PrefBlog

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P., has announced:

an extension to the conversion privilege on its Class AAA Preference Shares, Series R (“Series R Shares”) (TSX: BPO.PR.R) to September 23, 2026.

Holders of Series R Shares have the right, at their option, exercisable no later than 5:00 p.m. (Toronto time) on September 23, 2026, to convert all or part of their Series R Shares, on a one-for-one basis, into Class AAA Preference Shares, Series S (the “Series S Shares”), effective September 30, 2026.

As previously announced, if declared, the fixed quarterly dividends on the Series R Shares for the five years commencing October 1, 2026 and ending September 30, 2031 will be paid at an annual rate of 6.829000% ($0.4268125 per share per quarter).

The quarterly floating rate dividends on the Series S Shares have an annual rate, calculated for each quarter, of 3.48% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate for the October 1, 2026 to December 31, 2026 dividend period for the Series S Shares will be 1.454360% (5.770000% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.363590 per share, payable on December 31, 2026.

Holders of Series R Shares are not required to elect to convert all or any part of their Series R Shares into Series S Shares.

As provided in the share conditions of the Series R Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series R Shares outstanding after September 30, 2026, all remaining Series R Shares will be automatically converted into Series S Shares on a one-for-one basis effective September 30, 2026; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series S Shares outstanding after September 30, 2026, no Series R Shares will be permitted to be converted into Series S Shares. There are currently 9,946,218 Series R Shares outstanding.

When the BPO.PR.R reset to 6.829% was announced, the conversion election period was supposed to extend to 2026-09-15, but now it’s been extended to 2026-09-23. As mentioned by Assiduous Reader Sacha (who brought this to my attention), this is very peculiar. I can’t recall ever having seen an announcement like this before – there’s a wonderful story behind this somewhere, but we don’t know what it is …

BPO.PR.R was issued as a 5.10%+348 FixedReset that commenced trading 2011-9-2 after being announced 2011-8-25. The issue reset to 4.155% in 2016 and there was an 11% conversion to the FloatingReset BPO.PR.S. BPO.PR.R reset to 4.30% in 2021 and the FloatingResets were forcibly converted to the FixedResets. The issue reset to 6.829% in 2026.

DBRS has announced that it:

downgraded the credit rating of the Preferred Shares issued by Real Estate Split Corp. (the Company) to Pfd-3 from Pfd-3 (high). The downgrade reflects a decline in downside protection, which has trended downward over the past three years, decreasing to 47.7% as of September 4, 2026, from 50.7% as of August 31, 2025. The reduction in downside protection was primarily driven by a decline in the portfolio’s net asset value (NAV), as the portfolio is heavily concentrated in real estate and real estate-related sectors.

The Company invests in an actively managed diversified portfolio composed of dividend-paying securities of issuers primarily operating in the real estate or related sectors, including real estate investment trusts, that Middlefield Limited (the Advisor), believes are well-positioned to benefit from low interest rates, the rapid adoption of e-commerce, the growth of data infrastructure as well as attractive valuations in various areas of the real estate sector. As of September 4, 2026, the Company held a portfolio of common shares (the Portfolio) issued by 27 entities. The investments were largely made in Canadian entities (85.0%) with a smaller amount in U.S. issuers (15.0%) and primarily invested in the real estate sector (96.2%), with a small portion allocated to the financial sector (3.8%). The Portfolio may include securities denominated in currencies other than the Canadian dollar (CAD), exposing the Preferred Shares to foreign currency risk. The Company has not hedged its current U.S. dollar (USD) exposure to currency fluctuations; however, it closely monitors USD/CAD currency movements. The Portfolio is actively managed in accordance with the Company’s investment objectives, strategy, and restrictions.

On August 13, 2025, the Company announced an extension of the maturity date of the Company for an additional 5-year term to December 31, 2030. On maturity, the holders of the Preferred Shares will be entitled to the value of the Portfolio up to the face value of the Preferred Shares and any accrued but unpaid dividends in priority to the holders of the Class A Shares. On October 28, 2025, the Company announced the distribution rate for the Preferred Shares for the new 5-year term starting from December 31, 2025, to December 31, 2030, will be $0.58 per annum (5.8% on the issue price of $10.00). The new distribution rate represents a 10.5% increase from the previous 5.25% distribution rate.

The Preferred shareholders are entitled to a quarterly distribution of $0.145 per Preferred Share, representing a yield of 5.80% per annum on the issue price of $10.0. The targeted monthly cash distributions to the Class A Shares are $0.13 per Class A Share, representing a yield of 10.4% per annum on the initial issue price of $15.0. No monthly distributions to the Class A Shares will be made if the dividends of the Preferred Shares are in arrears or the NAV per Unit falls to less than $15.0.

As of September 4, 2026, the downside protection available to holders of the Preferred Shares declined to 47.7% from 50.7% as of August 31, 2025. The dividend coverage ratio stood at 0.9 times (x), down from 1.1x a year ago, reflecting the increased Preferred Shares distribution rate. The dividend coverage below 1.0x indicates that the current dividend income earned by the Company is not enough to fully cover the Company’s targeted distributions on the Preferred Shares, which increases the reliance on the Manager to generate a high yield to meet distributions without having to liquidate portfolio securities. To supplement the Portfolio income, the Company may engage in covered call option writing on all or a portion of the shares held in the Portfolio. Without giving consideration to the capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the Preferred Share distributions together with the current distributions on the Class A Shares are likely to create an average annual grind on the Portfolio’s NAV equivalent to 5.1% over the next five years.

Considering the decline in downside protection, dividend coverage below one time, term extension, increased Preferred Share distribution rate and the projected grind on the Portfolio, Morningstar DBRS downgraded the rating on the Preferred Shares to Pfd-3 from Pfd-3 (high).

The main constraints to the credit rating are the following:
— Market fluctuations could affect the Company’s NAV. Resulting volatility in prices, along with changes in the dividend policies of the underlying issuers, may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.
— Reliance on the Portfolio Manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the Portfolio’s securities.
— The high concentration of the Portfolio in one industry (real estate).
— Potential foreign-exchange risk because the income received on the Portfolio is not hedged all the time.
— Stated monthly distributions on the Class A Shares may create a grind on the Portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.
— Preferred Shares dividend coverage is less than one time.

Morningstar DBRS’ credit rating on the Preferred Shares addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the fixed cumulative preferential quarterly cash distributions and the return of the original issue price to holders of the Preferred Shares on the maturity date.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations.

RS.PR.A was last mentioned on PrefBlog when it reset to 5.80% last October, effective 2025-12-31.