REIT and LP Offerings

Overview

Under a CBCA Plan of Arrangement, the Company will transfer its assets other than its interest in a non-rental Nevada property (the Deer Springs property held through Deer Springs LP, a Nevada LP) to a newly-formed unit trust (TitanStar REIT), and then will transfer its interests in Deer Springs LP to a new B.C. holding company (Deer Springs Holdings). Its units of TitanStar REIT and its shares of Deer Springs Holdings will then be distributed to its shareholders under a s. 86 reorg. Deer Springs Holdings will not be listed and will have the same board and management as TitanStar REIT. "TitanStar REIT units are expected to provide an enhanced ability for TitanStar REIT to access the Candian equity capital markets, given that most publicly traded real estate entities in Canada are REIT structures or high yielding corporate structures."

The Company

Is listed on the TSXV and holds interests in U.S. retail shopping centres and the Deer Springs property through Nevada or Delaware LPs (with interests therein ranging from approximately 38% to 51%) held by it directly (in the case of that portion of an interest in Deer Springs LP which is held through a holding Nevada LP) or through Canadian or BC holding companies (principally, TSP DSC and TSP LP Holdings).

Preliminary Steps (1 to 3), Plan of Arrangement (steps 4 to 9) and post-Arrangement Steps (steps 10 to 12)

1. TitanStar REIT was settled with the Company as its beneficiary as a B.C. unit trust.
2. the Company has entered into purchase agreements for further U.S. asset acquisitions to be funded out of the equity raised in 3 below and with debt financing from Barclays Bank plc.
3. an offering of subscription receipts pursuant to a short form prospectus (to raise between $20M and $45M) will be completed pursuant to which Preferred Shares of the Company will be issued on the basis of one preferred Share for each subscription receipt.
4. the Company will transfer to Deer Springs Holdings its beneficial interest in the Deer Springs Property (comprised of its interests in Deer Springs LP and in a Nevada holding LP) in exchange for, among other things, Deer Springs Holdings Shares and Deer Springs Holdings Options;
5. the Company Common Shares held by dissenting shareholders will be repurchased by the Company and cancelled;
6. the Company will transfer all of its assets and liabilities to TitanStar REIT, excepting its shares in Deer Springs Holdings. In consideration, TitanStar REIT will agree to assume all of the Company's liabilities including its Debentures, and will issue TitanStar REIT Units to the Company.
7. each outstanding TitanStar Option will be exchanged for a TitanStar REIT Option to acquire a TitanStar REIT Unit and a Deer Springs Holdings Option to acquire a Deer Springs Holdings Share;
8. all of the Outstanding Shares of the Company (both Preferred Shares and common shares) will be purchased by the Company from the Company Outstanding Shareholders for cancellation, in exchange for the transfer by the Company per each Outstanding Share of: (a) one TitanStar REIT Unit; and (b) one Deer Springs Holdings Share per outstanding common share. Simultaneously with the cancellation of the Outstanding Shares, TitanStar REIT will subscribe for one common share for nominal consideration;
9. the TitanStar REIT Units will be consolidated on a basis of one "new" TitanStar REIT Unit for the lesser of that number of "old" TitanStar REIT Units that is: (a) allowable under TSXV policies; and (b) $4 divided by the market price of the Common Shares as determined in accordance with Section 1.11(1) of Multilateral Instrument 62-104 TakeOver Bids and Issuer Bids), and the exercise price of each TitanStar REIT Option will be adjusted accordingly.
10. The Company, TSP DSC and TSP LP Holdings will amalgamate to form TitanStar Amalco;
11. TitanStar REIT will transfer its interest in three Nevada LPs (TSPLP I, TSP LP II and Blue Springs LP) to TitanStar Amalco; and
12. TitanStar Amalco will transfer its interest in those LPs to TitanStar US.

Resulting structure

TitanStar REIT will have equity and debt interests in TitanStar Amalco, debt interests in TitanStar US and hold two GP corporations. Non-resident ownership of TitanStar REIT will be limited to 49%. The TitanStar REIT units will be redeemable for the lesser of their closing market price and 95% of the 10-day average immediately following the redemption date.

Securities considerations

The TitanStar REIT units and Deer Springs Holdings shares will be received in reliance on the s. 3(a)(10) rule. Shareholder approval is required by a 2/3 majority.

Canadian tax consequences

Asset transfers. The various transfers to TitanStar REIT and Deer Springs Holdings will result in capital gain. However, this is anticipated to be offset by available capital losses. Subsequent transfers of the various limited partnership interests by TitanStar REIT to TitanStar Amalco and from TitanStar Amalco to TitanStar US will not result in a capital gain.

SIFT rules

Following the Arrangement, TitanStar REIT's property will be its shares of TitanStar Amalco, TitanStar GP and Blue Springs GP, which will be portfolio investment entities.

FAPI

TitanStar US is a "foreign affiliate" and a CFA of TitanStar Amalco. It is expected that income earned by TitanStar US will be foreign accrual property income.

S. 86 exchange

The fair market value of the distributed Deer Spring Holdings shares is not expected to exceed the paid-up capital of the Company common shares, so that no deemed dividend should arise on the exchange of the Company common shares for TitanStar REIT units and Deer Spring Holdings shares. S. 86 will apply to such exchange so that a holder of the Company common shares will be considered to have disposed of its shares for the greater of their adjusted cost base and the fair market value of the Deer Spring Holdings shares and TitanStar REIT units received on the exchange.

Dissenters

Disposition will give rise to a deemed dividend to the extent that the amount received (excluding any interest award) exceeds the paid-up capital of the common shares.

Deer Springs Holdings

Deer Springs Holdings is expected to comply on a continuous basis with the ownership and dispersal of share requirements described in Reg. 4800, and to elect to be a "public corporation" in its first return.

Overview

Through an indirectly owned Delaware LP (the "Partnership"), the REIT (an Ontario unit trust) will acquire a portfolio of 37 warehouse and distribution industrial rental properties in the U.S., appraised at between $460.8M and $468.9 million. The properties will be acquired from a Minnesota-headquartered LLC ("Welsh"), which will hold exchangeable units in the Partnership (i.e, an "UPREIT" structure), and will be the asset and property manager. Although the REIT will be a U.S. corporation under the U.S. anti-inversion rule, this will be addressed by it being a U.S. REIT under the Code. For Canadian purposes, it will avoid the SIFT rules by not holding non-portfolio property.

Structure

A direct Delaware LLC subsidiary of the REIT ("US Holdco") will hold all the Class A units of the Partnership, which will be general partner units.

Following closing, Welsh will hold an approximate 52.1% effective interest in the REIT units (48.6% after over-allotment) by virtue of holding all of the Class B exchangeable units of the Partnership (being 10.9M units).

Unitholders/Redemptions

In order to assist in qualifying as a U.S. REIT, the declaration of trust will prohibit any person from actually or constructively owing more than 9.8% of the REIT units, subject to any exemptions granted by the board. There will be a unitholder rights plan. Unit redemptions in excess of $50,000 per month (with the redemption price calculated at the lesser of closing market price and 90% of VWAP) are satisfied with notes of the REIT.

Management

Almanac Realty Investors, LLC, formerly Rothschild Realty Manager, LLC holds a $183M note of Welsh, which is convertible into 81% of the Welsh equity. The CEO of the REIT is the CEO of Welsh.

Debt

Debt level targeted at below 55% of consolidated gross book value ($236.2M at closing) (p. 80).

Distributions

Monthly, of $0.0583 representing 90% of AFFO. The tax-deferred percentage for 2013 was estimated in the prelim. to be 75%. It is estimated for 2013 that 69% of the monthly distributions will be paid out of the REIT's current or accumulated earnings and profits and, accordingly, will be subject to US withholding tax. Distributions will be paid in US dollars, with FX hedging of the REIT's US-dollar revenues.

Implementation of Structure

The following transactions will occur upon closing of the offering:

• the REIT will use the net proceeds of the offering to subscribe for preferred and common shares of US Holdco, which will subscribe for Class A units of the Partnership
• Welsh will transfer its equity of the property LLCs or LPs to the Partnership in consideration for cash of $68.4 million and 10.9M Class B units

Canadian tax consequences

SIFT tax. Management does not anticipate that the REIT will hold any non-portfolio property or carry on a Canadian business, so that it should not be considered to be a SIFT trust.

FAPI

. A portion of the income earned by US Holdco (and CFAs of the Partnership, or certain subsidiary partnerships thereof) will be foreign accrual property income, and included in the income of the REIT.

FTCs

The tax disclosure is not directed to investors who hold more than 5% of the REIT units for Code purposes. The U.S. withholding tax deducted in respect of a distribution paid on a Unit in a taxation year will generally be characterized as "non-business income tax," and may be deducted as a foreign tax credit where the holder has sufficient non-business income from U.S. sources. Alternatively, such non-business income tax (including any amount not deductible as a foreign tax credit) generally may be deducted by the Holder in computing the Holder's income. A Holder's ability to apply U.S. withholding taxes in the foregoing manner may be affected where the Holder does not have sufficient taxes otherwise payable under Part I of the Tax Act, or sufficient U.S. source income in the taxation year the U.S. withholding taxes are paid, or where the Holder has other U.S. sources of income or losses, or has paid other U.S. taxes. Per 2014 AIF:

The proceeds receivable on a disposition of a Unit may not qualify as U.S. source income for purposes of the Tax Act (including for Canadian foreign tax credit purposes), and beneficiaries of certain Unitholders that are trusts may not be considered to have paid such tax for purposes of the Tax Act and, accordingly, may not be entitled to a foreign tax credit in respect of such U.S. tax for Canadian tax purposes.

U.S. tax consequences

REIT status. The REIT is treated as a U.S. corporation for all Code purposes under Code s. 7874 and, accordingly, is permitted to elect to be treated as a real estate investment trust. The REIT will elect real estate investment trust status beginning with its taxable year ending December 31, 2013. Management intends to make timely distributions sufficient to satisfy the annual distribution requirements.

Ordinary distributions to non-US holders

Distributions that are neither attributable to gains from the sales or exchanges by the REIT of U.S. real property interests ("USRPIs"), nor designated as capital gains dividends, will be treated as dividends of ordinary income to the extent they are made out of the REIT's current or accumulated earnings and profits, so that qualifying non-US holders generally are entitled to a 15% withholding rate on such distributions under the Treaty. Such qualifying non-US holders are holders holding no more than 5% of the outstanding units if the units are publicly traded, individuals holding no more than 10% of the outstanding units, and those holding no more than 10% of the outstanding units and the REIT is diversified (based on no single property exceeding 10% of the gross value of the real property). RRSPs, RRIFs and DPSPs may be eligible for exemption. Distributions received by a TFSA, RESP or RDSP will be treated for the above purposes as received by the beneficiary or annuitant.

Distributions in excess of the REIT's current and accumulated earnings and profits will reduce the adjusted tax basis of the non-resident holder's units. Because management expects that the REIT units will be considered to be regularly traded on an established securities market, it does not expect to be required to withhold on such excess distributions made to non-US holders owning 5% or fewer of the outstanding units during the applicable testing period.

FIRPTA re distributions

A distributions of proceeds attributable to the sale or exchange by the REIT of USRPIs will not be subject to FIRPTA tax or branch profits tax and instead will be treated as an ordinary distribution if (as anticipated -see below) the REIT units qualify as regularly traded on an established securities market located in the U.S. and the recipient unitholder does not own more than 5% of the units at any time during the preceding one year. A non-US unitholder who fails to give notice of becoming the owner or constructive owner of more than 5% of the units, will have the excess (over 5%) units sold, with the lesser of the original purchase price for the excess units and the net sales proceeds being remitted to it.

FIRPTA re unit dispositions

Although the REIT is expected to be a U.S. real property holding corporation ("USRPHC"), the REIT units will not be treated as an interest in a USRPHC to a disposing unitholder who does not own or constructively own more than 5% of the units at any time in the five years preceding the disposition (or such shorter period as the units were held), if the units qualify as "regularly traded on an established securities market." As the REIT has received indications that at least two brokers or dealers are willing to regularly quote and make a market in the REIT units on the pink sheets and/or the OTCQX, the units should qualify as "regularly traded" on an established securities maket in the U.S. A more rigorous test would apply if reliance were placed on the TSX as the relevant securities market for these purposes.

Overview

The REIT, which is an Ontario unit trust, is offering 10.5M units for $105M. It will acquire four leasehold interests in French and German office properties, which are currently managed by a privately owned investment management company with a Parisian head office ("Inovalis"). The aggregate acquisition cost of these leaseholds plus aggregate option exercise prices to acquire the related properties will be less than the properties' appraised value of €165 million (including €144 million for the French properties).

Structure

A Luxembourg subsidiary s.à r.l. of the REIT ("Luxco") will hold equity, and interest-bearing debt, of a wholly-owned German SPV of Luxco (also a s.à r.l.), which will hold the Hanover, Germany property. Luxco will hold interest-bearing notes of French SPVs holding the three Parisian properties and will hold the equity of the French SPVs through a French holding company ("OPCI"). Luxco will be capitalized with $5 million of non-interest bearing notes ("NIB Notes"), $5 million of 15-year notes bearing interest at 7.8% ("Luxco Notes") and common shares. Inovalis will hold exchangeable securities of Luxco (comprising NIB Notes, Luxco Notes and common shares) representing the equivalent of an approximate 10% ownership interest in the REIT, and will hold the equivalent number of special voting units of the REIT.

Redemption notes

The maturity date and interest rate on redemption notes issued by the REIT on any large unit redemptions will have a maturity date and interest rate to be determined by the Trustees at the time of issuance – or, alternatively, securities of REIT subsidiaries may be delivered in the Trustees' discretion.

Distributions

91% of distributions for 2013 (at an estimated monthly rate, following the initial distribution for most of the balance of 2013 of $0.6875 per unit) are estimated to be tax-deferred. Such distributions are estimated to approximate 93% of AFFO. Under an FX hedging arrangement, an arm's length counterparty will agree to exchange euros for Canadian dollars on a monthly basis at an agreed exchange rate. The DRIP will use 3% bonus distributions.

Management

The annual asset management fee of Inovalis, and 50% of its acquisition fees, will be paid entirely in exchangeable securities of Luxco. Upon the earlier of the REIT achieving a market capitalization of $750 million and the 5^th anniversary, management will be internalized.

Canadian tax consequences

SIFT tax. The REIT will not be subject to SIFT tax on the basis of not holding any non-portfolio property. As it will not hold any taxable Canadian property, it is not subject to non-resident ownership restrictions.

FAPI

It is expected that the income of the REIT's subsidiaries will be foreign accrual property income. However, it is expected that the REIT's distributions will be sufficient for it not to be subject to Part I tax.

French tax consequences

Provided OPCI and the French SPVs comply with their distribution obligations (to inter alia distribute 85% of their distributable income), they are exempt from French corporate income tax. A French withholding tax of 5% will be levied on dividends paid by OPCI to Luxco (p. 61). There will be no withholding tax on the interest paid by the French SPVs to Luxco. As financial lease agreements are not considered to be real estate assets and no elections have been made to purchase real estate assets, the 3% tax assessed on directly or indirectly held real estate will not be applicable.

German tax consequences

Corporate income tax. The German SPV is a Luxembourg s.à r.l. that is managed in Luxembourg and, therefore, should not be resident in Germany for German tax purposes. However, it nonetheless will be subject to German corporate income tax rate at a rate of 15.825%. The German SPV is acquiring real estate under a head lease by prepaying the rent under the head lease, and earning rents from the sublessees. The rental payments received by it from the sublessees will be included in computing its income for German corporate income tax purposes; however, it will be able to take deductions based on amortization of the headlease prepayment. Deductions of interest should not be limited under the German interest barrier provided that the net interest expense of the German SPV is below €3 million p.a., and the financing arrangements comply with the arm's length principle.

Wthholding/trade tax

Dividends paid by the German SPV to Luxco should be exempt under the participation exemption. The German SPV should not be subject to municipal trade tax given that the mere subleasing of the property would not create a German permanent establishment.

RETT

The assumption of the headlease and the subleases, and the acquisition of the property option should not trigger German real estate transfer tax. However, RETT will be triggered (currently at a 4.5% rate) when the option is exercised.

Overview

Offering of 20 million REIT units ($200 million). Through an indirectly owned Delaware LP (the "Partnership"), the REIT will acquire a portfolio of 52 multi-family residential rental properties in the U.S, appraised at $1.2B. Prior to the offering, ownership and profit interests in the Partnership were held by a partnership ("Milesouth"), which was affiliated with Invesco Ltd., and by an affiliated LLC ("MST Investors"). Milesouth and MST Investors will hold exchangeable Class B units of the Partnership.

Structure

A direct Delaware LLC subsidiary of the REIT ("US Holdco") will hold all the Class A units of the Partnership, and control the general partner of the Partnership. The Partnership will hold the 52 properties through subsidiary partnerships.

Following closing, Milesouth/ MST Investors will hold 14M REIT units and 8.923M Partnership units (being Class B exchangeable units).

Unitholders

In order to assist in qualifying as a U.S. REIT, the declaration of trust will prohibit any person from actually or constructively owning more than 9.8% of the REIT units, subject to any exemptions granted by the board. There also is an expropriation provision re over 5% blocks discussed re FIRPTA below. There will be a unitholder rights plan.

Management

The CEO is Managing Partner of Milestone. A member of the Milestone group is the asset manager. After 10 years at the latest, asset management will be internalized without termination fees unless the independent trustees determine otherwise. The property manager is an LLC owned by the Partnership.

Debt

Debt level targeted at below 55% of consolidated gross book value ($646M at closing).

Distributions

Monthly, at a rate (after the first montly distribution) of $0.05417 per unit, representing 90% of AFFO. As distributions will be paid in Canadian dollars, the REIT will hedge its first two years of dollar distributions from U.S. Holdco.

Implementation of Structure

The following transactions will occur upon closing of the offering:

• the REIT will acquire units of the Partnership in exchange for 14M units of the REIT
• the REIT will contribute the net proceeds of the offering and its Partnership units to US Holdco in subscription for preferred and common shares
• US Holdco will use the proceeds received from the REIT to purchase Partnership units from Milesouth for $180.6M, and acquire for nominal consideration the membership interest in the general partner of the partnership which is a general partner of the Partnership
• at the same time, the LPA for the Partnership will be amended so that the partnership interests of US Holdco and Milesouth/MST Investors will be Class A, and Class B exchangeable, units respectively

Canadian tax consequences

SIFT tax. Management does not anticipate that the REIT will hold any non-portfolio property, so that it should not be considered to be a SIFT trust.

FAPI

A portion of the income earned by US Holdco (and CFAs of the Partnership, or certain subsidiary partnerships thereof) will be foreign accrual property income, and included in the income of the REIT.

FTCs

The tax disclosure is not directed to investors who hold more than 5% of the REIT units for Code purposes. The U.S. withholding tax deducted in respect of a distribution paid on a REIT unit in a taxation year will generally be characterized as "non-business income tax," and may be deducted as a foreign tax credit where the resident holder has sufficient non-business income from U.S. sources. Alternatively, such non-business income tax (including any amount not deductible as a foreign tax credit) generally may be deducted by the holder in computing the holder's income. A resident holder's ability to apply U.S. withholding taxes in the foregoing manner may be affected where the holder does not have sufficient taxes otherwise payable under Part I of the Tax Act, or sufficient U.S. source income in the taxation year the U.S. withholding taxes are paid, or where the holder has other U.S. sources of income or losses, or has paid other U.S. taxes.

U.S. tax consequences

REIT/U.S. corporation status. The REIT is treated as a U.S. corporation for all Code purposes under Code s. 7874 and, accordingly, is permitted to elect to be treated as a real estate investment trust. The REIT will elect real estate investment trust status beginning with its taxable year ending December 31, 2013. Management intends to make timely distributions sufficient to satisfy the annual distribution requirements.

Ordinary distributions to non-US holders

Distributions that are neither attributable to gains from the sale or exchange by the REIT of U.S. real property interests ("USRPIs"), nor designated as capital gains dividends, will be treated as dividends of ordinary income to the extent they are made out of the REIT's current or accumulated earnings and profits, so that qualified residents of Canada generally are entitled to a 15% withholding rate on such distributions under the Treaty. RRSPs, RRIFs and DPSPs may be eligible for exemption. Distributions received by a TFSA, RESP or RDSP will be treated for the above purposes as received by the beneficiary or annuitant.

Management anticipates that there will be distributions in excess of the REIT's current and accumulated earnings and profits. These will reduce the adjusted tax basis of the non-resident holder's units. Because management expects that the REIT units will be considered to be regularly traded on an established securities market (see below), it does not expect to be required to withhold on such excess distributions made to non-US holders owning 5% or fewer of the outstanding units during the applicable testing period.

FIRPTA re distributions

A distributions of proceeds attributable to the sale or exchange by the REIT of USRPIs will not be subject to FIRPTA tax or branch profits tax and instead will be treated as an ordinary distribution if (as anticipated -see below) the REIT units qualify as regularly traded on an established securities market located in the U.S. and the recipient unitholder does not own more than 5% of the units at any time during the preceding one year. A non-US unitholder who fails to give notice of becoming the owner or constructive owner of more than 5% of the units, will have the excess (over 5%) units sold, with the lesser of the original purchase price for the excess units and the net sales proceeds being remitted to it.

FIRPTA re unit dispositions

Although the REIT is expected to be a U.S. real property holding corporation ("USRPHC"), the REIT units will not be treated as an interest in a USRPHC to a disposing unitholder who does not own or constructively own more than 5% of the units at any time in the five years preceding the disposition (or such shorter period as the units were held), if the units qualify as "regularly traded on an established securities market" - and the purchaser would not be requried to withhold, if the units are considered "regularly traded on an established securities market" regardless whether the selling unitholder held more than 5% of the outstanding units during the applicable testing period. As the REIT has received indications that at least two brokers or dealers are willing to regularly quote and make a market in the REIT units on the pink sheets and/or the OTCQX, the units should qualify as "regularly traded" on an established securities market in the U.S. A more rigorous test would apply if reliance were placed on the TSX as the relevant securities market for these purposes.

Overview of structure

The REIT will invest directly or indirectly in a mix of Canadian and US industrial and commercial (plus one retail) rental properties, having a gross purchase price of $421.1M. Its Ontario and Quebec properties (representing 41% and 2% respectively of NOI) will be held by it directly. Its US properties will be held in a Delaware subsidiary LP of a US corporate subsidiary (Agellan US) which, in turn, will be held by a Canadian corporate subsidiary of the REIT (Agellan Canada). Agellan Capital Partners Inc. ("AGPI") will be the asset manager (and was previously the asset manager for 22 of the 23 properties).

Offering

13.4M REIT units for gross proceeds of $134.6M.

Structuring

On the day of closing of the offering or the day after:

• The REIT will acquire interests in the Canadian properties in consideration for the issuance of 9.226M REIT units ("Units") to and for the assumption of mortgages
• The REIT will acquire additional interests in the Canadian properties with $3.571M of the proceeds of the offering and also in consideration for the issuance of 0.148M additional Units and the assumption of mortgage debt; $68.55M of the issue proceeds also will be used to redeem the 9.226M Units referred to above
• The REIT will lend U.S.$30M and U.S.$33.5M on an interest-bearing basis to Agellan Canada and Agellan US, respectively
• The REIT will use the remaining net proceeds of the offering, and the proceeds of Units issued to the US LP to subscribe for common shares of Agellan Canada
• Agellan Canada will apply such proceeds to subscribe for common shares of Agellan US
• Agellan US, in turn, will subscribe for Class A units of the US LP
• The US LP will use such proceeds to subscribe for 2.642M Units
• The US LP will use such Units and U.S.$63.81M of the balance of the proceeds to acquire the US properties (and also will assume mortgage on such acquisition)

The partnership agreement for the US LP contemplates that in future US asset acquisitions it may issue Class B units which are economically identical to (REIT) Units and are exchangeable into Units.

Vendor interests/ Special Rights

The Vendors in respect of the Units they retain are referred to as the "CarVal Retained Interest Holders" (respecting 18.9% of the REIT units if the over-allotment option is exercised) and the "ACPI Retained Interest Holders" (0.4%). They will be contractually obliged to retain such Units for 18 months and to pledge them to secure certain of their obligations as vendors. The CarVal Retained Interest Holders are entities managed by CarVal Investors, LLC. They have a "Piggyback Registration Right" (respecting future REIT offerings) and a "Demand Registration Right" 9re qualifying their Units for distributions).

There is a Unitholders' Rights Plan.

Distributions

Monthly of $0.06458 representing approximating 90% of AFFO. A DRIP with 3% bonus distributions.

Canadian tax consequences

REIT. The REIT is anticipated to qualify as a REIT under both the current and proposed REIT-qualification rules.

Agellan Canada

Agellan Canada will deduct the interest on the note owing by it to the REIT. It is expected that income earned by Agellan US including income allocated to it by the US LP will be foreign accrual property income (fapi). Dividends paid by Agellan US to Agellan Canada out of its fapi generally will not result in further income inclusions. The adjusted cost base of the shares of Agellan US will be reduced to the extent they are paid out of pre-acquisition surplus.

Non-investor US tax consequences

Anti-inversion rules. The REIT will be a foreign corporation. The anti-inversion rules in Code s. 7874 are not expected to apply as the REIT will have substantial business activities in Canada and because the number of Units issued in connection with the US property acquisitions is not expected to exceed 60% of the total Units issued in connection with all the property acquisitions.

Internal leverage

The REIT should be eligible for Treaty benefits as long as its Units are primarily and regularly traded on a Canadian stock exchange (the TSX). The interest-bearing note owing by Agellan US to the REIT will be treated as debt and the interest thereon on that basis will be exempt from withholding.

Agellan US's debt-to-equity ratio is expected to exceed 1.5 to 1 and it is expected that s. 163(j) initially will apply to limit its interest deductions.

Offering

Of units of the REIT, which is TSXV-listed, at $2.00 per unit for gross proceeds of $25M ($28.75M if over-allotment).

Current structure

Asset manager interest. As a result of the preliminary transactions described below for conversion to an international REIT (see 5 October 2012 Circular of the REIT then named GT Canada Medical Properties REIT), NorthWest Value Partner Inc. ("NWVP'), which is the asset manager of the REIT, is the largest unitholder of Northwest Healthcare Properties REIT ("NWHP REIT") and is owned by Paul Lana, the CEO of the REIT , holds 26.5M, or 88%, of the units of the REIT and 55.9M exchangeable Class B units of the REIT's subsidiary LP ("NWI LP"), so that after giving effect to the exchange of the Class B units, NFWVP holds 96% of the REIT units.

SLA on New Zealand REIT

The REIT holds an indirect 20% interest in the Vital Trust, an NSX-listed trust invested in health-care properties in Australia and New Zealand. NWI LP has transferred such units to a Canadian financial institution under a securities lending agreement under which the counterparty pays amounts equal to the returns on the lent units and also exercises voting rights in accordance with the instructions of NWI LP.

Brazil. Through an LLC and two-tiers of Brazilian subsidiaries of NWI LP (with an individual holding one share in each), it holds a Brazilian children's hospital which it acquired under a sale lease-back arrangement, with a portion of the rents receivable having been securitized.

Germany

A German limited partnership (KG) holding a Berlin medical office building portfolio is held through a tiered structure of two Gibralter corporations on top of a S.à r.l. on top of a GmbH, with a management company of Paul Lana holding a 10% interest in the top Gibralter company.

Preliminary transactions for conversion to international REIT

On December 24, 2010 a former capital pool company was converted into the REIT, which by May 2012, held 12 Canadian medical office buildings. NWVP acquired 82% of the REIT units pursuant to a take-over bid circular on June 11, 2012, at $1.87 per unit. In November 2012, all of the REIT's buildings were sold to a subsidiary LP of NWHL REIT for cash of $9.2M and a $30M promissory note. On November 16, 2012, the REIT acquired the international portfolio described above from NWVP and announced an increase to its annual distributions from $0.064 per unit to $0.16 per unit (95% of AFFO).

Put/Call Agreement

On November 16, 2012, the REIT and NorthWest Operating Trust ("NW Trust" - a trust of which Paul Lana is the sole trustee and a beneficiary) entered into a put/call agreement under which the REIT could acquire up to approimately 28% of the outstanding units of NWHP REIT pursuant to a put right of NW Trust or a call right of the REIT.

FX hedging

Management intends to implement FX hedging of the REIT's Canadian dollar distributions on a one-year rolling basis.

Canadian tax consequences

The REIT expects to qualify as a REIT provided the October 24, 2012 proposals are enacted. Furthermore, it will not be subject to the SIFT rules if it does not hold any non-portfolio property.

It is expected that income earned by some of the foreign subsidiaries will be fapi and, therefore, would be included in computing the income of NWI LP. No assurance is given that the foreign tax credit generator proposals (draft s. 91(4.1) et seq.) will not apply to NWI LP to deny deductions for foreign accrual tax.

Structure

Granite REIT, a TSX and NYSE listed Canadian mutual fund trust governed by Ontario law, will be the 99.999% limited partner of a Quebec LP ("Granite LP") which, in turn, will hold: Canadian real estate through a subsidiary Ontario LP; US real estate through a Delaware subsidiary LP ("US Holdco LP") which, in turn, will hold a US private REIT ("Granite America"); hypothecs owing by Granite America; the equity of European and Mexican real estate subsidiaries through Granite; and hypothecs (owing by the European subsidiaries) through a Quebec subsidiary LP ("Fin LP") in which Granite LP will be an 80% limited partner (with Granite, directly and through a GP, holding the other 20%). Granite GP, the general partner of Granite LP, will not be a subsidiary of Granite REIT. Instead, all its common shares will be held by the Granite REIT unitholders on a "stapled basis," so that what will trade on the TSX and NYSE will be stapled units consisting of one Granite REIT unit and one common share of Granite GP.

Setup of structure

The conversion occurs under a Quebec Plan of Arrangment (Granite having continued in June 2012 to Quebec):

• Granite transfers, to a wholly-owned Quebec LP ("Fin LP"), loans owing to it by various European subsidiaries;
• Granite contributes its Canadian and U.S. assets, which are held through subsidiary partnerships ("Canadian Realty LP" and "US Holdingo LP"), and its LP interest in Fin LP, to another subsidiary Quebec LP ("Granite LP"), of which a B.C. subsidiary of Granite (Granite GP) will be the general partner holding a 0.001% GP interest
• Granite transfers its LP units of Granite LP to Granite REIT (which had been settled by it previously) in consideration for the issuance of additional units, and the assumption of debenture debt
• employee stock options on Granite commons shares are exchanged for options on Granite REIT units and Granite GP common shares
• Granite purchases for cancellation all its outstanding common shares in consideration for:

• the issuance of Class X common shares of Granite (which are convertible common shares that subdivide or consolidate pro tanto with REIT units) in a number (the "Residual Number") that correspond to the relative value of the equity in the (principally European) subsidiaries which will be retained by Granite compared to the total consolidated equity value of Granite REIT once all the Granite assets are tucked underneath it, multiplied by the number of previously outstanding Granite common shares
• the immediate delivery, in the case of each of the 200 largest shareholders, of 25 Granite REIT units and 25 Granite GP non-voting common shares
• the obligation to make a deferred delivery of Granite REIT units and Granite GP non-voting common shares which are equal in number to the total number of outstanding Granite common shares minus the number of Class X shares which are issued as described above and minus the number of units and shares that are delivered to the 200 largest shareholders (which, therefore, reduce the number of Granite REIT units and Granite GP non-voting common shares which they otherwise would receive on a deferred basis)

• Granite REIT issues Granite REIT units (and delivers Granite GP non-voting shares) to the Class X shareholders in consideration for the right to require their Class X shares to be contributed to Granite LP (with the Class X shares subsequently being converted in the hands of Granite LP into common shares)
• Granite LP transfers all of its voting LP units of Fin LP (representing approximately a 20% partnership interest therein) to Granite in consideration for Granite common shares
• the Granite GP (voting) common share held by Granite is cancelled and the non-voting common shares of Granite GP (held by the public) are converted into (voting) common shares
• the European loans owing to Fin LP and the Granite America loan owing to Granite LP become hypothecs (i.e., loans secured by way of movable hypothec) through a pledge by the debtor of units or promissory notes of real estate subsidiaries of the debtor
• all the Granite GP common shares and all the Granite REIT units (other than 25 units held by the GP of Fin LP) commence to trade on a stapled basis, with each stapled unit consisting of one such share and one such unit

Distributions

Initially, $0.175 per month per stapled unit (all on the REIT unit component of stapled unit) with return-of -capital percentage for 2013 estimated at 20% to 30%.

Management

The Granite REIT trustees and the Granite GP directors initially will be the same seven individuals. Senior management will be employed by Granite LP.

Canadian tax treatment

Reason for stapled structure. "It was determined to be desirable to utilize a 'stapled unit' structure so as to to not have an acquisition of control of Granite for Canadian income tax purposes and thereby preserve significant capital loss carry-forwards."

Mutual fund trust status

The declaration of trust has the standard 49% non-resident ownership limitations, which it is anticipated will be met. In addition, it is anticipated that Granite REIT's only undertaking will be investing in subsidiaries (i.e., Granite LP) whose units or shares are not taxable Canadian property.

REIT status

Management anticipates that Granite REIT will satisfy the four REIT tests in 2013; and has no reason to anticipate that it will not continue to satisfy those tests thereafter. Respecting the non-portfolio property test: Granite REIT's units of Granite LP, and Granite LP's units of Canadian Realty LP will be qualified REIT property; Granite LP's shares of Granite and units of Fin LP will be securities of portfolio investment entities; and the Granite America hypothecs held by Granite LP and the European hypothecs held by Fin LP will be securities of entities that are not subject entities. Respecting the 75% revenue test, "a movable hypothec on units, shares or debts of a Subsidiary which qualify as (deemed) 'real or immovable property' can bear interest that qualifies as interest on a hypothec on 'real or immovable property'."

Consequences of reorganization to Granite

Although a taxable capital gain of around $160 million will be realized on the units of Canadian Realty LP, this taxable capital gain can be sheltered with net capital losses of around $340 million, assuming these losses were not (or will not be) lost due to an acquisition of control of Granite by a group of persons. Respecting a $6 million taxable capital gain to be realized on shares of Granite America, this gain could be eliminated through a s. 111(4)(e) designation.

US Holdco LP

Management anticipates that in 2013, the level of activity in Granite America will be such as to not give rise to foreign accrual property income ("fapi") to U.S. Holdco LP and, in any event, the level of dividends (based on the US REIT requirement for Granite America to distribute all its taxable income for Code purposes) paid to US Holdco LP is anticipated to exceed any potential fapi if such activity test is not satisfied. However, in these circumstances there could be fapi arising on asset dispositions, including asset dispositions which qualified for "like kind" exchange treatment under the Code.

Granite

Similar fapi issue may arise for Granite in respect of its European subsidiaries. Management's anticipation that Granite LP and Granite REIT will satisfy the 75% revenue test under the REIT rules for 2013 assumes that (following an election to cease to be a public corporation), most distributions by Granite will be paid-up capital distributions rather than dividends.

Reorganization consequences to resident Granite shareholders

Their exchange of Granite common shares for Granite common shares plus the receipt or right to receive (to-be-) stapled units will be under a s. 86 reorganization, giving rise to capital gain only if the fair market value of such stapled units exceeds the adjusted cost base of their common shares. A deemed dividend is unlikely given the paid-up capital per common share of around $45. However, the subsequent exchange of Class X shares will not occur on a rollover basis.

Non-resident unitholders

It is unclear whether qualifying U.S. residents (who otherwise would benefit under Article XXII of the Canada-US Convention from the 0% withholding tax rate applicable to distributions made out of income arising outside Canada, and a 15% rate applicable to income arising in Canada) would have that benefit denied under the anti-hybrid rule in Art. IV, para, 7(b). Return-of-capital distributions are not expected to be subject to Part XIII.2 tax given the relative propertion of Canadian real property.

U.S. tax treatment

Anti-stapling rule. The anti-stapling provisions of Code s. 269B should not apply adversely (so that Granite GP common shares should not be treated as stapled to Granite America, which in turn could potentially result in Granite America not qualifying as a U.S. REIT).

Granite REIT as partnership

Granite REIT will elect to be a partnership for Code purposes. As it will be a publicly traded partnership, its status as a partnership for Code purposes will dpend on 90% or more of its gross income for every taxable year consisting of qualifying income including dividends and interest. Canadian Realty LP will elect to be a corporation for Code purposes.

Debt

The hypothec debt owing by Granite America to Granite LP shold be treated as debt, with Granite America deducting the interest thereon, and with the interest thereon generally not giving rise to withholding tax to Granite REIT unitholders, based on the portfolio interest exemption.

Reorganization

The receipt of stapled units for Granite common shares will be taxable to US shareholders under the rules generally applicable to the distribution of property by a corporaton to its shareholders. Accordingly, US shareholders will be rqeuired to include the fair market value of the stapled units received in gross income to the extent of the current and accumulated earnings and profits of Granite (including any gain recognized by Granite on its disposition of the stapled units - which will be treated as a taxable distribution of property by it, resulting in the recognition of gain on Granite's interest in Granite America, but with such gain being offset by available losses). The excess of the fair market value of the distributed stapled units over current and accumulated earnings and profits will be treated, first, as a non-taxable return of capital to the extent of the US unitholoders' basis in their Granite comon shares, and then as a taxable exchange of Granite common shares for stapled units.

The contribution of Class X shares of Granite (viewed as being the remaining common shares of Granite) to Granite LP at the direction of Granite REIT will be deemed to be a transfer of those shares to Granite REIT in a non-taxable contirbution to a partnership for Code purposes, so that no gain or loss will be recognized on the contribution by a US shareholder.

Although the basis of the stapled units received by the US shareholders in two tranches will be separately computed because a partner in a partnership generally has a single basis in its partnership interest, each unitholder will have a combined basis in its Granite REIT units. (The fair market value of, and basis allocated to, Granite GP units is expected not to be material.)

PFIC rules

Granite believes that it and its subsidiaries and, following the Arrangement, the subsidiaries of Granite REIT, should not be classifed as PFICs.

On-going taxation of US unitholders

As a partnership, Granite REIT's income will be allocated to its partners, and US unitholders will be provided with K-1s.

On-going taxation of non-US unitholders

The applicable rates under the Canada-US Treaty of withholding on the share of a non-U.S. unitholder who qualifies for Treaty benefits should be 0% for RRSPs, pension plans and tax-exempt organizations and 15% for individuals who so qualify. Corporate unitholders including most mutual fund trusts should be subject to a 30% rate.

FIRPTA

Granite REIT does not intend to dispose of its shares of Granite America (which are US real property interests), has no plans for Granite America to make distributions in excess of the sum of Granite REIT's earnings and profits and Granite REIT's adjusted basis in its shares of Granite America, and intends to avoid Granite America making distributions which are attributable to FIRPTA gains - for example, it may dispose of property in like-kind exchanges.

Non-US unitholders who otherwise do not have US tax reporting or filing obligations will not have such obligations as a result of a sale of their Granite REIT units provided that they were considered to own 5% or less of the Granite REIT units that were listed for trading at the time of sale and at all times in the preceding five years, and Granite REIT met the regularly traded requirement for the quarter in which the sale occurred - and the transferee would on the same basis not be required to withhold and remit 10% of the sale proceeds. Granite REIT expects the Granite REIT units to satisfy the regularly traded standards.

Structure

The Fund subscription proceeds described below are used by the Fund to subscribe for a general partner interest in a subsidiary general partnership (Holding GP) with the other general partner (Holding GP) being an Ontario corporation owned by the Manager. The Fund General Partner also is owned by the Manager. The Fund may also subscribe for interest-bearing notes of Holding GP.

A Delaware limited partnership (US Holding LP) raises money on a private placement of LP units with US investors (to close concurrently with the public offering and the Canadian private placement referred to below). Holding GP and US Holding LP invest jointly in another Delaware LP (Operating LP). US Holding LP has received a commitment from the Operator (see below) to subscribe for US$5M of US Holding LP units.

4-year program

Operating LP will acquire apartment buildings in the south-eastern U.S. over the following two years (i.e., this is a blind pool offering). The Fund has a term of four years (subject to a single one-year extension at the discretion of the general partner.) The Fund will "seek to exit an investment promptly upon completion of the renovation and repositioning program in order to maximize returns for investors" (p. 41).

Unit offerings

The prospectus will qualify an offering by the Fund of Class A and B units, each for $10 per units, for aggregate proceeds of between $25M and $75M. Distributions on the Class A units bear a trailer fee (referred to as the Service Fee) of 0.5% p.a. The units will not be listed.

Canadian private placement financing

The Manager (described below), which has made an equity commitment of $2.5M of which a minimum of $1M will be invested at closing, and certain other investors subscribe for Class C units of the Fund at the same price on a private placement basis. The Manager also subscribes for equity in the general partner corp's.

Debt financing

The Fund will target a 65% loan to value ration on a consolidated basis (non-recourse mortgages only).

Distributions

Targeted quarterly disributions of 95% of (net) free cash flow from operations (expected to generate a yield of 4% to 5%) plus 100% of net proceeds of property sales. Manager has a carry (paid as a fee) of 25% of the pre-tax annual return in US dollars in excess of 8% p.a. (cumulative), plus a further 10% of any excess over 14%. Taxable income is allocated among the three unit classes as at the end of each month in proportion to distributions paid.

Management

The Manager, which employs 90 professionals in its Toronto head office, will delegate property management to the Operator, a third-party Florida-based LLC.

Canadian taxation

The SIFT taxation rules are not expected to apply as there will be no Canadian business. The Fund expects substantially all gains from property dispositions to be on income account. Foreign income taxes paid by the partnerships (including US federal income taxation of Holding GP as a result of electing to be a corporation for purposes of the Code) will be allocated to the Fund partners. The August 27, 2010 foreign tax credit generator proposals, respecting where a holder's share under US tax law of partnership income which is subject to US tax is less than its share under the Canadian Act, are not expected to apply.

"[I]f the Fund is allocated losses from Operating LP (indirectly through Holding GP) that are limited by the 'at-risk' rules, such losses may not be available to the Fund and, therefore, allocable to Holders...." (see 31 May 2012 T.I. 2012-0436521E5).

Fund units are not RRSP-eligible (no listing).

US taxation

Holding GP will elect to be classified as a corporation for Code purposes. As a foreign corporation that derives effectively-connected income from a partnership engaged in a US trade or business (i.e., Operating LP), it will be subject to 35% withholding under Code s. 1446 on distributions made to it by Operating LP, and will be required to file a federal return reporting its allocable share of Operating LP income on distributions made by it. As a foreign corporation owning a US real property interest, Holding GP will be subject to corporate tax on gains arsing on sales of the Operating LP properties. If withholding is made on gains distributions by Operating LP under Code s. 1446, no withholding will be required under Code s. 1445 on gains from the dispositions of the properties. The s. 1446 withholding will be allowed as a credit against US tax shown on Holding GP's federal income tax return.

The Fund will elect to be classified as a partnership for purposes of the Code. However, it does not expect to have any effectively-connected income. Interest on any note owing by Holding GP to the Fund should not be subject to US withholding tax provided that the Fund unitholders are able to establish that such interest is exempt under the Canada-US Convention or under the portfolio interest exemption. Deductibiity of interest on these notes (which are intended to be respected as debt and to be allocable to Holding GP's interest in Operating LP) may be limited inter alia by the earnings strippings rules in Code s. 163(j).

Overview of structure

A TSX-listed REIT (HealthLease REIT) will hold a portfolio of seniors care facilities in the case of the western Canadian homes and (in the case of its US properties) through an Indiana LP which will be held by a US corporation ("HealthLease US") whose shares will be held by a Canadian subsidiary of HealthLease REIT ("HealthLease Canada") and whose interest-bearing notes will be held directly by the REIT. Distributions are anticipated to be 93% of AFFO. The homes in the US will be operated by a third-party US operator. An LLC of the vendors of the US properties to the REIT will hold exchangeable Class B units of the Indiana LP along with special voting units of the REIT. Units are redeemable for the lesser of the closing market price and 90% of preceding 10-day VWAP, with monthly redemptions in excess of $50,000 satisfied with notes of the REIT.

Canadian tax

Management anticipates that HealthLease REIT will qualify as a REIT for Canadian income tax purposes. The income earned by HealthLease US from the US properties is anticipated to be foreign accrual property income, which will be included in the income of HealthLease Canada subject to a deduction for foreign accrual tax but will not be subject to further inclusion as income to HealthLease Canada when distributed as dividends to it. The REIT intends to be majority-owned by Canadian residents.

US taxation

HealthLease REIT will receive an opinion that the anti-inversion rules in s. 7874 should not apply to it. It should be eligible for benefits under the Canada-US Convention provided that its units are primarily and regularly traded on the TSX. Interest on the notes of HealthLease US held by the REIT (which should be characterized as debt rather than equity based on certain interest rate and debt feasibility studies) should be exempt from US withholding tax under the Convention. HealthLease REIT's debt-to-equity ratio will initially be under 1.5 to 1 and, accordingly, it is expected that s. 163(j) will not initially disallow the deduction of interest on these notes.

An Ontario LP ("REIT LP") that will trade on the TSX Venture Exchange invests in a Maryland corporation (holding US apartment buildings) that qualifies as a US private REIT. Management is not entitled to fees (other than expense reimbursement); but the Managing GP holds Class B units of REIT LP that stay fixed at a 5% interest, notwithstanding subsequent Class A unit issuances to the public, until the market cap reaches $300 million (or there is a successful takeover). No (cross-border) internal debt.

Canadian taxation

The US REIT has six full-time employees. Avoidance of FAPI to REIT LP is desirable because at least some of the distributions paid by the US REIT to REIT LP will be in the form of redemption proceeds for a fraction of an "ROC Share" which will be deemed under draft s. 90(2) to give rise to dividends, which presumably will come out of exempt or pre-acquisition surplus. (These redemption proceeds also are treated as distributions of taxable income for purposes of satisfying the US-REIT tests.)

No SIFT partnership tax as REIT LP does not hold any non-portfolio property. More detailed discussion of Canadian foreign tax credit and s. 98.1 rules than typical. No discussion of "zeroing" of at-risk amount under s. 96(2.3) to subsequent purchasers (to whom the disclosure is not directed).

US taxation

REIT LP does not elect to be a corporation for US purposes and its income from the US REIT is qualifying income, so that it is a partnership for Code purposes. As the shares of the US REIT (looking through REIT LP) are targeted to regularly trade on the TSX Venture Exchange (which includes a test that the 100 largest unitholders hold less than 50% of the units), non-US persons holding less than 5% of REIT LP are not subject to FIRPTA tax and related reporting requirements on sales of their units. The US REIT is not generally subject to corporate income tax, but the non-US unitholders are subject to US withholding tax on their shares of dividends from the US REIT; and as neither REIT LP nor the US REIT should be treated as hybrid entities (each is a partnership or corporation, respectively, in each jurisdiction) qualifying Canadian residents should be eligible for Treaty-reduced rates of withholding (0% for RRSPs and 15% for individuals including TFSAs, provided they hold less than 10%). The US estate tax treatment of the units of REIT LP is unclear.

Overview

The Dilawri Group will transfer a portion of their Canadian automobile dealership properties (subject to leases back to them) to a subsidiary LP (the Partnership) of the 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), with a s. 97(2) election being made. 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 Partnership (which will be an excluded subsidiary partnership). 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. The exchange right for their Class B LP units will be buttressed by a conventional exchange agreement between them, the Partnership and the REIT.

Dilawri Group

The largest automotive dealership group in Canada with revenues of $1.6 billion and owning 57 dealerships.

Partnership

Automotive Properties Limited Partnership

Initial Properties

26 commercial properties located in Ontario, Saskatchewan, Alberta and B.C. totaling approximately 958,000 square feet of gross leasable area. 24 are exclusively occupied by the Dilawri Group for use as automotive dealerships or, in one case, an automotive repair facility, while the other two properties are jointly occupied by the Dilawri Group (for use as automotive dealerships) and one or more third parties (for use as automotive dealerships or complementary uses, including restaurants). Full value of the Initial Properties on an "as completed" basis is between approximately $364.3 million and $371.3 million.

Leases

The Partnership will lease each Initial Property to the applicable member which, in the case of two of the properties will sublease the applicable portions to third parties. The rent from the portions of the Initial Properties occupied by the Dilawri Group will represent approximately 88% of the REIT's Cash NOI over the Forecast Period, with the portions of the Initial Properties occupied by the sublessees accounting for the remainder. The initial terms of the Dilawri Leases will range from 11 to 19 years, with a Cash NOI weighted average lease term of 15 years.

ROFO

Dilawri will be required to offer to sell to the REIT any property that is acquired or developed by a group member that is determined by Dilawri, acting reasonably, to be a "REIT-Suitable Property" (i.e., according with the REIT's investment guidelines). The Dilawri Group has, on average, opened or acquired five new automotive dealerships in each year for the last five years, including, on average, two to three automotive dealership properties.

Distributions

Monthly cash distributions, initially expected to provide Unitholders with an annual yield ranging from approximately 7.5% to 8.0% based on an AFFO payout ratio of approximately 90%. Approximately 100% of the monthly cash distributions in 2015 estimated to be tax-deferred.

Debt financing

The REIT anticipates having an Indebtedness to GBV ratio of approximately 56% immediately following Closing, bearing interest at a weighted average effective rate of approximately 3.2% (all of which will be fixed), with a weighted average term to maturity of approximately 5.1 years.

Administration Agreement

Dilawri will provide (subject to Board direction) the REIT with the REIT's President and Chief Executive Officer and Chief Financial Officer, as approved by the REIT, and other support services, including assisting the President and Chief Executive Officer and Chief Financial Officer with the standard functions of a public company. Dilawri will provide these services on a cost-recovery basis (or for a fixed fee of $700,000 during the Forecast Period.)IPO of Automotive Properties REIT

Transaction steps

Property transfer. On or before the day of Closing, the (Dilawri) Transferors will transfer their beneficial interests in the Initial Properties to the Partnership in consideration for a combination of Transferor Notes, Class B LP Units (with an equivalent number of Special Voting Units in the REIT) at the Offering Price of $10 or, in certain cases, other redeemable (Class C) partnership units in the Partnership at a price of $10.00 per such unit.

Use of proceeds

The REIT will use the Offering proceeds of approximately $__ million to pay some Offering expenses and to subscribe for Class A LP Units. The Partnership will use such proceeds together with advances of approximately $210.8 million under Credit Facilities, to pay the remaining Offering expenses, repay the Transferor Notes, redeem all of the Class C redeemable partnership units and redeem certain of the Class B LP Units from one or more of the Transferors at the Offering Price.

Resulting capitalization

Immediately following Closing, Unitholders' equity of the REIT (including the Partnership) is expected to be as follows:

Units $K

Unitholders Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500,000 65,180

Class B LP Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9,872,200 98,720

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17,372,200 163,900

LTT

Deferred land transfer taxes are estimated at $1.8 million.

Class B and C LP Units

Each will be exchangeable at the holder's option for one REIT Unit, will be accompanied by a Special Voting Unit of the REIT, and will receive distributions of cash from the Partnership equivalent to those on the REIT Units. Each Class B LP Unitholder will enter into a voting trust agreement pursuant to which Dilawri will be granted sole voting control over the Class B LP Units and the associated Special Voting Units. The Class C limited partnership units of the Partnership can be redeemed by the holders or by the REIT LP at any time for a fixed amount of $10.00 per unit. The limited IAS 32 exception for presentation as equity does not extend to the Class B and C LP Units. As a result, they will be classified as financial liabilities.

Exchange Agreement

The REIT will agree with the Partnership and the Class B LP Unitholders to issue Units upon the exchange of Class B LP Units in accordance with their terms.

Canadian tax consequences

The REIT believes that it will meet the REIT Exception. The Partnership is expected to qualify as an "excluded subsidiary entity" at all relevant times. The UCC of the Initial Properties will be equal to the amounts jointly elected by the Partnership and the Dilawri Group and will be less its fair market value of such property.

Overview

Offering to the public of 26.35M units by the REIT at $10 per unit (30.302M units with over-allotment). The REIT, an Ontario unit trust and s. 108(2)(b) closed end fund, will indirectly acquire the beneficial ownership of a Canadian real estate portfolio (43.3% in Ontario) by investing in a newly-formed Ontario limited partnership (the "Partnership") formed by three Canadian subsidiaries of Canadian Tire Corporation, Limited ("CT"), namely, Canadian Tire Real Estate Limited ("CTREL") and two LPs (such three subsidiaries, collectively "CTC"). The portfolio transferred by CTC to the Partnership (the "Initial Properties") will consist of 255 Canadian retail properties and one distribution centre, whose aggregate purchase price will be $3.53B and has been independently appraised at between $3.745B and $3.818B (corresponding to cap rates of 6.20% to 6.08%). CTC will hold (exchangeable) Class B LP Units and (preferred) Class C LP Units of the Partnership, as well as units of the REIT.

Canadian Tire

CT, which is TSX-listed, has a market cap of $7.6B. The Initial Properties represent approximately 72% (by square footage) of the real estate of CT.

CT-group tenants will generate 95.7% of rents. CTREL (and CT re the distribution centre) will enter into leases with the Partnership with staggered initial terms of 10 to 21 years (and with multiple options to extend the terms), and weighted average escalations of 1.5% p.a. At closing, the REIT will enter into a right of first offer agreement, and development agreement, with CT.

Structure

CT will hold an approximate 83.1% effective interest (assuming exercise of the over-allotment option) in the REIT, directly, and through the holding by CTC of Class B LP Units of the Partnership (and a matching number of special voting units of the REIT with nominal economic attributes), with CTC also holding Class C LP Units (see below). The Class B LP Units will be exchangeable on a one-for-one basis for REIT units, whose economics they will track. The REIT will hold Class A LP Units of the Partnership, together with the GP thereof, which will have a 0.001% profits interest.

Class C LP Units

The (non-voting) Class C LP Units of the Partnership will consist of nine series, each with a par value of $200M and with an aggregate par value of $1.8B and with distribution rates during their initial fixed rate period ranging from 3.5% (for the Series 1 and 2 maturing on 31 May 2015 and 2016) to 5.0% for the Series 6 to 9 (maturing between 31 May 2031 and 2038). The distribution entitlements are cumulative and have priority over the other classes of units. After each initial fixed rate period and every five year period thereafter, the holder of the series may elect a fixed rate (based on 5-year Canadian government yields plus a spread) or floating rate (a T-Bill yield plus 1/12 of the foregoing spread). At the end of each 5-year period the Class C LP Units are redeemable and retractable for their redemption amount (i.e., par value plus any unpaid distributions) and are also redeemable by the Partnership at any time after January 1, 2019 at the "Canada Call Price" (i) out of property sales proceeds, provided that the Series 1 shares are redeemed first (or that right is waived), or (ii) on a specified REIT change-of-control event. Such redemptions of Class C LP Units (other than upon a change of control at the REIT) can be settled at the option of the Partnership, in cash or an equivalent number of Class B LP Units.

Closing transactions

At closing:

• CTC will transfer its beneficial interest in the Initial Properties to the Partnership in exchange for (i) $263.5M, $597.1M, $409.4 and $200M of Class A LP Notes, Class B1 LP Notes, Class B2 LP Notes and Class C LP Notes, respectively, (ii) 48.6M Class B LP Units (accompanied by an equivalent number of Special Voting Units of the REIT) and (iii) 1.6M Class C LP Units
• The Partnership will repay (in sequence) its Class C LP Notes, Class B2 LP Notes and Class B1 LP Notes by issuing 0.2M Class C LP Units (resulting in 1,800,000 Class C LP Units being outstanding), 40.9M Class B LP Units with an equivalent number of Special Voting Units (resulting in $895.598M of Class B LP Units being outstanding) and 86.1M Class A LP Units to CTC, respectively
• CTC will then transfer its 86.1M Class A LP units to the REIT in exchange for a promissory note
• The REIT will issue 26.35M units under the offering for gross proceeds of approximately $263.5B units (reduced by costs estimated at $22.3M); (the underwriters have agreed that no units will be offered in the U.S. except under Rule 144A)
• The REIT will use $241.2M of the offering proceeds and issue 59.7M units in order to repay the promissory note owing to CTC (see two steps above), with the prospectus also qualifying such units

The Partnership will not own the shares of four nominee companies holding title to Initial Properties in Quebec.

Distributions

Monthly, of $0.054167 per unit ($0.65 per annum), estimated to be 90% of AFFO. Estimated tax deferred percentage of 23% for 2014 (per preliminary prospectus). DRIP with 3% bonus distribution. Upon conversion of the request of Class B LP unitholders, the Partnership will adopt a similar DRIP for them (and they also may elect to receive distributions on the Class B LP Units in the form of REIT units).

Management

The REIT will have internal management. It will receive CTC services on a cost recovery basis, and CTREL will be the property manager.

Canadian tax disclosure

SIFT status. Management believes that the REIT will satisfy the REIT exception (per p.142), "throughout 2013 and beyond". The Partnership is expected to qualify as an excluded subsidiary entity. Management intends to ensure that the REIT satisfies the s. 108(2)(b) tests (p. 142).

Preferred units

In the event the REIT wishes to issue preferred units, it will seek a CRA ruling (p. 100).

Reduced UCC under s. 97(2)

Certain of the Initial Properties will be acquired on a rollover basis.

Overview

Offering of 60M units by the REIT at $10 per unit. The REIT, an Ontario trust and s. 108(2)(a) unit trust, will indirectly acquire the beneficial ownership of a Canadian real estate portfolio (38% in Ontario) by acquiring a newly-formed Ontario limited partnership (the "Partnership") from Canadian subsidiaries (the "Transferors") of Loblaw Companies Limited ("Loblaw"). The portfolio (the "Initial Properties") will consist of 425 properties, including 415 retail properties, with an appraised value (including a portfolio premium of 2% to 4%) of $7.25B to $7.40B (reflecting a cap rate of 5.92% to 6.04%). The Transferors will hold Class B exchangeable LP units and preferred Class C LP units of the Partnership. The parent of Loblaw, George Weston Limited ("GWL"), will hold 20M units of the REIT.

Loblaw

Loblaw, which is TSX-listed, has a market cap of $14.0B. Its majority shareholder is GWL, which is a Canadian public company. The Initial Properties represent approximately 75% of the real estate of the Transferors.

Loblaw-group tenants will generate 91% of rents. Loblaw will enter into a Strategic Alliance Agreement with the REIT for an initial term of 10 year (e.g., REIT right of 1st offer, REIT responsibility for expansion costs, Loblaw right of 1st lease, no supermarket leasing to competitors).

Structure

Loblaw (i.e., ignoring the 20M units of GWL) will hold an approximate 81.7% effective interest (assuming exercise of the over-allotment option) in the REIT, directly, and through the holding by the Transferors of Class B LP units of the Partnership (and a matching number of special voting units of the REIT with nominal economic attributes), with the Transferors also holding Class C LP units (see below). The Class B LP units will be exchangeable on a one-for-one basis for REIT units, whose economics they will track. The REIT will hold Class A LP units of the Partnership, together with the GP thereof, which will hold Class A GP units (representing a 0.001% profits interest).

Class C LP units

Class C LP units of the Partnership will be entitled to a fixed priority draw of 5% of their $925M value, distributed monthly and will have priority over the other clases of units. Upon the request of the Transferors, the Partnership will be obligated to redeem up to $300M, $330M and $325M, of the outstanding Class C LP units in 2027, 2028 and 2029. Both the Class C LP units and Class B LP units are treated as debt under IFRS.

Closing transactions

At closing:

• The Transferors will subscribe for $2.6B of units of a new trust (the Transferor Trust) in exchange for the issuance by the Transferors to the Transferor Trust of $2.6B of "Transferor Trust Notes"
• The Partnership will acquire the Transferor Trust Notes from the Transferor Trust in consideration for the issuance by it of $2.6B of "Transferor Notes" (bearing interest at 3.24%) to the Transferor Trust
• The Transferors will transfer their beneficial interest in the Initial Properties to the Partnership "in exchange for the assignment" (i.e., as repayment) by them of the $2.6B of Transferor Trust Notes and in exchange for the issuance to them of $600M of Class A LP Notes, $215M of Class B LP Notes, 272M Class B LP units (accompanied on a one-for-one basis by Special Voting Units of the REIT) with a value of $2.72B, and 92.5M Class C LP units, with a value of $925M
• The REIT will issue 40M units under the offering, and 20M units to GWL, for gross proceeds of $600M; (the underwriters have agreed that no units will be offered in the U.S. except under Rule 144A)
• The REIT will issue (pursuant to a separate prospectus offering) $400M of Series A, and $200M of Series B, debentures bearing interest at 3.554% and 4.903%, respectively
• The REIT will acquire all the outstanding Class B LP Notes in exchange for 21.5M REIT units
• The REIT will transfer all the proceeds of the offering and of the 20M units issued to GWL, and contribute the Class B LP Notes, to the Partnership as subscription consideration for Class A LP units of the Partnership
• The Partnership will use $600M of the subscription proceeds received by it to redeem the Class A LP Notes
• The REIT will lend the $600M debenture proceeds to the Partnership, which will repay $600M of the Transferor Notes (with those proceeds presumably being distributed by the Transferor Trust to the Transferors)

Distributions

Monthly, of $0.054 per unit ($0.65 per annum), estimated to be 90% of AFFO. No estimate of tax deferred percentage. DRIP with 3% bonus distribution. Upon the request of a Class B LP unitholder, the Partnership will adopt a similar DRIP for them (and they also may elect to receive distributions on the Class B LP units in the form of REIT units).

Management

The REIT will have internal management. It will receive Loblaw services on a cost recovery basis, and Arcturus Realty Corporation initially will be the property manager for 150 of the properties.

Canadian tax disclosure

SIFT status. Per the Forecast, the REIT believes that it will satisfy the REIT exception for 2013 ("counsel will not review the REIT's compliance.") The Partnership is expected to qualify as an excluded subsidiary entity.

Reduced UCC under s. 97(2)

Per Risk Factors, the Initial Properties will be acquired on a rollover basis.

Overview

Offering of 8.3M units by the REIT at $10 per unit. The REIT, an Alberta unit trust, will acquire interests in a real estate portfolio by acquiring the Class A units of a subsidiary limited partnership (the "Partnership"). The portfolio (the "Initial Properties") will consist of 27 western-Canadian rental properties - mostly office (65%) and retail (31%) - with appraised and market values of $393M (reflecting a cap rate of 6.43%) and $407M, respectively. Melcor's current intention is offer to sell further properties to the REIT: nine rental "Retained Commercial Properties;" eight "Properties Currently Under Development," following stabilization; and properties that may be developed in the future. The REIT will be granted a related right of first offer and an acquisition option, including a right to purchase Melcor development properties at a 5% discount to appraised fair market value where it has provided mezzanine financing.

Melcor

Melcor, which is TSX-listed, had a market cap of $565 million on March 1, 2013. It apparently will maintain its listing. The Initial Properties represent the majority of the investment properties of Melcor, so that in effect it will mostly be a development company and an investor in the REIT.

Structure

Melcor will hold an approximate 55.5% (majority) interest (51.1% after any exercise of the over-allotment option) in the REIT through ownership (by a subsidiary LP – "Holdings LP") of all the Class B LP units of the Partnership (as well as an equivalent number of special voting units of the REIT with no economic attributes). It will also hold Class C LP units of the Partnership, which will track debt retained by it respecting some of the Initial Properties. The REIT will hold Class A LP units of the Partnership, together with the GP thereof, which will hold Class A GP units (representing a 0.001% profits interest).

Retained Debt/Class C units deferral structure

The consolidated indebtedness of $187M of the REIT at closing will include debt of $95M (the "Retained Debt") that is secured on some of the Initial Properties, but which will remain as Melcor debt rather than being assumed by the Partnership. Instead, Melcor will receive Class C LP units on the transfer of the Initial Properties to the Partnership, with preferred payments on the Class C LP units being in the amount of required interest and principal payments of Melcor on the Retained Debt. The Partnership will guarantee the Retained Debt; and Melcor will indemnify the Partnership and the REIT for any losses suffered by them if payments are not made on the Retained Debt (provided the Partnership services the Class C LP units).

Class C structure tax indemnity

The Class C LP units "achieve a deferral of certain income tax consequences" to Melcor (p. 53). In the event that capital gains are triggered on the (low basis) Class C LP units held by Holdings LP as a result of a distribution of sale proceeds of the Initial Properties (or a determination of the Partnership to reduce the level of Retained Debt), the Partnership will be required to make an additional distribution on the Class C LP units in an amount equal to the difference between (i) Melcor's estimated tax liability at the date of sale (or refinancing), and (ii) the net present value of the tax liability assuming such property had been held to the maturity of the existing mortgage (or that the Retained Debt had been held to maturity). (There is no disclosure of an existing arrangement to extend the Class C LP units structure beyond the maturity of the Retained Debt.)

Closing transactions

At closing:

• The unit public offering will close for estimated gross proceeds of $83M
• Melcor and its subsidiaries will transfer the Initial Properties to the Partnership for the assumption of mortgages (excluding the Retained Debt) in the amount of $92.4M, Class B units (accompanied by the equivalent number of special voting units in the REIT), estimated in the forecast to have a value of $103.6M, Class C LP units in respect of the Retained Debt with a fair value of $96.5M, and a non-interest bearing demand promissory note for $63.7M (p. F-4).
• The REIT will use a portion of the proceeds of the public offering to purchase the promissory note, and then will contribute the promissory note to the Partnership in exchange for its Class A LP units
• Melcor will contribute its Class B and C LP units to Holdings LP under s. 97(2) in exchange for Holdings LP units

Subsidies

The purchase price otherwise payable by the REIT for the Initial Properties will be reduced by $3.6M, and the REIT will retain such amount to subsidize its interest payments on any debt with a coupon rate in excess of 4.0%. The purchase price will be further reduced by $0.8M and $1.7M, respectively, in order for the REIT to retain such amounts to subsidize (i) capital expenditures, and (ii) tenant improvements and lease costs.

Distributions

Monthly, of $0.05625 per unit, estimated to be 93% of AFFO. Estimated 25% tax deferred percentage for 2013.

Management

The REIT will be externally managed by Melcor.

Canadian tax disclosure

SIFT status. The REIT believes "based on the advice of one of its other external advisors" that it will satisfy the REIT exception for 2013. The Partnership is expected to qualify as an excluded subsidiary entity.

Reduced UCC under s. 97(2)

Because the Initial Properties will be acquired on a rollover basis, the initial tax deferred percentage will only be 25% notwithstanding distributions of 93% of AFFO (p. 138).

Withholding

Part XIII and XIII.2 withholding on distributions to non-residents.

Overview

The REIT, which initially will indirectly hold a portfolio of industrial, office and retail rental properties mostly in western Canada (23 out of 27) will acquire its initial properties through the acquisition of a property LP ("FAM LP") from Huntingdon Capital Corp. (Huntingdon"), which will hold an approximate 18% indirect interest in the REIT through exchangeable units in FAM LP, and also will be the manager.

Structuring steps

• Huntingdon will directly or indirectly contribute its interests in the initial properties to FAM LP in consideration for Class A and B units, the assumption of $99.2M of mortgages and the issuance of a non-interest bearing promissory note of $9.2M
• The REIT will issue units under the offering for gross proceeds of $58.8M (before over-allotment) and use a portion of the proceeds to purchase Huntingdon's Class A units and promissory note - and will also issue special voting units to Huntingdon
• The Class B units will be amended to be exchangeable units (representing an approximate 27% interest if the over-allotment option is exercised) with the same economic entitlements as REIT units
• The REIT will contribute the promissory note to FAM LP in consideration for the issuance of additional Class A LP units

Distributions

Monthly distributions approximating 95% of AFFO (a yield of 7.5%). An optional DRIP with a 3% bonus distribution. Tax deferral percentage for 2013 is estimated to be 100%.

Management fees

Base management fee of 0.3% of gross book value; property management fees of 5% of gross revenues collected; acquisition fees of 1.0% ranging down to 0.50%; financing fees of 0.25%; leasing fees of 5.0% of base rent for all new leases and 2.0% for renewed leases; construction management fee of 5%

Tax disclosure

The REIT is expected to qualify as a REIT under both the current and proposed rules.

Overview

With a view to all the common shareholders of ISG becoming the unitholders of the Trust, which is expected to be a REIT, ISG will sell its sole real estate asset and then, under a CBCA Plan of Arrangement, each ISG common shareholder will have the option of redeeming its shares for cash or for units of the Trust, so that following the Plan of Arrangement, ISG will be wholly-owned by the Trust.

For further details

see the more detailed discussion under Spin-offs - S. 84(3) Redemption Spin-offs.

Open-end REIT/Exchangeable unit structure

The Toronto-headquartered REIT, which will be intended to qualify as an open-ended unit trust (so that its units will have conventionally market-discounted retraction rights) will hold the Class A units of a subsidiary LP ("Industrial Partnership"). Industrial Partnership, while owned by the vendors described below, will acquire direct or indirect interests in 86 light industrial rental properties located in Alberta and six other provinces, with an s. 97(2) election being made, in consideration for the issuance of Class A units and Class B exchangeable units to the vendors and the assumption of $295 million of mortgages. The Class A units then will be sold to the REIT (presumably relying on the Ontario land transfer tax 5% de minimis exemption).

In addition to their Class B exchangeable units, the vendors also will hold the equivalent number of special voting units directly in the REIT. The vendors are Dundee Properties LP ("DPLP"), which is the subsidiary LP of Dundee REIT, and direct or indirect subsidiary entities of DPLP. There is apparently no "sunset" provision on the exchange rights set out in the Exchange Agreement, except where the outstanding Class B unit fall below 1% of the initial number (or an extraordinary reorganization etc. event occurs which renders it impracticable to replicate the exchangeable structure). Certain "Piggy-Back Distribution" and "Tag/Drag" rights also are specified (p. 44).

Other funding/acquisitions

Dundee Corporation ("DC") and Michael Cooper will purchase 2,100,000 and 900,000 units, respectively, at the closing of the offering at the offering price of $10 per units. Cash raised from this source and from a credit facility will be used to purchase properties from LPs affiliated with Return on Innovation Capital Ltd. ("ROI"), as well as assuming $86 million in mortgages, for a total purchase price of $160 million.

Distributions

Based on an anticipated AFFO payout ratio of 90%, it is anticipated that 100% and 55% of 2012 and 2013 monthly distributions, respectively, will be tax deferred. Participants electing to receive cash distributions in units under the distribution reivestment and unit purchase plan will receive a further "bonus" distribution equal to 3% of the amount of each reinvested distribution - which also will be reinvested.

Management

A subsidiary LP of DPLP ("Management LP") will be the property manager and Dundee Realty Corporation ("DRC"), which is the asset manager for Dundee REIT and Dundee International REIT, will provide "overall" asset management services as well as strategic advice and administrative services. Six REIT trustees (all independent other than Cooper). Senior REIT management will be employees of DRC. A Deferred Unit Incentive Plan.

Canadian taxation

Management expects the REIT to qualify as a REIT for Canadian income tax purposes for 2012 and subsequently. Each direct or indirect subsidiary entity is expected to be an "excluded subsidiary entity" (and, therefore, not subject to SIFT tax).

As a result of the acquisition by Industrial Partnership of some of its buildings on a rollover basis, the undepreciated capital cost of such properities will be lower than fair market value, and potential recapture of depreciation will be increased.

Amounts received in excess of REIT income, including the further bonus distribution received under the DRIP, will not be included in a unitholder's income.

Income and capital gains distributions to non-residents will be subject to Part XIII withholding; and other distributions will be subject to Part XIII.2 withholding of 15%.

Overview

Offering of 14.72M instalment receipt units ("Receipt Units") to be distributed to the public and of 4.95M (fully-paid) "LT/Greenwin Units" described below. A portion of the proceeds will be used to prepay $175M of rent under 35 year leases of eight apartment buildings to RESREIT.

Receipt Units

The initial instalment payable at closing is $6.00 per unit and the fianl instalment is $4.00 per unit payable on or before the first anniversary of closing. The Receipt Units will be pledged to secure the final instalment.

LT/Greenwin Units

Will be issued on closing to member of the Greenwin Properties Group and the Lehndorff Tandem Properties Group in partial payment for the initial portfolio.

RESREIT

Will be a closed-end mutual fund trust.

Purchase/Lease of Properties

The REIT will acquire 32 apartment buildings and one townhouse complex, for a total amount payable of $366M including assumed mortgages. For eight of the properties, RESREIT will acquire a leasehold interest and prepay rent (of $175.5M) at closing under a long-term lease (35-year term).

Distributions

$0.66 p.a. per Receipt Unit distributed monthly, estimated to be 78% tax-deferred for 1998.

Canadian tax consequences

The prepaid rent (totalling $127.5M will be deducted on a straight-line basis (an annualized deduction of $3.6M). RESREIT is of the view that rights under the Rights Plan have no value., so that no amount should be allocated to it.

Overview

Return on Innovation Advisors Ltd. ("ROI Capital") agreed with DREAM Asset Management Corporation ("DREAM"), a subsidiary of DREAM Unlimited Corp. (TSX:DRM), that DREAM would acquire the rights to manage the ROI Public Funds and the privately held ROI IPP. There will be a reorganization of the Distributing ROI Funds and their relevant underlying "Reference Funds" involving the transfer of assets of each Distributing ROI Fund to the newly-formed Trust (an Ontario open-end unit trust with conventional retraction terms and targeted to be a mutual fund trust) in exchange for units of the Trust. As a result of the transaction, all the assets of the Distributing ROI Funds (including those of the relevant underlying reference funds) will be combined in the Trust on a taxable basis, and on the termination of the Distributing ROI Funds, unitholders of the Distributing ROI Funds will receive units of the Trust pro rata based on the relative net asset values of the Distributing ROI Funds. "The Trust benefits from a flexible structure: it is not restricted or limited by the SIFT Legislation that applies to REITs, nor is it required to comply with the regulations governing mortgage investment corporations."

See full summary under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions – Taxable Trust Mergers.

Overview

Three apartment buildings, with a purchase price of U.S.$92 million, in Texas, through wholly-owned LLCs of Starlight U.S. Multi-Family Core REIT Inc. (the "U.S. REIT"), an indirectly owned Maryland corporation; and intends to make further acquisitions of apartment buildings in the southern US. It is issuing up to 6.0M units (allocated among different classes) for up to US$60M. The U.S. REIT is intended to be a REIT for Code purposes, and its income is targeted not to give rise to foreign accrual property income for Canadian purposes in reliance on the over-five full-time employee/rental business exclusion. 3.5% of the targeted returns of 12% per annum are from anticipated capital appreciation to be realized from the sale of the portfolio within three years, with the balance to come from 65% leveraging of apartments purchased at a cap rate of 6% using mortgage financing at 2.5%.

This is similar to the Fund No. 1 (summarized below) and No. 2 offerings.

The Fund

The general partner of the Fund (an Ontario LP) will be an Ontario corporation owned by Starlight Investments Ltd. (the "Manager"), an Ontario corporation, which is controlled and indirectly owned by Daniel Drimmer. The term of the Fund will be three years subject to two one-year extensions at the discretion of the general partner. Deployment of unallocated subscription proceeds is targeted within nine months.

Structure

An Ontario LP ("Investment LP") owned directly and through the GP thereof, will hold all of the LP units of a Delaware holding partnership ("Holding LP") which, in turn, will hold 100% of the common shares of the U.S. REIT and may also acquire U.S. REIT Notes. The GP of Holding LP will be a Delaware partnership directly and indirectly owned by the Manager. In order that the U.S. REIT will qualify as a REIT for Code purposes, the U.S. REIT will issue up to 125 preferred shares at U.S.$1,000 per share to accredited investors. The preferred shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a dividend yield of 12.5%. Holding LP also will be issued ROC shares (bearing a compounding dividend and redeemable for the subscription amount) by the U.S. REIT, which may also issue interest-bearing REIT Notes. The U.S. REIT's Charter provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of the U.S. REIT's capital stock.

Fund Units

The Class A and U units of the Fund will be listed and will pay distributions in Canadian and US dollars, respectively. The Class D Units and Class F Units are denominated in Canadian dollars and designed for institutional investors and fee based accounts, respectively, wishing to make their investments and to receive distributions in Canadian dollars and differ from the Class A Units and Class U Units in being subject to lower fees, being unlisted and being convertible into Class A Units. The Class C Units are denominated in Canadian dollars and are designed for an affiliate of the Manager, certain other investors known to the Manager and "Lead Investors," if any, and differ from the Class A Units in not being required to pay fee, being unlisted, being convertible into Class A Units, may not be sold or converted for four months after the Closing Date and will represent a 9.99% voting interest in the Fund.

Debt

After giving effect to the further proposed property acquisitions (of approximately U.S.$64M), the overall mortgage to value ratio will be approximately 60% to 70% of the property acquisitions costs (as increased by any property improvement reserves).

Distributions

"The Fund will target an annual pre-tax distribution yield of at least 7% across all Unit classes and aim to realize a minimum 12% pre-tax, investor internal rate of return across all Unit classes upon disposition of the Properties at or before the end of the targeted three year investment horizon." Investment LP, as the holder of the LP units of Holding LP, will be entitled to receive a 7% preferred return on those units, and 75% of the excess, with the balance of 25% going to the GP of Holding LP as a carried interest. No FX hedging of the income of the Fund will occur.

Canadian tax consequences

SIFT tax. The Fund (as well as Investment LP) is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated. As it will not hold any taxable Canadian property, it is not subject to non-resident ownership restrictions.

Consent dividends

Any consent dividend deemed to be received by the Fund from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Fund. However, the Fund would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Fund unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The Fund expects that any CFA will satisfy the more-than-five full-time employee test directly or under s. 95(2)(a)(i).

Income allocations

Taxable income of the Fund will be allocated to unitholders based on relative distributions.

FTCs

Any U.S. withholding tax on distributions by Holding LP to Investment LP generally will be eligible for foreign tax credits as non-business income taxes, subject to various limitations. The FTC generator proposals are not expected to apply.

Unit conversions

"Holders of Convertible Units should consult their own tax advisors regarding the consequences of converting their Convertible Units into Class A Units, including whether or not such a conversion will constitute a taxable disposition."

U.S. tax consequences

Investment LP/FIRPTA. Investment LP (but not Holding LP) will elect to be treated as a corporation. Distributions made by the U.S. REIT that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by it in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding. The IRS may grant permission to reduce such withholding where it is in excess of the FIRPTA tax applicable to such capital gains dividends or other distributions received from the U.S. REIT. Holding LP will be required to withhold Code s. 1446 withholding at 35% on Investment LP's allocable share of gain from either Holding LP's disposition of U.S. REIT common stock and U.S. REIT ROC shares, or from the U.S. REIT's capital gains dividends and/or distributions made by the U.S. REIT in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares. However, Regulations provide that where a partnership is subject to both s. 1445 and 1446 withholding, it will only be subject to the payment and reporting requirements of s. 1446 with respect to partnership gain from the disposition of US real property interests. Investment LP may also be subject to branch tax - but potentially only at a reduced Treaty rate based on the Treaty residence of the Fund unitholders.

Unitholder tax

Non-U.S. unitholders generally will not be subject to tax upon a disposition of their Fund units.

U.S. REIT FDAP Distributions

Interest and dividends paid to Holding LP will be treated as paid directly to Canadian-resident unitholders of the Fund (through Investment LP and the Fund) because each of Holding LP, Investment LP and the Fund will be treated as fiscally transparent entities in their respective jurisdictions - so that such unitholders who are eligible for benefits under the Canada-U.S. Treaty likely will be treated as the beneficial owners of such "FDAP" income (i.e., for purposes of Article IV, para. 6). Accordingly, ordinary REIT dividends treated as being paid by the U.S. REIT will be subject to U.S. withholding at a rate (subject to documentary requirements) of: - generally 0% for RRSPs; 15% for individuals owning less than 10% of the stock of the U.S. REIT including TFSAs or RESPs with individual beneficiaries; and 30% for corporations provided that the U.S. REIT is not "diversified." Interest on the U.S. REIT Notes will be eligible for 0% withholding if the Fund unitholder is eligible for Treaty benefits and provides appropriate withholding tax documentation.

Interest deduction

Holding LP and the U.S. REIT intend to treat the U.S. REIT Notes as debt, so that the U.S. REIT will claim interest deductions. Discussion of s. 163(j) earnings strippings rule.

Interest withholding

"[A] payment of interest income on the U.S. REIT Notes by U.S. REIT to Holding LP will be treated as being paid directly to the Non-U.S. Unitholders because each of Holding LP, Investment LP and the Fund are treated as fiscally transparent under the laws of their respective jurisdictions of formation (and notwithstanding that Investment LP has elected to be treated as a corporation for U.S. federal income tax purposes) and, as a result, such Non-U.S. Unitholders are likely to be treated as the beneficial owners of the U.S. Notes interest income (which is U.S. source FDAP income) for purposes of the Treaty (provided that they are not themselves treated as fiscally transparent under the laws of their respective jurisdictions of formation). A Non-U.S. Unitholder that is the beneficial owner of the U.S.REIT Notes interest income should be eligible for the 0% U.S. withholding tax rate on interest income provided that such beneficial owner is eligible for benefits under the Treaty and provides the appropriate withholding tax documentation to the withholding agent."

FATCA discussion.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code.

RRSPs/TFSAs

"This summary assumes RRSPs, RESPs and TFSAs are treated as either grantor trusts, or as investments of the individual annuitants or holders which are not separate entities from the individuals for U.S. federal income tax purposes."

Structure

This is structurally almost identical to the Slate U.S. Opportunity (No. 2) offering.

The Trust (an Ontario trust) will use the offering proceeds (of up to U.S.$75M) to invest in the units and interest-bearing notes (the "Investment LP Notes") of an Ontario LP ("Investment LP") which, in turn, will invest in the units of a Delaware LP ("Holdings LP"). Holdings LP will (on a blind pool basis) use the offering proceeds and mortgage financing to invest in US commercial real estate rental properties with a focus on anchored retail properties (and with each property being held in a special purpose subsidiary LP). Corporations controlled by the Toronto-based manager (Slate Properties Inc., or the "Manager") will be the general partners of Investment LP and Holdings LP with a 0.01% GP interest (but with a 20% carry over the 8% p.a. minimum return in the case of the Holdings LP general partner.)

Units and listing

The Trust will issue different classes of units (some on a private placement basis) in order to reflect different fee structures, and currency (Canadian dollars or US dollars) for the quarterly distributions and redemption amounts. The units initially will not be listed. However, the Manager intends to complete a liquidity event by June 30, 2019: a listing of the units or an exchange of the units for listed units; or a sale of the units or assets.

There is a standard 49% non-resident-ownership restriction, notwithstanding that it is not contemplated that the Trust will hold taxable Canadian property (p.57).

Redemption rights

If a retraction occurs before a listing, the unitholder receives the redemption proceeds, calculated as 95% of the NAV at the end of the quarter preceding the retraction date by the end of the month following the quarter in which the retraction occurred. If the retraction occurs after a listing, the redemption proceeds are based on the lesser of the units' closing market price on the retraction date and 95% of their 10-day VWAP following the retraction date. In either case, if monthly redemptions exceed $100,000, or if total redemptions in any 12-month period exceed 1% of the aggregate unit subscription proceeds, the redemption price shall be paid by way of an in specie distribution of property or distribution of unsecured subordinated notes of the Trust, as determined by the trustees in their sole discretion.

Distributions

To be paid quarterly.

Management fees

The Manager will be paid annual fees of 1.5% of the gross subscription proceeds (0.5% of which will be used to pay a trailer) plus a 0.75% acquisition fee on each property acquisition.

Canadian tax treatment

The summary assumes An officer has advised that the Trust expects to qualify as a mutual fund trust (and the risk factors disclosure implies that there are expected to be at least 150 unitholders acquiring whole blocks under the offering). A s. 132(6.1) election will be made by the Trust for it to be deemed to be a mutual fund trust from its settlement date to the date it actually so qualifies.

The investment restrictions of the Trust and Investment LP prohibit them from holding any non-portfolio property.

There will be pro rata designations of net taxable capital gains and foreign source income allocated to the Trust by Investment LP so that inter alia each partner's share of business income taxes and non-business-income taxes paid by Investment LP potentially will be creditable. However, no assurance can be given that the foreign tax credit generator rules will not apply.

Although the disclosure (at p. 35) addresses "maximizing disposition proceeds," the risk factors indicate (p. 114) that Canadian capital gains treatment is expected on property dispositions (so that the US tax rate on such dispositions would be higher than the Canadian rate).

U.S. tax treatment

The Trust and Investment LP will elect to be corporations under the Code. Accordingly, Investment LP (as a foreign corporation) will be subject to U.S. federal income tax at the highest applicable rate (35%) on the income it derives (through Holdings LP) from a U.S. trade or business. Income or gains of Holding LP allocable to Investment LP (including from any sale of U.S. real property owned by the special purpose LPs or a sale of such LPs) will be subject under Code s. 1446 to withholding at the 35% rate in lieu of any FIRPTA withholding requirements, with such withholding being allowed as a credit on Investment LP's U.S. federal income tax return. Investment LP also will be liable for a 5% branch profits tax (subject to the $500,000 Treaty exemption) on its after-tax earnings.

The Trust and Investment LP intend to treat the Investment LP Notes as debt allocable to Investment's LP's interest in Holding LP for Code purposes. The earnings stripping rules (Code s. 163(j)) may apply. Interest received by the Trust on the Investment LP Notes will be subject to 0% withholding by virtue of the Canada-U.S. Treaty.

Overview

The Trust will be an Ontario unit trust listed on the TSX. It will indirectly acquire interests in nine operating wind projects (with a purchase price of US$120 million) from US tax shelter investors - and expects to purchase further such interests. It will rely on not holding non-portfolio property; and on US co-investors in the wind projects not being considered to be investors in it for purposes of the US inversion rules.

Overall structure

The Trust will hold all the units of a subsidiary Ontario unit trust ("Commercial Trust") which, in turn, will hold all the shares of an Ontario holding company ("Can Holdco"). Can Holdco will hold all the shares of a Delaware holding corporation ("Threshold Power") and the Trust will hold a note of Threshold Power (the Threshold Power Note) for C$78M bearing interest at 7.5%.

Trust structure

Computershare will be the Trustee. The Trust Indenture empowers the Trustee to delegate most of the responsibilities regarding the governance of the Trust to the Administrator, which it has done. The Administrator shareholder (namely, the Administrator CEO who thus is the Threshold CEO) has agreed to elect all of the Administrator directors at the direction of the Unitholders.

LLP structure

An LLC subsidiary of Threshold Power (Wind I) will hold 100% of one subsidiary LLC (TH3), and a partnership interest in two subsidiary Delaware limited liability partnerships (THLLP1 and THLLP2). The other partner in THLLP1 and THLLP2 will be a subsidiary of JPM Capital Corporation (JPM). THLLP1 and THLLP2 will hold all of the Tax Equity Interests (described below) in the project LLCs, and TH3 will hold a Project Principal Interest (also described below) in one of the project LLCs. Under the LPA for THLLP1, Wind I will be entitled to 95% of the cash distributions and 1% "of tax benefits and profits" to the end of 2017, and thereafter will be entitled to 87.5% of both cash distributions and such tax benefits and profits. Under the LPA for THLLP2, Wind I will be entitled to 95% of the cash distributions and 1% of tax benefits and profits to the end of 2015, and thereafter will be entitled to 95% of all such distributions, attributes and profits. Wind I will enter into a credit agreement with Union Bank, N.A. with a committed amount of U.S.$100M.

Project structure

Wind I and a JPM subsidiary will jointly fund THLLP1 and THLLP2, which will then purchase "Tax Equity Interests" in project LLCs from the US Vendors, which in the case of THLLP1 will be JPM. These project LLCs utilize a "flip" structure under which: in Stage 1 the project owners/operators (Project Principals), who also are the managing members of the project LLCs, receive 100% of the cash flow on the LLC interests and "Tax Equity Investors" receive substantially all the tax attributes (e.g., tax credits and depreciation); in Stage 2 the Tax Equity Investors receive substantially all the tax flow and tax attributes; and Stage 3 where the Project Principals receive between 75% and 95% of the cash distributions and most of the tax attributes. The Tax Equity Interests acquired in the project LLCs will mostly be close to the beginning of Stage 2. The management committee of THLLP1 and THLLP2 consists of one representative of each of Wind I and JPM. TH3 will purchase its Project Principal Interest directly from a Vendor for US$3.5M.

Closing transactions

• The Trust will settle Commercial Trust, and apply substantially all the proceeds of the offering to subscribe for additional units
• Commercial Trust will apply these proceeds to subscribe for Can Holdco shares
• Can Holdco will use a portion of these proceeds to subscribe for Threshold Power shares and lend the balance of Cdn.$78M for the Threshold Power Note
• Can HOldco will distribute the Threshold Power Note to Commercial Trust, which will distribute it to the Trust
• Threshold Power will contribute most of its funds to subscribe for additional membership interests in Wind I
• Wind I will fund THLLP1, THLLP2 and TH3 in order to complete the purchase of the (mostly Tax Equity) Interests in the Project LLCs

Immediately following closing, private placement investors will transfer 4.14M of their units of Commercial Trust to the Trust in exchange for 425,781 Trust units, and redeem 130K of their Commercial Trust units for $130K of cash.

Distributions

Quarterly, expected to be over 60% tax-deferred for 2013. Pro forma (based on the year ended March 31, 2013) net loss and total cash distributions from the project LLCs are estimated as U.S.$7.0M and U.S.$51.9M, with cash distributions to Wind I being U.S.$18.0. After deduction of expenses of U.S.$2.6M, cash available for distribution would be U.S.$15.4M (C$16.1M), of which C$11.8M would be distributed representing a payout ration of 72.8%. The Threshold group will hedge at least 12 monts of anticipated Trust distributions.

Canadian tax

It is assumed that the Trust will not be subject to SIFT tax on the basis that it will not hold non-portfoio property.

No opinion is given as to whether foreign accrual property income will be generated to Can Holdco or as to whether dividends paid to it by Threshold Power will come out of exempt surplus or taxable surplus. It is expected that Can Holdco will designate the dividends paid by it as eligible dividends to the extent that it was entitled to deductions under s. 113 for dividends received from Threshold Power.

US Tax

. The Trust. The Trust will elect to be a corporation. It expects to be eligible for Treaty benefits, so that interest on the Threshold Power Note should not be subject to withholding. As the FATCA rules do not apply to payments under an obligation that is outstanding on January 1, 2014 and was not thereafter materially modified, there also should be no FATCA withholding tax on interest on the Threshold Power Note.

US inversion tax

It is not expected that Code s. 7874 wil apply to the Trust. None of the Vendors will hold an interest in it, and it will not initially acquire substantially all the interests in the project LLCs (although s. 7874 could apply if the Trust later were considered to have acquired substantially all the interests of the project LLCs as part of the same plan, and the Vendors acquired Trust units). Even though the Trust is not expected to acquire substantially all of the interests in the project LLCs (given the Project Principal Interests therein), it could be treated as a US corporation for purposes of Code s. 7874. The Vendors could be viewed as holding interests in the Trust if their distribution rights with respect to the project LLCs were substantially similar in all material respects to the distribution rights attributable to interests in the Trust. However, the distribution rights with respect to the project LLCs will be substantially different in material respects from those in respect of the Trust.

Although the JPM subsidiary will have certain rights with respect to the transfer of its partnership interests such as a right to retract for fair market value; and a purchase option of Wind I, such rights will not be determined by reference to, and will not be dependent on, any transfer or other rights at the Trust level; and any consideration to be paid to the JPM subsidiary will not be calculated in any way by reference to the Trust. Accordingly, neither JPM nor its subsidiary should be deemed to hold interests in the Trust by virtue of a rule that stock or other interest of an entity (other than an acquiring non-US corporation) may be treated as stock of such acquiring non-US corporation if such interests provide the holder with distribution rights (dividend, redemption and liquidation rights) which are substantially similar in all material respects to the distribution rights provided by stock of the acquiring non-US corporation.

Commercial Trust

Will elect to be disregarded as an entity separate from the Trust.

Can Holdco

Is expected to be treated as a Canadian-resident corporation eligible for Treaty benefits, so that distributions from Threshold Power will be treated first as dividends subject to 5% withholding. Discussion of consequences if presumption that Threshold Power is a USRPHC is not rebutted.

Threshold Power Note

Baker & McKenzie will provide an opinion (supported by interest rate and debt feasibility studies) to the underwriters that the Threshold Power Note is debt. Such studies will also support the interest rate being an arm's length rate. The earnings stripping rules in s. 163(j) limit the deduction of interest paid to related non-US persons exempt from US federal income tax (as determined under Code s. 267(b) or 707(b)(1)) in years that the corporation's debt-to-equity ratio is more than 1.5:1, and that its "net interest expense" (interest expense minus interest income) is no more than 50% of its "adjusted taxable income" (taxable income before the deduction of certain items, including net interest expense). Threshold Power expects to have an initial debt-to-equity ratio of approximately 1.8:1, and it and the Trust likely will be related, so that the deductibility of interest payments may be so limited.

Overview

The Fund will hold three apartment buildings, with a purchase price of U.S.$80.6 million, in Texas, through wholly-owned LLCs of Starlight U.S. Multi-Family Core REIT Inc. (the "U.S. REIT"), an indirectly owned Maryland corporation; and intends to make further acquisitions of apartment buildings in the southern US. It is issuing up to 7.5M units (allocated among different classes) for up to US$75M.

Structure

The general partner of the Fund will be an Ontario corporation owned by Starlight Investments Ltd. (the "Manager"), an Ontario corporation, which is controlled and indirectly owned by Daniel Drimmer. An Ontario LP ("Investment LP") owned directly and through the GP thereof, will hold all of the LP units of a Delaware holding partnership ("Holding LP") which, in turn, will hold 100% of the common shares of the U.S. REIT. The GP of Holding LP will be a Delaware partnership directly and indirectly owned by the Manager. In order that the U.S. REIT will qualify as a REIT for Code purposes, the U.S. REIT will issue up to 125 preferred shares at U.S.$1,000 per share to accredited investors. The preferred shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a dividend yield of 12.5%. Holding LP also will be issued ROC shares (bearing a compounding dividend and redeemable for the subscription amount) by the U.S. REIT, which may also issue interest-bearing REIT Notes.

Fund Units

The Class A and U units of the Fund will pay distributions in Canadian and US dollars, respectively. The Class I units (designed for institutional investors) will not be required to pay a service fee, will be unlisted and convertible into Class A units. Class C units, to be held by an affiliate of the Manager, will not be required to pay a service fee or the agent's fee, will be unlisted, will be convertible into Class A units and will represent a 9.99% voting interest in the Fund.

Debt

After giving effect to the further proposed property acquisitions, the overall mortgage to value ratio will be approximately 60% to 70% of the property acquisitions costs (as increased by any property improvement reserves).

Distributions

Investment LP, as the holder of the LP units of Holding LP, will be entitled to receive a 7% preferred return on those units, and 75% of the excess, with the balance of 25% going to the GP of Holding LP as a carried interest. As around half of the 2013 property purchases are not yet committed, the annual distributions are not estimated. The GP of the Fund will receive 0.01% of cash distributions. No FX hedging of the income of the Fund will occur.

Canadian tax consequences

SIFT tax. The Fund is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated. As it will not hold any taxable Canadian property, it is not subject to non-resident ownership restrictions.

Consent dividends

Any consent dividend deemed to be received by the Fund from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Fund. However, the Fund would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Fund unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The Fund expects that any CFA will satisfy the more-than-five full-time employee test directly or under s. 95(2)(a)(i).

Income allocations

Taxable income of the Fund will be allocated to unitholders based on relative distributions (p. 97).

FTCs

Any U.S. withholding tax on distributions by Holding LP to Investment LP generally will be eligible for foreign tax credits as non-business income taxes, subject to various limitations. The FTC generator proposals are not expected to apply.

U.S. tax consequences

Investment LP/FIRPTA. Investment LP (but not Holding LP) will elect to be treated as a corporation. Distributions made by the U.S. REIT that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by it in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding. The IRS may grant permission to reduce such withholding where it is in excess of the FIRPTA tax applicable to such capital gains dividends or other distributions received from the U.S. REIT. Holding LP will be required to withhold Code s. 1446 withholding at 35% on Investment LP's allocable share of gain from either Holding LP's disposition of U.S. REIT common stock and U.S. REIT ROC shares, or from the U.S. REIT's capital gains dividends and/or distributions made by the U.S. REIT in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares. However, Regulations provide that where a partnership is subject to both s. 1445 and 1446 withholding, it will only be subject to the payment and reporting requirements of s. 1446 with respect to partnership gain from the disposition of US real property interests. Investment LP may also be subject to branch tax - but potentially only at a reduced Treaty rate based on the Treaty residence of the Fund unitholders.

Unitholder tax

Non-U.S. unitholders generally will not be subject to tax upon a disposition of their Fund units.

U.S. REIT FDAP Distributions

Interest and dividends paid to Holding LP will be treated as paid directly to Canadian-resident unitholders of the Fund (through Investment LP and the Fund) because each of Holding LP, Investment LP and the Fund will be treated as fiscally transparent entities in their respective jurisdictions - so that such unitholders who are eligible for benefits under the Canada-U.S. Treaty likely will be treated as the beneficial owners of such "FDAP" income (i.e., for purposes of Article IV, para. 6). Accordingly, ordinary REIT dividends treated as being paid by the U.S. REIT will be subject to U.S. withholding at a rate (subject to documentary requirements) of: - generally 0% for RRSPs; 15% for individuals owning less than 10% of the stock of the U.S. REIT; and 30% for corporations provided that the U.S. REIT is not "diversified." Interest on the U.S. REIT Notes will be eligible for 0% withholding if the Fund unitholder is eligible for Treaty benefits and provides appropriate withholding tax documentation.

Interest deduction

Holding LP and the U.S. REIT intend to treat the U.S. REIT Notes as debt, so that the U.S. REIT will claim interest deductions. Discussion of s. 163(j) earnings strippings rule.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code.

Overview

Brookfield Asset Management Inc. ("Brookfield Asset Management"), which is listed on the NYSE and TSX, will distribute the LP units of BPP LP to its shareholders as a special dividend, with such distribution being referred to as the spin-off. BPP LP will hold an approximate 16% economic interest in the Property Partnership, which will indirectly acquire substantially all of the commercial real estate portfolio of Brookfield Asset Management, including its office (56%), retail (39%), multi-family and industrial assets – with a geographic distribution of 63%-U.S., 15%-Australia, 10%-Europe, 9%-Canada, and 3%-Brazil. The other economic interest of approximately 90% in the Property Partnership will be held by Brookfield Asset Management directly or through the GP. BPP LP will apply for TSX and NYSE listings.

Special dividend

Brookfield Asset Management will declare a special dividend, to holders of its (620M) Class A limited voting shares and (85.1M) Class B limited voting shares, comprising approximately 47% of the units of the Property Partnership on the basis of 5.74 units for every 100 shares. Holders who otherwise would be entitled to receive a fractional unit will receive a cash payment.

Withholding on special dividend

To satisfy withholding tax liabilities in respect of registered shareholders, Brookfield Asset Management will withhold a portion of the BPP LP units which otherwise would be distributed (plus a portion of the cash distribution), and purchase the withheld units at a price equal to the fair market value of the unit determined by reference to the five day VWAP of the BPP LP units following closing of the spin-off. For non-Canadian beneficial owners, the withholding tax obligations will be satisfied in the ordinary course through arrangements with their brokers or other intermediaries.

Shareholder approvals/exemptions

BPP LP has applied for exemptive relief from the minority approval and valuation requirements for transactions that would have a value of less than 25% of BPP LP's market capitalization if the indirect equity interest of Brookfield Asset Management in BPP LP, through its ownership of the Redemption-Exchange Units, were included in the calculation of BPP LP's market capitalization. BPP LP will be a reporting issuer in Canada, and expects to be an SEC foreign issuer.

Structure

BPP LP. BPP LP is Bermuda exempted limited partnership. It will hold Class A LP units of the Property Partnership representing an approximate 15.9% interest therein. The general partner of BPP LP (holding a 0.2% GP interest) is a Bermuda company ("BPY GP") which was 1648285 Alberta ULC and, following the completion of the spin-off, will be Brookfield Property Partners Limited, a wholly-owned subsidiary of Brookfield Asset Management. The central management and control of BPY GP is expected to be outside Canada. It will have sole authority for the management and control of BPP LP. Income allocations will be made on a quarterly basis.

Property Partnership

Brookfield Asset Management will hold non-voting units (the "Redemption-Exchange Units"), representing an 83.1% interest in the Property Partnership. The Redemption-Exchange Units will be redeemable for cash subject to a right of BPP LP to acquire such units in exchange for units of BPP LP.

Property GP LP

The general partner of the Property Partnership will be a Bermuda limited partnership ("Property GP LP") holding a 1% GP interest. It has the sole authority for management and control of the Property Partnership. The general partner of Property GP LP is the Property General Partner. The Property General Partner (which initially was an Alberta ULC, but will become a Bermuda company) will be wholly-owned by Brookfield Asset Management, but will be controlled by BPP LP pursuant to a voting agreement.

Holding Entities

The Holding Entities are newly-created entities held by the Property Partnership. They include CanHoldco, an Ontario corporation in which Brookfield Asset Management will hold $1.25B of Class B and C redeemable preferred shares "received as partial consideration for causing the Property Partnership to directly acquire all of Brookfield Asset Management's commercial property operations." BPP LP will use commercially reasonable efforts to cause the redemption of the Class C preferred shares (of $0.5B bearing a cumulative dividend of 6.75%) as soon as reasonably practicable. Each class of preferred shares is entitled to 1% of the total votes of CanHoldco. Also included are two Bermuda holding companies.

Operating Entities

The direct and indirect holdings of the Holding Entities include various wholly- or partially-owned private or public non-resident companies, U.S. REITs and publicly traded trusts.

Distributions

Initially quarterly, amounting to $1.00 per annum per BPP LP unit, representing 80% of FFO, and 4% of the initial estimated BPP LP unit value of $25. A DRIP will be adopted.

Managers

The managers (the "Managers') will be Brookfield Global Management Limited and other wholly-owned subsidiaries of Brookfield Asset Management. The Managers receive a base fee of $12.5M per quarter, plus 0.3125% of each quarterly increase of BPP LP's total capitalization, plus (in the case of Property GP LP) further incentives of 15% then 25% based on exceeding distribution thresholds.

Canadian tax consequences

Dividend. The reported amount of the dividend will be based on the fair market value of the unit BPP LP units determined by reference to the five day VWAP of the BPP LP units following closing of the spin-off (pp. 38, 184).

Partnership taxation/SIFT tax

BPP LP and the Property Partnership would be considered to be "Canadian resident partnerships" and, therefore taxable as SIFT partnerships, if their central management and control were in Canada. BPY GP and the Property General Partner intend to take appropriate steps so that this does not occur (p. 39). Such GPs also intend to manage the affairs of the two partnerships so that, to the extent possible, they are not considered to carry on business in Canada (p. 40). BPP LP will include its share of fapi of the Property Partnership in computing its income.

Withholding tax

The Holding Entities intend to withhold on a reduced (look-through) basis taking into account the treaty-residence of the ultimate partners of the Property Partnership , including that of the unitholders of BPP LP.

TCP

It is not expected that the BPP LP units will be taxable Canadian property (p. 41).

U.S. tax consequences

Entity classification. BPP LP and the Property Partnership will make protective elections to be classified as partnerships for Code purposes. Their affairs will be managed so that they meet the Qualifying Income Exception (so as to not be deemed to be corporations under rules otherwise applicable to publicly-traded partnerships).

Distribution

The distribution will be treated as a dividend to the extent of current and accumulated earnings and profits of Brookfield Asset Management, which it does not calculate. Brookfield Asset Management does not believe it was a PFIC in the current or preceding taxable year, so that such dividend should qualify as a qualified dividend subject to exceptions.

Partnership taxation

BPP LP and the Property Partnership intend to make the Code s. 754 election (to step up or down inside basis respecting a transferee of units based on outside basis). BPP LP's functional currency will be the U.S. dollar.

Non-resident unitholders

BPP LP is unlikely to earn effectively connected income, so that non-US holders who are not otherwise engaged in a U.S. trade of business should not be subject to U.S. tax return filing requirements. However, there will be U.S. withholding tax on the gross amount of certain U.S. source income.

Overview

The Issuer, an Ontario LP, will hold 32 hotel properties, with an appraised value of $159.6M, in 19 states in the U.S. through American Hotel Income Properties REIT Inc. (the "U.S. REIT") and its subsidiaries. For FAPI purposes, this business is expected to be a services business rather than a property income business on general principles. It is issuing 10M units for $100M (assuming exercise of over-allotment option).

Structure

The Issuer will hold 100% of the common shares of the U.S. REIT. In order that the U.S. REIT will qualify as a REIT for Code purposes, on or before January 30, 2014 the U.S. REIT will issue Class B shares to at least 100 accredited investors. The Class B shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a yield of around 12.5%. The U.S. REIT may also issue a single ROC share to the Issuer.

The U.S. REIT will have two LLC subsidiaries. "Lodging Enterprises" is intended to be a taxable REIT subsidiary under the Code U.S. REIT rules. It will lease the properties of the second subsidiary ("Lodging Properties"), which will not be a TRS.

The shareholders of the GP of the Issuer will enter into a voting agreement so that their voting rights with respect to the GP will be voted in favour of the election of directors approved by the unitholders.

The underwriters will use their commercially reasonable efforts to distribute the Issuer units to not less than 3,000 unitholders.

Debt

At closing, the Issuer's consolidated indebtedness of approx. $71.5M will represent approx. 48.9% of gross book value.

Management

The Issuer will be internally managed and the lodging activities of the Issuer's U.S. subsidiaries will be managed by indirect wholly-owned U.S. subsidiaries of O'Neill Hotels & Resorts Ltd. ("OHR") who founded CHIP REIT. The Issuer CEO was co-founder of CHIP REIT. Management fees are 3.5% of gross hotel revenues plus incentive fees of up to 50% of such fees. There also is a per-property administrative charge, initially of $15,000 per property escalating to $25,000.

The Issuer also will enter into a development agreement with an affiliate of OHR.

Distributions

The Issuer intends to pay monthly cash distributions, estimated to be $0.075 per unit, to initially provide a yield of 9% (representing perhaps 90% of AFFO). The GP of the Issuer will receive 0.01% of cash distributions to a maximum of $100 per annum.

Canadian tax consequences

SIFT tax. The Issuer is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated.

Consent dividends

Any consent dividend deemed to be received by the Issuer from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Issuer. The Issuer would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Issuer unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The U.S. REIT will not satisfy the more-than-five full-time employee test because, due to U.S. tax requirements, hotel managers will be employed by the OHR subsidiaries rather than by the U.S. REIT and its subsidiaries. However, it is considered that the hotel business of the U.S. REIT (i.e., Lodging Enterprises) will qualify as a business of providing services rather than of renting real property, so that the income of the U.S. REIT (including presumably rental income of Lodging Properties recharacterized under s. 95(2)(a)(ii)(B)(I)) will not be foreign accrual property income.

U.S. tax consequences

Issuer as Partnership. The Issuer (whose units will trade on the OTC QX - viewed as an "established securities market," and will derive 90% or more of its income from interest, dividends and other qualifying income) intends to make an election to be treated as a partnership for Code purposes, and should not generally be subject to U.S. income tax.

FIRPTA

A U.S. tax reporting requirement will not arise to a non-U.S. unitholders as a result of their disposition of Issuer units provided that they owned 5% or fewer of the units that were listed for trading at the time of disposition and at all times during the immediately preceding five-year period the Issuer met the regularly traded requirement for that quarter. Management expects the regularly traded test to be met.

Although distributions made by the U.S. REIT to the Issuer that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by the U.S. REIT in excess of both its earnings and profits and the Issuer's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding, dispositions of property by the U.S. REIT will, to the extent practicable, be made by way of non-recognition transactions, and management has no intention for the U.S. REIT to make distributions as described above.

Distributions

Ordinary REIT dividends received by the Issuer from the U.S. REIT will, to the extent of the distributive share of an Issuer unitholder who holds 5% or fewer of the units, be eligible for a Treaty-reduced rate of withholding - generally 0% for RRSPs, and 15% for individuals including TFSAs. Corporate unitholders should consult their tax advisors.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code. An election will be filed for Lodging Enterprises to be a TRS of the U.S. REIT. The OHR manager is intended to qualify as an "eligible independent contractor." No assurance is given that the IRS will not challenge the leases from Lodging Properties to the TRS (Lodging Enterprises) as not having arm's length terms.

Structure

A TSX-listed mutual fund trust ("Trust) will hold, through a Canadian Holdco and a US Holdco, one third of the membership units, including a right (as managing member) to appoint the majority of directors, in a US LLC ("Crius Energy LLC" or the "Company"). The Company's business will be the sale of electricity and natural gas to retail and small commercial customers in the US.

Holders (the "pre-offering members") of the securities of two companies ("Regional Energy" a C-Corp., and "Public Power," an LLC - each having about 250,000 customers) will contribute a portion of those securities to the Company in consideration for the issuance to them of membership interests in the Company. The Trust will use the net offering proceeds to subscribe for shares of Cdn Holdco. Cdn Holdco will use such proceeds to subscribe for interest-bearing US-dollar debt (the "US Holdco Notes") and shares of US Holdco, a Delaware "C Corp." US Holdco will use such proceeds to subscribe for its 1/3 interest in the Company, which will use such proceeds to purchase (or cause the redemption of) the balance of the interests in Regional Energy and Public Power. Cdn Holdco will then distribute the US Holdco Notes to the Trust as a distribution of paid-up capital, and the Trust will settle an Ontario trust (the Commercial Trust) with the US Holdco Notes.

Following the closing of the offering, the Company will make a loan to a wholly-owned subsidiary of the Company prior to the merger of that subsidiary with Regional Energy.

Distributions

Monthly.

Management and Trustee

The Administrator (Crius Energy Administrator Inc.) will receive no fees for its services, and its shares will be voted at the direction of the Trust unitholders, as communicated to the Trustee (Computershare). Units under a restricted trust unit plan will vest as to 1/3 on each of the first, second and third annivesary of the date of grant.

Shareholders' agreement

There will be a "Company LLC Agreement" (effectively, a shareholders' agreement) containing various contingent buy-sell obligations and an obligation for the Company to make distributions. Commencing in 2019, the Company will be required to offer to purchase the membership units of the pre-offering members for a price based on five times the Company's consolidated cash flow, plus its consolidated cash, and minus its debt.

Canadian tax treatment

The Trust will not be subject to the SIFT tax, as its only assets will be its Canadian subsidiaries, which will be "portfolio investment entities" as defined in s. 122.1(1) - the Commercial Trust's and Cdn Holdco's only assets will be securities of US Holdco, which will not be a "subject entity." As it will not hold taxable Canadian property, the Trust's declaration of trust does not contain non-resident ownership restrictions.

Distributions of the net interest income of Commercial Trust (and any FX gains realized by it on the US Holdco Notes) will be included in the income of the Trust (before deducting the corresponding income distributions made to Trust unitholders). Return-of-capital payments received by the Trust from Cdn Holdco and Commercial Trust will not be included in its income (but will reduce the adjusted cost base of its investment).

Based on the activities of US Holdco and the Company, and as a consequences of the deductions under s. 113(1) for dividends paid out of exempt surplus, taxable surplus or pre-acquisition surplus, it is anticipated that "Cdn Holdco will not be subject to a material amount of Canadian federal income tax on the dividends received by it on the US Holdco Shares." To the extent that Cdn Holdco is entitiled to a s. 113 deduction with repect to dividends from US Holdco, it generally will be entitled to designate corresponding amounts of taxable dividends paid by it to the Trust as eligible dividends.

US tax treatment

Trust as partnership. The Trust (perhaps having regard to the earnings-stripping rules) will elect to be treated as a partnership for Code purposes (and will be eligible to do so as more than 90% of its gross income will be dividends).

Anti-inversion rules

However, the Trust will be treated as a foreign corporation for purposes of the anti-inversion rules in Code s. 7874. Under this provisions, it may not be subject to tax as a US domestic corporation (under the 80% ownership test) or subject to tax (the "Toll Charge") on an "inversion gain" (under the 60% ownership test) on the basis that it only acquired 1/3 of the interests in the Company (and, thus, only 1/3 of the Company's subsidiaries) - assuming that it did not acquire additional interests therein "as part of the same plan." However, the the Company's pre-offering members could be viewed as holding interests in the Trust if their distribution rights were substantially similar to the Trust distribution rights - in which event, the 80% ownership test under s. 7874 could be met. However, based on various differences in the prospective rights of Trust unitholders and pre-offering members, "the Trust has been advised that the pre-offering members of the Company should not be viewed as holding interests in the Trust for purposes of applying the 80%-ownership test or 60%-ownership test under section 7874."

Commercial Trust

The Commercial Trust will be treated as a corporation resident in Canada; and it is expected that it will be eligible for the benefits of the Canada-US Income Tax Convention (the "Treaty"), so that interest on the US Holdco Note will be exempt from withholding under the Treaty. "If financing transactions that include the US Holdco Notes were treated as part of a conduit financing arrangement, and the participation of the Commercial Trust ignored, interest paid by US Holdco to the Commercial Trust on the US Holdco Notes could be subject to a 30% federal withholding tax...."

US Holdco

US Holdco will be treated as a corporation for Code purposes. The shares of US Holdco are not expected to be US real property interests. US Holdco has been advised that the US Holdco Notes should be treated as debt for Code purposes, so that interest thereon should be deductible subject to the usual limitations, including Code s. 163(j). US Holdco's debt-to-equity ratio initially wil be in excess of 1.5 to 1 - however, note that the Commercial Trust may not be related to US Holdco for s. 163(j) purposes.

Regional Energy dividends

As US Holdco (which will be treated as a partnership for Code purposes) will own more than 20% of the Company, it should be deemed to own more than 20% of the shares of Regional Energy, and should be entitled to an 80% deduction with respect to dividends indirectly received from Regional Energy.

Section 246A provides that the dividends-received deduction for "debt-financed portfolio stock" is reduced to the extent that there is indebtedness directly attributable to investment in the portfolio stock. Although US Holdco is issuing the US Holdco Note, the Trust believes that is is more likely than not that section 246A should not apply in the present situation, as the proceeds of such note are not directly traceable to the investment in the stock of Regional Energy.

US Holdco is expected to make the election under Code s. 1059(c)(4) to have its basis in the shares of Regional Energy considered to be their much higher fair market value, for purposes of determining whether dividends from Regional Energy during the first two years of US Holdco's indirect investment therein are an extraordinary dividend (otherwise potentially giving rise to a negative basis gain).

Company

As a partnership, the Company is not subject to federal income tax. "It is expected that the allocations of such items [e.g., income] under the Company LLC Agreement should be deemed to have substantial effect," so that the amounts of income allocated to US Holdco will be respected. US Holdco will be the tax matters partner.

Regional Energy

Regional Energy will be treated as a corporation. The Regional Energy Notes will be treated as debt, and the interest thereon as deductible, for Code purposes. "This treatment is supported by certain interest rate and debt feasibility studies...."

Public Power

Public Power will not be regarded as an entity separated from the Company for Code purposes.

A TSX-listed mutual fund trust ("Meranex"), through a Canadian Holdco, will hold a US Opco which will carry on a US oil and gas business, with the internal interest-bearing debt owing by US Opco directly to the Canadian Trust. Structure and tax disclosure are essentially identical to Argent Energy.

Structure

Slate Trust (an Ontario trust) will use the offering proceeds (of up to U.S.$50M) to invest in the units and interest-bearing notes (the "Investment LP Notes") of an Ontario LP ("Investment LP") which, in turn, will invest in the units of a Delaware LP ("Holdings LP"). Holdings LP will (on a blind pool basis) use the offering proceeds and mortgage financing to invest in US commercial real estate rental properties with a focus on anchored retail properties (and with each property being held in a special purpose subsidiary LP). Corporations controlled by the Toronto-based manager (Slate Properties Inc., or the "Manager") will be the general partners of Investment LP and Holdings LP with a 0.01% GP interest (but with a 20% carry over the 8% p.a. minimum return in the case of the Holdings LP general partner.)

Units and listing

Slate Trust will issue different classes of units (some on a private placement basis) in order to reflect different fee structures, and currency (Canadian dollars or US dollars) for the quarterly distributions and redemption amounts. The units initially will not be listed. However, the Manager intends to complete a liquidity event by September 30, 2018: a listing of the units or an exchange of the units for listed units; or a sale of the units or assets.

There is a standard 49% non-resident-ownership restriction, notwithstanding that the contemplated structure does not entail Slate Trust holding significant taxable Canadian property.

Redemption rights

Where the units are not listed, they will be retractable based on 95% of the most recent quarter-end value of the units held in Holdings LP prior to retraction. If monthly redemptions exceed $100,000, or if total redemptions in any 12-month period exceed 1% of the aggregate unit subscription proceeds, the redemption price shall be paid by way of an in specie distribution of property or distribution of unsecured subordinated notes of the Slate Trust, as determined by the trustees in their sole discretion.

Distributions

To be paid quarterly.

Management fees

The Manager will be paid annual fees of 1.5% of the gross subscription proceeds plus a 0.75% acquisition fee on each property acquisition.

Canadian tax treatment

The summary assumes that Slate Trust will qualify as a mutual fund trust (and the risk factors disclosure implies that there are expected to be at least 150 unitholders acquiring whole blocks under the offering.) A s. 132(6.1) election will be made by Slate Trust for it to be deemed to be a mutual fund trust from its settlement date to the date it actually so qualifies.

Slate Trust's investment restrictions prohibit it from holding any non-portfolio property.

There will be pro rata designations of net taxable capital gains and foreign source income allocated to Slate Trust by Investment LP so that inter alia each partner's share of business income taxes and non-business-income taxes paid in the U.S. potentially will be creditable. However, no assurance can be given that the August 27, 2010 foreign tax credit generator proposals will not apply.

Although the disclosure addresses "maximizing disposition proceeds," the risk factors indicate that Canadian capital gains treatment is expected on property dispositions (so that the US tax rate on such dispositions would be higher than the Canadian rate).

U.S. tax treatment

Slate Trust and Investment LP will elect to be corporations under the Code. Accordingly, Investment LP (as a foreign corporation) will be subject to U.S. federal income tax at the highest applicable rate (35%) on the income it derives (through Holdings LP) from a U.S. trade or business. Income or gains of Holding LP allocable to Investment LP (including from any sale of U.S. real property owned by the special purpose LPs or a sale of such LPs) will be subject under Code s. 1446 to withholding at the 35% rate in lieu of any FIRPTA withholding requirements, with such withholding being allowed as a credit on Investment LP's U.S. federal income tax return. Investment LP also will be liable for a 5% branch profits tax (subject to the $500,000 Treaty exemption) on its after-tax earnings.

Slate Trust and Investment LP intend to treat the Investment LP Notes as debt allocable to Investment's LP's interest in Holding LP for Code purposes. The earnings stripping rules (Code s. 163(j)) may apply. Interest received by Slate Trust on the Investment LP Notes will be subject to 0% withholding by virtue of the Canada-U.S. Treaty.

Basic structure

Brookfield Asset Management Inc. ("Brookfield Inc.) will distribute a portion of the LP units of the newly-formed BPY (a Bermuda LP) to its shareholders as a special dividend. BPY will hold most of its commercial real estate assets (mostly minority interests in various funds and companies located in various jurisdictions) through a subsidiary Bermuda LP ("Property LP").

Brookfield Inc. will hold "Redemption-Exchange Units" of Property LP that are exchangeable into BPY units. After giving effect to such exchange and units of BPY held by it directly, Brookfield Inc. will have a 90% interest in BPY. BPY (which is described as a non-resident partnership) is expected to be listed on the TSX and NYSE.

Fees and management

The Brookfield Inc.-owned and Bermuda-domiciled GP of BPY ("BPY GP") will have sole control of BPY (i.e., no voting rights for the public unitholders of BPY) and is targeting annual distributions equal to 4% of FFO ($1.00 per unit). Brookfield managers are entitled to base management fees of $50 million p.a. plus reimbursements, and the Brookfield Inc.-owned GP of Property LP will be entitled to receive "quarterly equity enhancement distributions equal to 0.3125% of the amount by which [BPY's] total capitalization value exceeds an initial reference value."

As the distribution (referred to as a "spin-off") is a dividend, shareholders will not vote on the transaction (p. 63).

Canadian taxation

The spin-off will not be a distribution of paid-up capital (e.g., under s. 84(2) or 86). Accordingly, Canadian-resident shareholders will be subject to dividend treatment, and non-residents will be subject to Part XIII tax on the distribution - which will be satisfied by the applicable portion of the BPY units being withheld and sold to Broookfield Inc. for cash based on the 5-day VWAP following closing of the spin-off.

BPY income will be allocated to unitholders based on their proportionate share of total distributions received. Includes a discussion of the Foreign Tax Generator Proposals. The withholding tax applicable to various payments made to BPY or Property LP under s. 212(13.1)(b) likely will be reduced to take into account the residency or Treaty status of BPY unitholders.

US taxation

BPY and Property LP will make protective elections to be classified as partnerships for purposes of the Code - and they intend to manage their affairs so that they satisfy the Qualifying Income Exception for being treated as partnerships. They will make s. 754 elections.

The spin-off will be treated as a dividend to US holders based on E&P. A non-US holder generally should not recognize gain or loss upon the spin-off.

BPY is not expected to earn effectively connected income, so that there should be no US-return filing requirements for non-US holders - but distributions to BPY or Property LP of dividends or interest could subject non-US holders to US withholding tax, subject to treaty exemptions or the portfolio interest exemption. One or more of the subsidiaries is likely a PFIC.

A TSX-listed mutual fund trust ("Trust"), through a Canadian Holdco, will hold a US Opco which will carry on a US oil and gas business. Structure is similar to Eagle Energy, except that the US energy business is held through a Canadian holding corporation holding a US operating company rather than a Canadian sub trust holding a Delaware LP.

Canadian Tax

The Trust is not contemplated to be subject to SIFT tax on the basis that Can Holdco is a portfolio investment entity.

Based on the nature of the activities of US Opco and on it maintaining its central management and control in the US, its earnings are expected to give rise to exempt surplus rather than taxable surplus, so that dividends from US Opco can be received free of Canadian tax. It is expected that Can Holdco will designate the dividends paid by it as eligible dividends.

US Tax

US Opco anticipates that it will be entitled to deduct interest payments on the notes held by Trust, based inter alia on the CT Notes being treated as debt and satisfying the earnings stripping rules in s. 163(j). In particular, s. 163(j) requires that US Opco's debt-to-equity ratio be no more than 1.5:1, and that US Opco's "net interest expense" (interest expense minus interest income) be no more than 50% of its "adjusted taxable income" (taxable income before the deduction of certain items, including net interest expense). US Opco expects to have an initial debt-to-equity ratio of 1.6:1, so its deductions will be initially limited. The interest payments are expected to be exempt from US withholding tax, in accordance with the Treaty.

Risk Factors

• In the event that Can Holdco is found to be a Canadian-controlled private corporation and it makes excessive eligible dividend designations, it could be subject to penalty tax.
• If the units were found to be financing transactions under US Treasury regulations, then the US Opco notes and units together would likely be a financing arrangement under US conduit financing rules. Unit holders would have to provide a Tax Certification or else the notes would be subject to US withholding tax.
• As the Trust does not expect to hold taxable Canadian property, it will not be subject to the non-resident ownership restrictions in s. 132(7).
• As the Trust does not derive income from real property in Canada, Canadian resource property, or timber resource property, Part XIII.2 withholding tax will not apply.

Article

Brian Kearl and Eugene Friess, "Will Cross-border Income Trusts Be Next in the Department of Finanace's Cross-hairs?" Internation Tax Planning, Vol XVII, No. 4, p. 1204: In comparing the Eagle Energy trust-on-trust-on-LP structure to the Argent Energy trust-on-Canco-on-US Opco structure, they state (p. 1208):

...it is understood through discussions with U.S. counsel that using a U.S. Opco as opposed to a U.S. LP to carry on the U.S. business may be preferred in order to, inter alia, attract U.S. institutional investment and acquire U.S. federal oil and gas leases.

REIT subscriptions

REIT offering of 27M units at $10 per unit (with over-allotment option for 4M units) and $140M principal amount of convertible debentures - plus Dundee Corporation and Dundee Realty Corporation ("DRC") will purchase 12M units - for total net proceeds of perhaps $565M.

Caymans/Lux structure

The main asset of the REIT will be its units of a Caymans subsidiary LP (Dundee LP) which, in turn, will hold a Gibralter corporation (Dundee Gibralter), which will hold a Luxembourg s.à r.l. (Dundee Lux Holdco) that invests in the Dundee FCP Unitholders described below.

German structure

Real estate that is purchased from Lorac Investment Management S.à r.l. ("Lorac") for €736M (€60 per sq. foot of gross leasable area) will be leased to Deutsche Post under 15 "contractual co-ownership arrangement" (i.e., with 15 Dundee s.à r.l. co-owners, referred to as "Dundee FCP Unitholders," each of which will be the sole unitholder of the respective Dundee FCP) that are governed by Luxembourg law and constitute mutual investment funds without legal personality. These arrangements are referred to as "fonds commun de placement" or "FCPs."

Dundee Lux Holdco will acquire 50% of the shares of Lorac for €62,500 (with the acquisition of a further 44.9% contemplated), and a separate company for holding any trade fixtures included in the properties (Dundee Fixtures) will purchase the trade fixtures for €702,500 (presumably in order to avoid municipal trade tax on the net rental income).

Exchangeable notes

Notes totalling the euro equivalent of $80M are issued by Dundee Lux Holdco to a Lorac-group company (LSF REIT Holdings s.à r.l., or "LSF"). They are exchangeable into 8M REIT units, bear interest which tracks the distributions on those units and have a term of 10 years. Until exchange, LSF also will hold 8M special voting units of the REIT.

Distributions

Expected to be $.06667 per unit per month (45% tax deferred for 2012), representing approx. 90% of AFFO (i.e., 90% of $.89 p.a.) including interest on the exchangeable notes. A DRIP with 4% bonus distributions, with the right to make additional optional cash purchases of up to $250,000 per year. Where the Canadian taxable income is not otherwise fully distributed in a year, additional units will be issued.

Management

DRC is the asset manager and is entitled to fees: a base annual fee of .35% of the purchase price of the assets; an incentive fee of 15% of the per unit AFFO in excess of $.85 per unit (50% indexed to inflation); a capital expenditure fee of 5%; and a finacing fee of .25%. Lorac will act as management company of the Dundee FCPs.

Two wholly-owned subsidiaries of of Dundee Lux Holdco (Dundee Lux Manager - a s.à r.l.; and Dundee Germany Sub-Manager - a GmbH) will be portfolio managers.

The senior management team will consist of DRC employees (not REIT employees). Deferred Unit Incentive Plan.

Convertible debentures

Bear 5.5% semi-annual interest (with typical Unit Interest Payment Option provision). Convertible at $13.00 per unit (i.e., a 30% conversion premium). Conversion can be forced after August 31, 2014 based on the weighted-average unit trading price exceeding 125% of this conversion price for 20 consecutive trading days. May be redeemed at par (plus accrued interest) after August 31, 2016. On the July 31, 2018 maturity date, the REIT may elect to repay in units.

Canadian taxation

Because it does not hold taxable Canadian property, the REIT is not subject to restrictions on ownership by non-resident investors. It will not invest in Canadian business assets or Canadian resident entities that are not portfolio inventment entities, so that it will not be required to comply with the Canadian REIT rules in order to not be subject to taxation under the SIFT rules.

The Dundee FCPs will be characterized as contractual co-ownership arrangements so that income or loss of the Dundee FCPs will be computed at the level of the FCP Unitholders. Income earned by the Dundee FCP Unitholders will be foreign accrual property income that is included in the income of Dundee LP. The adjusted cost base to Dundee LP of its shares of Dundee Gibralter will be increased by the net fapi amount included in the income of Dundee LP. At such times as Dundee LP receives a dividend of amounts that previously were included in its income as fapi, that amount effectively will not be taxable to it, and will reduce the adjusted cost base of of its shares of Dundee Gibralter.

If a Dundee FCP Unitholder makes a distribution to Dundee Lux Holdco that is in excess of the fapi of the Dundee FCP Unitholder, such excess amount will reduce Dundee Lux Holdco's adjusted cost base of its shares of the Dundee FCP Unitholder, thereby potentially giving rise to a capital gain under the negative ACB rules, with a resulting 1/2 inclusion in the fapi of Dundee Lux Holdco. Fapi (other than fapi attributable to FX) will be fully distributed.

German taxation

Each Dundee FCP should be fiscally transparent, so that the FCP Unitholders will be considered to be a Luxembourg-resident holders of ownership interests in the German properties. Although whether such FCP Unitholders are subject to German income taxation on net rental income or capital gains from such properties is not clear, they will take the position that they are not subject to German income tax on such income and will not file returns unless demanded. The rate of German corporate income tax if it were applicable to the FCP Unitholders would be 15.825%. No municipal trade tax is applicable as there is no permanent establishment in Germany.

It is proposed that a TSX-listed mutual fund trust (Eagle Energy Trust), through a sub trust ("CT"), will hold a Delaware LP which will carry on a US oil and gas business.

Canadian taxation

Eagle Energy Trust is not subject to the SIFT tax because its only asset is a portfolio investment entity (CT) as defined in s. 122.1(1); i.e., the only assets of CT are the Delaware LP, which is not a "subject entity" as defined in s. 122.1(1) (see p. 92). Eagle Energy Trust is not subject to a Canadian-ownership requirement (s. 132(7)) as the units and debt of CT are not taxable Canadian property.

US taxation

Both trusts will elect to be treated as corporations (see p. 96). Eagle Energy Trust will have no business activity in the U.S. and, therefore, no effectively connected income. LP will be disregarded for US tax purposes (its GP is an LLC). Accordingly, CT will be treated as carrying on the oil and gas business, thereby potentially giving rise to US corporate income taxes and 5% branch tax to it. CT anticipates that it will be entitled to deduct the interest it pays to Eagle Energy Trust on the CT Notes (based inter alia on the CT Notes being treated as debt and satisfying the earnings stripping rules in s. 163(j)). The interest on the CT Notes should be exempt from US withholding tax under the Treaty.