Question
March 28, 1995
BY FACSIMILE TRANSMISSION
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
Sixth Pennsylvania Avenue, NW
Room 322
Washington, D.C. 20580
Re: Request for Informal Interpretation Relating to Merger of REITs
Dear Dick:
We are seeking your concurrence in our conclusion that the transaction described below is exempt form the notification and waiting periods of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act) under 15 U.S.C. 18a(c)(1) as an acquisition of realty transferred in the ordinary course of business.
The Transaction and the Parties
The transaction in question essentially the merger of two existing real estate investment trusts (REITs).
REIT A is a publicly traded entity that presently is qualified as a REIT under the applicable Internal Revenue Code provision, IRC 856, and the regulations promulgated thereunder. REIT A is a self directed, self managed REIT. It is the sole ultimate parent entity (UPE?) of an Operating Limited Partnership through which it engages in the development, management, operation, and leasing of manufacturers? outlet shopping centers. Units of the Operating Limited Partnership are exchangeable on a one to one basis for shares of capital stock of REIT A.
REIT B is a publicly traded entity that presently is qualified as a REIT under the applicable Internal Revenue Code provision, IRC 856, and the regulations promulgated thereunder. REIT B also is a self directed, self managed REIT. It is the sole UPE of an Operating Limited Partnership through which it engages in the development, management, operation, and leasing of manufacturers outlet shopping centers. Units of the Operating Limited Partnership are exchangeable on a one to one basis for shares of capital stock of REIT B.
Pursuant to an agreement between the parties, REIT A will be merged into REIT B with REIT B continuing to exist as the surviving entity. Shareholders of REIT A will receive shares of REIT B as a consequence of the merger. In addition, Operating Limited Partnership A and Operating Limited Partnership B will be consolidated into a new Operating Limited Partnership. REIT B will be the UPE of the new Operating Limited Partnership after the transaction is completed.
Analysis
We have analyzed prior interpretations of the Premerger Notification Office (PNO) and, based on those interpretations have concluded that the transaction described above should be exempt from the notification and waiting period requirements of the HSR Act under 15 U.S.C 18a(c)(1). In response to a letter dated December 20, 1990 the PNO concluded that acquisitions of real property by a REIT were covered by the ordinary course exemption. In response to a letter dated February 17, 1993 the PNO concluded that the acquisition of all of the assets of one REIT by another REIT also was covered by the ordinary course exemption. In response to a letter dated April 8, 1993 the PNO only to raw land but also to income producing properties.
Based on the prior interpretations of the PNO, it is our conclusion that the merger of REIT and REIT B, as well as the combination of their respective Operating Limited Partnerships, should be exempt from the prior notification and waiting period requirements of the HSR Act pursuant to the ordinary course exemption. The economic substance of this transaction is identical to the transaction described in the February 17, 1993 letter in which all of the assets of one REIT were acquired by another REIT.
We recognize that the acquisition of shares of REIT B by current holders of REIT A potentially is reportable but we do not believe that any single shareholder of REIT A will receive voting securities of REIT B valued at more than $15 million.
We recognize that the acquisition of shares of REIT B by current holders of REIT A potentially is reportable but we do not believe that any single shareholder of REIT A will receive voting securities of REIT B valued at more than $15 million.
I would appreciate it if you could let me know at your earliest convenience whether or not you concur in this analysis. Our client is proceeding with transaction described above and would like to confirm that there is no need file under the HSR Act. Thank you for taking the time to consider this issue.
Best regards.
Very truly yours,
(Redacted)
cc: (redacted)