Dundee Industrial (Dream) -- summary under Domestic REITs
Open-end REIT/Exchangeable unit structure
The Toronto-headquartered REIT, which will be intended to qualify as an open-ended unit trust (so that its units will have conventionally market-discounted retraction rights) will hold the Class A units of a subsidiary LP ("Industrial Partnership"). Industrial Partnership, while owned by the vendors described below, will acquire direct or indirect interests in 86 light industrial rental properties located in Alberta and six other provinces, with an s. 97(2) election being made, in consideration for the issuance of Class A units and Class B exchangeable units to the vendors and the assumption of $295 million of mortgages. The Class A units then will be sold to the REIT (presumably relying on the Ontario land transfer tax 5% de minimis exemption).
In addition to their Class B exchangeable units, the vendors also will hold the equivalent number of special voting units directly in the REIT. The vendors are Dundee Properties LP ("DPLP"), which is the subsidiary LP of Dundee REIT, and direct or indirect subsidiary entities of DPLP. There is apparently no "sunset" provision on the exchange rights set out in the Exchange Agreement, except where the outstanding Class B unit fall below 1% of the initial number (or an extraordinary reorganization etc. event occurs which renders it impracticable to replicate the exchangeable structure). Certain "Piggy-Back Distribution" and "Tag/Drag" rights also are specified (p. 44).
Other funding/acquisitions
Dundee Corporation ("DC") and Michael Cooper will purchase 2,100,000 and 900,000 units, respectively, at the closing of the offering at the offering price of $10 per units. Cash raised from this source and from a credit facility will be used to purchase properties from LPs affiliated with Return on Innovation Capital Ltd. ("ROI"), as well as assuming $86 million in mortgages, for a total purchase price of $160 million.
Distributions
Based on an anticipated AFFO payout ratio of 90%, it is anticipated that 100% and 55% of 2012 and 2013 monthly distributions, respectively, will be tax deferred. Participants electing to receive cash distributions in units under the distribution reivestment and unit purchase plan will receive a further "bonus" distribution equal to 3% of the amount of each reinvested distribution - which also will be reinvested.
Management
A subsidiary LP of DPLP ("Management LP") will be the property manager and Dundee Realty Corporation ("DRC"), which is the asset manager for Dundee REIT and Dundee International REIT, will provide "overall" asset management services as well as strategic advice and administrative services. Six REIT trustees (all independent other than Cooper). Senior REIT management will be employees of DRC. A Deferred Unit Incentive Plan.
Canadian taxation
Management expects the REIT to qualify as a REIT for Canadian income tax purposes for 2012 and subsequently. Each direct or indirect subsidiary entity is expected to be an "excluded subsidiary entity" (and, therefore, not subject to SIFT tax).
As a result of the acquisition by Industrial Partnership of some of its buildings on a rollover basis, the undepreciated capital cost of such properities will be lower than fair market value, and potential recapture of depreciation will be increased.
Amounts received in excess of REIT income, including the further bonus distribution received under the DRIP, will not be included in a unitholder's income.
Income and capital gains distributions to non-residents will be subject to Part XIII withholding; and other distributions will be subject to Part XIII.2 withholding of 15%.