Blackstone/Pure Industrial -- summary under Trust Acquisitions by Corporations

Overview

It is proposed that all the units of the Trust will be acquired for cash by Purchaser under a B.C. Plan of Arrangement. All but the units of the 175 smallest unitholders (holding at least 100 units) will be acquired in the first tranche – and then, 60 seconds later, the units of the remaining 175 unitholders will be acquired. This is to clarify that, for purposes of the Ontario land transfer tax exemption for mutual fund trust unit transfers, the REIT will still satisfy the relevant Ontario MFT tests at the time of the take up of most of the REIT units.

Roughly ¼ of the REIT’s properties are U.S. properties which are held in a U.S. private REIT subsidiary of a B.C. holding company (“CanCo SPV”) that, in turn, is held by the REIT. The Trust has covenanted that it will not do anything that “could reasonably be expected to have the effect of preventing Purchaser or a wholly-owned subsidiary of Purchaser, from obtaining the benefit of a ‘full tax cost bump’ pursuant to the Tax Act” respecting the shares of the U.S. REIT. Opinions will be delivered at closing to a REIT sub and Blackstone sub that the U.S. REIT has qualified as such for Code purposes.

The only corporate step in this corporate plan of arrangement is a transaction in which a B.C. subsidiary of Purchaser, immediately before the acquisition of the REIT units, subscribes $805 for 80.5M CanCo SPV preferred shares with undisclosed attributes.

As this is a purchase rather than redemption transaction, there are no Part XIII.2 withholding issues.

The Trust

A TSX-listed B.C. unit trust that owns and operates a diversified portfolio of income-producing industrial properties in leading markets across Canada and key distribution and logistics markets in the United States. Most of its properties are income-producing and, as to gross leasable area, are held as to approximately 11%, 20% 37% and 24% in B.C. Alberta, Ontario and the U.S., with the U.S. assets held in the U.S. Trust Subsidiary. 25% of its revenue comes from FedEx. No person has been identified as beneficially owning, directly or indirectly, or exercising control or direction over, the Trust Units.

Blackstone

The Blackstone Group L.P is an American multinational private equity, alternative asset management and financial services firm based in New York City. Its real estate business has approximately US$115B of assets under management.

Purchaser

An unlimited liability company organized under B.C. law, that was formed on December 19, 2017 by Blackstone solely for the purpose of engaging in the proposed transactions.

New CanCo

BPP Pristine Acquisition ULC, a B.C. unlimited liability company wholly owned by Purchaser.

CanCo SPV

PIRET Holdings (Canada) Ltd., a B.C. corporation and wholly-owned by the Trust. It holds all the common equity in U.S. Trust Subsidiary.

U.S. Trust Subsidiary

PIRET USA Inc., a Delaware corporation, which is wholly-owned by CanCo SPV (with the exception presumably of preferred shares required for U.S. REIT status) and is intended to qualify as a REIT for Code purposes.

Distributions

The Trust will continue to declare its regular monthly distribution of $0.026 per Unit on each regularly scheduled record date that occurs prior to the Effective Date of the Arrangement, and will pay all such distributions to Unitholders of record on each such record date in the ordinary course.

Plan of Arrangement

1. All rights under the Rights Plan shall be cancelled;
2. Each Unit Option, Deferred Unit, Restricted Unit and Performance Unit shall be transferred by its holder to the Trust for cash, less applicable withholding;
3. The Trust shall pay out, as a special distribution on the Units, the amount, if any, that is determined by it prior to the Effective Time to be equal to its bona fide best estimate of the amount, if any, of its taxable income for the taxation year of the Trust that ends on the Effective Date of the Arrangement (such amount to be reduced to take into account any deductions under subsection 104(6) of the Tax Act in respect of prior distributions during that period);
4. The articles of CanCo SPV shall be amended to create the CanCo SPV Preferred Shares (whose attributes have been removed from the Circular Copy of the Plan of Arrangement);
5. New Canco shall subscribe for 80,556,000 CanCo SPV Preferred Shares, at a subscription price of $0.00001 per share, or $805.56 in aggregate;
6. The existing Trustees of the Trust shall resign and a B.C. corporation formed by Purchaser shall become the sole trustee of the Trust;
7. Each Dissent Unit shall be transferred to Purchaser;
8. Each Unit (other than the Secondary Purchased Units and any Dissent Units) shall be transferred and assigned in exchange for the “Consideration” of $8.10 in cash per Unit;
9. Each Unit of a Secondary Purchased Unitholder shall be transferred and assigned, without any further act or formality on its part, to Purchaser (free and clear of any Liens) in exchange for the Consideration; the “Secondary Purchased Unitholders” means the first 175 Unitholders that would be named on a list of Unitholders made in reverse rank order of number of Units held each of which holds, immediately prior to Step 8 not less than 100 Units (and whose Units have an aggregate fair market value of not less than $500).

Break fee

Is capped at the amount that would not cause the Trust to breach the 10% gross REIT revenue test.

Bump covenant

The Trust will not knowingly undertake transactions (other than a Restructuring Transaction directed by Purchaser) that could reasonably be expected to have the effect of preventing Purchaser or a wholly-owned subsidiary of Purchaser, from obtaining the benefit of a “full tax cost bump” pursuant to the Tax Act in respect of non-depreciable capital property owned by CanCo SPV.

U.S. REIT status opinion

Each of BPP Pristine U.S. LLC and the U.S. Trust Subsidiary shall have received a tax opinion dated as of the Effective Date in the specified form, which opinion concludes (subject to customary assumptions, qualifications and representations, including representations made by the U.S. Trust Subsidiary and its subsidiaries) that the U.S. Trust Subsidiary has been organized and operated in conformity with the requirements for qualification and taxation as a U.S. REIT under the Internal Revenue Code of 1986 (U.S.) for all taxable periods commencing with the U.S. Trust Subsidiary’s taxable year ended December 31, 2014 through to and including the Effective Date.

Canadian tax consequences

Residents

A Resident Unitholder will realize a capital gain (or capital loss) equal to the amount, if any, by which the Resident Unitholder’s proceeds of disposition exceed (or are less than) the aggregate of the Resident Unitholder’s adjusted cost base of the Units immediately prior to the disposition and any reasonable costs of disposition.

Non-Residents

A Non-Resident Unitholder will not be subject to tax under the Tax Act on any capital gain realized on the sale of Units to Purchaser provided that, at the time of disposition, the Units are not taxable Canadian property of the Non-Resident Unitholder or are treaty-protected property of the Non-Resident Unitholder. A Non-Resident Unitholder will not be subject to tax under the Tax Act on any capital gain realized on the disposition of Units on the TSX with a settlement date prior to the Effective Date provided that, at the time of disposition, the Units are not taxable Canadian property of the Non-Resident Unitholder or are treaty-protected property of the Non-Resident Unitholder.