Smaller isn’t simpler: TitanStar Properties proposes simultaneous public offering, REIT conversion and s. 86 spin-off

TitanStar Properties Inc. simultaneously issued a preliminary short form prospectus for an offering of subscription receipts and a circular for its subsequent conversion to a cross-border REIT.  It also is spinning off a BC company that indirectly holds a Nevada property (the Deer Springs property) which is not a rental property.  The plumbing entails using a s. 86 reorg to distribute the Deer Springs holding company (which will not be listed) as well as the REIT, which will hold the balance of its properties.  The resulting REIT structure will be conventional: REIT, on top of Canadian holdco, on top of leveraged US holdco (which is not a US private REIT), on top of Nevada or Delaware LPs earning FAPI (net of the interest expense, depreciation and any foreign accrual tax deduction).  Although the REIT relies on holding only portfolio investment entities, it might also be a Canadian REIT, given that it will have gotten rid of its questionable property.

Even with some bulking up under its subscription receipt offering, the REIT will still be quite small.  This sort of approach likely represents a more cost effective approach for creating (initially small) public vehicles to hold U.S. real estate than trying to do a U.S. IPO.

Neal Armstrong.  Summary of TitanStar Properties Inc. Circular and Preliminary Short Form Prospectus under Offerings – REIT and LP Offerings – Cross-Border REITs.