Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemption from the extension take up requirements in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids – an issuer conducting an issuer bid requires relief from the requirement not to extend its issuer bid if all terms and conditions are met unless the issuer first takes up all securities validly deposited and not withdrawn under the issuer bid – the issuer will comply with the U.S. regime in connection with the issuer bid – requested relief granted, subject to conditions.

Applicable Legislative Provisions

National Instrument 62-104 Take-Over Bids and Issuer Bids, ss. 2.32(4), 6.1.

February 25, 2019

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 principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement set out in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) that the issuer bid (the Offer) commenced by the Filer on February 11, 2019 to purchase a portion of its outstanding limited partnership units (the Units) not be extended if all the terms and conditions of the Offer have been complied with or waived unless the Filer first takes up all of the Units deposited under the Offer and not withdrawn (the Exemption Sought).

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 British Columbia, Alberta, Manitoba, Saskatchewan, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories, Nunavut and the Yukon Territory.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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 an exempted limited partnership established, registered and in good standing under the laws of Bermuda. The Filer’s registered and head office is located at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.

2.             The Filer is a reporting issuer in each of the provinces and territories of Canada. The Filer is not in default of any requirement of the securities legislation in any of the jurisdictions in which it is a reporting issuer.

3.             The authorized capital of the Filer consists of an unlimited number of Units and an unlimited number of general partnership units. As at January 31, 2019, there were 427,019,024 Units and 138,875 general partnership units issued and outstanding. All of the Filer’s general partnership units are held by its general partner, Brookfield Property Partners Limited (the General Partner).

4.             The Units are listed and posted for trading on the Toronto Stock Exchange (the TSX) under the symbol “BPY.UN”, and on the Nasdaq Stock Market (the Nasdaq) under the symbol “BPY”.

5.             On February 6, 2019, the last full trading day prior to the date of the announcement of the Filer’s intention to launch the Offer, the closing price of the Units was C$24.74 on the TSX and US$18.72 on the Nasdaq.

6.             On February 11, 2019, the Filer made the Offer to purchase a number of Units having an aggregate purchase price not exceeding US$405,000,000 (the Specified Dollar Amount) by way of a modified Dutch auction procedure in the manner described below within a range of not less than US$19.00 and not more than US$21.00 (the Price Range), and all as more particularly set out in the issuer bid circular relating to the Offer dated February 11, 2019 (the Circular).

7.             In accordance with the terms of the exchangeable limited partnership units (the Exchange LP Units) of Brookfield Office Properties Exchange LP (Exchange LP) and the terms of a support agreement made as of March 19, 2014 among the Filer and Exchange LP, holders of Exchange LP Units are able to exchange their Exchange LP Units for Units on a one-for-one basis and are entitled to participate in the Offer by tendering their Exchange LP Units on an as exchanged basis. Accordingly, reference to Units in this decision include those Units that are issued upon the exchange of Exchange LP Units deposited on an as exchanged basis in the Offer, and all other Units issued upon exchange of the Exchange LP Units prior to the expiry of the Offer and subsequently deposited in the Offer. As at January 31, 2019, there were 3,304,145 issued and outstanding Exchange LP Units, exchangeable at the option of their holders into an aggregate of 3,304,145 Units.

8.             In addition to Exchange LP Units, redemption-exchange units (Redemption-Exchange Units) of Brookfield Property L.P. (the Property Partnership), class A preferred units of Property Partnership and options to acquire Units are also exchangeable into Units. On a fully-exchanged basis, assuming the exchange of all of the issued and outstanding securities exchangeable into Units, there were 1,068,699,217 Units issued and outstanding as at January 31, 2019.

9.             Brookfield Asset Management Inc. and its subsidiaries (other than the Filer) (together, Brookfield Asset Management) hold a combination of 81,723,887 Units and 432,649,105 Redemption-Exchange Units representing an effective economic interest in the Filer’s business of approximately 48% on a fully exchanged basis. Brookfield Asset Management does not intend to tender any of its Units pursuant to the Offer. Accordingly, if the Offer is fully subscribed and the Purchase Price is determined to be US$19.00, Brookfield Asset Management’s effective economic interest in the Filer’s business will increase to approximately 49% on a fully exchanged basis.

10.          The Filer’s sole material asset is its managing general partnership interest in the Property Partnership. The Filer will fund the purchase of Units for cancellation pursuant to the Offer and the fees and expenses of the Offer from the cash proceeds from the redemption by the Property Partnership of an equivalent number of managing general partnership units of the Property Partnership held by the Filer.

11.          Each holder of Units (collectively, the Unitholders) wishing to tender to the Offer can either:

(a)           specify the lowest price within the Price Range (an Auction Price) at which the Unitholder is willing to sell its tendered Units (an Auction Tender); or

(b)           elect to have tendered Units purchased by the Filer at the Purchase Price (as defined below) determined by the Filer (a Purchase Price Tender).

12.          Unitholders may make multiple Auction Tenders but not in respect of the same Units (i.e. Unitholders may tender different Units at different prices but cannot tender the same Units at more than one price). Unitholders may make both an Auction Tender and a Purchase Price Tender, but not in respect of the same Units. In both the case of Auction Tenders and Purchase Price Tenders, Unitholders may tender less than all of their Units.

13.          Any Unitholder who beneficially owns fewer than 100 Units (an Odd-Lot Holder) and tenders all of such Units pursuant to an Auction Tender at a price at or below the Purchase Price, or pursuant to a Purchase Price Tender, will be considered to have made an “Odd-Lot Tender”.

14.          The Filer will determine the purchase price payable per Unit (the Purchase Price) promptly following the expiry of the Offer. The Purchase Price will be the lowest price within the Price Range that would allow the Filer to purchase the maximum number of Units validly tendered and not validly withdrawn pursuant to the Offer having an aggregate purchase price not exceeding the Specified Dollar Amount, taking into account the number of Units tendered pursuant to Auction Tenders and Purchase Price Tenders and the prices specified by Unitholders tendering Units pursuant to Auction Tenders. For the purposes of determining the Purchase Price, Units tendered pursuant to a Purchase Price Tender will be considered to have been tendered at US$19.00 per Unit (which is the minimum Purchase Price under the Offer).

15.          Units tendered pursuant to an Auction Tender at a price greater than the Purchase Price will not be purchased by the Filer.

16.          If the aggregate purchase price for Units validly tendered and not validly withdrawn pursuant to Purchase Price Tenders and Auction Tenders at a price equal to or less than the Purchase Price (collectively, the Successfully Tendered Units) is greater than the Specified Dollar Amount, the Filer will purchase Successfully Tendered Units as follows:

(a)           first, the Filer will purchase all Successfully Tendered Units tendered by Odd-Lot Holders; and

(b)           second, the Filer will purchase Successfully Tendered Units on a pro rata basis less the number of Units purchased from Odd-Lot Holders. All Auction Tenders and Purchase Price Tenders will be subject to adjustment to avoid the purchase of fractional Units.

17.          All Units purchased by the Filer pursuant to the Offer will be purchased at the Purchase Price, payable in cash. All payments to Unitholders will be subject to deduction of applicable withholding taxes and will be made without interest.

18.          Certificates for all Units (or certificates for Exchange LP Units in the case of Exchange LP Units deposited on an as exchanged basis) not purchased under the Offer (including Units tendered pursuant to an Auction Tender at prices greater than the Purchase Price and Units not purchased because of pro ration), or validly withdrawn before the expiry of the Offer, will be returned (in the case of certificates representing Units (or certificates for Exchange LP Units in the case of Exchange LP Units deposited on an as exchanged basis) all of which are not purchased) or replaced with new certificates representing the balance of Units not purchased (in the case of certificates representing Units (or certificates for Exchange LP Units in the case of Exchange LP Units deposited on an as exchanged basis) of which less than all are purchased), promptly after the expiry of the Offer or the date of withdrawal of the Units.

19.          Assuming the Offer is fully subscribed:

(a)           if the Purchase Price is determined to be US$19.00 (being the minimum Purchase Price under the Offer), the maximum number of Units that may be purchased by the Filer is 21,315,789, representing approximately 2% of the Filer’s outstanding Units on a fully exchanged basis as at January 31, 2019, and

(b)           if the Purchase Price is determined to be US$21.00 (being the maximum Purchase Price under the Offer), the maximum number of Units that may be purchased by the Filer is 19,285,714, representing approximately 1.8% of the Filer’s outstanding Units on a fully exchanged basis as at January 31, 2019.

20.          Until after the expiry of the Offer, all information about the number of Units tendered and the prices at which the Units are tendered will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.

21.          Unitholders who do not tender to the Offer will continue to hold the number of Units owned before the Offer and their proportionate Unit ownership will increase following completion of the Offer subject to the Filer’s right to issue additional Units and other equity securities in the future.

22.          The Offer is subject to Rule 13e-4 (Rule 13e-4) adopted under the United States Securities Exchange Act of 1934, as amended (the Exchange Act). Pursuant to Rule 13e-4, the Filer will file a Tender Offer Statement on Schedule TO with the U.S. Securities and Exchange Commission.

23.          The Filer may wish to extend the Offer without first taking up all of the Units validly tendered and not validly withdrawn if the Offer is undersubscribed as at the original expiry time. Pursuant to subsection 2.32(4) of NI 62-104, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all the securities deposited under the bid and not withdrawn. Rule 13e-4 requires an issuer to permit withdrawal rights throughout the offer, including any extension periods and accordingly prohibits an issuer from taking up securities prior to the expiry of an issuer bid, including all extension periods.

24.          The Filer is relying on the exemption from the formal valuation requirements applicable to issuer bids under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) set out in subsection 3.4(b) of MI 61-101 (the Liquid Market Exemption).

25.          There was a “liquid market” for the Units, as such term is defined in MI 61-101, because:

(a)           there is a published market for the Units (i.e. the TSX and Nasdaq);

(b)           during the 12-month period before the Offer was announced:

(i)            the number of issued and outstanding Units was at all times at least 5,000,000 (excluding Units beneficially owned, or over which control or direction was exercised, by related parties and securities that were not freely tradeable);

(ii)           the aggregate trading volume of Units on the TSX was at least 1,000,000 Units;

(iii)           there were at least 1,000 trades in the Units on the TSX; and

(iv)          the aggregate value of the trades in the Units on the TSX was at least C$15,000,000; and

(c)           the market value of the Units on the TSX, as determined in accordance with MI 61-101, was at least C$75,000,000 for January 2019, being the calendar month preceding the calendar month in which the Offer was publicly announced.

26.          Based on the liquid market test set out above and the maximum number of Units that may be purchased under the Offer, the Filer determined that there is a liquid market for the Units and that it is reasonable to conclude that, following the completion of the Offer, there will be a market for Unitholders who do not tender to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer.

27.          The board of directors of the General Partner has determined that the Offer is in the best interests of the Filer and Unitholders.

28.          The Circular:

(a)           discloses the mechanics for the take up of and payment for Units, as described herein;

(b)           explains that, by tendering Units under an Auction Tender at the lowest price in the Price Range or by tendering Units under a Purchase Price Tender, a Unitholder can reasonably expect that the Units so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;

(c)           discloses that the Filer has applied for the Exemption Sought;

(d)           discloses the manner in which an extension of the Offer will be communicated to Unitholders;

(e)           discloses that the Units deposited pursuant to the Offer may be withdrawn at any time prior to the expiry of the Offer;

(f)            discloses the facts supporting the Filer's reliance on the Liquid Market Exemption; and

(g)           includes the disclosure prescribed by applicable securities laws with respect to issuer bids.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a)           the Filer takes up and pays for Units validly deposited and not withdrawn, in each case, in the manner described above and as set out in the Circular;

(b)           the Filer is eligible to rely on the Liquid Market Exemption; and

(c)           the Filer complies with the requirements of Rule 13e-4 in respect of the Offer.

“Naizam Kanji”
Director, Office of Mergers & Acquisitions
Ontario Securities Commission