TORONTO - Brookfield Properties Corp unit BPO Properties Ltd will convert its structure to a real estate investment trust from a corporation, the two companies said on Friday, a move analysts said boosts its tax efficiency and provides benefits to its parent.
The move fills a void in the Canadian REIT market and will likely boost buying activity by BPO, which is 90 percent owned by Brookfield Properties, a Toronto-based real estate company that owns office buildings in the United States and Canada.
BPO Properties is probably going to get a little bit more active in terms of buying in the Canadian market, it will have increased yield, increased liquidity, it will be a bigger player on the Canadian landscape, BMO Capital Markets analyst Karine MacIndoe said.
It benefits the parent company in terms of having a vehicle where they can free up some capital. They are also going to be managing the (BPO) assets for fees. So I think it is very good news for Brookfield Properties, MacIndoe said.
The new REIT will acquire BPO Properties existing office assets in Toronto, Calgary and Vancouver, as well as its parent's interest in Brookfield Place, a top commercial complex in Toronto.
The REIT, to be named Brookfield Office Properties Canada, will pay parent Brookfield Properties in units valued at $20.90 apiece and assume debt associated with the properties involved.
BPO Properties shareholders will get 1 unit of the new REIT for each share held, the company said in a statement.
If approved, the REIT will pay a special distribution of $1.02 per unit and will start paying an annual distribution of $0.80 per unit, which is double BPO Properties' current dividend payout.
The REIT plans to list its units on the Toronto Stock Exchange while BPO Properties would be delisted and all of its common equity will be owned by Brookfield.
On closing, Brookfield will hold a 91 percent stake in the REIT, compared with the 90 percent stake it holds in BPO Properties now.
The REIT expects to report funds from operations of about $1.20 per unit in 2010.
Shares of Brookfield were up 8 Canadian cents at C$14.57 in morning trade Friday on the Toronto Stock Exchange.
The conversion aligns Brookfield's assets under one entity for tax efficiency and deploys BPO Properties' excess liquidity.
If demand for BPP units is strong, as is likely, analysts said Brookfield may also sell down its 90 percent stake to bring in capital better used for its U.S. growth strategy.
Brookfield operates in several high-profile U.S. markets, including Manhattan where it is one of the biggest landlords, owning such buildings as the World Financial Center.
($1=$1.06 Canadian) (Reporting by Andrea Hopkins in Toronto with files from Arnika Thakur in Bangalore; editing by Peter Galloway)