Contract analysis

I. Executive Summary The purpose of this memorandum is to summarize, analyze, and validate the independent appraisal performed by Caldwell Valuation Group, LLC ("Caldwell"), dated August 30, 2025 (the "Caldwell Appraisal"), which supports the proposed annual base rent of $18,700,000 under intercompany leases to be entered into between Fairwater Real Estate Investment Trust ("Fairwater" or "FREIT") and its proposed ta

II. Background and Transaction Context A. Fairwater Real Estate Investment Trust Fairwater Real Estate Investment Trust is a Maryland real estate investment trust whose shares of beneficial interest are publicly traded on the New York Stock Exchange under the ticker symbol "FREIT." Fairwater's principal executive offices are located at 2400 Harbor Promenade, Suite 1100, Baltimore, Maryland 21202. The trust's employer

III. Applicable Legal Standard A. IRC § 856(d) — Definition of "Rents from Real Property"

Section 856(d)(1) of the Code defines "rents from real property" for purposes of the REIT provisions. Under the general rule, rents from real property include: (A) rents from interests in real property; (B) charges for services customarily furnished or rendered in connection with the rental of real property, whether or not such charges are separately stated; and (C) rent attributable to personal property which is lea

Section 856(d)(2) sets forth critical exclusions from the definition of rents from real property. For purposes of this memorandum, the most relevant exclusions are: (A) Income- or Profits-Based Rents. Any amount received or accrued, directly or indirectly, with respect to any real or personal property, if the determination of such amount depends in whole or in part on the income or profits derived by any person from

Section 856(d)(7)(B) of the Code provides a critical exception to the general rule excluding related-party rents from the definition of rents from real property. Under this provision, amounts received by a REIT from a TRS are not excluded from rents from real property by reason of the related-party rule, provided that at least one of the following conditions is satisfied: (i) 90-Percent Leasing Test. At least 90 perc

IV. Summary of the Caldwell Valuation Group Appraisal A. Appraiser Qualifications and Independence Caldwell Valuation Group, LLC ("Caldwell") is an independent real estate appraisal and valuation firm headquartered at 4200 Dominion Boulevard, Suite 310, Glen Allen, Virginia 23060. The firm specializes in the valuation of commercial real estate assets, including office, retail, mixed-use, industrial, and specialty-use

1. Income Capitalization Approach. Under this approach, Caldwell estimated the net operating income ("NOI") attributable to the TRS-operated spaces and applied market-derived capitalization rates to determine the underlying property value. The rental value was then derived as a function of the property value, applying a market rate of return to determine the rent that an investor-landlord would require to earn an ade

2. Sales Comparison / Market Rent Comparable Approach. Under this approach, Caldwell identified and analyzed comparable lease transactions for food-and-beverage, parking management, and co-working/flexible office spaces in the relevant submarkets across Virginia, North Carolina, and Georgia. This approach is the most direct and intuitive method for establishing arm's-length rents, as it benchmarks the proposed rent a

3. Cost Approach (Supplemental). As a supplemental reasonableness check, Caldwell employed the cost approach, under which the appraiser estimated the cost of constructing or providing the leased improvements (including tenant improvements, build-out costs, and a proportionate share of common area improvements) and applied a market rate of return on the invested capital to derive a rental value. The cost approach is g

1. Food-and-Beverage Spaces. Caldwell identified comparable lease transactions involving restaurant, café, bar, and food-hall spaces in mixed-use developments in the Richmond, Atlanta, Charlotte, Durham, and Raleigh metropolitan areas. The comparable transactions involved unrelated third-party tenants leasing food-and-beverage spaces from institutional landlords in Class-A mixed-use properties with characteristics si

2. Parking Management Spaces. Caldwell identified comparable parking garage and structured parking lease and license arrangements in urban mixed-use properties in the Norfolk, Atlanta, Raleigh, and Charlotte metropolitan areas. Parking arrangements present unique valuation challenges because they may be structured as leases, licenses, or management agreements, and the relevant unit of comparison may be a per-space or

3. Co-Working / Flexible Office Spaces. Caldwell identified comparable sublease and master-lease arrangements involving co-working operators in mixed-use properties in the Charlotte, Atlanta, and Durham metropolitan areas. The co-working sector has matured significantly in recent years, and there is now a meaningful body of comparable lease data involving established co-working operators entering into master leases o

V. Analysis and Validation of the Appraisal A. Consistency with Arm's-Length Standard Under IRC § 856(d)(7)(B) The proposed $18,700,000 annual base rent falls within the $17.8 million to $19.5 million fair market value range identified by Caldwell in the appraisal. This positioning confirms that the proposed rent is neither inflated — which could create the appearance of artificially overstating Fairwater's qualifyin

1. Southgate Commons I, Richmond, Virginia. Approximately 385,000 rentable square feet; allocated acquisition value of $98 million. TRS-operated spaces include food-and-beverage operations, encompassing ground-floor restaurant and café spaces. Richmond is a stable market with moderate rental growth; the property is located in a high-visibility mixed-use district with strong foot traffic.

2. Southgate Commons II, Richmond, Virginia. Approximately 310,000 rentable square feet; allocated acquisition value of $79 million. TRS-operated spaces include food-and-beverage operations, including a food hall and adjacent bar/lounge space. As a companion property to Southgate Commons I, the rent analysis for this property reflects similar market conditions with appropriate adjustments for the slightly smaller sca

3. Harborview Station, Norfolk, Virginia. Approximately 275,000 rentable square feet; allocated acquisition value of $71 million. TRS-operated spaces include parking management operations, encompassing a structured parking garage with approximately 800 spaces serving both tenants and transient users. The Norfolk market features somewhat lower rental rates than Richmond, and the parking operations reflect a mix of mon

4. Charlottesville Crossing, Charlottesville, Virginia. Approximately 220,000 rentable square feet; allocated acquisition value of $56 million. TRS operations at this property are limited in scope, consisting of a small café operation and ancillary parking. The Charlottesville market is characterized by stable but modest rental growth, and the rent allocation for this property reflects the limited scale of TRS activi

5. Piedmont Walk, Durham, North Carolina. Approximately 340,000 rentable square feet; allocated acquisition value of $88 million. TRS-operated spaces include co-working/flexible office operations occupying a significant portion of one floor of the property. The Durham market, anchored by the Research Triangle Park corridor, has experienced strong demand for flexible office space, and comparable co-working lease data

6. Triangle Gateway, Raleigh, North Carolina. Approximately 410,000 rentable square feet; allocated acquisition value of $106 million. This is the largest property in the portfolio by square footage and the second-largest by allocated value. TRS-operated spaces include both parking management operations (a multi-level garage) and food-and-beverage operations (two restaurant spaces and a rooftop bar). The Raleigh mark

7. Ashford Place, Charlotte, North Carolina. Approximately 290,000 rentable square feet; allocated acquisition value of $74 million. TRS-operated spaces include co-working operations occupying a dedicated wing of the property. The Charlotte market has been one of the strongest in the Southeast for co-working demand, and comparable lease data from this submarket provided strong support for the rent allocation.

8. Savannah River Center, Savannah, Georgia. Approximately 195,000 rentable square feet; allocated acquisition value of $49 million. TRS operations at this property are limited, consisting of a small food-and-beverage operation and minimal parking management. The Savannah market is smaller and less liquid than the major metropolitan markets in the portfolio, and Caldwell relied on a combination of local comparables a

9. Buckhead Terrace, Atlanta, Georgia. Approximately 365,000 rentable square feet; allocated acquisition value of $94 million. TRS-operated spaces include a significant food-and-beverage component, consisting of multiple restaurant spaces, a cocktail lounge, and event space. Buckhead is one of the premier commercial submarkets in the Atlanta metropolitan area, and comparable lease data for food-and-beverage spaces in

10. Midtown Promenade, Atlanta, Georgia. Approximately 230,000 rentable square feet; allocated acquisition value of $58 million. TRS-operated spaces include parking management operations, encompassing a structured garage serving the Midtown commercial corridor. The Midtown submarket has experienced significant development activity and strong parking demand, supporting the rent allocation.

11. Decatur Station, Decatur, Georgia. Approximately 80,000 rentable square feet; allocated acquisition value of $39 million. This is the smallest property in the portfolio. TRS operations are limited in scope, consisting of a small café and ancillary services. The Decatur market is a suburban submarket of Atlanta with lower but stable rental rates. In the aggregate, the 11 Southgate Portfolio properties encompass ap

VI. Impact on REIT Qualification Tests A. Gross Income Tests If arm's-length compliance is confirmed — as we believe it should be based on the analysis set forth in this memorandum — the $18.7 million annual base rent received by Fairwater from Southgate TRS under the proposed intercompany leases will constitute "rents from real property" under IRC § 856(d) and will be includable as qualifying income for purposes of