Question
From: (redacted)
Sent: Tuesday, November 29, 2005 5:13 PM
To: Verne,B. Michael
Subject: REITExemption
Dear Mr. Verne:
Iam seeking to understand the PNO's exemption for Real Estate InvestmentTrusts as discussed in section 197 of the Premerger Notification Manual andvarious letters available on the FTC's website. The current situation issomewhat fluid since the transaction is still being shaped, but as currentlycontemplated a Canadian REIT would be formed as a trust under the laws of Ontario. Units in the REIT would be sold to the public. Thereafter,the REIT would purchase and then operate skilled nursing facilities, assistedliving facilities and rehabilitation hospitals (collectively "senior carefacilities") in the United States. Some of thesefacilities would be acquired through asset purchases, some through acquisitionsof REITs and some through acquisitions of other corporations. It is assumed forthe purpose of this discussion that all size of person and size of transactionstests would be met.
Itis my understanding that formation of the Canadian REIT would be governed bysection 801.50, unless it is exempt under section 802.51. Further, it is myunderstanding that, assuming the Canadian REIT is prepared to qualify ( SeeInformal Opinion 9510008) as an REIT for U.S. tax purposes under section 856 ofthe Internal Revenue Code, the Canadian REIT can purchase and then operate thesenior care facilities without filing a Hart Scott notification, regardless ofwhether the senior care facilities are acquired through a purchase of assets, apurchase of another REIT or the purchase of stock of another corporation whichowns the facilities. (See Informal Opinions 9404001, 9206005, 9304002, 9403002,9302005, 9503024, 9903010, 0012006) The only exception to the Canadian REIT'sability to make such purchases without filing under Hart Scott would be if theCanadian REIT would end up holding 50% or more of the outstanding stock of aTaxable REIT Subsidiary (see Informal Opinion 0103003).
Further,it is my understanding that, although the prospect of a new formalinterpretation on REITs is discussed in Informal Opinion 0103003, dated March 7, 2001, no such formal opinion has been issued. However, theissuance of the new rules on unincorporated entities has not changes theposition of the PNO on the proper treatment of REITs.
Iwould appreciate your thoughts on the foregoing summary of the PNO's treatment of REITs. I would be happy to obtain your thoughtseither by return email or by telephone at the number below. Thank you for yourcooperation.