Contract analysis

I. EXECUTIVE SUMMARY This memorandum analyzes whether Fairwater Real Estate Investment Trust's ("Fairwater" or the "Company") proposed acquisition of a 14-property Sun Belt logistics and office portfolio (the "Portfolio") from Greystone Meridian Partners Fund III, L.P. ("GMP Fund III" or the "Seller") for a total purchase price of $1,100,000,000 (the "Acquisition") will adversely affect Fairwater's continued qualific

II. BACKGROUND ON FAIRWATER'S REIT STATUS A. Fairwater's REIT Election and Structure Fairwater Real Estate Investment Trust is a Maryland real estate investment trust organized under the laws of the State of Maryland. Fairwater has elected to be treated as a REIT under Section 856(c) of the Code, effective as of the first taxable year in which it commenced operations. Since that time, Fairwater has maintained continu

14. GMP Mount Juliet LLC Each Target Entity is currently organized as a single-member Delaware limited liability company, with GMP Fund III (or an intermediate holding entity thereof) as the sole member. Upon the closing of the Acquisition, Fairwater will become the sole member of each Target Entity. For federal income tax purposes, a domestic limited liability company with a single owner is treated as a disregarded

III. REIT INCOME TESTS — SECTION 856(c)(2) AND 856(c)(3) A. Overview of Income Tests The Code imposes two gross income tests that a REIT must satisfy annually in order to maintain its REIT qualification: 75% Gross Income Test (Section 856(c)(3)). At least 75% of a REIT's gross income for each taxable year must be derived from the following qualifying sources: (a) rents from real property, as defined in Section 856(d)

1. Rents from Real Property — Section 856(d). The primary source of income from the Portfolio is rental income generated by the 87 leases in place across the 14 properties. Annual in-place base rent across the Portfolio totals $74,800,000. We have reviewed each of the 87 leases (or, where applicable, the lease abstracts and material excerpts provided in the Seller's virtual data room) and conclude that the rental inc

2. Impermissible Tenant Service Income — Section 856(d)(7). Section 856(d)(7) of the Code provides that if a REIT furnishes or renders services to the tenants of a property, or manages or operates the property, other than through (a) an independent contractor from whom the REIT does not derive or receive any income, or (b) a TRS of the REIT, then the services must be of a type "customarily furnished or rendered in co

3. CAM and Operating Expense Recoveries. In addition to base rent, tenants at the Portfolio properties are obligated to reimburse the landlord for their proportionate share of common area maintenance ("CAM") expenses, real property taxes, insurance premiums, and certain other operating expenses, pursuant to the terms of their respective leases. The majority of the logistics leases are structured on a "triple net" bas

4. Interest Income on Assumed Debt. The $612,000,000 of existing mortgage debt to be assumed by Fairwater in connection with the Acquisition does not generate income to Fairwater. Rather, the assumed debt represents obligations of the Target Entities (and, post-closing, of Fairwater as the successor borrower) payable to the following lenders: Interest payments on these obligations are deductible expenses that reduce

IV. REIT ASSET TESTS — SECTION 856(c)(4) A. Overview of Asset Tests The Code imposes several asset composition tests that a REIT must satisfy, measured at the close of each calendar quarter in which the REIT acquires securities or other assets or increases its interest in existing securities or assets: 75% Asset Test (Section 856(c)(4)(A)). At least 75% of the value of a REIT's total assets at the close of each calen

1. Real Estate Assets — Section 856(c)(5)(B). Section 856(c)(5)(B) of the Code defines "real estate assets" to include: (i) real property (including interests in real property and interests in mortgages on real property); (ii) shares (or transferable certificates of beneficial interest) in other qualifying REITs; and (iii) interests in certain temporary qualified investment vehicles. Treasury Regulation Section 1.856

2. Tangible Personal Property. Each of the 14 properties contains incidental items of tangible personal property, including furniture, fixtures, and equipment in common areas and management offices; maintenance equipment and tools; decorative elements; directory signage; and similar items. These items are typical of commercial real estate properties and are transferred pursuant to the Bill of Sale — Personal Property

3. Disregarded Entity Treatment. As discussed in Section II.C above, because Fairwater will own 100% of the membership interests in each Target Entity LLC, each Target Entity is treated as a disregarded entity for federal income tax purposes under Treasury Regulation Section 301.7701-3(b)(1)(ii). As a consequence, Fairwater is treated as directly owning the underlying real estate assets of each Target Entity. No "sec

V. DISTRIBUTION REQUIREMENTS — SECTION 857(a) A. Overview. Section 857(a)(1) of the Code requires that a REIT distribute to its shareholders, as dividends, an amount equal to at least 90% of its "REIT taxable income" for each taxable year. REIT taxable income is computed without regard to the dividends paid deduction and excluding any net capital gain. A REIT that fails to satisfy this distribution requirement loses

VI. PROHIBITED TRANSACTION ANALYSIS — SECTION 857(b)(6) A. Overview. Section 857(b)(6) of the Code imposes a 100% tax on the "net income derived from prohibited transactions." A "prohibited transaction" is defined as a sale or other disposition of property described in Section 1221(a)(1) of the Code — i.e., property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business (

Section 857(b)(6)(C) provides a safe harbor from the prohibited transaction tax if certain conditions are met, including, among others, that (i) the REIT held the property for at least two years prior to the sale, (ii) the aggregate expenditures made by the REIT during the two-year period preceding the sale that are includable in the basis of the property do not exceed 30% of the net selling price, and (iii) in the c

VII. IMPACT OF DEBT ASSUMPTION ON REIT TESTS A. Assumed Mortgage Debt In connection with the Acquisition, Fairwater will assume a total of $612,000,000 in existing mortgage indebtedness encumbering the Portfolio properties. The assumed debt is structured as follows: Pinnacle Federal Bank, N.A. — Master Loan Agreement dated September 15, 2020; outstanding principal balance of $421,600,000; fixed interest rate of 4.22%

VIII. TENANT CONCENTRATION AND RELATED-PARTY CONSIDERATIONS A. Tenant Concentration The Portfolio's tenant base is diversified across 87 leases with no single tenant representing more than 11.7% of total Portfolio annual base rent. The largest tenant, Cascade Supply Chain Solutions Inc., contributes $8,736,000 in annual base rent, representing 11.7% of the Portfolio's total. The remaining tenants each contribute less

IX. PROPERTY MANAGEMENT TRANSITION — IMPACT ON REIT STATUS A. Current Management The 14 properties in the Portfolio are currently managed by Argyle Property Services LLC ("Argyle"), an affiliate of the Seller (Greystone Meridian Partners). Argyle's principal office is located at 3300 Peachtree Road NE, Suite 2200, Atlanta, Georgia 30326, and its EIN is 83-2905441. The portfolio manager assigned to the Properties is S

X. TRANSFER TAX AND ACQUISITION COST CONSIDERATIONS The Acquisition involves the transfer of controlling membership interests in the 14 Target Entities, which may trigger controlling-interest transfer taxes (sometimes referred to as "real estate transfer taxes on entity transfers") in the states where the properties are located. The estimated transfer tax liability across the four applicable states is as follows: Tex

XI. DEPRECIABLE BASIS AND COST RECOVERY The Acquisition is structured as an entity-level purchase of 100% of the membership interests in each of the 14 Target Entities. Because each Target Entity is a disregarded entity for federal income tax purposes, Fairwater is treated as acquiring the underlying assets of each Target Entity directly. Unlike a tax-free exchange under Section 1031 of the Code (in which the acquire

XII. SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS A. Conclusions. Based on the analysis set forth in this memorandum, we reach the following conclusions regarding the impact of the proposed Acquisition on Fairwater's continued qualification as a REIT under Sections 856 through 860 of the Code: 1. 75% Gross Income Test (Section 856(c)(3)). All rental income from the 14-property Portfolio — including base rent, periodic

5. Distribution Requirements (Section 857(a)). The Acquisition will increase Fairwater's REIT taxable income by the net rental income from the Portfolio (after deduction of interest expense, depreciation, and operating expenses). This increase requires adjusted distribution planning but is a routine cash management matter that does not threaten Fairwater's REIT status.

6. Prohibited Transactions (Section 857(b)(6)). Fairwater is acquiring the Portfolio as a long-term strategic investment, and no prohibited transaction risk arises from the Acquisition itself. Any future dispositions of Portfolio properties should be planned in compliance with the safe harbor requirements of Section 857(b)(6)(C).

7. Related-Party Rents (Section 856(d)(2)(B)). None of