Contract analysis

I. EXECUTIVE SUMMARY This memorandum analyzes the purchase price allocation methodology applicable to Fairwater Real Estate Investment Trust's ("Fairwater" or "Buyer") acquisition of 100% of the membership interests in 14 single-purpose, property-owning Delaware limited liability companies (collectively, the "Target Entities") from Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or "Seller") for a total ag

II. TRANSACTION OVERVIEW A. Parties Buyer. Fairwater Real Estate Investment Trust is a Maryland real estate investment trust headquartered at 7200 Chesapeake Parkway, Suite 1100, Columbia, Maryland 21044. Fairwater's common shares of beneficial interest are listed on the New York Stock Exchange under the ticker symbol "FREIT." As of the fourth quarter of 2023, Fairwater's market capitalization was approximately $4.8

III. LEGAL FRAMEWORK — SECTION 1060 AND APPLICABLE TAX PRINCIPLES A. Treatment of Entity Purchase as Asset Acquisition The transaction is structured as a purchase of membership interests rather than a direct purchase of real property. However, because each Target Entity is a single-member LLC that has not elected to be treated as a corporation for federal income tax purposes, each Target Entity is classified as a "di

Section 10.4 of the PSA (the "Allocation Provision") provides that Buyer and Seller shall allocate the aggregate Purchase Price (as adjusted for the PCA credit and any post-closing proration true-up) among the 14 Target Entities and their respective assets in accordance with the allocation schedule set forth on Exhibit K to the PSA. The Allocation Provision further provides that: (a) Both parties shall file all feder

IV. APPRAISAL METHODOLOGY — STONEBRIDGE VALUATION ADVISORS, LLC A. Engagement and Scope Fairwater REIT engaged Stonebridge Valuation Advisors, LLC to provide independent appraisals of each of the 14 properties in the portfolio. Stonebridge is a nationally recognized real estate valuation firm specializing in the appraisal of commercial, industrial, and institutional properties throughout the United States. The engage

V. AGREED PURCHASE PRICE ALLOCATION — PROPERTY-BY-PROPERTY A. Summary Allocation Table The following table sets forth the agreed purchase price allocation among the 14 properties, as reflected in Exhibit K to the PSA and as adjusted for the $1,070,000 PCA credit. The allocation is based on the relative appraised values determined by Stonebridge Valuation Advisors, with adjustments for the PCA credit allocated to spec

VI. INTRA-PROPERTY ALLOCATION — ASSET CLASSES A. Methodology for Allocating Within Each Property For each of the 14 properties, the allocated purchase price determined on a property-level basis (as set forth in Part V above) must be further subdivided among the Section 1060 asset classes to establish the buyer's tax basis in each category of acquired assets. This intra-property allocation is critical because the depr

Section 197 Intangibles (In-Place Leases, Above/Below-Market Leases): Amortized over 15 years on a straight-line basis under IRC Section 197. For financial reporting purposes (ASC 805), above-market and below-market lease intangibles are amortized over the remaining lease term rather than 15 years; however, for tax purposes, the 15-year amortization period governs. The 15-year amortization of in-place lease intangibl

VII. STATE-LEVEL ALLOCATION CONSIDERATIONS A. Transfer Tax Implications The allocation of the purchase price among the 14 properties has direct implications for the computation of transfer taxes payable in each state where properties are located. A detailed analysis of the applicable transfer tax regimes is set forth in the separate Transfer Tax Analysis — Five States memorandum that I am preparing concurrently. The

VIII. IRS FORM 8594 — FILING REQUIREMENTS A. Filing Obligation Both Buyer and Seller are required to file IRS Form 8594 (Asset Acquisition Statement under Section 1060) with their respective federal income tax returns for the taxable year in which the closing of the transaction occurs. As the closing is scheduled for June 6, 2024, both parties' Form 8594 filings will be due with their 2024 federal income tax returns