A proposed acquisition of InterRent REIT entails a step-up of depreciable assets and in-kind distribution of recapture representing more than 20% of the cash purchase price

It is proposed that a Canadian corporate purchaser indirectly owned by GIC (the tax-exempt investing arm of the Singapore government) will acquire all the units of InterRent REIT (other than some units retained by management and others) for $13.35 per unit in cash. Although there is considerable optionality in the steps permitted under the Ontario Plan of Arrangement, it is generally intended that the Property LPs in which the Canadian apartment buildings are held will step up the capital cost of those buildings by doing transfers of those properties (as preliminary steps in the Plan of Arrangement) to other newly-formed subsidiary LPs so as to realize significant recapture of depreciation and capital gains.

As the REIT will not make an election under s. 251.2(6), it will have a new taxation year starting at the commencement of the day of implementation of the Plan of Arrangement. This ensures that all income realized by the subsidiary LPs (which likely will be wound-up under s. 98(3)) will be realized by the REIT in that "Arrangement Taxation Year." That recapture income and capital gains will be distributed to the unit holders as part of the Arrangement, and an additional return of capital distribution will occur to provide a “cushion”. This special distribution very well may be accomplished through the issuance of additional REIT units, in which case there would be an immediate consolidation back to the pre-Arrangement number of units.

It is estimated that the recapture and other ordinary income allocated to the unit holders will amount to between $2.85 and $3.30 per unit. In addition, non-resident unit holders would also be subject to withholding tax on the distribution to them of capital gains and returns of capital.

It is suggested that unit holders may wish to consider selling their units on the TSX, with the settlement date to occur prior to the effective date of the Plan of Arrangement.

Neal Armstrong. Summary of InterRent Management Information Circular, dated July 24, 2025 under Mergers & Acquisitions – REIT/LP Acquisitions - Trust acquisitions by corporations.