Slate REIT -- summary under Units
Overview. Slate Retail REIT is making a rights offering to the holders of its units (including the holders of exchangeable units in subsidiary LPs) to acquire REIT units at a discount to their pre-announcement trading price. The rights will be tradeable on the TSX. CRA likely would accept there would be no consequences of the distribution of the rights to the unitholders other than under the s. 49 rules.
Offering to different Unitholders. Rights are being offered to eligible holders of the REIT's outstanding Units, Class A Units and Class I Units (collectively, the "Unitholders") and to eligible holders of outstanding exchangeable units of subsidiary LPs, namely class B limited partnership units of U.S. Grocery-Anchored Retail (1B) Limited Partnership ("GAR B Units"), class B limited partnership units of Slate Retail One L.P. ("LP1 Units") and exchangeable class B limited partnership units of Slate Retail Two L.P. ("LP2 Units" and, collectively with the GAR B Units and LP1 Units, the "Exchangeable Securities", and the holders of Exchangeable Securities being "Exchangeable Securityholders").
"Basic Subscription Privilege." An eligible holder of Units will receive one Right for each Unit (1.0078 Rights for each Class A Unit, 1.0554 Rights for each Class I Unit held, and one Right for each Exchangeable Security held.) Every nine Rights held will entitle an eligible holder of Rights to subscribe for one Unit at a subscription price is C$13.71 per Unit (representing a discount to the closing price of the Units on the TSX on the last trading day prior to the announcement of the Rights Offering. However, the subscription price may also be satisfied through payment in U.S. dollars at a price of U.S.$10.21 per Unit.
Attributes of Units. Each Unit, Class A Unit and Class I Unit entitles the holder to the same rights and obligations as a Unitholder without preferences. Each Class A Unit is convertible at the option of the holder into 1.0078 Units. Each Class I Unit is convertible at the option of the holder into 1.0554 Units. Each Exchangeable Security is redeemable for cash or Units on a one-for-one basis, as determined by the respective general partner of Grocery-Anchored Retail (1B) Limited Partnership, Slate Retail One L.P. or Slate Retail Two L.P. The Exchangeable Securities are economically equivalent to the Units in all material respects, and their value is derived from the same entities (i.e., the operating limited partnerships of the REIT) from which the Units derive their value.
Numbers of Units and Rights. On March 1, 2016, there were 28,549,905 Units, 386,656 Class A Units, 348,000 Class I Units, 547,355 GAR B Units, 219,620 LP1 Units and 1,778,776 LP2 Units issued and outstanding. A total of 31,852,607 Rights will be issued. The total Units issuable under the Rights Offering represent 12.40% of the issued and outstanding Units on March 1, 2016.
Listing. The Rights are transferable and will be listed on the TSX until April 19, 2016 (the "Expiry Date").
Use of proceeds. The REIT estimates it will use its available funds from the Rights Offering as follows: as to $5M for capital improvements and redevelopments and, as to the balance of up to $31 million, for acquisitions of new properties.
Non-Qualified Jurisdictions. Rights may not be exercised by or on behalf of, and the REIT will not accept any subscriptions from or on behalf of, any holder of Rights with an address of record in a Non-Qualified Jurisdiction (generally, outside Canada).
"Additional Subscription Privilege". An eligible holder who has exercised in full the Basic Subscription Privilege will be entitled to subscribe for additional Units. If any holder entitled to subscribe for Units under the Basic Subscription Privilege does not subscribe for the full amount of Units to which it is entitled, the unsubscribed Units offered to it will be aggregated with all other unsubscribed Units under the Rights Offering to make up the available additional Units that holders exercising their Additional Subscription Privilege will be entitled to subscribe for. The maximum number of Additional Units which a holder will be entitled to subscribe under your Additional Subscription Privilege will be limited to its pro rata share of the total number of additional Units available for additional subscription.
Canadian tax consequences. Characterization of Rights as options. There are two possible scenarios respecting the receipt of a Right. First, the value, if any, of a Right issued may be required to be included in income by the Holder as a taxable benefit from the REIT. Alternatively, the issuance of a Right may be considered to be an amount distributed in respect of a Holder's capital interest in the REIT such that the fair market value thereof, if any, will be deducted from the adjusted cost base of the Holder's existing Units. Under either of those two scenarios, the Rights should have a cost to the Holder equal to their fair market value at the time of issuance. Notwithstanding the foregoing, the CRA's current published administrative position is that where a trust grants an option to acquire units of the trust that are to be issued by the trust, there are no tax consequences to the trust or the recipient of the option. Applying this administrative position, the issuance of the Rights should have no immediate tax consequences for a Holder and the Holder would be deemed to acquire the Rights at a cost of nil. Holders should note that the CRA is not bound by its administrative positions and may change such positions at any time.
Application of option rules. The exercise of Rights will not constitute a disposition of property for purposes of the Tax Act and, consequently, no gain or loss will be realized by a Holder upon the exercise of Rights. A Unit acquired by a Holder upon the exercise of Rights will have a cost to the Holder equal to the aggregate of the subscription price paid for such Unit and the adjusted cost base, if any, to the Holder of the Rights so exercised. Upon the disposition by a Holder of a Right, other than pursuant to the exercise thereof, the Holder will realize a capital gain (or capital loss) to the extent that the proceeds of disposition exceed (or are exceeded by) the aggregate adjusted cost base to the Holder of such Right and any reasonable costs of disposition.