Brookfield Property Partners has initiated substantial issuer bids to purchase up to USD $405 million of its limited partnership units and up to USD $95 million in Brookfield Property REIT shares. This comes in conjunction with a 5 per cent increase in quarterly distributions to Brookfield Property Partners L.P. (BPY) unitholders.
Both initiatives were announced last week with the release of Brookfield’s 2018 year-end results and a reported fifth consecutive year of increased funds from operations (FFO) per unit. “2018 was a transformational year for BPY as we grew our earnings, continued our capital recycling initiatives, completed the acquisition of GGP and launched BRP, our new U.S. REIT,” said Brookfield’s chief executive officer, Brian Kingston.
Substantial issuer bids are facilitated through what’s known as a Dutch auction, in which the issuer states the total planned expenditure, sets a ceiling and floor price and invites prospective vendors to submit their chosen volume of shares/units and acceptable price. All vendors ultimately receive the same price, but the auction serves to establish the benchmark for the number or shares/units to be acquired for the cash available. Shares/units proffered at prices above the benchmark remain with investors.
The rules governing substantial issuer bids allow for a greater volume of trading in a shorter period of time than more prevalent normal-course issuer bids. Analysts characterize them as a means to distribute excess cash with fewer potential negative tax implications than the payout of special dividends. The optional offer to investors ultimately reduces the number of outstanding shares/units and boosts per share/unit earnings, thus benefiting both those who sell and those who do not cash out.
The Brookfield offer contemplates a price in the range of $19 to $21 per unit/share and will be open to tenders for the next six weeks, until March 25. “None of BPY nor its board of directors makes any recommendation to unitholders as to whether to tender or refrain from tendering any or all of their units in offer, or as to the purchase price or prices at which unitholders may choose to tender units,” a Brookfield communiqué states.