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Brookfield Property Partners L.P.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- limited partnership units of entity created to enable Canadian resident shareholders to defer tax consequences associated with disposition of shares under a take-over bid and subsequent plan of arrangement are exchangeable into and in all material respects the economic equivalent to the issuer's publicly traded units -- issuer may include entity's exchangeable limited partnership units when calculating market capitalization for the purposes of using the 25% market capitalization exemption for certain related party transactions -- relief granted subject to conditions.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.5(a), 5.7(1)(a), 9.1.
July 2, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE "JURISDICTION") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BROOKFIELD PROPERTY PARTNERS L.P. (THE "FILER")
DECISION
Background
The securities regulatory authority or regulator in the Jurisdiction (the "Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Filer, pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") from the requirements of section 5.4 of MI 61-101 (the "Formal Valuation Requirement") and the requirements of section 5.6 of MI 61-101 (the "Minority Approval Requirement"), in each case relating to any related party transaction of the Filer entered into indirectly by the Filer through any subsidiary entity (as such term is defined in MI 61-101), if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(1)(a) of MI 61-101 if the indirect limited partnership interest in the Filer, which is held in the form of non-voting exchangeable limited partnership units (the "Exchange LP Units") of Brookfield Office Properties Exchange LP ("Exchange LP"), were included in the calculation of the Filer's market capitalization (collectively, the "Requested Relief").
The Filer is requesting exemptive relief in connection with the offer dated February 11, 2014 (the "Offer") by the Filer, Exchange LP and Brookfield Property Split Corp. (collectively, the "Offerors") to purchase any or all of the issued and outstanding common shares (the "BPO Common Shares") of Brookfield Office Properties Inc. ("BPO") other than BPO Common Shares held by the Offerors and their subsidiaries. Pursuant to the Offer, holders of BPO Common Shares (the "Shareholders") were able to elect to receive either US$20.34 in cash or one (1) non-voting limited partnership unit of the Filer (each, a "BPY Unit") for each BPO Common Share that they tendered to the Offer, subject, in each case, to a maximum amount of cash and BPY Units. Canadian Shareholders also had the option of electing to receive Exchange LP Units in lieu of BPY Units pursuant to the Offer. The Offer expired on March 31, 2014, and 34,216,062 Exchange LP Units were issued to Shareholders pursuant to the Offer.
On June 9, 2014, the Offerors and BPO completed a statutory plan of arrangement (the "Arrangement") under the Canada Business Corporations Act pursuant to which, among other things, the Offerors acquired the remaining BPO Common Shares held by the public following the completion of the Offer. 13,260,336 Exchange LP Units were issued to Shareholders in connection with the Arrangement.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in Québec.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a Bermuda exempted limited partnership that was established on January 3, 2013.
2. The Filer is a reporting issuer, or the equivalent, in each of the provinces and territories of Canada (collectively, the "Reporting Jurisdictions") and is not in default of any requirements under applicable securities legislation or the rules and regulations made pursuant thereto in the Reporting Jurisdictions.
3. The Filer is authorized to issue an unlimited number of general partner units, and an unlimited number of BPY Units. As of June 10, 2014, the Filer has (i) 138,875 general partner units issued and outstanding, all of which are held by the Filer's general partner, Brookfield Property Partners Limited ("BPY General Partner"), and (ii) 230,980,011 BPY Units issued and outstanding, in addition to 47,476,398 BPY Units which are issuable in exchange for Exchange LP Units, and 432,649,105 BPY Units which are issuable in exchange for redeemable-exchangeable limited partnership units of Brookfield Property L.P. (the "Property Partnership", and such units, the "REUs").
4. The BPY Units are listed on the New York Stock Exchange (the "NYSE") and the Toronto Stock Exchange (the "TSX") under the symbols "BPY" and "BPY.UN", respectively.
5. The BPY Units are non-voting limited partnership units of the Filer. The Filer is controlled by its general partner, the BPY General Partner, a Bermuda company and a wholly-owned subsidiary of Brookfield Asset Management Inc. ("BAM") holding a 0.1% general partnership interest in the Filer.
6. The Filer obtained relief on August 19, 2013 and April 16, 2013, granting the Filer substantially the same relief as the Requested Relief in respect of the REUs.
7. The Filer holds all of the managing general partner units of the Property Partnership (the "Managing GP Units"), which represent the Filer's sole direct investment. As of June 10, 2014, the Managing GP Units represent 34.6% of the total number of units of the Property Partnership and have the same economic attributes as the REUs, save for the redemption right attributable to the REUs.
8. Exchange LP is an Ontario limited partnership that was established on December 16, 2013 solely for the purpose of the Offer.
9. Exchange LP is a reporting issuer, or the equivalent, in each of the Reporting Jurisdictions and is not in default of any requirements under applicable securities legislation or the rules and regulations made pursuant thereto in the Reporting Jurisdictions.
10. Exchange LP is authorized to issue an unlimited number of general partner units, an unlimited number of class A limited partnership units and an unlimited number of Exchange LP Units. As of June 10, 2014, Exchange LP has (i) 4 general partner units issued and outstanding, all of which are held by its general partner, BOP Exchange GP ULC ("GP ULC"), (ii) 6,545,255 class A limited partnership units issued and outstanding, all of which are held by Brookfield Property Split Corp., and (iii) 47,476,398 Exchange LP Units issued and outstanding.
11. The Exchange LP Units are not, and there are no plans for the Exchange LP Units to be, listed on the TSX, the NYSE, or other any stock exchange. The Exchange LP Units are not transferrable, except on the death of a holder of such units.
12. The Exchange LP Units are non-voting exchangeable limited partnership units of Exchange LP. Exchange LP is controlled by its general partner, GP ULC, an Alberta unlimited liability company and an indirect, wholly-owned subsidiary of the Filer holding a 0.01% interest in Exchange LP.
13. The Exchange LP Units are, in all material respects, economically equivalent to BPY Units on a per unit basis. The Exchange LP Units are, in substance, a proxy for BPY Units that were designed to provide an opportunity for Canadian resident Shareholders to defer the tax consequences of disposing of their BPO Common Shares under the Offer and the Arrangement. Holders of Exchange LP Units (the "Exchange LP Unitholders") will be entitled to receive distributions economically equivalent to the distributions, if any, paid from time to time by the Filer on BPY Units. The declaration date, record date and payment date for distributions on the Exchange LP Units will be the same as that for any corresponding distributions on BPY Units. Subject to their terms and applicable law, the Exchange LP Units are exchangeable at any time on a one-for-one basis, at the option of the Exchange LP Unitholder(s), solely for BPY Units (plus all declared and unpaid distributions outstanding on the Exchange LP Units and all distributions declared on BPY Units that have not yet been declared or paid on the Exchange LP Units at the time of the exchange, if any (the "Distribution Amount")).
14. The detailed terms and conditions of the Exchange LP Units are set out in the amended and restated limited partnership agreement of Exchange LP dated March 19, 2014, which is available on Exchange LP's profile page at www.sedar.com.
15. The Exchange LP Units effectively represent an ownership interest in the Filer rather than Exchange LP.
16. The Exchange LP Units represent part of the equity value of the Filer and, moreover, the economic interests that underlie the Exchange LP Units are based solely upon the assets and operations held directly or indirectly by the operating entities of the Filer as Exchange LP has not carried on any active business since its formation, other than in connection with the Offer and the Arrangement, and there are no plans for Exchange LP to be an operating business.
17. The Filer and Exchange LP entered into a support agreement on March 19, 2014 (the "Support Agreement") which, among other things, ensures that Exchange LP is able to satisfy its obligations to the Exchange LP Unitholders, and which Support Agreement may not, except in limited circumstances, be amended without the approval of the Exchange LP Unitholders.
18. The Support Agreement provides that, without the prior approval of Exchange LP and the Exchange LP Unitholders, the Filer will not distribute additional BPY Units or rights to subscribe therefor or other property or assets to all or substantially all holders of the Filer, change any of the rights, privileges or other terms of BPY Units, or change the then outstanding number of BPY Units into a lesser or greater number, unless the same or an equivalent distribution on, or change to, the Exchange LP Units (or in the rights of the holders thereof) is made simultaneously. In the event of any proposed cash offer, share exchange offer, issuer bid, take-over bid or similar transaction affecting BPY Units, the Filer and Exchange LP will use reasonable best efforts to take all actions necessary or desirable to enable Exchange LP Unitholders to participate in such transaction to the same extent and on an economically equivalent basis as the holders of BPY Units, without discrimination.
19. The Support Agreement also provides that, as long as any outstanding Exchange LP Units are owned by any person or entity other than the Filer or any of its subsidiaries, the Filer will, unless approval to do otherwise is obtained from the Exchange LP Unitholders, remain the direct or indirect beneficial owner of all of the issued and outstanding limited partnership units of Exchange LP.
20. Under the Support Agreement, the Filer may not exercise, and will prevent its affiliates from exercising, any voting rights attached to the Exchange LP Units owned by the Filer or its affiliates on any matter considered at meetings of Exchange LP Unitholders (including any approval sought from such holders in respect of matters arising under the Support Agreement).
21. Subject to applicable law and the exercise by the Filer of its liquidation call right (the "Liquidation Call Right"), in the event of the liquidation, dissolution or winding up of Exchange LP or any other distribution of its assets among its holders for the purpose of winding up its affairs, Exchange LP Unitholders will be entitled to receive a liquidation payment from the assets of Exchange LP that will be satisfied by issuance of one (1) BPY Unit plus the Distribution Amount, if any, for each outstanding Exchange LP Unit. The Filer has an overriding Liquidation Call Right, in the event of and notwithstanding a proposed liquidation, dissolution or winding up of Exchange LP, to acquire all but not less than all of the Exchange LP Units then outstanding (other than Exchange LP Units held by the Filer or its subsidiaries) for a purchase price to be satisfied by delivering to the Exchange LP Unitholders one (1) BPY Unit for each Exchange LP Unit purchased plus the Distribution Amount, if any.
22. Commencing on March 24, 2021, Exchange LP will have the right to redeem all of the then outstanding Exchange LP Units for a purchase price equal to one (1) BPY Unit for each outstanding Exchange LP Unit plus the Distribution Amount, if any. This redemption date may be accelerated by the board of directors of GP ULC in the event that: (i) fewer than 5% of the total number of Exchange LP Units issued in connection with the Offer and the Arrangement (other than Exchange LP Units held by the Filer or its subsidiaries and subject to necessary adjustments to the number of units to reflect permitted changes to Exchange LP Units) are outstanding; (ii) (a) any person, firm or corporation acquires more than 90% of the BPY Units in a take-over bid; (b) the unitholders of the Filer approve a liquidation of the Filer; or (c) the Filer sells or disposes of all or substantially all of its assets, and the board of directors of GP ULC determines that it is not reasonably practicable to substantially replicate the terms and conditions of the Exchange LP Units in connection with such transaction and that the redemption of all but not less than all of the outstanding Exchange LP Units is necessary to enable the completion of such transaction; or (iii) any amendment to the Income Tax Act (Canada) (the "Tax Act") and other applicable provincial income tax laws is made that permits Exchange LP Unitholders who: (a) are resident in Canada; (b) hold their Exchange LP Units as capital property; and (c) deal at arm's length with the Filer or Exchange LP, to exchange their Exchange LP Units without requiring such Exchange LP Unitholders to recognize any gain or loss in respect of such exchange for the purposes of the Tax Act or applicable provincial income tax laws.
23. The Filer has an overriding redemption call right (the "Redemption Call Right"), notwithstanding any proposed redemption of the Exchange LP Units by Exchange LP, to acquire all but not less than all of the Exchange LP Units then outstanding (other than Exchange LP Units held by the Filer or its subsidiaries). The purchase price under the Redemption Call Right is satisfied by delivering to the Exchange LP Unitholder one (1) BPY Unit for each Exchange LP Unit purchased plus the Distribution Amount, if any. In the event of the exercise of the Redemption Call Right by the Filer, each Exchange LP Unitholder shall be obligated to sell all the Exchange LP Units held by such holder to the Filer on the redemption date upon payment by the Filer to such holder of the purchase price for such Exchange LP Units.
24. It is anticipated that the Filer will from time to time enter into transactions with certain related parties, including BAM and its affiliates other than the Filer and its related entities, indirectly through the Filer's direct and indirect wholly owned subsidiaries.
25. If Part 5 of MI 61-101 applies to a related party transaction by an issuer and the transaction is not otherwise exempt:
(a) the issuer must obtain a formal valuation of the transaction in a form satisfying the requirements of MI 61-101 by an independent valuator; and
(b) the issuer must obtain approval of the transaction by disinterested holders of the affected securities of the issuer (together, requirements (a) and (b) are referred to as the "Minority Protections").
26. A related party transaction that is subject to MI 61-101 may be exempt from the Minority Protections if at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, exceeds 25% of the issuer's market capitalization (the "Transaction Size Exemption").
27. It is unclear whether the Filer will be entitled to include the Exchange LP Units in its market capitalization when determining whether it is able to rely on the Transaction Size Exemption available under the Legislation because the definition of "market capitalization" in the Legislation does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.
28. The Exchange LP Units represent part of the equity value of the Filer and are, in all material respects, economically equivalent to the BPY Units. Exchange LP Unitholders will receive BPY Units in exchange for their Exchange LP Units on a one-for-one basis (plus any Distribution Amounts) at their election or, subject to certain conditions described in Representations 21, 22 and 23 above, at the election of Exchange LP or the Filer.
29. If the Exchange LP Units are not included in the market capitalization of the Filer, the equity value of the Filer will be understated by the value of the Exchange LP Unitholders' limited partnership interests in Exchange LP. As a result, related party transactions by the Filer may be subject to the Minority Protections in circumstances where the fair market value of the transactions are effectively less than 25% of the fully diluted market capitalization of the Filer.
30. The inclusion of the Exchange LP Units when determining the Filer's market capitalization is consistent with the logic of including unlisted equity securities of the issuer which are convertible into listed securities of the issuer in determining an issuer's market capitalization in that both are securities that are considered part of the equity value of the issuer whose value is measured on the basis of the listed securities into which they are convertible or exchangeable.
Decision
The Decision Maker is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Maker under the Legislation is that the Requested Relief is granted provided that:
1. the transaction would qualify for the Transaction Size Exemption contained in the Legislation if the Exchange LP Units were considered an outstanding class of equity securities of the Filer that were convertible into BPY Units;
2. there be no material change to the terms of the Exchange LP Units, including the exchange rights associated therewith, as described above; and
3. any annual information form or equivalent of the Filer that is required to be filed in accordance with applicable securities laws contain the following disclosure, with any immaterial modifications as the context may require:
"Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. Brookfield Property Partners L.P. ("BPY") has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of BPY's market capitalization, if the indirect equity interests in BPY, which are held in the form of: (i) redeemable-exchangeable limited partnership units of Brookfield Property L.P. (the "Property Partnership") and (ii) non-voting exchangeable limited partnership units of Brookfield Office Properties Exchange LP ("Exchange LP"), are included in the calculation of BPY's market capitalization. As a result, the 25% threshold, above which the minority approval and valuation requirements apply, is increased to include the approximately [_____]% indirect interests in BPY held in the form of redeemable-exchangeable limited partnership units of the Property Partnership and non-voting exchangeable limited partnership units of Exchange LP."
"Naizam Kanji"
Deputy Director, Corporate Finance
Ontario Securities Commission