Melcor Developments proposed a purchase of the partnership interest of Melcor REIT in their joint LP followed by a redemption of the REIT units

29 December 2024 - 11:20pm
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Melcor Developments, a TSX-listed company, has a 55.4% effective interest in Melcor REIT as a result of holding exchangeable Class B units in the subsidiary limited partnership of the REIT (the LP) and special voting units (SVUs) of the REIT, and is the REIT’s external manager.

Under a proposed Alberta plan of arrangement, there was to be special distribution to the REIT unitholders, payable through the issuance of units, to reflect gains that were expected to have been realized in the year from asset sales, followed by a sale by the REIT of its LP units to Developments and the distribution of those cash proceeds as redemption proceeds for the REIT units. Developments would then convert its SVUs to ordinary units, so that the REIT shell would be wholly-owned by Developments.

This manner of proceeding would permit the allocation to the REIT pursuant to s. 96(1.01) of all the partnership income realized up to the time of the sale of the REIT’s partnership interest, and that income allocation would in turn fall into the taxation year of the REIT ending as a result of the redemption of its units (causing Developments to become a majority-interest beneficiary), given that the REIT would make an election for s. 251.2(6) not to apply.

In a November 25, 2024 News Release, the REIT announced:

  • The REIT and Developments had entered into an amended Arrangement Agreement ‎which provides for increasing the per-Unit consideration from $4.95 to $5.50; and
  • The special unitholder meeting scheduled for November 26, 2024 was cancelled and the REIT was engaging in a new 90-day extended “go-shop” period.

Neal Armstrong. Summary of management Information Circular of Melcor Real Estate Investment Trust (the “REIT”) regarding an arrangement involving inter alia it and Melcor Developments Ltd. (the “Purchaser” or Developments”) filed on 29 October 2024 under Mergers & Acquisitions – REIT Acquisitions – Privatizations.