ICM
Overview
ICM, which is a newly-formed Alberta unit trust, is making successive offerings (at escalating prices) of various classes of units until the earlier of raising $100 million and the end of 2017. It will invest both directly in a US LP that will be a U.S. private REIT and also indirectly, through a Canadian subsidiary LP of the trust (the "Partnership"). The trust is intended to be a partnership for Code purposes. Most of the underlying real estate properties will be U.S. commercial and residential rental properties held through interests in lower-tier LPs of the U.S. private REIT, but some Canadian rental properties will be held through an interest of the Partnership in a Canadian LP. The disclosure states that for three of the classes of trust units, the holders “will receive returns that are net of U.S. corporate taxes,” while holders of the other three classes “will be subject to U.S. tax.” The relationship between this objective and the holding of the investment in the US private REIT investment only partly through the Partnership is not discussed, nor is it explicitly stated that the Partnership will check the box. The Trust units will not be listed, but it nonetheless is assumed that it will qualify as a mutual fund trust for ITA purposes. The units are redeemable every quarter end (provided 60 days' advance notice is given, and with a 30-day delay before receiving the redemption proceeds) at 90% of NAV for the first year, 95% thereof in the 2nd and 3rd year, and 100% thereafter – but with redemptions in any quarter being capped at 10% of the outstanding units and with redemption proceeds payable in the discretion of the Trustee in redemption notes (or other assets). The same corporation is the Trust trustee and the GP of the subsidiary Canadian LP.
Different Trust Unit classes
The offering by the Trust consists of Class A, Class B and Class U Trust Units as well as Class A1, Class B1 trust units and Class U1 Trust Units (collectively, the “Trust Units”). The Trust Units are the same except that: (i) selling commissions differ; (ii) the Class A, A1, B and B1 Trust Units are denominated in C$ and Class U and U1 Trust Units are denominated in US$; and (iii) holders of Class A, B and U Trust Units will receive returns that are net of U.S. corporate taxes, while holders of Class A1, B1 and U1 Trust Units will be subject to U.S. tax.
Unit pricing
The price per Trust Unit will be:
| Class A, A1, B and B1 Trust Units (Denominated in C$) |
Class U and U1 Trust Units (Denominated in US$) |
|
| On or before August 31, 2016 | $ 9.00 | $ 9.00 |
| On or before December 31, 2016 | $ 9.50 | $ 9.50 |
| On or before June 30, 2017 | $ 9.75 | $ 9.75 |
| After June 30, 2017 | $ 10.00 | $ 10.00 |
Trust
An open-ended Alberta unit trust whose units will not be listed.
Partnership
ICM (IX) LP, a direct Alberta subsidiary LP of the Trust that will hold a portion of the investment of the Trust in the Property REIT LP (with the balnace of the intrests therein being held directly by the Trust).
Property REIT LP
ICM VI U.S. Realty LP, an LP formed under the laws of the state of Georgia on January 27, 2012 that will elect to be a U.S. private REIT and that will hold interests in underlying U.S. property LPs.
Canada Property Investment LP
An Alberta LP that will hold interests in an Alberta LP ("MILP") holding Canadian rental properties.
Use of proceeds/initial structure
The Trust will initially use the net proceeds of the Offering to acquire all of the outstanding Class A limited partnership units of Property REIT LP. The investment in the Property REIT LP will be held directly and indirectly through the Partnership to accommodate the income tax structure of the Trust and its unitholders. At the time of acquisition, the only asset held by the Property REIT LP (through ICM VI Property Investment LP and Jones Bridge LP) will be Jones Bridge Square, a grocery anchored retail shopping plaza located in Norcross, Georgia, within the Atlanta metropolitan service area.
Post-Jones Bridge use of proceeds
After the acquisition of the Property REIT LP, the Trust will use the net proceeds of the Offering to acquire not more than 5.0% of the outstanding limited partnership units in each of Midnapore Investments LP (“MILP”), UVAG Realty Limited Partnership (“UVAG”), and Lakeridge Land L.P. (“LLLP”). The investment in MILP will be held through an investment in the Canadian Property Investment LP, and the investments in UVAG and LLLP will be held through the Property REIT LP and ICM (IX) U.S. Property Investment LP (the “US Property Investment LP”). MILP was formed on July 22, 1996 under the laws of the province of Alberta, UVAG was formed on September 22, 1978 under the laws of the State of Washington and LLLP was formed on February 5, 1999 under the laws of the State of Washington. MILP currently holds nine properties in Canada and UVAG and LLLP collectively hold four properties in the United States.
Further use of proceeds
After the acquisition of the Property REIT LP and the interests in MILP, UVAG and LLLP, additional net proceeds of the Offering will be invested into real estate properties or other assets that meet the investment objectives and restrictions established by the Trust. It is anticipated that for each property that is acquired, a new individual holding limited partnership (each, together with Jones Bridge LP, a “Property Holding LP”) will be created to hold such property. Not more than 15% of the gross subscription proceeds will be indirectly invested into pools of publicly traded real estate based securities to allow the Trust to fulfill redemption requirements and manage working capital requirements as needed.
Trustee/General Partner/Managers
The trustee is ICM (IX) Management Inc. (the “Trustee”). The Trustee is also the general partner of the Canadian Property Investment LP and ICM (IX) LP (the “Canadian General Partner”). The general partner of both the Property REIT LP and ICM VI Property Investment LP will be ICM VI Management, LLC and the general partner of the US property Investment LP will be ICM (IX) Management LLC (collectively the “General Partner”). The Trust and its affiliates will be collectively managed by ICM Realty Group Ltd. (the “Canadian Manager”) and ICM Realty Group, LLC (the “U.S. Manager”, and collectively with the Canadian Manager, the “Manager”). The Trust intends to retain an investment fund manager (the “Investment Fund Manager”) to provide certain management and administration functions, conduct evaluations and assessment of prospective investments and to confirm that such investments meet the Trust’s investment objectives. If advisable or required by law, the Trust will also retain a portfolio manager (the “Portfolio Manager”) to manage the investments of the Trust other than direct ownership in properties.
Term of Trust/Value maximization
The intent is that the Trust will continue for a period of ten years from the final closing of the Offering. The Canadian Manager may extend the term of the Trust for two additional one-year periods. In order to terminate the Trust, the Trustee shall commence winding up operations not more than two years prior to the end of the term of the Trust. ICM will continually monitor the real estate and capital markets with the objective of maximizing disposition proceeds. The Trust anticipates being fully invested within nine months of Final Closing (being the earlier of (i) December 31, 2017; or (ii) the date on which the $100,000,000 has been raised by the Offering – subject to extension at the Manager’s discretion. Any gross subscription proceeds raised that have not been deployed within 12 months of Final Closing will be returned to investors on a pro-rata basis.
Fees
Annual management fee equal to 7.5% of the Net Operating Income for investments in Properties, or 1.25% annually of capital committed to investments other than a direct ownership in Properties, calculated and paid monthly to the Manager. The payment of which may be waived in whole or in part by the Manager from time to time, in its sole discretion. Asset acquisition fee equal to 1.5% of the total purchase price plus additional capital committed to any investment, not including closing costs paid to the Manager. It is expected that once the Investment Fund Manager is retained, an investment fund management fee, calculated and payable quarterly, will be paid to the Investment Fund Manager for investment fund management and administrative services rendered and calculated as 0.5% annually of the Net Subscription Proceeds raised by the Trust under the Offering.
Distributions
The Trustee shall declare payable to the Unitholders of record on March 31, June 30, September 30 and December 31 of each year, all or a portion of the distributable cash of the Trust (if any), less any anticipated operating expenses. On a quarterly basis, each of the US Property Investment LP and ICM VI Property Investment LP will distribute its Distributable Cash. Distributable Cash from any investment shall be apportioned preliminarily among the partners of such limited partnership in proportion to their Sharing Percentages with respect to the applicable investment. The amount so apportioned to the General Partner shall be distributed to the General Partner, and, subject to the provisions below, the amount so apportioned to each limited partner shall be distributed between the General Partner and such limited partner as follows:
(i) First, 100% to such limited partner until such limited partner has received cumulative distributions equal to the amount of such partner’s Offering Costs and Commissions.
(ii) Second, 100% to such limited partner until such limited partner has received cumulative distributions equal to such partner’s aggregate capital contributions made with respect to Realized Investments.
(iii) Third, 100% to such limited partner until the Unpaid Preferred Return of such partner is reduced to zero.
(iv) Fourth, 40% to the General Partner and 60% to such limited partner until the General Partner has received cumulative distributions equal to 20% of the cumulative amount of distributions made or being made to such limited partner pursuant to paragraphs (iii) and (iv) and made or being made to the General Partner with respect to such limited partner pursuant to this paragraph (iv).
(v) Thereafter, (i) 30% to the General Partner and (ii) 70% to such limited partner.
Redemptions
The Redemption Price shall be equal to 90% of the NAV of Trust Units until the end of the first year following the purchase or acquisition of Trust Units from the Trust, 95% in the second and third year, and 100% thereafter. A Unitholder may redeem Trust Units on the last business date of any calendar quarter (the “Redemption Date”), subject to certain restrictions, by providing written notice to the Trustee not less than 60 days prior to the Redemption Date. Subject to certain conditions, payment for the redeemed Trust Units shall occur on the 30th day following the effective date of the redemption. Redemption proceeds are payable in the discretion of the Trustee (and on the dvice of the Canadian Manager) in redemption notes (or other assets). Except as otherwise determined by the Canadian Manager, for any fiscal quarter, other than the fiscal quarter in which the Trust is terminated and wound up, the maximum aggregate number of Trust Units that may be redeemed by the Trust shall not exceed 10% of the total number of Trust Units issued and outstanding at the beginning of such fiscal quarter. Any Redemption Notices (or portions thereof) which are not honoured shall be honoured at the next following Redemption Date, subject in all cases to the Trust’s right to suspend redemptions and the10% threshold. The Trustee, on advice of the Canadian Manager, may suspend the redemption of Trust Units or payment of redemption proceeds for any period not exceeding 180 days if the Trustee determines that conditions exist which render impractical the sale of Trust Assets or which impair the ability of the Trustee to accurately determine the fair market value of the Trust Units.
Non-resident ownership
At no time may non-residents be the beneficial owners of, or have rights to acquire, more than 45% of the Trust Units.
Canadian tax consequences
MFT status/SIFT rules
It is assumed that the Trust will qualify as a "mutual fund trust" – and that the Trust Units will not, at all relevant times, be listed or traded on a stock exchange or other public market and, accordingly, that the Trust will not be liable for the SIFT Tax.
Partnership taxation
The Property REIT LP, the ICM VI Property Investment LP, the Canada Property Investment LP, the US Property Investment LP, the Partnership and the Property Holding LPs (collectively, the “ICMLPs”) are not subject to tax under the Tax Act. Each partner of the ICM LPs (including the Trust) is required to include in computing the partner’s income for a particular taxation year the partner’s share of the income or loss of underlying partnerships for the fiscal periods of the underlying partnerships ending on or before the year-end of the partner.
Foreign tax credits
A Unitholder’s ability to recognize U.S. taxes through foreign tax credits or foreign tax deductions may be affected where the Unitholder has other U.S. source income or losses, has paid other U.S. taxes or, in certain circumstances, has not filed a U.S. federal income tax return.
Capital property
It is assumed that the Property Holding LPs will hold their respective interests in the Properties as capital property.
U.S. tax consequences
Status
It is assumed that the Trust will be treated as a partnership for Code purposes. Property REIT LP will elect to be treated as a REIT for United States federal tax purposes. In order to qualify as a REIT for United States federal income tax purposes, the Property REIT LP must be beneficially owned by at least 100 persons. In order to meet this test, the Property REIT LP has issued Class B limited partnership units to up to 125 persons unrelated to the Trust, for a subscription price of $1,000 per Class B Unit.
FDAP and ECI
Non-resident alien individuals and foreign corporations generally are subject to U.S. federal income tax on fixed or determinable, annual or periodic income (“FDAP”) received from U.S. sources, including U.S. source dividends to the extent not effectively connected with the conduct of a U.S. trade or business, and on their income that is effectively connected with the conduct of a U.S. trade or business (“ECI”). U.S. source FDAP generally is subject to a 30 percent U.S. tax applied to the gross amount.
FDAP withholding
A payment of U.S. source FDAP to a foreign partnership that will not withhold U.S. tax generally is subject to withholding of U.S. tax as if the payment were made directly to the partners of the foreign partnership, if the withholding agent can reliably associate a partner’s distributive share of the payment with documentation and other information that it receives from the foreign partnership.
ECI withholding
A U.S. or foreign partnership generally is required to withhold U.S. tax under Code section 1446 with respect to effectively connected taxable income (“ECTI”) of the partnership derived through the partnership by foreign persons who are partners in the U.S. or foreign partnership. U.S. tax generally is required to be withheld quarterly by a partnership under Code section 1446 with respect to its foreign partners without regard to whether the partnership actually distributes any amounts to the foreign partners, and quarterly payments of Code section 1446 withholding tax generally are required to be deposited by a partnership using Form 8813 and reported to partners when deposited. The partners generally may take into account these payments in determining whether they are required to make any additional estimated tax payments, and may claim these amounts as credits against their U.S. federal income tax liability.
FIRPTA rules
A distribution by a REIT to a foreign shareholder, to the extent attributable to the REIT’s USRPI gain, generally is treated as USRPI gain recognized directly by the shareholder. Amounts distributed to a partnership are taxable to its partners, based on each partner’s share of the partnership income, at rates generally applicable to ECI. In addition, the FIRPTA Tax rules generally require a REIT to withhold U.S. tax at a rate of 35 percent from the REIT’s distribution of USRPI gain to a foreign person without regard to a foreign person’s ultimate tax liability, and the amount required to be withheld will not necessarily equal the foreign person’s U.S. tax liability with respect to the taxable amount of that distribution. On the sale or exchange of a Trust Unit by a non-U.S. person, the transferee generally must withhold and remit to the IRS 10 percent of the fair market value of the interest transferred. This 10 percent withholding tax may be reduced if an application for a withholding certificate with the appropriate facts is timely filed with the IRS requesting a reduction in withholding (e.g., to the maximum applicable capital gains tax rate on the actual gain) and such withholding certificate is received from the IRS. No assurance can be given that the IRS will approve a withholding certificate application.