Brookfield Office -- summary under Domestic REITs

Overview

BPP and BPP Sub Amalco will effectively turn the cost amount of their realty assets into high basis notes and low basis Class B units of a newly-formed LP to which they drop-down those properties, and then exchange those notes for units of a newly-formed REIT (BCR). BCR, in turn, transfers its notes to the new LP for high basis Class A LP units. BPP Sub Amalco transfers its BCR units to a new indirect sub (Newco) of the majority shareholder of BPP (BPO), and Newco acquires the BPP shares of the public in exchange for BCR units. Newco and BPP then amalgamate.

These mechanics require that the notes equla the FMV of the purblic's BPP shares. Perhaps in order to ensure that having LP issue notes in this amount does not generate gain, there is a preliminary transfer of a significant asset (Brookfield Place) to a predecessor of BPP Sub Amalco. Since these mechanics also entail an exchange with a sub of BPO (Newco) rathr than a distribution by BPP, there are no deemed dividend issues. There is no indication that BCR is first seeded with 150 small investors in order to reduce Ontario LTT issues.

Current structure

Brookfield Properties Corporation (“BPO”) holds 56.3% of the common shares and 100% of the non-voting equity shares of BPP, the public held 43.7% of the common shares of BPP (representing approximately 10.3% of its equity) and preferred shareholders of BPP held various series of preferred shares. Certain of BPP’s subsidiaries amalgamated to form BPP Sub Amalco.

Preliminary transactions

Substantially all of BPP’s existing subsidiaries will be amalgamated with the indirect wholly-owned subsidiary of BPO owning a major real estate asset (Brookfield Place) to form a new entity (“BPP Sub Amalco”).

The “BPP Entities,” including BPP and BPP Sub Amalco, transferred real property assets (including real estate partnership interests) on a s. 97(2) rollover basis to a newly-formed LP (Brookfield Office Properties Canada LP) for interest-bearing demand promissory notes of such LP, and Class B LP Units of such LP, and for the assumption of liabilities and Special Voting Units of BCR. ON completion of the Arrangement, the Class B LP Units are exchangeable for Trust Units.

CBCA Plan of Arrangement steps

1. The BPP Entities will transfer the LP notes to BCR in exchange for Trust Units.
2. BPP Sub Amalco will transfer the Trust Units (to be distributed to the public in 3 below) to a newly-incorporated indirect CBCA subsidiary of BPO (“Newco”) in exchange for a demand interest-bearing note of Newco (the “Newco Note”).
3. Each BPP common share held by the public will be acquired by Newco for one Trust Unit.
4. BCR will transfer the notes received in 1 to Brookfield Office Properties Canada LP in exchange for Class A LP Units.
5. Brookfield Office Properties Canada LP will redeem the initial 100 Class A LP Units held by BPP Sub Amalco for $100.
6. BPP will transfer the shares of the general partner of Brookfield Office Properties Canada LP to BCR for cash consideration.
7. Newco and BPP will amalgamate, with each common and non-voting equity share (other than the common shares held by Newco) being converted into one common share of BPP Amalco, and each of the preferred shares being converted into the same number of preferred shares of the same series of BPP Amalco.

Canadian tax consequences

A resident shareholder of BPP disposing of BPP common shares will realize a capital gain or loss based on the FMV of the Trust Units received in exchange. BCR is expected to qualify as a REIT.