Lanesborough REIT

Overview

LREIT used all of the net cash proceeds of a property sale to pay down debt. In order to distribute its resulting capital gain of $29.6 million, it will make a special distribution on all its units on December 31, 2015 to be paid by the issuance of units – except that the amount of the special distribution will be reduced to take into account LREIT's operating loss for 2015 and a 2014 non-capital loss. The number of outstanding units then will be consolidated so that each unitholder will end up with the same number of units as before.

Sale transaction

Lanesborough Real Estate Investment Trust ( LREIT ) announced that it has completed the sale of Colony Square in downtown Winnipeg, MB for $70.25 million, subject to customary closing adjustments. The three tower complex, consisting of 428 apartment suites, approximately 83,300 square feet of commercial space and a 270-stall underground parkade, was acquired by LREIT in 2008 for $38 million. The sale resulted in net cash proceeds to LREIT (net of mortgage debt, selling costs and $1.54 million to be placed in escrow) of approximately $28 million. The net cash proceeds were used to repay operating loans and advances.

Special distribution

The sale of Colony Square will result in a capital gain for Canadian income tax purposes of approximately $29.6 million. LREIT intends to declare a special distribution equal to the capital gain (being approximately $1.46156 per trust unit based on the number of trust units outstanding as of the date of the press release) in order to reduce LREIT s taxable income for the 2015 taxation year to nil. There being no cash available for the payment of the special distribution, payment of the whole amount will be made, in accordance with paragraph 9.3 of LREIT's Declaration of Trust, by the issuance of additional trust units based on the closing market price of the trust units on December 31, 2015. Immediately following the special distribution, the number of outstanding trust units will be consolidated so that each Unitholder will hold exactly the same number of trust units after the consolidation as each Unitholder held immediately prior to the special distribution. The non-cash distribution will be declared payable on December 31, 2015 to the Unitholders of record on December 31, 2015. The special distribution will be reduced by the application of LREIT s operating losses for the 2015 taxation year and non-capital losses carried forward from the 2014 taxation year which are available to offset the taxable portion of the capital gain.

Canadian tax consequences

A Canadian-resident Unitholder on the record date of the special distribution will be required to include in computing its income for Canadian income tax purposes for its taxation year that includes December 31, 2015, its proportionate share of LREIT's net taxable capital gains for the 2015 taxation year (estimated to be $14.8 million or approximately $0.73078 per trust unit) less losses which are available to offset those net taxable capital gains. The adjusted cost base of its trust units immediately after the special distribution will be increased by the Unitholder's proportionate share of the special distribution.