Choice Properties is proposing to acquire CREIT with a choice of cash, or Choice units issued on a s. 132.2 merger
The proposed acquisition of CREIT (which is a closed-end REIT holding most of its properties directly or through subsidiary LPs) by Choice Properties - which is an Ontario open-end REIT holding a partial interest in a property-holding LP (Choice Properties LP) - would occur for aggregate consideration of approximately $1.7B in cash and Choice Properties units valued at around $2.1B. REIT unitholders would have a choice between receiving cash or Choice Properties units, subject to proration. Those unitholders whose election for units was accepted would participate in a s. 132.2 merger of CREIT into Choice Properties.
Resident CREIT unitholders whose units will be redeemed for cash by CREIT (funded with a loan from Choice Properties LP) will be indifferent to the quantum of capital gains distributions allocated to their cash redemption proceeds. Accordingly, CREIT will engage in transactions at the commencement of the Plan of Arrangement to deliberately trigger gains on units in subsidiary partnerships or perhaps land, in order to achieve a basis step-up. As with other such merger transactions, CREIT is seeking CRA permission to have short fiscal periods for its subsidiary LPs, so that those pre-merger gains realized at lower levels can still effectively be allocated to the cash-redeemed unitholders.
Another preliminary step is to amend the CREIT declaration of trust to make its units redeemable, having regard to the subsequent redemptions of its units for cash and on the s. 132.2 merger.
Neal Armstrong. Summary of Circular of Canadian REIT under Mergers & Acquisitions - REIT/Income Fund/LP Acquisitions – REIT Mergers.