Plazacorp

Background

Plazacorp, which is a TSX-listed mutual fund corporation in the business of retail property ownership and development, wishes to convert under a New Brunswick plan of arrangement to a s. 108(2)(a) mutual fund trust (so that following the conversions transactions occurring effective January 1, 2014, its remaining assets will be nominal) and to eliminate subsidiary (non-personal trust) subtrusts, including KEYreit (a REIT previously acquired by it) and Plazacorp Operating Trust and four "Direct Subtrusts." Plazacorp converted on December 11, 2002 into a mutual fund corporation from a normal public corporation.

Transaction overview

Plazacorp will settle a new trust (REIT) with modest assets, and distribute the units of REIT to its public shareholders, who thus will now hold assets of a "good" mutual fund trust, albeit with nominal assets. Next, Plazacorp will merge into REIT under s. 132.2, so that REIT is now the successor to substantially all its assets. However, it will not be released under its covenant under convertible debentures, although they also will be assumed by REIT. In order to eliminate the Direct Subtrusts, KEYreit and Plazacorp Operating Trust, the Direct Subtrusts will transfer their assets to Trust A (a new subtrust of Plazacorp) in reliance on the no-disposition rule in s. 248(1) – disposition, (f), and then there will be s. 107.4 transfers of assets by Trust A to KEYreit, and (following the 1st merger) by KEYreit to a further new subtrust of REIT (REIT #2), followed by a de minimis distribution of REIT #2's units by REIT to the REIT unitholders (in order to qualify REIT #2 as a mutual fund trust). REIT #2 then will be merged into REIT under s. 132.2. The same steps will then be repeated to first eliminate Plazacorp Operating Trust, then a subtrust of Plazacorp Operating Trust.

Preliminary transaction

REIT (an Ontario open-ended unit trust) was settled with $10 by Plazacorp in exchange for one unit on November 1, 2013.

Plan of Arrangement

1. Plazacorp common shares held by dissenting shareholders will be deemed to have been transferred to Plazacorp,with such shareholders thereafter only having an entitlement to receive the fair value of their shares.
2. The Direct Subtrusts will simultaneously transfer their assets to Trust A (newly formed by Plazacorp, which holds one unit) for no consideration other than the assumption of their liabilities, so that they cease to exist.
3. After the terms of the declaration of trust of KEYreit have been conformed to that of Trust A, Trust A will transfer all of its property to KEYreit for no consideration other than the assumption of secured debts.
4. REIT will complete a unit split so that its outstanding Units are equal in number to that of the Common Shares of Plazacorp minus one.
5. Plazacorp will distribute units of REIT to its shareholders on the basis of one unit for each common share, as well as distributing a nominal amount of cash on a pro rata basis (in order to permit Plazacorp to withhold Part XIII.2 tax where applicable).
6. Plazacorp will transfer all its property to REIT in exchange for (a) the assumption by REIT of all Plazacorp liabilities including the Plazacorp Convertible Debentures, and (b) the issuance of units of REIT with an aggregate fair market value equal to that of the transferred property minus the aggregate amount of assumed liabilities.
7. All the Common Shares of Plazacorp will then be disposed of by the shareholders to Plazacorp in exchange for units of REIT with an equivalent fair market value.
8. REIT will subscribe a nominal amount for one Plazacorp Common Share, and the number of REIT units then will be consolidated to equal the number of Plazacorp Common Shares outstanding immediately before 7.
9. REIT will settle REIT #2 with a nominal amount of cash in exchange for that number of units equal to the number of Plazacorp Common Shares outstanding immediately before the above merger.
10. KEYreit will transfer all of its property to REIT #2 for no consideration other than the assumption of secured debts, so that KEYreit will cease to exist.
11. REIT will make a capital distribution of units of REIT #2 to its unitholders in such numbers to meet the minimum requirements for REIT #2 to satisfy s. 132(6)(c).
12. Pursuant to a s. 132.2 merger of REIT #2 into REIT, REIT #2 will transfer all its property (other than $1.00) to REIT in exchange for the assumption of any REIT #2 liabilities and the issuance of equivalent-value REIT units.
13. To complete such merger, the units of REIT #2 (other than one unit held by REIT) will then be disposed of by their holders to REIT #2 in exchange for units of REIT, with REIT #2 directing REIT to deliver those units directly to the REIT #2 unitholders, and with the units of itself received by REIT being cancelled.
14. The outstanding REIT units will be consolidated to equal the number of Plazacorp common shares outstanding immediately before 7.
15. The steps in 9 to 14 above essentially will be repeated two times in order to transfer all the assets of a Plazacorp Operating Trust (a subtrust acquired by REIT in 6 above) to REIT, and then transfer all the assets of SR Operating Trust, a lower-tier subtrust, to REIT.
16. Current RSUs will be exchanged for new RSUs.
17. REIT will enter into an assumption agreement with the Convertible Debenture trustee pursuant to which it will assume all of the obligations of Plazacorp concurrent with 6 above.

Canadian tax consequences

Merger. Plazacorp has received a ruling in respect of the conversion. No gain on transfers in 2, 3, 10 and 15. S. 132.2 rules apply on s. 132.2 mergers.

Post-reorg

Management expects REIT to qualify under the REIT exception for 2014 and thereafter. Discussion (at p. 68) of the harmonization of Quebec SIFT rules with federal rules.

Background

Plazacorp, which is a TSX-listed mutual fund corporation in the business of retail property ownership and development, wishes to convert under a New Brunswick plan of arrangement to a s. 108(2)(a) mutual fund trust (so that following the conversions transactions occurring effective January 1, 2014, its remaining assets will be nominal) and to eliminate subsidiary (non-personal trust) subtrusts, including KEYreit (a REIT previously acquired by it) and Plazacorp Operating Trust and four "Direct Subtrusts." Plazacorp converted on December 11, 2002 into a mutual fund corporation from a normal public corporation.

Transaction overview

Plazacorp will settle a new trust (REIT) with modest assets, and distribute the units of REIT to its public shareholders, who thus will now hold assets of a "good" mutual fund trust, albeit with nominal assets. Next, Plazacorp will merge into REIT under s. 132.2, so that REIT is now the successor to substantially all its assets. However, it will not be released under its covenant under convertible debentures, although they also will be assumed by REIT. In order to eliminate the Direct Subtrusts, KEYreit and Plazacorp Operating Trust, the Direct Subtrusts will transfer their assets to Trust A (a new subtrust of Plazacorp) in reliance on the no-disposition rule in s. 248(1) – disposition, (f), and then there will be s. 107.4 transfers of assets by Trust A to KEYreit, and (following the 1st merger) by KEYreit to a further new subtrust of REIT (REIT #2), followed by a de minimis distribution of REIT #2's units by REIT to the REIT unitholders (in order to qualify REIT #2 as a mutual fund trust). REIT #2 then will be merged into REIT under s. 132.2. The same steps will then be repeated to first eliminate Plazacorp Operating Trust, then a subtrust of Plazacorp Operating Trust.

For more detailed summary, see above under MFC Conversion to MFT.