H&R REIT is proposing a spin-off of Primaris REIT using the s. 107.4 rollover

In order to have a greater focus on industrial and residential properties and its US portfolio, H&R REIT (the “REIT”) is proposing to spin-off a newly formed unit trust (“Primaris REIT”), containing a portfolio focused more on Canadian retail and office properties, on a tax-free basis to its unitholders. The steps will entail forming Primaris REIT with nominal capitalization but with the same number of units as those for the REIT itself, making a nominal capital distribution of cash to a depositary for the REIT unitholders, and having that cash then used to purchase the Primaris REIT units.

The REIT will then make a “qualifying disposition” described in s. 107.4 (i.e., a gift) of the office/retail portfolio (packaged in subsidiary flow-through entities) to Primaris REIT. In addition to this transfer occurring on a s. 107.4 rollover basis, there will be a pro rata transfer of ACB from the REIT units to the Primaris REIT units, so that the ACB of the latter will increase from their nominal initial amount.

This Alberta arrangement is conditional on receipt of a CRA ruling.

Shortly after completion of the arrangement, some companies associated with the Healthcare of Ontario Pension Plan will contribute eight properties to Primaris REIT in consideration for $200M in cash and units of Primaris REIT, resulting in them ending up with a 26% equity interest. Because of some pension plan restrictions, some of the units issued to them may be “Series B” non-voting units rather than regular Series A units of Primaris REIT.

Neal Armstrong. Summary of 5 November 2021 Circular of H&R Real Estate Investment Trust (the “REIT”) regarding the spin-off of Primaris Real Estate Investment Trust (“Primaris REIT”) under Spin-Offs & Distributions – S. 107.4 Spin-offs.