Melcor will defer capital gain on excess mortgage debt, on the formation of Melcor REIT, by having the REIT subsidiary LP issue tracking preferred LP units

Melcor will be transferring most of its rental properties to a new Canadian REIT (Melcor REIT) for consideration that includes exchangeable units of a subsidiary LP of the REIT and the assumption of a portion of its mortgage debt.

The assumption of all the mortgage debt would have triggered a capital gain to Melcor.  Instead, Melcor is retaining a portion of the mortgage debt, and taking back Class C LP units from the subsidiary LP which will pay preferred distributions sufficient for it to service the retained debt, with the partnership providing a secured guarantee of the retained debt – and also indemnifying Melcor if Melcor’s deferred tax is triggered prematurely as a result of a sale of the related properties.

Neal Armstrong.  Summary of Circular for IPO of Melcor REIT under Domestic REIT Offerings.