Artis Real Estate Investment Pref Shs Series E T.AX.P.E

RE:RE:NO DRIP

[HermannHaller]

Thanks for a thoughtful post. I'm not sure it would work that well. It depends on how big the taxable gain is, and how much uptake of the DRIP there would be. It could take a couple of years of DRIP for the special dividend $$ to get back into the company. And, presumably there are more asset sales to come. Also, as you issue more shares with the DRIP, those shares now get monthly distributions, which gradually hurts your payout ratio. 

Ultimately I think the company will choose to change its legal structure.

babybunny wrote: I urge Artis investors to embrace my proposal for a special distribution of the gain followed by a DRIP allowing investors to reinvest their special distributions.  Please bear with me as I tediously explain the benefit.

If Artis followed this path and all Artis unitholders reinvested their distributions in the DRIP, the effect would be almost the same as if Artis had retained the gain within the trust, with one important benefit and no downside.  Every unitholder would own approximately 5% more units, so there would be no dilution - essentially a 1.05:1 stock split.  The only true difference is that the gain would be taxable in the hands of individual unitholders, rather than within the trust.  I believe the trust would be subject to the maximim tax rate of ~53% on the taxable portion of the gain.  Individual unitholders receiving a distribution, on the other hand, will pay rates ranging from 0% to 53% on the taxable portion, with the 53% rate applying only for those with annual income over $200K who hold their units in non-registered accounts .  So some unitholders will break even under my proposal, while many will be much better off.  Those holding their units in registered accounts will make out like bandits!

Of course, in reality some investors may decline to participate in the DRIP.  I don't know why they would, as it would be fully funded by the special distribution.  But they still might feel a bit sore about new units being issued at a 3% discount.  But these DRIP non-participants should bear in mind that they would still benefit from the taxation of the capital gain at their (likely lower) personal level, and this benefit would more than compensate for the 3% discount they are choosing to miss out on.

I hope those who have reflexively taken a stand against my proposal will give full consideration to the above points and have an open mind.