Distribution declaration mechanics
← All revisions
docs(corporate): fix fabricated per-asset ICR distribution-gate mechanism -- real governing documents (Sixth/Seventh Amended LPA, Offering Prospectus Sections 1/2/3/5/7) describe the Interest Coverage Ratio as an aggregate partnership-level covenant on new borrowing (1.20x floor before issuing First Secured Mortgage Debentures), not a per-asset distribution gate with a suspension protocol; corrected across investment-units, distribution-declaration-mechanics, perpetual-equity-model, and 13 other articles that repeated or cross-referenced the fabricated version (EN+ES)
@@ -7,22 +7,23 @@ index_group: distribution-policy-and-mechanics type: topic content_type: topic quality: complete short_description: "How distributions in the Canada and United States limited-partnership-form direct-hold vehicles are determined, declared, and paid: the ICR gate, proportional allocation across units, and the suspension protocol." short_description: "How distributions in the Canada and United States limited-partnership-form direct-hold vehicles are determined, declared, and paid: general-partner discretion, proportional allocation across units, and the relationship to the vehicle's borrowing covenant." status: active bcsc_class: public-disclosure-safe language_protocol: PROSE-TOPIC last_edited: 2026-07-11 last_edited: 2026-08-24 editor: woodfine-editorial paired_with: distribution-declaration-mechanics.es.md --- In the established Canada vehicle, the general partner declares distributions when the asset's operating performance satisfies the [[cre-financial-metrics|interest coverage ratio]] (ICR) floor. No distribution is declared from an asset whose ICR is below 1.2×. When distributions are declared, they are allocated to all outstanding units of the relevant asset in equal proportion — no unit carries a preferential distribution right over another. The planned United States vehicle is intended to apply an equivalent ICR gate, proportional calculation, and suspension protocol once established. In the established Canada vehicle, the general partner declares distributions at its discretion, subject to the partnership having sufficient available cash, to preserving the working-capital reserve, and to compliance with the [[cre-financial-metrics|interest coverage ratio]] (ICR) covenant that governs the vehicle's borrowing. When distributions are declared, they are allocated to all outstanding units of the relevant asset in equal proportion — no unit carries a preferential distribution right over another. The planned United States vehicle is intended to apply an equivalent discretion, covenant, and proportional-calculation framework once established. These mechanics apply to the Canada and United States Direct-Hold Solutions, which are structured as limited partnerships. The Spain SOCIMI and @@ -31,9 +32,10 @@ partnership agreement, and are not covered by the mechanics described here. ## Key takeaways - A distribution is declared by the general partner only when stabilised operating income covers interest obligations by at least 1.2×; no exception to this gate exists and no distribution is advanced from any other asset or entity. - A distribution is declared at the general partner's discretion, subject to available cash, preservation of the working-capital reserve, and compliance with the vehicle's aggregate [[cre-financial-metrics|interest coverage ratio]] covenant — not a per-asset formula, and not a mechanism that supplements one property's distribution with another's income. - Distributions are proportional to outstanding unit counts; an investor holding five percent of a direct-hold LP's units receives five percent of any distribution declared from that LP — no priority class, no catch-up mechanism, no preferred return. @@ -44,23 +46,20 @@ partnership agreement, and are not covered by the mechanics described here. 90 days of fiscal year-end; the remaining 10% is retained for partnership purposes during the Initial Period, then applied to redeem First Secured Mortgage Debentures. ## The ICR gate ## Interest coverage ratio and distributions The interest coverage ratio for each asset is calculated as stabilised net operating income divided by total annual interest obligations on all debt secured against the asset. A ratio at or above 1.2× indicates that operating income covers interest with a 20% buffer. A ratio below 1.2× means that operating income is insufficient to service debt with the required cushion and that declaring a distribution would reduce the cash available for [[debt-service-and-financing-structure|debt service]]. The interest coverage ratio is a covenant on new borrowing, not a distribution formula. It is calculated at the vehicle level — aggregate pre-tax earnings against aggregate interest, fee, and cost payments to lenders across every property the vehicle holds, not any single property in isolation — and it sets a 1.20× floor below which the vehicle may not issue further First Secured Mortgage Debentures, absent a Special Resolution of unit holders. See [[debt-service-and-financing-structure]] for the full borrowing-covenant mechanics. The ICR gate is not a soft guideline — it is a hard operating constraint built into the partnership agreement. The general partner cannot lawfully declare a distribution that would reduce the ICR below 1.2×. This constraint is the primary mechanism by which unit holders are protected from distributions that outpace the asset's ability to sustain them. The ICR is calculated per asset and per period. It does not aggregate across assets in the portfolio or across the holding structure. An asset with a 1.5× ICR and an asset with a 0.9× ICR are evaluated independently; the strong ICR of one asset does not supplement the weak ICR of the other. Distribution declarations are a separate, discretionary decision. The general partner's discretion over the amount and timing of distributions is subject to the partnership having sufficient available cash, to preserving the working-capital reserve, and to the ICR covenant — the covenant is one input among several, not a hard gate that halts a single property's distributions on its own while the vehicle's other properties continue paying. ## Proportional allocation @@ -84,24 +83,6 @@ partners paid for their units (the Initial Period), the remaining 10% is retaine partnership purposes. After the Initial Period, that 10% is applied to redeem First Secured Mortgage Debentures until fully redeemed, after which it reverts to partnership purposes. ## Suspension protocol If the ICR falls below 1.2× — due to a vacancy, a tenant default, a maintenance cost spike, or adverse market conditions — the general partner suspends distributions and enters a cash-preservation protocol. Under the protocol: - Operating income is retained within the partnership rather than distributed - Debt service continues to be paid from operating income - Capital expenditure required to restore occupancy or address deferred maintenance is funded from retained operating cash - Distributions resume only when the ICR has been restored to 1.2× or above The suspension is not a gate that queues distributions for later payment in the manner of a preferred dividend in arrears. Distributions suspended during the ICR shortfall period are not subsequently paid to unit holders who held units during the period of suspension. The general partner's discretion in declaring distributions does not extend to promising future distributions that compensate for the suspended period. ## Tax treatment The limited partnership does not pay income tax at the entity level; income and deductible @@ -115,3 +96,6 @@ for qualified tax counsel. limited partners - [[asset-vehicle-isolation]] — why distributions from one LP asset cannot be supplemented by assets held in another LP - [[debt-service-and-financing-structure]] — the interest coverage ratio covenant and how it governs new borrowing - [[narrow-bank-financial-model]] — the financial model underlying the borrowing covenant