Blackstone/Dream Global

Overview

The REIT, a TSX-listed mutual fund trust with no non-portfolio property, held a portfolio of German and Netherlands rental properties through a wholly-owned Bermuda LP which, in turn, held some direct and indirect Netherlands subsidiaries but held the majority of such assets through a Dutch Co-op which, in turn, held a Luxembourg holding company for various property subsidiaries.

Its purchase was accomplished, in the main, by Luxembourg and Caymans subsidiaries of three non-resident Blackstone-managed funds acquiring the Dutch Co-op for cash and note consideration, winding-up the Bermuda LP (in order to ensure that such gains fell into the right taxation year of the REIT and so that the proceeds were received in the hands of the REIT), and with the cash portion of such proceeds and the subscription by the purchasers for Class B units of the REIT being used to fund a previously declared special distribution on, and then redeem, all the (Class A) Units, thereby giving rise to a deemed year end under ss. 249(4) and 256(9) (and, in light of a concurrent change in the trustees, a concurrent year end under s. 128.1(4)(a).) Given inter alia that much of the gains were realized as capital gains (i.e., gains realized by Bermuda LP) rather than as gains giving rise to FAPI, management did not anticipate that the special distribution included any ordinary income – so that it was expected that the unitholders received the same treatment as if they had sold their Units for cash.

The REIT

A unit trust trading on the TSX.

Bermuda LP

A Bermuda limited partnership (formerly, a Caymans limited partnership that had been migrated to Bermuda) wholly-owned by the REIT as limited partner and through a wholly-owned Caymans corporate subsidiary.

Lux Holdco

A wholly-owned s.à r.l. subsidiary of Dutch Master Co-op holding indirectly most of the German assets and some of the Netherlands assets (with the balance of the European assets being held in a subsidiary grouping beneath Bermuda LP).

Dutch Master Co-op

A wholly-owned subsidiary of Bermuda LP.

MAA Purchasers (comprising the Lux Purchasers and Cayman Purchasers)

Three Caymans companies (Cayman Purchaser 1, 2 and 3) which are subsidiaries of three Luxembourg companies (Lux Purchaser 1, 2 and 3, the “Lux Purchasers”) indirectly owned by three Blackstone-managed funds.

New Rivergate JV Holdco

A non-resident subsidiary formed by Bermuda LP.

DAM

The REIT’s manager owned by the Dundee group.

Principal Steps

1. New Rivergate JV Holdco purchase a 1% interest in the REIT’s indirect subsidiary, through which it holds its 50% interest in the "Rivergate" joint venture (“Dundeal 31”), from Lux Holdco.
2. Lux Holdco and New Rivergate JV Holdco enter into an agreement pursuant to which (a) New Rivergate JV Holdco agrees to purchase from Lux Holdco all of the remaining interest in Dundeal 31 subject to the conditions precedent that the sales in 5 below by Bermuda LP and Utrecht to Lux Purchasers 3 and 4 and the further subscription by Bermuda LP in 6 below have occurred and (b) Lux Holdco grants a voting trust in favour of New Rivergate JV Holdco over its voting interest in Dundeal 31.
3. Bermuda LP agrees to purchase the group's Luxembourg management company (“DGAL”) from Lux Holdco subject to satisfaction of both of the following conditions precedent: (i) the purchase and sale of the Interests in Dutch Master Co-op in 5 below having first occurred and (ii) the purchase in 8 below of Dundeal 31 having first occurred, and with Lux Holdco granting a voting trust in favour of Bermuda LP over its voting Interests in DGAL.
4. Lux Purchasers 1 and 2 acquire from Bermuda LP and Utrecht (a Netherlands subsidiary of Bermuda LP) 20% and 80%, respectively, of the interests in various subsidiary Dutch Cooperatives, as well as loans owing by subsidiaries of those Dutch Cooperatives to Bermuda LP, for cash consideration paid as to 99.9% and 0.1% to Bermuda LP and Utrecht.
5. Lux Purchasers 3 and 4 each acquire from Bermuda LP and Utrecht 50% of the interest in Dutch Master Co-op as well as certain debt owing by subsidiaries of the Dutch Master Co-op in consideration for notes corresponding to the value of the Dundeal 31 and DGAL interests to be transferred by Lux Holdco in the steps below, for cash consideration paid as to 99.9% and 0.1% to Bermuda LP and Utrecht and for debt of the purchasers ($220 million each plus debt that tracks the value of certain indirect or direct subsidiaries of Master Co-op).
6. Bermuda LP assigns the note consideration received by it in 5 above, respecting the value of the Dundeal 31 and DGAL interests, to New Rivergate JV Holdco for treasury shares.
7. Lux Holdco assumes the obligations of Lux Purchasers 3 and 4 respecting the notes referred to in 6 above in consideration for their issuing notes to it.
8. New Rivergate JV Holdco completes the purchase agreement in 2 above and pays the consideration by way of set-off against the notes now owing to it by Lux Holdco (see 7 above).
9. Somewhat similarly, the DGAL purchase is completed (see 3 above).
10. Utrecht declares and pays a dividend equaling the aggregate consideration received by it in 4 and 5 above.
11. Bermuda LP transfers intercompany receivables (owing by Dutch co-ops held by Bermuda LP outside the Dutch Master Co-op/ Lux Holdco chain) to Utrecht in consideration for Utrecht shares.
12. Bermuda LP pays the Incentive Fee Amount of $275.2 million to DAM pursuant to the Separation Agreement, and (ii) the REIT Parties (defined to include the REIT, Bermuda LP, Dutch Master Co-op and Lux Holdco) will pay to DAM the Termination Payment of $8.75 million, the Reimbursement Amount (respecting bonus and severance compensation) of $15 million, the Outstanding Expense Amount of $25,000 and the Fixed Reconciliation Payment of $2.66 million, and the Terminated Agreements (being various services or licence agreements) will be terminated.
13. Pursuant to the authorization of its winding-up, Bermuda LP distributes all of its property (other than that required to pay outstanding costs) to its partners (namely, as to all but $1,000 to its general partner, to the REIT as its limited partner), including shares and debt.
14. A certificate of winding up is filed with the Bermuda Registrar for Bermuda LP.
15. Cayman Management (a company owned by the Cayman Purchasers) purchases the asset management agreement of DAM with inter alia the REIT and Bermuda LP for $120 million in cash.
16. The REIT declares a special distribution on its (Class A) units that is the greater of all its year-to-date income (including that to be allocated to it by Bermuda LP) and a specified sum, which declared amount gives rise to an immediate legal entitlement of the (Class A) Unitholders to the declared amount.
17. The three Cayman Purchasers (which are subsidiaries of the Lux Purchasers) subscribe in cash in 20%, 45% and 35% proportions for Class B Units of the REIT at a per unit subscription price equal to the redemption amount for which a Unit will be redeemed below and at an aggregate subscription price equalling the amount required to fund such redemption and the Special Distribution and Incentive Fee Amount after giving effect to the sales proceeds (e.g., for the sale of Dutch Master Co-op).
18. Following the payment of the special distribution, all the (Class A) units are redeemed.
19. The two remaining resident trustees of the REIT resign coincident with the appointment of exclusively non-resident trustees and with the redemption of the (Class A) Units.
20. Thereafter various transactions occur to reorganize the acquired holdings including the conversion of a German KG and Luxembourg SCS from limited partnership to corporate form.

Canadian Tax Considerations

Although gains giving rise to foreign accrual property income to Bermuda LP could result in ordinary income being included in the special distribution, management of the REIT has advised that any ordinary income for the REIT taxation year ending with the redemption of the (Class A) units is not expected to exceed the distributions made to date on such Units. Accordingly, it is anticipated that, in the case of resident holders, all of the special distribution may be treated as a distribution of capital gains (with the result that a s. 104(21) designation can be made on the taxable capital gain portion and with there being no resulting reduction in the ACB of the Class A Unitholders units that then are redeemed) and, in the case of non-resident holders, that there will be no Part XIII withholding.

Overview

The REIT, a TSX-listed mutual fund trust with no non-portfolio property, held a portfolio of German and Netherlands rental properties through a wholly-owned Bermuda LP which, in turn, held some direct and indirect Netherlands subsidiaries but held the majority of such assets through a Dutch Co-op which, in turn, held a Luxembourg holding company for various property subsidiaries.

Its purchase was accomplished, in the main, by Luxembourg and Caymans subsidiaries of three non-resident Blackstone-managed funds acquiring the Dutch Co-op for cash and note consideration, winding-up the Bermuda LP (in order to ensure that such gains fell into the right taxation year of the REIT and so that the proceeds were received in the hands of the REIT), and with the cash portion of such proceeds and the subscription by the purchasers for Class B units of the REIT being used to fund a previously declared special distribution on, and then redeem, all the (Class A) Units, thereby giving rise to a deemed year end under ss. 249(4) and 256(9) (and, in light of a concurrent change in the trustees, a concurrent year end under s. 128.1(4)(a).) Given inter alia that much of the gains were realized as capital gains (i.e., gains realized by Bermuda LP) rather than as gains giving rise to FAPI, management did not anticipate that the special distribution included any ordinary income – so that it was expected that the unitholders received the same treatment as if they had sold their Units for cash.

See full summary under Mergers & Acquisitions›Cross-Border Acquisitions›Inbound›REIT Acquisitions.