The Automotive Properties REIT IPO will use a conventional exchangeable unit structure

The Dilawri Group will transfer under s. 97(2) a portion of their Canadian automobile dealership properties (subject to leases back to them) to a subsidiary LP of the proposed Automotive Properties REIT for Notes and Class C LP units (to be redeemed for cash shortly thereafter) and for Class B exchangeable LP units (which will be treated as debt for accounting purposes). The public then will subscribe for conventional (s. 108(2)(a)) REIT units and the REIT will subscribe for (conventional) Class A LP units of the LP. Through their Class B LP Units (and corresponding special voting units of the REIT) the Dilawri Group initially will have a 60% interest in the REIT.

Their Class B LP unit exchange rights will be buttressed by a conventional exchange agreement between them, the Partnership and the REIT. Initial nervousness about the potential scope of the derivative forward agreement rules may have prompted the avoidance in prior transactions of direct rights of the exchangeable unit holders against the applicable REIT (see 2014 CTF Roundtable, Q. 1(c)).

Neal Armstrong.  Summary of Automotive Properties REIT preliminary prospectus under Offerings – REIT and LP Offerings – Domestic REITs.