anticipated to be approximately $0.25 per unit on an annualized basis, initially representing an estimated distribution yield of approximately 1% of expected initial value per unit of $25.00 upon spin-off. The level of distributions is not intended to grow.
Fees and incentive distributions. BBP LP will pay a quarterly base management fee to Brookfield affiliates equal to a 0.3125% (1.25% annually) of the total capitalization of BBP LP. As a result of holding Special LP Units, Brookfield will be entitled to receive from Holding LP incentive distributions calculated as (a) 20% of the growth in the market value of the BBP LP units quarter-over-quarter (but only after the market value exceeds the "Incentive Distribution Threshold" being initially $25.00 and adjusted at the beginning of each quarter to be equal to the greater of (i) the unit's market value for the previous quarter and (ii) the Incentive Distribution Threshold at the end of the previous quarter) multiplied by (b) the number of units outstanding at the end of the quarter (assuming full conversion of the Redemption Exchange Units into units).
Canadian tax consequences. Dividend. The reported amount of the dividend will be based on the fair market value of the unit BBP LP units determined by reference to the five day VWAP of the BBP LP units following closing of the spin-off.
Partnership taxation/SIFT tax. BBP LP would be considered to be "Canadian resident partnership" and, therefore taxable as a SIFT partnerships, if its central management and control were in Canada. In such event, Holding LP would be an excluded subsidiary entity. BPY GP expects that its central management and control will be outside Canada, so that the SIFT partnership rules will not apply to BBP LP or Holding LP, and also intends to manage their affairs so that they do not carry on business in Canada. BBP LP will include its share of FAPI of Holding LP in computing its income.
Withholding tax. The Holding Entities intend to withhold on a reduced (look-through) basis taking into account the treaty-residence of the ultimate partners of Holding LP , including that of the unitholders of BBP LP.
TCP. It is not expected that the BBP LP units will be taxable Canadian property.
U.S. tax consequences. Entity classification. BBP LP and Holding LP will make protective elections to be classified as partnerships for Code purposes. Their affairs will be managed so that they meet the Qualifying Income Exception (so as to not be deemed to be corporations under rules otherwise applicable to publicly-traded partnerships).
Distribution. The distribution will be treated as a dividend to the extent of current and accumulated earnings and profits of Brookfield Asset Management, which it does not calculate. Brookfield Asset Management does not believe it was a PFIC in the current or preceding taxable year, so that such dividend should qualify as a qualified dividend subject to exceptions.
Partnership taxation. BBP LP and Holding LP intend to make the Code s. 754 election (to step up or down inside basis respecting a transferee of units based on outside basis). BBP LP's functional currency will be the U.S. dollar. BBP LP may allocate items of income, gain, loss, and deduction using a monthly convention, whereby any such items recognized in a given month by it are allocated to unitholders as of a specified date of such month.
UBTI. BBP LP and Holding LP are not expected to dirctly incur debt to acquire property and are not expected to generate UBTI attributable to debt-financed proeprty.
Non-resident unitholders. BBP LP is unlikely to earn effectively connected income, so that non-US holders who are not otherwise engaged in a U.S. trade of business should not be subject to U.S. tax return filing requirements. However, there will be U.S. withholding tax on the gross amount of certain U.S. source income.
Bermuda taxes. In Bermuda there are no taxes on profits, income or dividends, nor is there any capital gains tax, estate duty or death duty. Profits can be accumulated and it is not obligatory to pay dividends. As "exempted undertakings", exempted partnerships and overseas partnerships are entitled to apply for (and will ordinarily receive) an assurance pursuant to the Exempted Undertakings Tax Protection Act 1966 that, in the event that legislation introducing taxes computed on profits or income, or computed on any capital asset, gain or appreciation, is enacted, such taxes shall not be applicable to our company or any of its operations until March 31, 2015. Exempted partnerships and overseas partnerships fall within the definition of "international businesses" for the purposes of the Stamp Duties (International Businesses Relief) Act 1990, which means that instruments executed by or in relation to an exempted partnership or an overseas partnership are exempt from stamp duties.
Overview. Brookfield Asset Management, which is a Canadian-resident corporation listed on the NYSE, NYSE Euronext and TSX, will distribute the (non-voting) LP units of BBP LP to its shareholders as a special dividend, with such distribution being referred to as the spin-off. Brookfield Asset Management will retain an approximate 70% economic interest in the business by virtue of holding approximately 45% of the units of BBP LP directly and by virtue of holding an approximate 45% partnership interest in Holding LP, which will be the subsidiary LP of BBP LP. Holding LP will be Brookfield's primary vehicle for business services and industrial operations, with most of those businesses held (indirectly) outside Canada. BBP LP will apply for TSX and NYSE listings.
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