BPY/BOX/Brookfield -- summary under Privatizations

Overview

Brookfield Property Partners LP (BPY) has an 83% economic interest in BOX (a Canadian REIT), by virtue of holding 40.3% of the BOX units and holding exchangeable units of a subsidiary LP of BOX (BOPC LP), mostly through a grandchild subsidiary (BOP Split). BOX is proposing to redeem the units of the public in cash. BOP Split will also exchange all its exchangeable units. The general partner of BPY already controls BOX given that the exchangeable LP units of BOPC LP are coupled with voting units of BOX. However, the exchange will trigger a loss restriction event (whose definition is grounded in the concept of majority interest beneficiary), thereby triggering a BOX year end. In the case of non-residents, the redemption proceeds will be subject to Part XIII.2 withholding of 15%. Brookfield had thought about but rejected structuring the transaction so that the non-residents could sell their units under a Plan of Arrangement, thereby avoiding the Part XIII.2 tax.

Redemption Transaction

BOX will redeem all of its Trust Units not already owned by BPY and its subsidiaries in cash for $32.50 per unit (the “Redemption,” or the “Transaction”). Amendments to the BOX declaration of trust will be approved to provide for the Redemption. It is contemplated that BPY and a grandchild subsidiary of BPY (BOP Split) will exchange their exchangeable units of a subsidiary LP of BOX (BOPC LP ) for BOX units immediately before the Redemption.

BOX

A closed-ended real estate investment trust governed by Ontario law that, in its AIF, states that it expects to qualify as a REIT for ITA purposes. BOX's portfolio is comprised of interests in 26 premier office properties totaling 20.3 million square feet in the downtown cores of Toronto, Calgary and Ottawa, including Brookfield Place in Toronto and Bankers Hall in Calgary. Its units trade on the TSX and NYSE. As of March 31, 2017, 93,520,745 Trust Units were issued and outstanding on a fully exchanged basis including Class B LP Units of BOPC LP. The Greenhill valuation determined an implied value per Trust Unit ranging from $29.75 to $35.93.

BPY

Brookfield Property Partners LP was established on January 3, 2013 as a Bermuda exempted limited partnership registered under the Bermuda Limited Partnership Act of 1883 and the Bermuda Exempted Partnerships Act 1992. Its head office is in Hamilton, Bermuda. BPY was established by Brookfield Asset Management Inc. as its flagship public commercial property entity and the primary vehicle through which it invests in real estate on a global basis.

BPY and BOP Split interests in BOX and BOPC LP

BPY owns 40.3% of the units of BOX (with the public holding the balance of 59.7%) and also holds 13.7% of the Class B (exchangeable) LP units of a subsidiary LP of BOX (Brookfield Office Properties Canada LP, or “BOPC LP”) all of whose Class A LP units are held by BOX. 86.3% of the Class B LP units of BOPC LP are held by a grandchild subsidiary of BPY (BPO Properties Ltd., or “BOP Split”). By virtue of this structure, BPY has an effective aggregate equity interest in BOX of approximately 83%. Holders of Class B LP Units hold one special voting unit of BOX for each Class B LP Unit held.

Discussions on structure

Goodmans (for the Special Committee) raised with Torys alternative transaction structures, which would have a different tax impact for non-resident Trust Unitholders. However, during this discussion Torys stated that BPY had considered structuring the transaction as a plan of arrangement or a tender offer but that, because a redemption provided BPY with the flexibility to best organize the activities of the Trust consistent with the operations and ownership of BPY's other core office assets, BPY was not prepared to proceed with the Transaction under such alternative transaction structures.

Trust distributions

Trust Unitholders will continue to receive monthly distributions through to the Closing Date at the current rate of $0.1092 per Trust Unit. The last monthly distribution will be pro-rated to the Closing Date.

Canadian tax consequences

Taxable exchange

A Resident Trust Unitholder whose Trust Units constitute "capital property" generally will realize a capital gain (or a capital loss) to the extent that such Resident Trust Unitholder's proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of the Trust Units to the Resident Trust Unitholder.

Non-resident unitholders

A Non-Resident Trust Unitholder will not be subject to tax under the Tax Act on any capital gain realized on the disposition of Trust Units under the Redemption, unless (i) the Trust Units disposed of are "taxable Canadian property" (as defined in the Tax Act) of the Non-Resident Trust Unitholder at the time of the disposition, and (ii) the Non-Resident Trust Unitholder is not exempt from taxation in Canada on the disposition of such shares pursuant to an applicable income tax treaty or convention. In addition, a Non-Resident Trust Unitholder will generally be subject to a withholding tax of 15% under Part XIII.2 of the Tax Act on any distribution in respect of a Trust Unit that is not otherwise subject to tax under Part I or Part XIII of the Tax Act. The payment of the Redemption Price to a Non-Resident Trust Unitholder pursuant to the Redemption, will be subject to Canadian non-resident withholding tax of 15%. Non-Resident Trust Unitholders will want to consider disposing of their Trust Units on the TSX or the NYSE with a settlement date that is prior to the Closing Date.

Trust and partnership year ends

The current taxation year of BOX will be deemed to end on the day immediately before the day on which the exchange by BOP Split of Class B LP Units of BOPC LP into Trust Units occurs, giving rise to a short taxation year for BOX. BOX is seeking approval of the CRA to change the fiscal and taxation year end of certain of its subsidiary entities to ensure that substantially all of the income and net taxable capital gains earned by such subsidiary entities up to and including the date of such exchange will be allocated to Trust Unitholders who receive the Special Distribution. The disclosure assumes that this approval will be received. Since the current taxation year of BOX will be deemed to end as a result of the exchange by BOP Split of Class B LP Units of BOPC LP into Trust Units, Resident Trust Unitholders with taxation years ending before December 31, 2017 may be required to report income from the Trust earlier than they would otherwise have been required.

Special distribution

If, based on bona fide estimates, BOX determines that its undistributed taxable income for its short taxation year exceeds prior distributions made to the Trust Unitholders in that period, BOX will pay a special distribution to the Trust Unitholders in advance of the Redemption, to ensure that BOX will not be liable for tax under Part I of the Tax Act for this short taxation year.

U.S. tax consequences

Redemption Transaction

A Trust Unitholder who is taxable in the U.S. and who exchanges Trust Units for cash pursuant to the Redemption transaction generally will recognize taxable gain or loss for U.S. federal income tax purposes measured by the difference, if any, between the amount realized and such Trust Unitholder's adjusted tax basis in such Trust Units immediately prior to the exchange, assuming BOX is classified as a partnership for U.S. federal income tax purposes. The amount realized generally will equal the U.S. dollar value of the Canadian dollars to which such Trust Unitholder becomes entitled pursuant to the Transaction (without reduction for any Canadian tax withheld), increased by the amount of any reduction in such Trust Unitholder's allocable share of BOX's liabilities, as determined for Code purposes.

BOX classification as a partnership

BOX intends to manage its affairs so that it would not need to be registered as an investment company were it a U.S. corporation and so that BOX will satisfy the 90% Income Test for the taxable year that includes the Transaction, so that BOX can qualify as a partnership for Code purposes.