Brookfield Properties Corporation (BPO: NYSE, TSX) (“Brookfield
Office Properties”) and Brookfield Homes Corporation (BHS: NYSE)
(“Brookfield Homes”) today announced that they have entered into a
definitive agreement to combine Brookfield Homes and the North
American residential land and housing division of Brookfield Office
Properties (“BPO Residential”) into Brookfield Residential
Properties Inc. (“Brookfield Residential”). The transaction will
create a diversified North American residential land and housing
company with $2.5 billion of assets and an equity value of
approximately $1 billion. An application will be made to list the
common shares of Brookfield Residential on the New York and Toronto
stock exchanges.
“Brookfield Residential Properties will be the sixth largest
residential platform in North America, with the financial strength
and geographic diversity needed to thrive in the marketplace, both
today and in the future,” said Alan Norris, who will be President
and Chief Executive Officer of Brookfield Residential. “The company
will put proven, best-in-class operating skills to work in some of
the most attractive regions in North America.”
“We are pleased to be bringing a strong and diversified
residential land and housing company to existing and potential
shareholders and at the same time creating a world-class, pure-play
global office property company at Brookfield Office Properties,”
added Ric Clark, President and Chief Executive Officer of
Brookfield Office Properties.
Merits of the Transaction
The Board of Directors of Brookfield Homes formed a special
committee of independent directors to consider and negotiate the
proposed transaction. The special committee determined that the
transaction is advisable and fair to the public stockholders of
Brookfield Homes. In unanimously recommending the transaction to
the board of directors and stockholders of Brookfield Homes, the
Brookfield Homes special committee noted that the transaction is
expected to realize the following key benefits to Brookfield
Homes:
- strategic opportunity to further
enhance value through the creation of a diversified North American
residential land and housing company;
- greater financial flexibility and
expected benefits from the combined cash flows of Brookfield Homes
and BPO Residential;
- Brookfield Residential will have a
stronger capital structure, which will better position the company
to both withstand adverse business, financial and economic
developments and take advantage of business opportunities;
- stockholders of Brookfield Homes,
through ownership of Brookfield Residential, will participate in
Brookfield Residential’s growth and any value created by operating
synergies, greater financial flexibility and improvements in
residential industry fundamentals; and
- conversion of substantially all of the
8% convertible preferred shares of Brookfield Homes into common
stock.
The Board of Directors of Brookfield Office Properties formed an
independent committee to assess the terms of the proposed
transaction. The committee received an opinion as to fairness of
the transaction from a financial point of view. The committee
determined that the transaction is reasonable and fair to, and in
the best interests of, Brookfield Office Properties and unanimously
recommended that the Board of Directors of Brookfield Office
Properties approve the transaction. The Board of Directors of
Brookfield Office Properties believes that the transaction will
further Brookfield Office Properties’ strategic repositioning as a
pure-play global office company. Further, the transaction structure
provides Brookfield Office Properties with the certainty of
completing the sale of its residential business and all of its
shareholders will have the opportunity, through the rights offering
process described below, to participate in the ownership of
Brookfield Residential. The rights offering will remain open for 30
days and the rights will be listed on both the NYSE and TSX.
Summary of the Transaction
The following is a summary of the key components of the
transaction:
The Contribution and Merger
- Brookfield Office Properties will
contribute BPO Residential to Brookfield Residential in exchange
for:
- promissory notes with an aggregate
principal amount of C$480 million; and
- 51.5 million Brookfield Residential
common shares valued at $515 million, representing approximately
50.7% of the Brookfield Residential as converted common shares to
be outstanding immediately after the closing date.
- Brookfield Homes will merge with a
newly formed subsidiary of Brookfield Residential. On the merger,
each outstanding share of Brookfield Homes common stock will be
converted into 0.764900530 common shares of Brookfield Residential,
plus a cash amount in lieu of fractional shares.
- Immediately prior to the closing date,
Brookfield Asset Management Inc. (“Brookfield Asset Management”)
will convert its shares of 8% convertible preferred stock of
Brookfield Homes in accordance with their terms into 35.4 million
shares of common stock of Brookfield Homes, increasing Brookfield
Asset Management’s ownership of Brookfield Homes common stock from
62% to 82%.
- In aggregate, the approximately 65.1
million shares of common stock of Brookfield Homes expected to be
outstanding immediately prior to the closing date of the merger
will be converted into approximately 49.8 million Brookfield
Residential common shares, representing approximately 49.1% of the
as converted Brookfield Residential common shares to be outstanding
immediately after the closing date.
- The above figures assume that only
Brookfield Asset Management converts its 9.9 million shares of 8%
convertible preferred stock of Brookfield Homes, which represent
99% of Brookfield Homes’ outstanding shares of convertible
preferred stock.
- Each share of 8% convertible preferred
stock of Brookfield Homes that is not converted into Brookfield
Homes common stock prior to the closing date will be exchanged into
one share of 8% convertible preferred stock of Brookfield
Residential with substantially the same terms and conditions in all
material respects as are currently applicable but convertible into
an aggregate of approximately 0.2 million Brookfield Residential
common shares following closing to reflect the exchange ratio
referenced above, representing approximately 0.2% of the Brookfield
Residential as converted common shares to be outstanding
immediately after the closing date .
- Following successful completion of the
transaction, Brookfield Asset Management is expected to hold
between 66% and 91% of the Brookfield Residential common shares on
a fully-diluted basis, depending upon how many shares are acquired
by other Brookfield Office Properties shareholders or their
assignees pursuant to the rights offering discussed below.
Brookfield Office Properties Offering of Brookfield Residential
Properties Common Shares
- Subsequent to closing of the
transaction, Brookfield Office Properties will distribute rights to
its common shareholders, entitling them to acquire, at $10 per
share, the Brookfield Residential common shares that Brookfield
Office Properties will receive in exchange for its contribution of
BPO Residential. The offering price reflects the value attributed
to the equity of BPO Residential under the transaction. Brookfield
Asset Management has agreed to exercise the rights it receives and
to acquire any shares of Brookfield Residential that are not
otherwise subscribed for in the rights offering at the same price
per share as in the rights offering, thereby ensuring that
Brookfield Office Properties receives $515 million in aggregate for
its shares of Brookfield Residential. In combination with the C$480
million total principal amount of notes, Brookfield Office
Properties will have sold BPO Residential for aggregate proceeds of
approximately $1.2 billion, including $217 million of expected
distributions from BPO Residential to be made prior to closing, of
which $177 million has already been received. There is no fee
payable to Brookfield Asset Management for this standby
commitment.
- Information concerning the rights
offering will be sent to Brookfield Office Properties shareholders
in due course.
The Promissory Notes
- The promissory notes issued by
Brookfield Residential to Brookfield Office Properties will be
unsecured obligations divided into two tranches, a C$265 million
senior note and a C$215 million junior subordinated note.
- The senior note will bear a fixed rate
of interest of 6.5%, payable quarterly, and will be payable in full
on December 31, 2015 with C$50 million being payable on account of
principal on the last business day of each of 2012, 2013 and 2014,
with the balance of C$115 million payable on December 31, 2015. The
C$215 million junior subordinated note will bear a fixed rate of
interest of 8.5% payable quarterly, and will be payable in full on
December 31, 2020.
- On January 1, 2016 and each anniversary
thereafter, or at any time upon the occurrence of an event of
default under the junior note or change of control of Brookfield
Residential, Brookfield Office Properties will be entitled to sell
the junior note to Brookfield Asset Management at par. Brookfield
Asset Management will have the right to acquire the junior note at
par at any time. In exchange for its “put” right, Brookfield Office
Properties will pay Brookfield Asset Management a maintenance fee
of 200 bps per annum on the amounts outstanding under the junior
note.
- Brookfield Residential may prepay the
notes in whole or in part, at any time prior to maturity, without
penalty, provided that prepayments will first be applied to pay
down the senior note.
Management of Brookfield Residential
Upon completion of the transaction, Alan Norris will become the
President and Chief Executive Officer of Brookfield Residential;
Ian Cockwell will be Executive Vice Chairman and Craig Laurie will
be Executive Vice President and Chief Financial Officer.
Process
Completion of the transaction is subject to regulatory approval
in the United States and Canada, the approval of the holders of a
majority of the outstanding Brookfield Homes’ common stock and
other customary closing conditions. Brookfield Asset Management
owns sufficient shares to approve the transaction and has agreed to
vote in favor of the transaction at the Brookfield Homes’
stockholders meeting. Closing is anticipated to occur in January of
2011.
Wells Fargo Securities, LLC acted as financial advisor to the
special committee of independent directors of Brookfield Homes.
Dorsey & Whitney LLP and Kaye Scholer LLP acted as legal
advisors to Brookfield Homes and to the special committee of
independent directors of Brookfield Homes, respectively. Morgan
Stanley & Co. Incorporated acted as financial advisor to the
special committee of independent directors of Brookfield Office
Properties and provided a fairness opinion to the special committee
and the board of directors of Brookfield Office Properties, and
Davies Ward Phillips and Vineberg LLP acted as legal
advisors to the special committee of independent
directors. Torys LLP acted as legal advisors to Brookfield Office
Properties. Goodmans LLP acted as legal advisors to Brookfield
Residential.
Prior to the vote of the Brookfield Homes’ stockholders, the
parties will file a registration statement with the U.S. Securities
and Exchange Commission, which will include a proxy
statement/prospectus and other relevant documents concerning the
proposed transaction. At that time, shareholders of Brookfield
Homes will be urged to read the proxy statement/prospectus and any
other relevant documents filed with the SEC because they will
contain important information relating to Brookfield Homes, BPO
Residential and the proposed transaction. The document can be
obtained free of charge at the website maintained by the SEC at
www.sec.gov. In addition, you may obtain documents filed with the
SEC by Brookfield Homes, including periodic reports and current
reports, free of charge by requesting them in writing from
Brookfield Homes, 8500 Executive Park Avenue, Suite 300, Fairfax,
Virginia 22031, Attention: Linda T. Northwood, or by telephone at
(858) 481-2567; e-mail: investorrelations@brookfieldhomes.com.
The respective directors and executive officers of Brookfield
Homes, Brookfield Office Properties and Brookfield Residential and
other persons may be deemed to be participants in the solicitation
of proxies in connection with the proposed transaction. Information
regarding Brookfield Homes’ directors and executive officers is
available in its proxy statement filed with the SEC on February 26,
2010. Other information regarding the participants in the proxy
solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be included in
the proxy statement/prospectus and other relevant materials to be
filed with the SEC when they become available.
Supplemental Information Package
Investors, analysts and other interested parties can access
Brookfield Residential’s Supplemental Information Package on
Brookfield Homes’ website.
Investors, analysts and other interested parties can access
Brookfield Office Properties’ Supplemental Information Package on
its website.
Brookfield Office Properties Profile
Brookfield Office Properties owns, develops and manages premier
office properties in the United States, Canada and Australia. Its
portfolio is comprised of interests in 108 properties totaling 77
million square feet in the downtown cores of New York, Washington,
D.C., Houston, Los Angeles, Toronto, Calgary, Ottawa, Sydney,
Melbourne and Perth, making it the global leader in the ownership
and management of office assets. Landmark properties include the
World Financial Center in Manhattan, Brookfield Place in Toronto,
Bank of America Plaza in Los Angeles, Bankers Hall in Calgary,
Darling Park in Sydney and City Square in Perth. The company’s
common shares trade on the NYSE and TSX under the symbol BPO. For
more information, visit www.brookfieldofficeproperties.com.
Brookfield Homes Corporation Profile
Brookfield Homes Corporation is a land developer and
homebuilder. Brookfield Homes entitles and develops land for its
own communities and sell lots to third parties. Brookfield Homes
also designs, constructs and markets single-family and multi-family
homes primarily to move-up homebuyers. Brookfield Homes’ portfolio
includes over 26,000 lots owned and controlled in the Northern
California; Southland / Los Angeles; San Diego / Riverside; and
Washington D.C. Area markets.
(All figures are in U.S. dollars unless otherwise indicated)
This news release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful. The
securities referenced herein have not been registered under the
United States Securities Act of 1933, as amended, or any state
securities laws, and may not be offered or sold within the United
States absent registration or an applicable exemption from the
registration requirements of such Act or laws.
Note: Certain statements in this press release that are not
historical facts, including, without limitation, information
concerning the potential merger with BPO Residential and the
benefits thereof, and those statements preceded by, followed by, or
that include the words “believe”, “planned”, “anticipate”,
“should”, “goals”, “expected”, “potential,” “estimate,” “targeted,”
“scheduled” or similar expressions, constitute “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Undue reliance should not be placed on
forward-looking statements because they involve known and unknown
risks, uncertainties and other factors, which may cause the actual
results to differ materially from the anticipated future results
expressed or implied by such forward-looking statements. There can
be no assurance that the proposed transaction will be consummated
or that the anticipated benefits will be realized. The proposed
transaction is subject to various regulatory approvals and the
fulfillment of certain conditions, and there can be no assurance
that such approvals will be obtained and/or such conditions will be
met. All forward-looking statements in this press release are
subject to a number of rules and uncertainties. Factors that could
cause actual results or events to differ materially from those set
forward in the forward-looking statements include, but are not
limited to: failure to obtain required regulatory and shareholder
approvals; failure to realize anticipated benefits of the merger;
changes in general economic, real estate and other conditions;
mortgage rate changes; availability of suitable undeveloped land at
acceptable prices; adverse legislation or regulation; ability to
obtain necessary permits and approvals for the development of land;
availability of labor or materials or increases in their costs;
ability to develop and market master-planned communities
successfully; confidence levels of consumers; ability to raise
capital on favorable terms; adverse weather conditions and natural
disasters; relations with the residents of communities; risks
associated with increased insurance costs or unavailability of
adequate coverage and ability to obtain surety bonds; competitive
conditions in the homebuilding industry, including product and
pricing pressures; and additional risks and uncertainties referred
to in Brookfield Homes ’Form 10-K and other SEC filings and in
Brookfield Office Properties’ Annual Information Form under the
heading “Business of Brookfield Properties – Company and Real
Estate Risks” and in its most recently filed interim report under
the heading “Management’s Discussion and Analysis”, many of which
are beyond their control. Other than as required by law, Brookfield
Homes undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise.
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