New Issue: AX.PR.A FixedReset 5.25%+406

Artis REIT announced on July 24:

a marketed public offering (the “Financing”) of approximately $50 million Cumulative 5-Year Rate Reset Preferred Trust Units, Series A (the “Series A Units”) at a price of $25 per Series A Unit. The Financing is being led by RBC Capital Markets, CIBC and Macquarie Capital Markets Canada Ltd. (the “Underwriters”). Artis has also granted the Underwriters an over-allotment option, exercisable at any time up to 30 days after the closing of the Financing, to purchase additional Series A Units, up to an amount equal to 15% of the number of Series A Units sold pursuant to the Financing. The Financing will be priced in the context of the market with the final terms of the Financing to be determined at the time of pricing.

The Series A Units will pay fixed cumulative preferential distributions, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, for the initial approximately five-year period ending September 30, 2017. The first quarterly distribution, if declared, shall be payable on September 30, 2012. The distribution rate will be reset on September 30, 2017 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and a spread which will be set upon pricing of this Financing. The Series A Units are redeemable by Artis, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.
Holders of Series A Units will have the right to reclassify all or any part of their Series A Units as Cumulative Floating Rate Preferred Trust Units, Series B (the “Series B Units”), subject to certain conditions, on September 30, 2017 and on September 30 of every fifth year thereafter. Such reclassification privilege may be subject to certain tax considerations (to be disclosed in the prospectus supplement). Holders of Series B Units will be entitled to receive a floating cumulative preferential distribution, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus a spread which will be set upon pricing of this Financing.

The Financing is being made pursuant to the REIT’s base shelf prospectus dated June 15, 2012. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators.

Artis intends to use the net proceeds from the Financing to repay indebtedness, fund future acquisitions, and for general trust purposes.

Artis continues to enjoy a strong deal flow pipeline, with a continued focus on the accretive acquisition of quality commercial properties, in select markets in Canada and the U.S.

The issue was priced the following day:

announced today that is has priced its previously announced marketed public offering (the “Financing”) of Cumulative 5-Year Rate Reset Preferred Trust Units, Series A (the “Series A Units”). Artis will issue 3 million Series A Units at a price of $25 per Series A Unit for gross proceeds to Artis of $75,000,000.

The Financing is being led by RBC Capital Markets, CIBC and Macquarie Capital Markets Canada Ltd. (the “Underwriters”). Artis has also granted the Underwriters an over-allotment option, exercisable at any time up to 30 days after the closing of the Financing, to purchase up to an additional 450,000 Series A Units.

The Series A Units will pay fixed cumulative preferential distributions of $1.3125 per unit per annum, yielding 5.25% per annum, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, for the initial approximately five-year period ending September 30, 2017. The first quarterly distribution, if declared, shall be payable on September 30, 2012 and shall be $0.2122 per unit, based on the anticipated closing of the offering of Series A Units of August 2, 2012. The distribution rate will be reset on September 30, 2017 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 4.06%. The Series A Units are redeemable by Artis, at its option, on September 30, 2017 and on September 30 of every fifth year thereafter.

Holders of Series A Units will have the right to reclassify all or any part of their Series A Units as Cumulative Floating Rate Preferred Trust Units, Series B (the “Series B Units”), subject to certain conditions, on September 30, 2017 and on September 30 of every fifth year thereafter. Such reclassification privilege may be subject to certain tax considerations (to be disclosed in the prospectus supplement). Holders of Series B Units will be entitled to receive a floating cumulative preferential distribution, payable on the last day of March, June, September and December of each year, as and when declared by the board of trustees of Artis, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus a spread of 4.06%.

The Financing is being made pursuant to the REIT’s base shelf prospectus dated June 15, 2012. The terms of the offering will be described in a prospectus supplement to be filed with Canadian securities regulators. The Financing is expected to close on or about August 2, 2012 and is subject to regulatory approval.

Artis intends to use the net proceeds from the Financing to fund future acquisitions, repay indebtedness, and for general trust purposes.

Artis continues to enjoy a strong deal flow pipeline, with a continued focus on the accretive acquisition of quality commercial properties, in select markets in Canada and the U.S.

And they announced on August 2:

it has closed its previously announced marketed public offering (the “Financing”) of Cumulative 5-Year Rate Reset Preferred Trust Units, Series A, (“the Series A Units”), through a syndicate of underwriters led by RBC Capital Markets, CIBC and Macquarie Capital Markets Canada Ltd. (the “Underwriters”). Pursuant to the Financing, Artis issued 3.0 million Series A Units at a price of $25 per Series A Unit for gross proceeds to Artis of $75,000,000.

Artis has granted the Underwriters an over-allotment option, exercisable at any time up to 30 days after the closing of the Financing, to purchase up to an additional 450,000 Series A Units.

Artis intends to use the net proceeds from the Financing to repay indebtedness, fund future acquisitions, and for general trust purposes.

According to the prospectus supplement (available at SEDAR dated July 25, 2012; I am not permitted to link to it directly due to the cosy little contract the soon-to-be-bank-owned CDS has signed with regulators), “The Series A Units and the Series B Units are not rated by any rating agency.” Accordingly, the issue will not be tracked by HIMIPref™. As I have stated so often that people are getting sick of the repetition, this policy is not because I don’t think I can analyze the credit quality myself, and not because I worship the rating agencies … but because a public credit rating serves as a useful public flash-point during times of stress. It’s always useful to give the directors something to talk about over lunch!

Taxation is complicated: “Artis’ income and net taxable gains for the purposes of the Tax Act will be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by such holders.” In 2011, Unitholder distributions were 100% return of capital and this was also the case in 2010.

6 Responses to “New Issue: AX.PR.A FixedReset 5.25%+406”

  1. adrian2 says:

    Taxation is complicated
    If the last two years get projected into the future, would it mean that AX.PR.A will be a preferred share paying 100% return of capital?

    Is there any other Canadian security calling itself preferred and distributing ROC?

  2. jiHymas says:

    I think distributions will be ROC – but before plunking down any money I would want to check with the company and review their financials with some care!

    There used to be those Connor Clark ROC “preferreds” which were based on synthetic CDOs and defaulted. Additionally, there may be some split shares with low income (WFS? FTU? Some of the older global bank splits that got hammered in the Credit Crunch?) that pay Return of Capital, but I haven’t checked.

  3. doubou says:

    The article is unclear as to why there is a benefit if there is a return of capital. An example would be helpful. The article does not mention that a return of capital will reduce the ACB of the shares and that there wil be a capital gain if the shares are redeemed or if the shares are sold for a price greater than the reduced cost.

  4. jiHymas says:

    An example would be helpful.

    Say you have a company that owns commercial real estate worth 1-million.

    And say you are depreciating the real estate at 5% per year.

    You have rental revenue of $100,000 and cash costs of $90,000. The building appreciates by 10%.

    For tax purposes, your income is 100,000 – 90,000 – 50,000 = (40,000)

    You have net cash of $10,000 to distribute; that’s not a dividend, that’s return of capital (since the books say you are losing money). Additionally, maybe since your bulding has appreciated by $100,000, maybe you can refinance your mortgage and take out another $50,000 and distribute it – this is also return of capital.

    ************

    that there wil be a capital gain if the shares are redeemed or if the shares are sold for a price greater than the reduced cost.

    Yes indeed. But: (i) capital gains marginal rates are generally lower (sometimes much lower) than dividend marginal rates, and much lower than income marginal rates and (ii) tax on the capital gain is deferred until the time of disposal, which is much better than paying every year.

  5. […] is a FixedReset, 5.25%+406, listed in August 2012, but has not been tracked by HIMIPref™ as there was no credit rating. Readers are reminded […]

  6. […] issue joins AX.PR.A, a 5.25%+406 FixedReset which was recently added to HIMIPref™ and which closed yesterday at 26.05-15, for a YTW of […]

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