Artis -- summary under Mutual Fund Trusts

Overview

Artis is a Manitoba real estate investment trust holding a majority of its consolidated (office, industrial and retail) assets in Canada. Its Declaration of Trust will be amended prior to the closing of the Offering to authorize the issuance of (generally non-voting) preferred units of Artis ("Preferred Units") and to convert Artis from an "open-end" trust to a "closed-end" trust. The outstanding trust units ("Units") are listed on the TSX. A portion of its assets are held in two subsidiary LPs, the larger of which also holds a U.S. subsidiary which will be a U.S. private REIT.

Series A Units

The Series A Units entitle the holder thereof to receive fixed cumulative preferential distributions, payable on the last day of March, June, September and December of each year, as and when declared by the Trustees, for the initial approximately five-year period ending September 30, 2017 (with the distributions for this initial period to be at an annual rate of $1.3125 per Class A unit). The distribution rate will be reset on September 30, 2017, and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and a spread prescribed in the certificate of preferred unit terms relating to the Series A Units. The Series A Units are redeemable by Artis, at its option, on September 30, 2017, and on September 30 of every fifth year thereafter. Holders of Series A Units will have the right to reclassify all or any part of their Series A Units into Series B Units, subject to certain conditions set forth in the certificate of preferred unit terms relating to the Series A Units, on September 30, 2017, and on September 30 of every fifth year thereafter.

Series B Units

The Series B Units entitle the holder thereof to receive a floating cumulative preferential distribution, payable on the last day of March, June, September and December of each year, as and when declared by the Trustee, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus the spread prescribed in the certificate of preferred unit terms relating to the Series B Units. Holders of Series B Units will have the right, at their option, on September 30, 2022 and on September 30 every five years thereafter, to reclassify, subject to certain conditions, all or any of their Series B Units as Series A Units on the basis of one Series A Unit for each Series B Unit.

Income allocation

Artis' income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by such holders.

Priority

The Series A Units will rank equally with the Series B Units and in priority to the Units with respect to priority in the payment of distributions and in the distribution of assets in the event of liquidation etc. of Artis.

Canadian tax disclosure

[Ruling.]

This summary is also based on an advance income tax ruling received by Artis from the CRA on July 6, 2012 (the "Ruling") and opinions contained in the Ruling. Artis received the Ruling in respect of the authorization of the Preferred Units, the issuance of the Series A Units and Series B Units, and the implementation of the amendments to the Declaration of Trust to convert Artis from an open-end to a closed-end mutual fund trust (the "Proposed Transactions"). The Ruling included opinions regarding the application, to trusts which hold property through a partnership, of the asset and income tests which must be met by a closed-end mutual fund trust, which tests will have to be met by Artis after its conversion to a closed-end mutual fund trust. …

[Conversion to s. 108(2)(b) unit trust.]

The Trustees have advised counsel that they intend to implement the changes to the Declaration of Trust which were approved by the Unitholders, with the result that Artis would be converted from an open-end trust to a closed-end trust prior to the closing of the Offering. The Ruling confirms that the conversion will not result in a disposition by Artis of its property or by the Unitholders of their Units, includes opinions regarding the application of the asset and income tests (described above) which must be met by a closed-end mutual fund trust which holds property through a partnership, and includes an opinion that none of the factual information or the description of the Proposed Transactions contained in the Ruling would lead to a conclusion that Artis did not meet the requirements to be a closed-end mutual fund trust. … Management of Artis intends to ensure that Artis will, from and after the time of the conversion, be able to satisfy the conditions to qualify as a closed-end mutual fund trust. …

[REIT status.]

Management of Artis believes that Artis has met the requirements of the REIT Exception in each taxation year since 2009 and will be able to meet the requirements of the REIT Exception throughout 2012, and intends for Artis to qualify for the REIT Exception at all future times. …

[Disposition on Unit reclassifications.]

In the Ruling, the CRA expresses the preliminary view that the reclassification of Series A Units as Series B Units (or Series B Units as Series A Units) would likely result in a taxable disposition at that time. In such circumstances, a Preferred Unitholder will generally be considered to have disposed of the reclassified Preferred Units for proceeds of disposition equal to the fair market value of the Preferred Units into which such units are reclassified.

Similar ruling.