Investor Memo: REIT Conversion Paths

To: Limited Partners & Co-Investors From: ColdPort Investment Committee Date: May 22, 2026 Subject: Navigating REIT Conversion Paths and UPREIT Architectures

Executive Summary

As a real estate investment platform scales, the structural vehicle holding the assets must evolve to accommodate broader capital aggregation, tax-efficient liquidity, and enhanced exit optionality. For institutional-grade portfolios within the specialized cold storage sector, transitioning from a series of closed-end private equity funds to a Real Estate Investment Trust (REIT) structure represents a sophisticated evolutionary leap. This memorandum outlines the strategic rationale for REIT conversion, the mechanics of the Umbrella Partnership REIT (UPREIT) structure, and the resultant tax-deferral benefits for our Limited Partners.

The Strategic Rationale for REIT Structures

A REIT is a tax-advantaged corporate entity designed specifically to own, operate, or finance income-producing real estate. To qualify as a REIT, an entity must distribute at least 90% of its taxable income to shareholders annually, in exchange for which the corporate entity pays zero federal income tax.

For ColdPort, as the aggregate value of our cold logistics portfolio scales toward institutional thresholds, a REIT structure offers profound advantages:

1. Access to Public/Broader Capital: A REIT structure—whether non-traded or publicly listed—democratizes access to capital markets, allowing for the issuance of preferred equity, corporate bonds, and secondary public offerings.
2. Permanent Capital Base: Unlike closed-end funds which force a liquidation of assets at the end of a 5-to-10 year fund life, a REIT provides permanent capital, allowing management to hold high-performing cold storage assets indefinitely, capturing long-term compounding and rent growth.
3. Liquidity: For public REITs, shares provide daily liquidity for investors, a stark contrast to the illiquidity of traditional LP interests.

The UPREIT Architecture: The Holy Grail of Tax Deferral

The transition from private syndications to a REIT is most efficiently executed through an Umbrella Partnership REIT (UPREIT) structure. In a standard conversion, contributing highly appreciated real estate to a new corporate entity triggers immediate capital gains tax. The UPREIT bypasses this friction.

In an UPREIT, the REIT does not own the properties directly. Instead, the REIT is the general partner and majority owner of an Operating Partnership (OP). When ColdPort seeks to roll up legacy fund assets into the REIT, the existing Limited Partners contribute their properties (or their LLC interests) into the Operating Partnership.

In exchange for contributing the property, the LPs receive "OP Units" in the Operating Partnership, rather than shares of the REIT itself. Crucially, under Section 721 of the Internal Revenue Code, the exchange of real property for OP Units is considered a tax-deferred transaction. No capital gains tax, depreciation recapture, or state taxes are triggered at the time of the roll-up.

Liquidity and the Conversion Mechanism

The power of the OP Unit lies in its convertibility. OP Units are typically designed to be economically equivalent to shares of the REIT (paying the identical dividend yield). Furthermore, OP Unit holders possess the contractual right to convert their OP Units into common shares of the REIT (or cash, at the REIT’s discretion) on a 1-to-1 basis.

This mechanism grants the investor total control over their tax destiny:

• Deferral: An LP can hold the OP Units indefinitely, enjoying the dividend yield of the entire diversified REIT portfolio while continuing to defer the capital gains tax from the original property.
• Staged Liquidity: An LP can choose to convert small tranches of OP Units into REIT shares over several years, spreading the tax liability and managing their personal tax bracket efficiently.
• Estate Planning: Under current tax law, if an investor holds OP Units until death, the units pass to heirs with a "step-up" in basis to current market value, effectively eliminating the capital gains tax entirely.

ColdPort's Strategic Implementation

ColdPort's acquisition strategy is designed with future UPREIT optionality in mind. By maintaining pristine accounting at the individual asset level and standardizing our operating agreements, we ensure that our portfolio is "REIT-ready." Furthermore, the UPREIT structure becomes a powerful acquisition tool. ColdPort can approach owners of generational, highly appreciated cold storage facilities and offer to acquire their property in exchange for OP Units, providing the seller with tax-deferral, diversification, and liquidity—an offer traditional cash-buyers cannot match.

Conclusion

The implementation of an UPREIT conversion path transforms ColdPort from a localized asset aggregator into a highly scalable, tax-optimized real estate platform. By preserving capital through tax deferral and providing structured liquidity avenues, we ensure that our capital structure works as aggressively as our real estate operations to maximize LP wealth.

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