Brookfield REIT

Possible Formation of a Premier Canadian Office REIT

Background: Brookfield Properties (BPO) owns 90% of publicaly traded BPO Properties (BPP), which in turn owns the majority of Brookfield's Canadian office properties. Most of BPO Properties real estate is located within downtown Toronto and Calgary. BPO Properties owns trophy office buildings such as First Canadian Place, Bay Adelaide Centre and the Exchange Tower.

BPP is structured as a taxable Real Estate Operating Company. This structure is losing its tax-efficiency and will likely be the catalyst for the restructuring of BPP into a Canadian REIT.

Possible Outcomes:

1) BPP could increase its current dividend of $0.40 (~2% yield) to a new distribution in the range of $0.80 to $1.00 (~4% to 5% yield). This would reflect the improved tax efficiency and it would be in-line with the typically higher-payout policy of a REIT. 

2) Brookfield Properties (BPO) could also sell its interest in Brookfield Place (a large office complex in downtown Toronto) to BPP. This asset is currently directly owned by BPO. Placing it within the REIT would consolidate all of Brookfield's Canadian real estate assets under BPP. This unlocking of value would provide Brookfield with additional cash to purchase distressed assets in the U.S.

3) Brookfield could potentially reduce its ownership stake in BPP from 90% currently to approximately 50% to raise additional funds. This would allow Brookfield to harvest capital from its mature, lower-growth Canadian operations for redeployment into other opportunities. This move would substantially increase the trading liquidity of BPP.

Should this occur, BPO Properties (a.k.a. Brookfield REIT) would become Canada’s pure-play, class “A” office REIT. The Canadian landscape has been largely void of such an entity since the privatization of O&Y REIT in 2005.