1036-00001 · Banking & Finance practice group · Bridge Loan Analysis

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CALDERWOOD & HARKNESS LLP

MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

To: Philip Hartmann, Partner, Banking & Finance

From: Marcus Leung, Associate, Banking & Finance

Reviewed by: Lisa Morrow, Lead Associate, Banking & Finance

Date: August 18, 2025

Re: Fairwater Real Estate Investment Trust — Bridge Loan Covenant Compliance Certificate Review as of June 30, 2025

Matter No.: 1036-00001

I. Purpose and Summary

The purpose of this memorandum is to analyze the compliance of Fairwater Real Estate Investment Trust ("Fairwater REIT" or the "Guarantor") and Fairwater Operating Partnership, L.P. (the "Borrower," and together with Fairwater REIT, "Fairwater") with the financial covenants contained in that certain Bridge Credit Agreement dated as of June 30, 2025 (the "Bridge Credit Agreement"), among Fairwater Operating Partnership, L.P., as borrower, Fairwater Real Estate Investment Trust, as guarantor, the syndicate lenders party thereto, and Kensington National Bank, N.A., as administrative agent (the "Administrative Agent"). The Bridge Credit Agreement governs a $240,000,000 senior secured bridge credit facility that was established to fund the acquisition of a fourteen-property multifamily portfolio located across the Sun Belt region (the "Sun Belt Portfolio") from Meridian Sunstone Holdings LLC.

The most recent covenant testing date under the Bridge Credit Agreement is June 30, 2025, which coincides with both the closing date of the bridge facility and the closing of the acquisition of the Sun Belt Portfolio. As such, this initial compliance certificate reflects the Borrower's financial position immediately following the deployment of the bridge loan proceeds and the simultaneous acquisition of the collateral properties.

Summary Conclusion. Based on our review of the compliance certificate delivered by Fairwater's Chief Financial Officer, Naomi T. Sinclair, to the Administrative Agent on August 14, 2025, and the supporting financial information described herein, Fairwater is in compliance with all tested financial covenants as of June 30, 2025. This conclusion applies to both categories of financial covenants set forth in the Bridge Credit Agreement: (a) entity-level covenants, tested on a consolidated basis for Fairwater REIT and its subsidiaries, and (b) portfolio-level covenants, tested solely with respect to the Sun Belt Portfolio collateral pool.

This review is conducted in connection with the firm's engagement on the permanent take-out financing that Fairwater is pursuing to replace the bridge facility. Understanding current covenant compliance under the Bridge Credit Agreement is relevant to several aspects of the permanent financing engagement, including: (a) confirming that no event of default exists under the bridge facility that could impede or delay the refinancing, (b) assessing the headroom available under the financial covenants during the interim period preceding the targeted closing of the permanent loan on November 28, 2025, and (c) evaluating the availability of the bridge extension option in the event that the permanent loan closing is delayed beyond the December 31, 2025 maturity date of the bridge facility. Each of these considerations is addressed in greater detail in the analysis that follows.

II. Background — Bridge Credit Facility Summary

The following is a summary of the material terms of the Bridge Credit Agreement relevant to this covenant compliance analysis. This summary is provided for reference and convenience only and is qualified in its entirety by the terms of the Bridge Credit Agreement and related loan documents.

Facility. The Bridge Credit Agreement provides for a $240,000,000 senior secured bridge credit facility. The facility is structured as a single-draw term loan that was fully funded at closing and bears interest on an interest-only basis with no scheduled amortization of principal during the initial term.

Borrower. Fairwater Operating Partnership, L.P., a Delaware limited partnership (EIN 52-2847201). The Borrower is the operating partnership through which Fairwater REIT conducts substantially all of its business operations and holds its real property assets, consistent with the umbrella partnership real estate investment trust ("UPREIT") structure commonly employed by publicly traded REITs.

Guarantor. Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (EIN 52-2847193; NYSE: FWTR). The Guarantor provides a full recourse guaranty of the Borrower's obligations under the Bridge Credit Agreement, including payment of principal, interest, fees, and all other amounts due thereunder.

Administrative Agent and Lead Arranger. Kensington National Bank, N.A., with offices at 600 Lexington Avenue, New York, New York 10022. The relationship manager for the facility is Thomas J. Pagano, Managing Director, Real Estate Finance.

Lender's Counsel. Halcourt Briggs & Devlin LLP, with the engagement led by Kenneth R. Delacroix, Lead Partner.

Syndicate Composition. The bridge facility was syndicated among four institutional lenders. The syndicate composition and individual commitments are set forth below:

Closing and Funding Date. June 30, 2025. The full $240,000,000 was drawn on the closing date to fund the acquisition of the Sun Belt Portfolio. No portion of the facility remains undrawn.

Outstanding Principal as of Testing Date. $240,000,000. Because the facility was fully funded at closing and no principal payments have been made since, the entire committed amount remains outstanding.

Interest Rate. The bridge loan bears interest at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 500 basis points, subject to a SOFR floor of 3.00%. Based on the 30-day Term SOFR rate as of August 11, 2025, which we assume at 4.33% for purposes of this analysis, the current all-in interest rate is 9.33% (4.33% + 5.00%). The SOFR floor ensures that the all-in rate will not fall below 8.00% (3.00% + 5.00%) regardless of downward movements in prevailing market rates.

Default Rate. In the event of a default under the Bridge Credit Agreement, interest accrues at an additional 200 basis points above the otherwise applicable rate, resulting in a default rate of SOFR plus 700 basis points (currently 11.33% based on the assumed SOFR rate).

Maturity Date. December 31, 2025. The initial term of the bridge facility is approximately six months from the closing date, reflecting the parties' expectation that the bridge loan will be repaid from the proceeds of permanent financing well before maturity.

Extension Option. The Borrower has the option to extend the maturity date by one six-month period, to June 30, 2026, subject to the satisfaction of the following conditions at the time of the extension request: (i) no event of default or potential event of default exists; (ii) the Portfolio Loan-to-Value Ratio does not exceed 65%; (iii) the Portfolio Debt Service Coverage Ratio is at least 1.20x; and (iv) the Borrower pays a one-time extension fee of 25 basis points on the outstanding principal balance, equal to $600,000 based on the current outstanding balance of $240,000,000. As discussed in Section VII.B below, the DSCR threshold for the extension option (1.20x) is higher than the ongoing DSCR covenant (1.10x), and the Borrower's current DSCR does not satisfy this elevated threshold.

Origination Fee. 1.00% of the total commitment, equal to $2,400,000, paid in full at closing.

Exit Fee. 0.50% of the outstanding principal balance at repayment, equal to $1,200,000 based on full repayment of the $240,000,000 balance. This exit fee is waived in its entirety if the bridge loan is repaid from the proceeds of a permanent CMBS financing within nine months of the bridge closing date — that is, on or before March 31, 2026.

Collateral. The bridge facility is secured by the following collateral:

(a) First-priority mortgage liens on all fourteen Sun Belt Portfolio properties, each held through a single-purpose entity organized as a Delaware limited liability company (Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC);

(b) A pledge of 100% of the equity interests in each of the fourteen SPE property-owning entities;

(d) An assignment of the property management agreements between each SPE and Fairwater Residential Management LLC, the affiliated property manager, effective as of July 1, 2025.

Governing Law. The Bridge Credit Agreement and related loan documents are governed by the laws of the State of New York, without regard to conflicts of law principles.

III. Financial Covenant Framework

The Bridge Credit Agreement contains two categories of financial covenants that the Borrower and the Guarantor must satisfy on an ongoing basis during the term of the bridge facility:

Entity-Level Covenants. These covenants are tested on a consolidated basis for Fairwater REIT and all of its subsidiaries, including the Borrower and the fourteen Sun Belt Portfolio SPEs. The entity-level covenants are designed to ensure that the broader Fairwater enterprise maintains adequate financial health and liquidity throughout the bridge loan term. As set forth in Article VII of the Bridge Credit Agreement, the entity-level covenants include: (i) a consolidated leverage ratio, (ii) a consolidated fixed charge coverage ratio, (iii) a minimum tangible net worth requirement, and (iv) a minimum liquidity requirement.

Portfolio-Level Covenants. These covenants are tested solely with respect to the fourteen-property Sun Belt Portfolio that constitutes the collateral for the bridge loan. The portfolio-level covenants are intended to protect the lenders' collateral position by monitoring the relationship between the outstanding loan balance and the value and income-generating capacity of the secured properties. As set forth in Article VII of the Bridge Credit Agreement, the portfolio-level covenants include: (i) a portfolio loan-to-value ratio and (ii) a portfolio debt service coverage ratio.

Testing Frequency. All financial covenants are tested quarterly, commencing with the fiscal quarter ending June 30, 2025. Given the six-month initial term of the bridge facility (June 30, 2025 through December 31, 2025), the covenants will be tested on two occasions during the initial term: June 30, 2025 and September 30, 2025. If the extension option is exercised, additional testing dates would occur on December 31, 2025 and March 31, 2026.

Compliance Certificate Delivery. Pursuant to Section 6.02(a) of the Bridge Credit Agreement, the Borrower is required to deliver to the Administrative Agent a compliance certificate within forty-five (45) days after the end of each fiscal quarter. Each compliance certificate must be signed by Fairwater's Chief Financial Officer, Naomi T. Sinclair, and must set forth in reasonable detail the calculations demonstrating compliance with each of the financial covenants. The first compliance certificate, covering the fiscal quarter ending June 30, 2025, was due on August 14, 2025. Our review confirms that the compliance certificate was timely delivered by Fairwater to Kensington National Bank on that date.

Fiscal Year and Auditors. Fairwater's fiscal year ends on December 31. Fairwater's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and are audited annually by Whitmore Hargrove & Co., P.C., with Christine M. Rowley serving as the lead engagement partner.

IV. Portfolio-Level Covenant Analysis

A. Portfolio Loan-to-Value Ratio (LTV)

Covenant Requirement. Pursuant to Section 7.11(a) of the Bridge Credit Agreement, the Portfolio Loan-to-Value Ratio (the "Portfolio LTV") shall not exceed 65% at any quarterly testing date.

Definition. The Portfolio LTV is defined as the ratio of (i) the outstanding principal balance of the bridge loan to (ii) the aggregate appraised value of the fourteen Sun Belt Portfolio properties, expressed as a percentage. The appraised value for purposes of this ratio is determined by reference to the MAI appraisals delivered at or prior to the closing of the bridge facility, unless a re-appraisal is obtained as described below.

Calculation as of June 30, 2025:

Outstanding principal balance: $240,000,000

Aggregate appraised value: $385,000,000

Portfolio LTV = $240,000,000 ÷ $385,000,000 = 62.34%

The aggregate appraised value of $385,000,000 is based on fourteen individual MAI appraisals prepared by Thornfield Appraisal Group LLC and delivered to the Administrative Agent on or prior to the bridge closing date. The appraised value is equal to the aggregate acquisition purchase price paid by the Borrower to Meridian Sunstone Holdings LLC for the Sun Belt Portfolio, which is consistent with arm's-length market pricing for the assets. Each appraisal was prepared in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP") and reflects an "as-is" market value determination as of June 30, 2025.

Covenant Limit: 65.00%

Cushion: 2.66 percentage points (65.00% − 62.34%). In dollar terms, the appraised value of the Sun Belt Portfolio could decline by approximately $15,769,231 (from $385,000,000 to approximately $369,230,769) before the Portfolio LTV would reach the 65% covenant threshold, assuming no change in the outstanding principal balance. Alternatively, the outstanding principal balance could increase by approximately $10,250,000 (to approximately $250,250,000) before breaching the covenant at the current appraised value, although such an increase is not possible under the terms of the bridge facility as it has been fully drawn.

Result: IN COMPLIANCE

Note Regarding Appraised Value. The appraised value used for the Portfolio LTV calculation is fixed as of the closing date of the bridge facility and is not subject to adjustment based on subsequent changes in market conditions, property performance, or comparable sales data during the initial term. However, the Bridge Credit Agreement provides that the Administrative Agent may, in its reasonable discretion, require a re-appraisal of any or all of the Sun Belt Portfolio properties in connection with a request by the Borrower to exercise the extension option. If a re-appraisal results in a lower aggregate appraised value, the Portfolio LTV would increase, potentially affecting the Borrower's ability to satisfy the LTV condition for the extension option. We note that, as of the date of this memorandum, no re-appraisal has been requested or initiated.

Property-by-Property Allocated Breakdown. The following table sets forth the individual property-level detail for each of the fourteen Sun Belt Portfolio properties, including the property-owning SPE, property name, location, unit count, appraised value, and pro rata allocation of the bridge loan (allocated proportionally based on appraised value as a percentage of the aggregate portfolio appraised value):

The Sun Belt Portfolio comprises a total of 4,200 multifamily residential units across fourteen communities situated in six states: Texas (five properties; 1,600 units), Georgia (three properties; 820 units), Florida (three properties; 860 units), North Carolina (two properties; 540 units), and Tennessee (one property; 380 units). The weighted average occupancy across the portfolio at the time of acquisition was 93.7%, and the acquisition cap rate was 6.80%, calculated as trailing-twelve-month NOI of $26,180,000 divided by the aggregate acquisition price of $385,000,000.

B. Portfolio Debt Service Coverage Ratio (DSCR)

Covenant Requirement. Pursuant to Section 7.11(b) of the Bridge Credit Agreement, the Portfolio Debt Service Coverage Ratio (the "Portfolio DSCR") shall not be less than 1.10x at any quarterly testing date.

Definition. The Portfolio DSCR is defined as the ratio of (i) trailing-twelve-month net operating income ("NOI") of the Sun Belt Portfolio to (ii) actual annual debt service on the bridge loan. For purposes of this definition, NOI means gross revenues from the Sun Belt Portfolio properties (including rental income, ancillary income, and other property-level revenues) less operating expenses (including property management fees, real estate taxes, insurance, repairs and maintenance, utilities, and other customary operating expenses), but excluding depreciation, amortization, capital expenditures, and debt service. Debt service includes all interest payments on the bridge loan and, if applicable, scheduled principal amortization payments. Because the bridge loan is structured on an interest-only basis with no amortization, the annual debt service figure reflects interest payments only.

Calculation as of June 30, 2025:

Trailing-twelve-month NOI: $26,180,000

Annual debt service: $22,392,000

Portfolio DSCR = $26,180,000 ÷ $22,392,000 = 1.169x

The TTM NOI figure of $26,180,000 is the historical NOI of the Sun Belt Portfolio as reported at the time of acquisition. Because the June 30, 2025 testing date coincides with the closing of both the bridge facility and the acquisition, there is no post-acquisition operating history available. Accordingly, the NOI figure used for this initial compliance test is based on historical operating statements provided by the seller, Meridian Sunstone Holdings LLC, during Fairwater's due diligence process. These operating statements were subject to review and adjustment in accordance with the NOI definition contained in the Bridge Credit Agreement, including the normalization of certain non-recurring items and the application of Fairwater's projected management fee structure under the property management agreements with Fairwater Residential Management LLC.

The annual debt service of $22,392,000 is calculated as the outstanding principal balance of $240,000,000 multiplied by the all-in interest rate of 9.33% (SOFR of 4.33% plus the spread of 5.00%). Because the bridge loan is interest-only, there is no amortization component. The monthly interest cost is approximately $1,866,000 ($22,392,000 ÷ 12).

Covenant Minimum: 1.10x

Cushion: 0.069x (1.169x − 1.10x). Expressed as a percentage of the covenant minimum, the cushion represents approximately 6.3% of the 1.10x threshold.

Result: IN COMPLIANCE

Observation Regarding DSCR Cushion. While the Portfolio DSCR is above the 1.10x covenant minimum, the cushion of 0.069x is relatively modest and warrants close monitoring. The DSCR is sensitive to both changes in NOI (the numerator) and changes in debt service (the denominator). Specifically, if NOI were to decline by approximately $1,562,800 (representing a decline of approximately 5.97% from the current TTM NOI of $26,180,000) while debt service remained constant, the DSCR would fall to exactly 1.10x, the covenant floor. Such a decline could result from reductions in occupancy, decreases in rental rates, or increases in operating expenses — any of which could occur during the transition period following Fairwater's acquisition and assumption of property management responsibilities. We recommend that Fairwater's quarterly NOI performance for the Sun Belt Portfolio be monitored closely to detect any adverse trends that could compress the DSCR toward the covenant minimum.

Additional Note Regarding Extension Option DSCR Threshold. As noted in Section II above, the extension option under the Bridge Credit Agreement requires that the Portfolio DSCR be at least 1.20x at the time of the extension request. This threshold is 0.10x higher than the ongoing Portfolio DSCR covenant of 1.10x. The current DSCR of 1.169x does not satisfy the extension option DSCR threshold, and Fairwater would need to demonstrate meaningful improvement in DSCR (either through NOI growth or a reduction in debt service) in order to qualify for the extension. This matter is addressed separately in the Bridge Extension Analysis Memo being prepared in parallel with this compliance review but is noted here as relevant context for the overall covenant compliance assessment.

V. Entity-Level Covenant Analysis

The Bridge Credit Agreement includes four entity-level financial covenants that are tested on a consolidated basis for Fairwater REIT and all of its subsidiaries, including the Borrower, the fourteen Sun Belt Portfolio SPEs, and all other entities within the Fairwater organizational structure. The entity-level covenants are designed to ensure the overall financial health, leverage discipline, and liquidity of the broader Fairwater enterprise, rather than focusing solely on the Sun Belt Portfolio collateral.

For each entity-level covenant, the analysis below summarizes the covenant requirement, the applicable definition, the available information regarding the calculation as of June 30, 2025, and the compliance determination based on the officer's compliance certificate delivered by Fairwater.

A. Consolidated Leverage Ratio

Covenant Requirement. Pursuant to Section 7.12(a) of the Bridge Credit Agreement, the Consolidated Leverage Ratio shall not exceed 65% at any quarterly testing date.

Definition. The Consolidated Leverage Ratio is defined as the ratio of (i) Total Consolidated Indebtedness of Fairwater REIT and its subsidiaries to (ii) Total Asset Value, expressed as a percentage. Total Consolidated Indebtedness includes all outstanding indebtedness of the consolidated Fairwater enterprise, including mortgage debt, unsecured debt, and the bridge loan. Total Asset Value, as defined in the Bridge Credit Agreement, is generally based on capitalized NOI or appraised value of the consolidated real estate portfolio, plus the value of other assets, and may differ from GAAP book value.

Calculation as of June 30, 2025:

Total consolidated indebtedness: Approximately $1,720,000,000, comprising pre-bridge indebtedness of approximately $1,480,000,000 (including existing mortgage loans, an unsecured revolving credit facility, and other secured and unsecured debt obligations across Fairwater's existing portfolio) plus the bridge facility of $240,000,000.

Total Asset Value: To be confirmed from Fairwater's balance sheet and compliance certificate calculations. Based on publicly available information, Fairwater's approximate total enterprise value is $3,200,000,000 and its market capitalization is approximately $1,850,000,000. The Total Asset Value as calculated under the Bridge Credit Agreement definitions is expected to be consistent with a consolidated leverage ratio within the 65% covenant limit.

Estimated Consolidated Leverage Ratio: The ratio of approximately $1,720,000,000 in total consolidated indebtedness to estimated Total Asset Value should be confirmed with Fairwater's finance team (Naomi T. Sinclair, CFO) to verify that the ratio as calculated per the Bridge Credit Agreement definitions does not exceed 65%.

Result: IN COMPLIANCE (based on the compliance certificate delivered by Fairwater to the Administrative Agent on August 14, 2025; exact figures to be confirmed from the officer's certificate and supporting calculations).

Note Regarding Total Asset Value Methodology. The specific methodology for calculating Total Asset Value under the Bridge Credit Agreement may differ materially from GAAP book value. Bridge credit agreements in the real estate context typically define Total Asset Value using one of two approaches: (i) a capitalized NOI approach, under which the value of each property is determined by capitalizing its NOI at a specified cap rate (often in the range of 7.0% to 8.0%), or (ii) an appraised value approach, under which the most recent appraised value is used for each property. The Total Asset Value methodology in the Bridge Credit Agreement should be reviewed to confirm the applicable approach and to verify that Fairwater's calculations are consistent with the agreed-upon definition. We recommend obtaining the detailed supporting schedules from Fairwater's finance team.

B. Consolidated Fixed Charge Coverage Ratio (FCCR)

Covenant Requirement. Pursuant to Section 7.12(b) of the Bridge Credit Agreement, the Consolidated Fixed Charge Coverage Ratio (the "FCCR") shall not be less than 1.50x at any quarterly testing date.

Definition. The FCCR is defined as the ratio of (i) Consolidated EBITDA (or Adjusted EBITDA, as defined in the Bridge Credit Agreement) for the trailing four fiscal quarters to (ii) Consolidated Fixed Charges for the same period. Consolidated Fixed Charges generally include all scheduled debt service payments (interest and principal), preferred stock dividends (if any), and, in certain credit agreement formulations, regularly scheduled common equity distributions. The specific components included in the fixed charge denominator must be verified against the Bridge Credit Agreement definition.

Calculation as of June 30, 2025:

The FCCR is to be derived from Fairwater's consolidated financial statements prepared in accordance with GAAP and audited annually by Whitmore Hargrove & Co., P.C. For interim periods, the calculation is based on unaudited quarterly financial data.

Fairwater's compliance certificate certifies that the FCCR is at least 1.50x as of June 30, 2025. The exact FCCR figure reported in the compliance certificate should be confirmed with Fairwater's finance team and, to the extent available, with the auditors.

It is noted that the bridge loan is interest-only, generating annualized interest expense of $22,392,000, which is included in the fixed charge denominator. To the extent that the Bridge Credit Agreement includes REIT distributions in the fixed charge calculation, this could materially impact the FCCR. Fairwater, as a Maryland real estate investment trust, is required to distribute at least 90% of its taxable income to shareholders in order to maintain its qualification as a REIT under Section 856 of the Internal Revenue Code. Whether such distributions are included in fixed charges under the Bridge Credit Agreement definition is a definitional question that should be confirmed.

Result: IN COMPLIANCE (per officer's compliance certificate).

We recommend confirming the exact FCCR figure with Fairwater's finance team and auditors, and verifying the treatment of REIT distributions within the fixed charge definition.

C. Tangible Net Worth

Covenant Requirement. Pursuant to Section 7.12(c) of the Bridge Credit Agreement, Consolidated Tangible Net Worth shall not be less than $750,000,000 at any quarterly testing date.

Definition. Consolidated Tangible Net Worth is defined as total stockholders' equity (or total shareholders' equity, in the case of a real estate investment trust) of Fairwater REIT on a consolidated basis, minus intangible assets, as determined in accordance with GAAP and the specific adjustments set forth in the Bridge Credit Agreement.

Calculation as of June 30, 2025:

Based on Fairwater's approximate market capitalization of $1,850,000,000 and the nature of its assets (which consist primarily of real property — multifamily residential communities — rather than intangible assets), tangible net worth is expected to substantially exceed the $750,000,000 threshold.

However, it is important to note that tangible net worth for covenant purposes is typically measured at book value rather than market value. Real estate assets are carried on the balance sheet at historical cost less accumulated depreciation under GAAP, and book value may be significantly lower than market value, particularly for properties that have been held for extended periods. Accordingly, the tangible net worth figure as calculated from Fairwater's balance sheet should be confirmed directly from the compliance certificate and supporting financial statements.

Following the acquisition of the Sun Belt Portfolio, Fairwater's total portfolio comprises approximately 62 multifamily communities encompassing approximately 18,400 units across the Mid-Atlantic and Southeastern United States, plus the 14 Sun Belt Portfolio communities totaling approximately 4,200 units, for a combined portfolio of approximately 76 communities and 22,600 units.

Result: IN COMPLIANCE (per officer's compliance certificate).

D. Minimum Liquidity

Covenant Requirement. Pursuant to Section 7.12(d) of the Bridge Credit Agreement, the Borrower and the Guarantor shall maintain Minimum Liquidity of not less than $50,000,000 at all times.

Definition. Minimum Liquidity is defined as the sum of (i) unrestricted cash and cash equivalents held by Fairwater REIT and its subsidiaries, plus (ii) the aggregate amount of undrawn commitments available to the Borrower or the Guarantor under Fairwater's revolving credit facility (to the extent such commitments are currently available and not subject to any borrowing base or other limitations that would prevent immediate draw).

Calculation as of June 30, 2025:

In connection with the acquisition of the Sun Belt Portfolio, Fairwater contributed cash equity of $145,000,000, representing approximately 37.66% of the $385,000,000 purchase price, with the balance funded by the $240,000,000 bridge loan. While this equity contribution reduced Fairwater's available cash, the minimum liquidity requirement of $50,000,000 is expected to be comfortably satisfied given the scale of Fairwater's overall operations (total enterprise value of approximately $3.2 billion). Fairwater maintains access to an unsecured revolving credit facility, and the combination of unrestricted cash on hand and available revolver capacity should substantially exceed the $50,000,000 minimum.

Post-acquisition liquidity should be confirmed from Fairwater's balance sheet and the compliance certificate, including verification of the amount of undrawn revolver capacity as of the testing date and confirmation that no restrictions on the availability of such capacity exist.

Result: IN COMPLIANCE (per officer's compliance certificate).

VI. Summary Compliance Table

The following table summarizes the compliance status of each financial covenant under the Bridge Credit Agreement as of the June 30, 2025 testing date:

Overall Result: All financial covenants are satisfied as of June 30, 2025. No event of default or potential event of default has been identified in connection with this covenant compliance review. The compliance certificate delivered by Fairwater's CFO to the Administrative Agent on August 14, 2025 confirms compliance with all tested covenants, and our independent analysis of the portfolio-level covenants corroborates the certified results.

VII. Forward-Looking Considerations and Observations

While Fairwater is in compliance with all financial covenants as of the June 30, 2025 testing date, several forward-looking considerations merit attention in connection with our permanent financing engagement. Each of these considerations bears on the risk profile of the bridge facility during the remaining term and informs the urgency of completing the permanent take-out financing on schedule.

A. DSCR Sensitivity

The Portfolio DSCR cushion of only 0.069x above the 1.10x covenant minimum is relatively thin, and the DSCR is susceptible to compression from two primary sources: (i) NOI fluctuations and (ii) interest rate changes.

NOI Sensitivity. The numerator of the DSCR — trailing-twelve-month NOI — is subject to variability based on occupancy levels, achieved rental rates, concessions and lease-up costs associated with the transition of property management to Fairwater Residential Management LLC, and changes in operating expenses such as real estate taxes, insurance premiums, and maintenance costs. The Sun Belt multifamily market, while generally benefiting from favorable demographic trends including population migration and job growth, has also experienced increased supply in certain submarkets (particularly Austin, TX and parts of the Charlotte, NC and Nashville, TN markets), which could exert downward pressure on occupancy and rental growth. Any decline in NOI of approximately $1,562,800 (approximately 5.97% of current TTM NOI) would cause the DSCR to fall to exactly the 1.10x covenant floor.

Interest Rate Sensitivity. The denominator of the DSCR — annual debt service — is directly tied to the floating interest rate on the bridge loan. Because the bridge facility bears interest at SOFR plus 500 basis points, any increase in SOFR results in a proportional increase in debt service and a corresponding decline in DSCR. Specifically:

• If SOFR increases by approximately 60 basis points (from the current 4.33% to approximately 4.93%), the all-in interest rate would rise from 9.33% to approximately 9.93%, annual debt service would increase from $22,392,000 to approximately $23,832,000, and the DSCR would decline to approximately 1.099x — falling below the 1.10x covenant minimum.

• Conversely, if SOFR declines, the DSCR would improve. However, the SOFR floor of 3.00% establishes a ceiling on the potential improvement. At the floor, the all-in interest rate would be 8.00% (3.00% + 5.00%), annual debt service would be $19,200,000, and the DSCR would be approximately 1.364x, providing substantially more comfortable coverage.

Given the relatively limited rate increase that would cause a covenant breach (approximately 60 basis points of SOFR movement), and the uncertainty inherent in interest rate forecasting, we recommend that the team obtain updated NOI figures on at least a quarterly basis and closely monitor Federal Reserve policy guidance and SOFR market expectations through the remaining bridge term.

B. Extension Option DSCR Threshold

As discussed in Section IV.B above, the extension option under the Bridge Credit Agreement requires a Portfolio DSCR of at least 1.20x at the time of the extension request. The current DSCR of 1.169x is 0.031x (or 3.1 basis points in DSCR terms) below this elevated threshold. Accordingly, based on current financial metrics, Fairwater would not qualify for the extension option.

If the permanent take-out financing closing is delayed and the extension becomes necessary, Fairwater would need to satisfy the 1.20x DSCR requirement through one or both of the following approaches:

(a) NOI Growth. Fairwater could demonstrate sufficient growth in portfolio NOI to achieve a 1.20x DSCR at the prevailing interest rate. At the current all-in rate of 9.33% and debt service of $22,392,000, the required NOI to achieve 1.20x would be $26,870,400 ($22,392,000 × 1.20), representing an increase of $690,400 (approximately 2.6%) over the current TTM NOI of $26,180,000. Whether such growth is achievable within the remaining bridge term will depend on Fairwater's ability to maintain or improve occupancy and rental rates across the Sun Belt Portfolio during the initial post-acquisition stabilization period.

(b) Partial Voluntary Prepayment. Alternatively, Fairwater could make a partial voluntary prepayment of the bridge loan to reduce the outstanding principal balance, thereby reducing annual debt service and improving the DSCR. To achieve a 1.20x DSCR with the current NOI of $26,180,000, the maximum annual debt service would be $21,816,667 ($26,180,000 ÷ 1.20). At the all-in rate of 9.33%, this implies a maximum outstanding principal balance of approximately $233,832,000 ($21,816,667 ÷ 0.0933). Accordingly, Fairwater would need to make a partial prepayment of approximately $6,168,000 ($240,000,000 − $233,832,000), assuming no NOI growth and a flat SOFR rate.

This analysis is addressed in greater detail in a separate Bridge Extension Analysis Memo currently under preparation. We flag this issue here because it has direct implications for the overall risk assessment of the bridge facility and reinforces the importance of achieving the permanent financing closing within the initial bridge term.

C. Impact of Proposed Permanent Financing on Debt Metrics

The proposed permanent take-out financing, which is being arranged with Clarendon Metropolitan Insurance Company as the lender and will take the form of a fixed-rate CMBS loan, would materially improve Fairwater's debt service coverage and overall financial profile relative to the bridge facility. The key terms of the proposed permanent loan and the anticipated impact on debt metrics are summarized below:

Permanent Loan Principal: $240,000,000 (replacing the bridge facility dollar-for-dollar; no additional cash-out proceeds).

Interest Rate: 6.25% fixed rate, representing a significant reduction from the current floating bridge rate of 9.33% — a savings of 308 basis points.

Amortization: 30-year amortization schedule with monthly payments of principal and interest. Monthly debt service of approximately $1,477,846, producing annual debt service of approximately $17,734,152. This compares to current annual interest-only debt service of $22,392,000 under the bridge facility.

Resulting DSCR: Portfolio DSCR would improve to approximately 1.476x ($26,180,000 ÷ $17,734,152), representing a substantial increase from the current 1.169x and providing significantly more comfortable coverage relative to typical CMBS DSCR requirements.

Annual Interest Savings: On an interest-only comparison basis, annual interest expense under the permanent loan would be approximately $15,000,000 ($240,000,000 × 6.25%), compared to $22,392,000 under the bridge facility, yielding annual savings of approximately $7,392,000.

Loan Structure: The permanent CMBS loan would be structured as a non-recourse obligation with standard carve-out guarantees, which differs from the full recourse guaranty currently provided by Fairwater REIT under the bridge facility. This structural change would also affect the nature of Fairwater's consolidated leverage analysis, as the non-recourse characterization of the permanent debt may be treated differently under Fairwater's existing credit facilities and corporate-level debt covenants.

The improvement in debt service coverage and the shift from floating-rate to fixed-rate debt under the permanent financing underscore the strategic rationale for completing the take-out financing as expeditiously as practicable.

D. Timing Considerations

Several timing milestones are relevant to the ongoing covenant compliance analysis and the interplay between the bridge facility and the permanent financing engagement:

Next Covenant Testing Date: September 30, 2025 (end of Q3 2025). The corresponding compliance certificate will be due within 45 days thereafter — by November 14, 2025. This will be the second and potentially final covenant testing date under the bridge facility if the permanent loan closes before the December 31, 2025 maturity date.

Permanent Loan Closing Target: November 28, 2025. If the permanent CMBS financing closes on schedule, the bridge loan will be repaid approximately one month before the December 31, 2025 maturity date. This timeline provides a reasonable, though not excessive, buffer for completion of the permanent financing.

Exit Fee Waiver Deadline: March 31, 2026. If the bridge loan is repaid from the proceeds of permanent CMBS financing on or before this date (nine months after the June 30, 2025 bridge closing), the 0.50% exit fee of $1,200,000 is waived in its entirety. The targeted permanent loan closing of November 28, 2025 is well within this deadline, preserving the exit fee waiver.

Bridge Maturity and Extension: If the permanent financing is not completed by December 31, 2025, Fairwater would need to either repay the bridge from other sources or exercise the extension option. As discussed above, the extension option requires satisfaction of conditions that Fairwater does not currently meet (specifically, the 1.20x DSCR threshold). Failure to repay the bridge at maturity without a valid extension would constitute an event of default under the Bridge Credit Agreement.

Continued monitoring of covenant compliance is necessary throughout the remaining term of the bridge facility, with particular attention to the Q3 2025 testing date and the trajectory of NOI and SOFR rates heading into the permanent financing closing.

VIII. Recommendations

Based on the analysis set forth in this memorandum, we recommend the following actions:

1. Confirm Entity-Level Covenant Figures. Request from Naomi T. Sinclair, Chief Financial Officer of Fairwater REIT, the detailed calculations supporting each of the entity-level financial covenants (consolidated leverage ratio, consolidated fixed charge coverage ratio, tangible net worth, and minimum liquidity) as set forth in the compliance certificate delivered to Kensington National Bank, N.A. on August 14, 2025. Our review of the entity-level covenants has been based on the compliance certificate certifications and publicly available financial information; obtaining the underlying calculations and supporting schedules will enable a more complete independent assessment. In particular, we should verify the Total Asset Value methodology and the treatment of REIT distributions within the fixed charge coverage ratio calculation.

2. Monitor SOFR Trajectory. Given that the Portfolio DSCR could fall below the 1.10x covenant minimum if SOFR increases by approximately 60 basis points, the team should maintain active awareness of interest rate movements and Federal Reserve monetary policy guidance through the targeted permanent loan closing date. We recommend establishing a monitoring protocol under which any SOFR increase exceeding 25 basis points triggers a re-calculation of the projected DSCR and a reassessment of the covenant compliance outlook.

3. Track NOI Performance. Obtain monthly or quarterly operating reports from Fairwater Residential Management LLC (the affiliated property manager, EIN 52-2953810) for each of the fourteen Sun Belt Portfolio properties. These reports should include occupancy data, effective rental rates, concession activity, and detailed operating expense information. Early detection of any adverse NOI trends will be critical to assessing the risk of a DSCR covenant breach at the September 30, 2025 testing date and to evaluating the availability of the extension option.

4. Prioritize Permanent Loan Closing Timeline. The thin DSCR cushion under the ongoing covenant (0.069x above the 1.10x minimum) and the current inability to satisfy the extension option DSCR threshold (1.20x) underscore the importance of completing the Clarendon Metropolitan Insurance Company permanent take-out financing on or before the November 28, 2025 targeted closing date. Any delay that pushes the closing beyond December 31, 2025 would require either exercise of the extension option (which is not currently available based on DSCR metrics) or repayment of the bridge from alternative sources. We recommend that the permanent financing workstreams — including borrower due diligence, environmental reports, updated appraisals, title and survey review, and CMBS structuring — be advanced with appropriate urgency to minimize the risk of delay.

5. Coordinate with REIT Counsel. Coordinate with Crestline & Alderman LLP (Patricia S. Keene, responsible partner) regarding any REIT-specific reporting requirements, distribution obligations, or corporate governance considerations that could affect entity-level covenant compliance during the remaining bridge term. In particular, Fairwater's obligation to distribute at least 90% of taxable income to maintain REIT qualification could affect liquidity and, depending on the definition of fixed charges in the Bridge Credit Agreement, could impact the consolidated fixed charge coverage ratio.

IX. Conclusion

Based on our review of the compliance certificate delivered by Fairwater's Chief Financial Officer and the supporting analysis set forth in this memorandum, we conclude as follows:

Fairwater Real Estate Investment Trust and Fairwater Operating Partnership, L.P. are in compliance with all financial covenants under the Bridge Credit Agreement as of the June 30, 2025 testing date. The Portfolio Loan-to-Value Ratio of 62.34% is within the 65% covenant limit, and the Portfolio Debt Service Coverage Ratio of 1.169x exceeds the 1.10x covenant minimum. The entity-level covenants — consolidated leverage ratio, consolidated fixed charge coverage ratio, tangible net worth, and minimum liquidity — are each satisfied based on the officer's compliance certificate, with exact figures to be confirmed through the follow-up actions recommended above.

No event of default or potential event of default exists under the Bridge Credit Agreement based on the financial covenant analysis as of the initial testing date. The current compliance posture supports the ability to proceed with the permanent take-out financing without impediment from the bridge facility, as the absence of a default is a necessary precondition to the orderly refinancing of the bridge loan.

Notwithstanding the favorable compliance determination as of June 30, 2025, continued monitoring of covenant compliance is strongly recommended throughout the remaining term of the bridge facility. The modest Portfolio DSCR cushion (0.069x above the 1.10x minimum) and the higher DSCR threshold required for the extension option (1.20x, which is not currently satisfied) create a risk profile that warrants ongoing attention to NOI performance, interest rate movements, and the permanent financing closing timeline.

This memorandum is intended solely for the internal use of Calderwood & Harkness LLP and is protected by the attorney-client privilege and the work product doctrine. This memorandum should not be disclosed to any third party without the prior written consent of the responsible partner.

Prepared by:

________________________________________

Marcus Leung Associate, Banking & Finance Calderwood & Harkness LLP

Reviewed by:

________________________________________

Lisa Morrow Lead Associate, Banking & Finance Calderwood & Harkness LLP

Distribution: Philip Hartmann, Partner (Responsible Partner); file copy (Matter No. 1036-00001)

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

Lender	Commitment	Percentage
Kensington National Bank, N.A.	$96,000,000	40.00%
Pinnacle Trust Company	$60,000,000	25.00%
Greystone Commerce Bank	$48,000,000	20.00%
Redfield Capital Markets, LLC	$36,000,000	15.00%
Total	$240,000,000	100.00%
SPE	Property Name	Location	Units	Appraised Value	Allocated Loan
Fairwater Sun Belt I LLC	Ridgewater at Lakeline	Austin, TX	320	$32,500,000	$20,259,740
Fairwater Sun Belt II LLC	Sagebrush Commons	San Antonio, TX	288	$24,800,000	$15,461,039
Fairwater Sun Belt III LLC	Cypress Bend	Katy, TX	340	$30,200,000	$18,826,494
Fairwater Sun Belt IV LLC	Willowbrook Terrace	Sugar Land, TX	310	$29,100,000	$18,140,779
Fairwater Sun Belt V LLC	Heritage at Stonebriar	Frisco, TX	342	$35,800,000	$22,316,883
Fairwater Sun Belt VI LLC	Peachtree Crossings	Alpharetta, GA	296	$28,600,000	$17,829,091
Fairwater Sun Belt VII LLC	Cumberland Ridge	Smyrna, GA	264	$24,200,000	$15,087,013
Fairwater Sun Belt VIII LLC	Sugarloaf Station	Duluth, GA	260	$23,400,000	$14,588,571
Fairwater Sun Belt IX LLC	Bayshore Landings	Tampa, FL	308	$33,800,000	$21,069,870
Fairwater Sun Belt X LLC	Solara at Millenia	Orlando, FL	292	$30,600,000	$19,075,714
Fairwater Sun Belt XI LLC	Riverside Preserve	Jacksonville, FL	260	$22,400,000	$13,964,935
Fairwater Sun Belt XII LLC	Stonewall Flats	Charlotte, NC	284	$28,200,000	$17,580,000
Fairwater Sun Belt XIII LLC	Crabtree Pointe	Raleigh, NC	256	$26,400,000	$16,458,701
Fairwater Sun Belt XIV LLC	Harpeth Valley	Nashville, TN	380	$15,000,000	$9,341,169
Total	4,200	$385,000,000	$240,000,000
Covenant	Requirement	Actual (June 30, 2025)	Cushion	Status
Portfolio LTV	≤ 65.00%	62.34%	2.66 pp	Compliant
Portfolio DSCR	≥ 1.10x	1.169x	0.069x	Compliant

Consolidated Leverage Ratio	≤ 65%	Per certificate	TBD	Compliant
Consolidated FCCR	≥ 1.50x	Per certificate	TBD	Compliant
Tangible Net Worth	≥ $750,000,000	Per certificate	TBD	Compliant
Minimum Liquidity	≥ $50,000,000	Per certificate	TBD	Compliant

CALDERWOOD & HARKNESS LLP
MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
To: Philip Hartmann, Partner, Banking & Finance
From: Marcus Leung, Associate, Banking & Finance
Reviewed by: Lisa Morrow, Lead Associate, Banking & Finance
Date: August 18, 2025
Re: Fairwater Real Estate Investment Trust — Bridge Loan Covenant Compliance Certificate Review as of June 30, 2025
Matter No.: 1036-00001
I. Purpose and Summary
The purpose of this memorandum is to analyze the compliance of Fairwater Real Estate Investment Trust ("Fairwater REIT" or the "Guarantor") and Fairwater Operating Partnership, L.P. (the "Borrower," and together with Fairwater REIT, "Fairwater") with the financial covenants contained in that certain Bridge Credit Agreement dated as of June 30, 2025 (the "Bridge Credit Agreement"), among Fairwater Operating Partnership, L.P., as borrower, Fairwater Real Estate Investment Trust, as guarantor, the syndicate lenders party thereto, and Kensington National Bank, N.A., as administrative agent (the "Administrative Agent"). The Bridge Credit Agreement governs a $240,000,000 senior secured bridge credit facility that was established to fund the acquisition of a fourteen-property multifamily portfolio located across the Sun Belt region (the "Sun Belt Portfolio") from Meridian Sunstone Holdings LLC.
The most recent covenant testing date under the Bridge Credit Agreement is June 30, 2025, which coincides with both the closing date of the bridge facility and the closing of the acquisition of the Sun Belt Portfolio. As such, this initial compliance certificate reflects the Borrower's financial position immediately following the deployment of the bridge loan proceeds and the simultaneous acquisition of the collateral properties.
Summary Conclusion. Based on our review of the compliance certificate delivered by Fairwater's Chief Financial Officer, Naomi T. Sinclair, to the Administrative Agent on August 14, 2025, and the supporting financial information described herein, Fairwater is in compliance with all tested financial covenants as of June 30, 2025. This conclusion applies to both categories of financial covenants set forth in the Bridge Credit Agreement: (a) entity-level covenants, tested on a consolidated basis for Fairwater REIT and its subsidiaries, and (b) portfolio-level covenants, tested solely with respect to the Sun Belt Portfolio collateral pool.
This review is conducted in connection with the firm's engagement on the permanent take-out financing that Fairwater is pursuing to replace the bridge facility. Understanding current covenant compliance under the Bridge Credit Agreement is relevant to several aspects of the permanent financing engagement, including: (a) confirming that no event of default exists under the bridge facility that could impede or delay the refinancing, (b) assessing the headroom available under the financial covenants during the interim period preceding the targeted closing of the permanent loan on November 28, 2025, and (c) evaluating the availability of the bridge extension option in the event that the permanent loan closing is delayed beyond the December 31, 2025 maturity date of the bridge facility. Each of these considerations is addressed in greater detail in the analysis that follows.
II. Background — Bridge Credit Facility Summary
The following is a summary of the material terms of the Bridge Credit Agreement relevant to this covenant compliance analysis. This summary is provided for reference and convenience only and is qualified in its entirety by the terms of the Bridge Credit Agreement and related loan documents.
Facility. The Bridge Credit Agreement provides for a $240,000,000 senior secured bridge credit facility. The facility is structured as a single-draw term loan that was fully funded at closing and bears interest on an interest-only basis with no scheduled amortization of principal during the initial term.
Borrower. Fairwater Operating Partnership, L.P., a Delaware limited partnership (EIN 52-2847201). The Borrower is the operating partnership through which Fairwater REIT conducts substantially all of its business operations and holds its real property assets, consistent with the umbrella partnership real estate investment trust ("UPREIT") structure commonly employed by publicly traded REITs.
Guarantor. Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (EIN 52-2847193; NYSE: FWTR). The Guarantor provides a full recourse guaranty of the Borrower's obligations under the Bridge Credit Agreement, including payment of principal, interest, fees, and all other amounts due thereunder.
Administrative Agent and Lead Arranger. Kensington National Bank, N.A., with offices at 600 Lexington Avenue, New York, New York 10022. The relationship manager for the facility is Thomas J. Pagano, Managing Director, Real Estate Finance.
Lender's Counsel. Halcourt Briggs & Devlin LLP, with the engagement led by Kenneth R. Delacroix, Lead Partner.
Syndicate Composition. The bridge facility was syndicated among four institutional lenders. The syndicate composition and individual commitments are set forth below:
Closing and Funding Date. June 30, 2025. The full $240,000,000 was drawn on the closing date to fund the acquisition of the Sun Belt Portfolio. No portion of the facility remains undrawn.
Outstanding Principal as of Testing Date. $240,000,000. Because the facility was fully funded at closing and no principal payments have been made since, the entire committed amount remains outstanding.
Interest Rate. The bridge loan bears interest at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 500 basis points, subject to a SOFR floor of 3.00%. Based on the 30-day Term SOFR rate as of August 11, 2025, which we assume at 4.33% for purposes of this analysis, the current all-in interest rate is 9.33% (4.33% + 5.00%). The SOFR floor ensures that the all-in rate will not fall below 8.00% (3.00% + 5.00%) regardless of downward movements in prevailing market rates.
Default Rate. In the event of a default under the Bridge Credit Agreement, interest accrues at an additional 200 basis points above the otherwise applicable rate, resulting in a default rate of SOFR plus 700 basis points (currently 11.33% based on the assumed SOFR rate).
Maturity Date. December 31, 2025. The initial term of the bridge facility is approximately six months from the closing date, reflecting the parties' expectation that the bridge loan will be repaid from the proceeds of permanent financing well before maturity.
Extension Option. The Borrower has the option to extend the maturity date by one six-month period, to June 30, 2026, subject to the satisfaction of the following conditions at the time of the extension request: (i) no event of default or potential event of default exists; (ii) the Portfolio Loan-to-Value Ratio does not exceed 65%; (iii) the Portfolio Debt Service Coverage Ratio is at least 1.20x; and (iv) the Borrower pays a one-time extension fee of 25 basis points on the outstanding principal balance, equal to $600,000 based on the current outstanding balance of $240,000,000. As discussed in Section VII.B below, the DSCR threshold for the extension option (1.20x) is higher than the ongoing DSCR covenant (1.10x), and the Borrower's current DSCR does not satisfy this elevated threshold.
Origination Fee. 1.00% of the total commitment, equal to $2,400,000, paid in full at closing.
Exit Fee. 0.50% of the outstanding principal balance at repayment, equal to $1,200,000 based on full repayment of the $240,000,000 balance. This exit fee is waived in its entirety if the bridge loan is repaid from the proceeds of a permanent CMBS financing within nine months of the bridge closing date — that is, on or before March 31, 2026.
Collateral. The bridge facility is secured by the following collateral:
(a) First-priority mortgage liens on all fourteen Sun Belt Portfolio properties, each held through a single-purpose entity organized as a Delaware limited liability company (Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC);
(b) A pledge of 100% of the equity interests in each of the fourteen SPE property-owning entities;
(c) An assignment of all leases and rents with respect to the Sun Belt Portfolio properties; and
(d) An assignment of the property management agreements between each SPE and Fairwater Residential Management LLC, the affiliated property manager, effective as of July 1, 2025.
Governing Law. The Bridge Credit Agreement and related loan documents are governed by the laws of the State of New York, without regard to conflicts of law principles.
III. Financial Covenant Framework
The Bridge Credit Agreement contains two categories of financial covenants that the Borrower and the Guarantor must satisfy on an ongoing basis during the term of the bridge facility:
Entity-Level Covenants. These covenants are tested on a consolidated basis for Fairwater REIT and all of its subsidiaries, including the Borrower and the fourteen Sun Belt Portfolio SPEs. The entity-level covenants are designed to ensure that the broader Fairwater enterprise maintains adequate financial health and liquidity throughout the bridge loan term. As set forth in Article VII of the Bridge Credit Agreement, the entity-level covenants include: (i) a consolidated leverage ratio, (ii) a consolidated fixed charge coverage ratio, (iii) a minimum tangible net worth requirement, and (iv) a minimum liquidity requirement.
Portfolio-Level Covenants. These covenants are tested solely with respect to the fourteen-property Sun Belt Portfolio that constitutes the collateral for the bridge loan. The portfolio-level covenants are intended to protect the lenders' collateral position by monitoring the relationship between the outstanding loan balance and the value and income-generating capacity of the secured properties. As set forth in Article VII of the Bridge Credit Agreement, the portfolio-level covenants include: (i) a portfolio loan-to-value ratio and (ii) a portfolio debt service coverage ratio.
Testing Frequency. All financial covenants are tested quarterly, commencing with the fiscal quarter ending June 30, 2025. Given the six-month initial term of the bridge facility (June 30, 2025 through December 31, 2025), the covenants will be tested on two occasions during the initial term: June 30, 2025 and September 30, 2025. If the extension option is exercised, additional testing dates would occur on December 31, 2025 and March 31, 2026.
Compliance Certificate Delivery. Pursuant to Section 6.02(a) of the Bridge Credit Agreement, the Borrower is required to deliver to the Administrative Agent a compliance certificate within forty-five (45) days after the end of each fiscal quarter. Each compliance certificate must be signed by Fairwater's Chief Financial Officer, Naomi T. Sinclair, and must set forth in reasonable detail the calculations demonstrating compliance with each of the financial covenants. The first compliance certificate, covering the fiscal quarter ending June 30, 2025, was due on August 14, 2025. Our review confirms that the compliance certificate was timely delivered by Fairwater to Kensington National Bank on that date.
Fiscal Year and Auditors. Fairwater's fiscal year ends on December 31. Fairwater's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and are audited annually by Whitmore Hargrove & Co., P.C., with Christine M. Rowley serving as the lead engagement partner.
IV. Portfolio-Level Covenant Analysis
A. Portfolio Loan-to-Value Ratio (LTV)
Covenant Requirement. Pursuant to Section 7.11(a) of the Bridge Credit Agreement, the Portfolio Loan-to-Value Ratio (the "Portfolio LTV") shall not exceed 65% at any quarterly testing date.
Definition. The Portfolio LTV is defined as the ratio of (i) the outstanding principal balance of the bridge loan to (ii) the aggregate appraised value of the fourteen Sun Belt Portfolio properties, expressed as a percentage. The appraised value for purposes of this ratio is determined by reference to the MAI appraisals delivered at or prior to the closing of the bridge facility, unless a re-appraisal is obtained as described below.
Calculation as of June 30, 2025:
Outstanding principal balance: $240,000,000
Aggregate appraised value: $385,000,000
Portfolio LTV = $240,000,000 ÷ $385,000,000 = 62.34%
The aggregate appraised value of $385,000,000 is based on fourteen individual MAI appraisals prepared by Thornfield Appraisal Group LLC and delivered to the Administrative Agent on or prior to the bridge closing date. The appraised value is equal to the aggregate acquisition purchase price paid by the Borrower to Meridian Sunstone Holdings LLC for the Sun Belt Portfolio, which is consistent with arm's-length market pricing for the assets. Each appraisal was prepared in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP") and reflects an "as-is" market value determination as of June 30, 2025.
Covenant Limit: 65.00%
Cushion: 2.66 percentage points (65.00% − 62.34%). In dollar terms, the appraised value of the Sun Belt Portfolio could decline by approximately $15,769,231 (from $385,000,000 to approximately $369,230,769) before the Portfolio LTV would reach the 65% covenant threshold, assuming no change in the outstanding principal balance. Alternatively, the outstanding principal balance could increase by approximately $10,250,000 (to approximately $250,250,000) before breaching the covenant at the current appraised value, although such an increase is not possible under the terms of the bridge facility as it has been fully drawn.
Result: IN COMPLIANCE
Note Regarding Appraised Value. The appraised value used for the Portfolio LTV calculation is fixed as of the closing date of the bridge facility and is not subject to adjustment based on subsequent changes in market conditions, property performance, or comparable sales data during the initial term. However, the Bridge Credit Agreement provides that the Administrative Agent may, in its reasonable discretion, require a re-appraisal of any or all of the Sun Belt Portfolio properties in connection with a request by the Borrower to exercise the extension option. If a re-appraisal results in a lower aggregate appraised value, the Portfolio LTV would increase, potentially affecting the Borrower's ability to satisfy the LTV condition for the extension option. We note that, as of the date of this memorandum, no re-appraisal has been requested or initiated.
Property-by-Property Allocated Breakdown. The following table sets forth the individual property-level detail for each of the fourteen Sun Belt Portfolio properties, including the property-owning SPE, property name, location, unit count, appraised value, and pro rata allocation of the bridge loan (allocated proportionally based on appraised value as a percentage of the aggregate portfolio appraised value):
The Sun Belt Portfolio comprises a total of 4,200 multifamily residential units across fourteen communities situated in six states: Texas (five properties; 1,600 units), Georgia (three properties; 820 units), Florida (three properties; 860 units), North Carolina (two properties; 540 units), and Tennessee (one property; 380 units). The weighted average occupancy across the portfolio at the time of acquisition was 93.7%, and the acquisition cap rate was 6.80%, calculated as trailing-twelve-month NOI of $26,180,000 divided by the aggregate acquisition price of $385,000,000.
B. Portfolio Debt Service Coverage Ratio (DSCR)
Covenant Requirement. Pursuant to Section 7.11(b) of the Bridge Credit Agreement, the Portfolio Debt Service Coverage Ratio (the "Portfolio DSCR") shall not be less than 1.10x at any quarterly testing date.
Definition. The Portfolio DSCR is defined as the ratio of (i) trailing-twelve-month net operating income ("NOI") of the Sun Belt Portfolio to (ii) actual annual debt service on the bridge loan. For purposes of this definition, NOI means gross revenues from the Sun Belt Portfolio properties (including rental income, ancillary income, and other property-level revenues) less operating expenses (including property management fees, real estate taxes, insurance, repairs and maintenance, utilities, and other customary operating expenses), but excluding depreciation, amortization, capital expenditures, and debt service. Debt service includes all interest payments on the bridge loan and, if applicable, scheduled principal amortization payments. Because the bridge loan is structured on an interest-only basis with no amortization, the annual debt service figure reflects interest payments only.
Calculation as of June 30, 2025:
Trailing-twelve-month NOI: $26,180,000
Annual debt service: $22,392,000
Portfolio DSCR = $26,180,000 ÷ $22,392,000 = 1.169x
The TTM NOI figure of $26,180,000 is the historical NOI of the Sun Belt Portfolio as reported at the time of acquisition. Because the June 30, 2025 testing date coincides with the closing of both the bridge facility and the acquisition, there is no post-acquisition operating history available. Accordingly, the NOI figure used for this initial compliance test is based on historical operating statements provided by the seller, Meridian Sunstone Holdings LLC, during Fairwater's due diligence process. These operating statements were subject to review and adjustment in accordance with the NOI definition contained in the Bridge Credit Agreement, including the normalization of certain non-recurring items and the application of Fairwater's projected management fee structure under the property management agreements with Fairwater Residential Management LLC.
The annual debt service of $22,392,000 is calculated as the outstanding principal balance of $240,000,000 multiplied by the all-in interest rate of 9.33% (SOFR of 4.33% plus the spread of 5.00%). Because the bridge loan is interest-only, there is no amortization component. The monthly interest cost is approximately $1,866,000 ($22,392,000 ÷ 12).
Covenant Minimum: 1.10x
Cushion: 0.069x (1.169x − 1.10x). Expressed as a percentage of the covenant minimum, the cushion represents approximately 6.3% of the 1.10x threshold.
Result: IN COMPLIANCE
Observation Regarding DSCR Cushion. While the Portfolio DSCR is above the 1.10x covenant minimum, the cushion of 0.069x is relatively modest and warrants close monitoring. The DSCR is sensitive to both changes in NOI (the numerator) and changes in debt service (the denominator). Specifically, if NOI were to decline by approximately $1,562,800 (representing a decline of approximately 5.97% from the current TTM NOI of $26,180,000) while debt service remained constant, the DSCR would fall to exactly 1.10x, the covenant floor. Such a decline could result from reductions in occupancy, decreases in rental rates, or increases in operating expenses — any of which could occur during the transition period following Fairwater's acquisition and assumption of property management responsibilities. We recommend that Fairwater's quarterly NOI performance for the Sun Belt Portfolio be monitored closely to detect any adverse trends that could compress the DSCR toward the covenant minimum.
Additional Note Regarding Extension Option DSCR Threshold. As noted in Section II above, the extension option under the Bridge Credit Agreement requires that the Portfolio DSCR be at least 1.20x at the time of the extension request. This threshold is 0.10x higher than the ongoing Portfolio DSCR covenant of 1.10x. The current DSCR of 1.169x does not satisfy the extension option DSCR threshold, and Fairwater would need to demonstrate meaningful improvement in DSCR (either through NOI growth or a reduction in debt service) in order to qualify for the extension. This matter is addressed separately in the Bridge Extension Analysis Memo being prepared in parallel with this compliance review but is noted here as relevant context for the overall covenant compliance assessment.
V. Entity-Level Covenant Analysis
The Bridge Credit Agreement includes four entity-level financial covenants that are tested on a consolidated basis for Fairwater REIT and all of its subsidiaries, including the Borrower, the fourteen Sun Belt Portfolio SPEs, and all other entities within the Fairwater organizational structure. The entity-level covenants are designed to ensure the overall financial health, leverage discipline, and liquidity of the broader Fairwater enterprise, rather than focusing solely on the Sun Belt Portfolio collateral.
For each entity-level covenant, the analysis below summarizes the covenant requirement, the applicable definition, the available information regarding the calculation as of June 30, 2025, and the compliance determination based on the officer's compliance certificate delivered by Fairwater.
A. Consolidated Leverage Ratio
Covenant Requirement. Pursuant to Section 7.12(a) of the Bridge Credit Agreement, the Consolidated Leverage Ratio shall not exceed 65% at any quarterly testing date.
Definition. The Consolidated Leverage Ratio is defined as the ratio of (i) Total Consolidated Indebtedness of Fairwater REIT and its subsidiaries to (ii) Total Asset Value, expressed as a percentage. Total Consolidated Indebtedness includes all outstanding indebtedness of the consolidated Fairwater enterprise, including mortgage debt, unsecured debt, and the bridge loan. Total Asset Value, as defined in the Bridge Credit Agreement, is generally based on capitalized NOI or appraised value of the consolidated real estate portfolio, plus the value of other assets, and may differ from GAAP book value.
Calculation as of June 30, 2025:
Total consolidated indebtedness: Approximately $1,720,000,000, comprising pre-bridge indebtedness of approximately $1,480,000,000 (including existing mortgage loans, an unsecured revolving credit facility, and other secured and unsecured debt obligations across Fairwater's existing portfolio) plus the bridge facility of $240,000,000.
Total Asset Value: To be confirmed from Fairwater's balance sheet and compliance certificate calculations. Based on publicly available information, Fairwater's approximate total enterprise value is $3,200,000,000 and its market capitalization is approximately $1,850,000,000. The Total Asset Value as calculated under the Bridge Credit Agreement definitions is expected to be consistent with a consolidated leverage ratio within the 65% covenant limit.
Estimated Consolidated Leverage Ratio: The ratio of approximately $1,720,000,000 in total consolidated indebtedness to estimated Total Asset Value should be confirmed with Fairwater's finance team (Naomi T. Sinclair, CFO) to verify that the ratio as calculated per the Bridge Credit Agreement definitions does not exceed 65%.
Result: IN COMPLIANCE (based on the compliance certificate delivered by Fairwater to the Administrative Agent on August 14, 2025; exact figures to be confirmed from the officer's certificate and supporting calculations).
Note Regarding Total Asset Value Methodology. The specific methodology for calculating Total Asset Value under the Bridge Credit Agreement may differ materially from GAAP book value. Bridge credit agreements in the real estate context typically define Total Asset Value using one of two approaches: (i) a capitalized NOI approach, under which the value of each property is determined by capitalizing its NOI at a specified cap rate (often in the range of 7.0% to 8.0%), or (ii) an appraised value approach, under which the most recent appraised value is used for each property. The Total Asset Value methodology in the Bridge Credit Agreement should be reviewed to confirm the applicable approach and to verify that Fairwater's calculations are consistent with the agreed-upon definition. We recommend obtaining the detailed supporting schedules from Fairwater's finance team.
B. Consolidated Fixed Charge Coverage Ratio (FCCR)
Covenant Requirement. Pursuant to Section 7.12(b) of the Bridge Credit Agreement, the Consolidated Fixed Charge Coverage Ratio (the "FCCR") shall not be less than 1.50x at any quarterly testing date.
Definition. The FCCR is defined as the ratio of (i) Consolidated EBITDA (or Adjusted EBITDA, as defined in the Bridge Credit Agreement) for the trailing four fiscal quarters to (ii) Consolidated Fixed Charges for the same period. Consolidated Fixed Charges generally include all scheduled debt service payments (interest and principal), preferred stock dividends (if any), and, in certain credit agreement formulations, regularly scheduled common equity distributions. The specific components included in the fixed charge denominator must be verified against the Bridge Credit Agreement definition.
Calculation as of June 30, 2025:
The FCCR is to be derived from Fairwater's consolidated financial statements prepared in accordance with GAAP and audited annually by Whitmore Hargrove & Co., P.C. For interim periods, the calculation is based on unaudited quarterly financial data.
Fairwater's compliance certificate certifies that the FCCR is at least 1.50x as of June 30, 2025. The exact FCCR figure reported in the compliance certificate should be confirmed with Fairwater's finance team and, to the extent available, with the auditors.
It is noted that the bridge loan is interest-only, generating annualized interest expense of $22,392,000, which is included in the fixed charge denominator. To the extent that the Bridge Credit Agreement includes REIT distributions in the fixed charge calculation, this could materially impact the FCCR. Fairwater, as a Maryland real estate investment trust, is required to distribute at least 90% of its taxable income to shareholders in order to maintain its qualification as a REIT under Section 856 of the Internal Revenue Code. Whether such distributions are included in fixed charges under the Bridge Credit Agreement definition is a definitional question that should be confirmed.
Result: IN COMPLIANCE (per officer's compliance certificate).
We recommend confirming the exact FCCR figure with Fairwater's finance team and auditors, and verifying the treatment of REIT distributions within the fixed charge definition.
C. Tangible Net Worth
Covenant Requirement. Pursuant to Section 7.12(c) of the Bridge Credit Agreement, Consolidated Tangible Net Worth shall not be less than $750,000,000 at any quarterly testing date.
Definition. Consolidated Tangible Net Worth is defined as total stockholders' equity (or total shareholders' equity, in the case of a real estate investment trust) of Fairwater REIT on a consolidated basis, minus intangible assets, as determined in accordance with GAAP and the specific adjustments set forth in the Bridge Credit Agreement.
Calculation as of June 30, 2025:
Based on Fairwater's approximate market capitalization of $1,850,000,000 and the nature of its assets (which consist primarily of real property — multifamily residential communities — rather than intangible assets), tangible net worth is expected to substantially exceed the $750,000,000 threshold.
However, it is important to note that tangible net worth for covenant purposes is typically measured at book value rather than market value. Real estate assets are carried on the balance sheet at historical cost less accumulated depreciation under GAAP, and book value may be significantly lower than market value, particularly for properties that have been held for extended periods. Accordingly, the tangible net worth figure as calculated from Fairwater's balance sheet should be confirmed directly from the compliance certificate and supporting financial statements.
Following the acquisition of the Sun Belt Portfolio, Fairwater's total portfolio comprises approximately 62 multifamily communities encompassing approximately 18,400 units across the Mid-Atlantic and Southeastern United States, plus the 14 Sun Belt Portfolio communities totaling approximately 4,200 units, for a combined portfolio of approximately 76 communities and 22,600 units.
Result: IN COMPLIANCE (per officer's compliance certificate).
D. Minimum Liquidity
Covenant Requirement. Pursuant to Section 7.12(d) of the Bridge Credit Agreement, the Borrower and the Guarantor shall maintain Minimum Liquidity of not less than $50,000,000 at all times.
Definition. Minimum Liquidity is defined as the sum of (i) unrestricted cash and cash equivalents held by Fairwater REIT and its subsidiaries, plus (ii) the aggregate amount of undrawn commitments available to the Borrower or the Guarantor under Fairwater's revolving credit facility (to the extent such commitments are currently available and not subject to any borrowing base or other limitations that would prevent immediate draw).
Calculation as of June 30, 2025:
In connection with the acquisition of the Sun Belt Portfolio, Fairwater contributed cash equity of $145,000,000, representing approximately 37.66% of the $385,000,000 purchase price, with the balance funded by the $240,000,000 bridge loan. While this equity contribution reduced Fairwater's available cash, the minimum liquidity requirement of $50,000,000 is expected to be comfortably satisfied given the scale of Fairwater's overall operations (total enterprise value of approximately $3.2 billion). Fairwater maintains access to an unsecured revolving credit facility, and the combination of unrestricted cash on hand and available revolver capacity should substantially exceed the $50,000,000 minimum.
Post-acquisition liquidity should be confirmed from Fairwater's balance sheet and the compliance certificate, including verification of the amount of undrawn revolver capacity as of the testing date and confirmation that no restrictions on the availability of such capacity exist.
Result: IN COMPLIANCE (per officer's compliance certificate).
VI. Summary Compliance Table
The following table summarizes the compliance status of each financial covenant under the Bridge Credit Agreement as of the June 30, 2025 testing date:
Overall Result: All financial covenants are satisfied as of June 30, 2025. No event of default or potential event of default has been identified in connection with this covenant compliance review. The compliance certificate delivered by Fairwater's CFO to the Administrative Agent on August 14, 2025 confirms compliance with all tested covenants, and our independent analysis of the portfolio-level covenants corroborates the certified results.
VII. Forward-Looking Considerations and Observations
While Fairwater is in compliance with all financial covenants as of the June 30, 2025 testing date, several forward-looking considerations merit attention in connection with our permanent financing engagement. Each of these considerations bears on the risk profile of the bridge facility during the remaining term and informs the urgency of completing the permanent take-out financing on schedule.
A. DSCR Sensitivity
The Portfolio DSCR cushion of only 0.069x above the 1.10x covenant minimum is relatively thin, and the DSCR is susceptible to compression from two primary sources: (i) NOI fluctuations and (ii) interest rate changes.
NOI Sensitivity. The numerator of the DSCR — trailing-twelve-month NOI — is subject to variability based on occupancy levels, achieved rental rates, concessions and lease-up costs associated with the transition of property management to Fairwater Residential Management LLC, and changes in operating expenses such as real estate taxes, insurance premiums, and maintenance costs. The Sun Belt multifamily market, while generally benefiting from favorable demographic trends including population migration and job growth, has also experienced increased supply in certain submarkets (particularly Austin, TX and parts of the Charlotte, NC and Nashville, TN markets), which could exert downward pressure on occupancy and rental growth. Any decline in NOI of approximately $1,562,800 (approximately 5.97% of current TTM NOI) would cause the DSCR to fall to exactly the 1.10x covenant floor.
Interest Rate Sensitivity. The denominator of the DSCR — annual debt service — is directly tied to the floating interest rate on the bridge loan. Because the bridge facility bears interest at SOFR plus 500 basis points, any increase in SOFR results in a proportional increase in debt service and a corresponding decline in DSCR. Specifically:
•  If SOFR increases by approximately 60 basis points (from the current 4.33% to approximately 4.93%), the all-in interest rate would rise from 9.33% to approximately 9.93%, annual debt service would increase from $22,392,000 to approximately $23,832,000, and the DSCR would decline to approximately 1.099x — falling below the 1.10x covenant minimum.
•  Conversely, if SOFR declines, the DSCR would improve. However, the SOFR floor of 3.00% establishes a ceiling on the potential improvement. At the floor, the all-in interest rate would be 8.00% (3.00% + 5.00%), annual debt service would be $19,200,000, and the DSCR would be approximately 1.364x, providing substantially more comfortable coverage.
Given the relatively limited rate increase that would cause a covenant breach (approximately 60 basis points of SOFR movement), and the uncertainty inherent in interest rate forecasting, we recommend that the team obtain updated NOI figures on at least a quarterly basis and closely monitor Federal Reserve policy guidance and SOFR market expectations through the remaining bridge term.
B. Extension Option DSCR Threshold
As discussed in Section IV.B above, the extension option under the Bridge Credit Agreement requires a Portfolio DSCR of at least 1.20x at the time of the extension request. The current DSCR of 1.169x is 0.031x (or 3.1 basis points in DSCR terms) below this elevated threshold. Accordingly, based on current financial metrics, Fairwater would not qualify for the extension option.
If the permanent take-out financing closing is delayed and the extension becomes necessary, Fairwater would need to satisfy the 1.20x DSCR requirement through one or both of the following approaches:
(a) NOI Growth. Fairwater could demonstrate sufficient growth in portfolio NOI to achieve a 1.20x DSCR at the prevailing interest rate. At the current all-in rate of 9.33% and debt service of $22,392,000, the required NOI to achieve 1.20x would be $26,870,400 ($22,392,000 × 1.20), representing an increase of $690,400 (approximately 2.6%) over the current TTM NOI of $26,180,000. Whether such growth is achievable within the remaining bridge term will depend on Fairwater's ability to maintain or improve occupancy and rental rates across the Sun Belt Portfolio during the initial post-acquisition stabilization period.
(b) Partial Voluntary Prepayment. Alternatively, Fairwater could make a partial voluntary prepayment of the bridge loan to reduce the outstanding principal balance, thereby reducing annual debt service and improving the DSCR. To achieve a 1.20x DSCR with the current NOI of $26,180,000, the maximum annual debt service would be $21,816,667 ($26,180,000 ÷ 1.20). At the all-in rate of 9.33%, this implies a maximum outstanding principal balance of approximately $233,832,000 ($21,816,667 ÷ 0.0933). Accordingly, Fairwater would need to make a partial prepayment of approximately $6,168,000 ($240,000,000 − $233,832,000), assuming no NOI growth and a flat SOFR rate.
This analysis is addressed in greater detail in a separate Bridge Extension Analysis Memo currently under preparation. We flag this issue here because it has direct implications for the overall risk assessment of the bridge facility and reinforces the importance of achieving the permanent financing closing within the initial bridge term.
C. Impact of Proposed Permanent Financing on Debt Metrics
The proposed permanent take-out financing, which is being arranged with Clarendon Metropolitan Insurance Company as the lender and will take the form of a fixed-rate CMBS loan, would materially improve Fairwater's debt service coverage and overall financial profile relative to the bridge facility. The key terms of the proposed permanent loan and the anticipated impact on debt metrics are summarized below:
Permanent Loan Principal: $240,000,000 (replacing the bridge facility dollar-for-dollar; no additional cash-out proceeds).
Interest Rate: 6.25% fixed rate, representing a significant reduction from the current floating bridge rate of 9.33% — a savings of 308 basis points.
Amortization: 30-year amortization schedule with monthly payments of principal and interest. Monthly debt service of approximately $1,477,846, producing annual debt service of approximately $17,734,152. This compares to current annual interest-only debt service of $22,392,000 under the bridge facility.
Resulting DSCR: Portfolio DSCR would improve to approximately 1.476x ($26,180,000 ÷ $17,734,152), representing a substantial increase from the current 1.169x and providing significantly more comfortable coverage relative to typical CMBS DSCR requirements.
Annual Interest Savings: On an interest-only comparison basis, annual interest expense under the permanent loan would be approximately $15,000,000 ($240,000,000 × 6.25%), compared to $22,392,000 under the bridge facility, yielding annual savings of approximately $7,392,000.
Loan Structure: The permanent CMBS loan would be structured as a non-recourse obligation with standard carve-out guarantees, which differs from the full recourse guaranty currently provided by Fairwater REIT under the bridge facility. This structural change would also affect the nature of Fairwater's consolidated leverage analysis, as the non-recourse characterization of the permanent debt may be treated differently under Fairwater's existing credit facilities and corporate-level debt covenants.
The improvement in debt service coverage and the shift from floating-rate to fixed-rate debt under the permanent financing underscore the strategic rationale for completing the take-out financing as expeditiously as practicable.
D. Timing Considerations
Several timing milestones are relevant to the ongoing covenant compliance analysis and the interplay between the bridge facility and the permanent financing engagement:
Next Covenant Testing Date: September 30, 2025 (end of Q3 2025). The corresponding compliance certificate will be due within 45 days thereafter — by November 14, 2025. This will be the second and potentially final covenant testing date under the bridge facility if the permanent loan closes before the December 31, 2025 maturity date.
Permanent Loan Closing Target: November 28, 2025. If the permanent CMBS financing closes on schedule, the bridge loan will be repaid approximately one month before the December 31, 2025 maturity date. This timeline provides a reasonable, though not excessive, buffer for completion of the permanent financing.
Exit Fee Waiver Deadline: March 31, 2026. If the bridge loan is repaid from the proceeds of permanent CMBS financing on or before this date (nine months after the June 30, 2025 bridge closing), the 0.50% exit fee of $1,200,000 is waived in its entirety. The targeted permanent loan closing of November 28, 2025 is well within this deadline, preserving the exit fee waiver.
Bridge Maturity and Extension: If the permanent financing is not completed by December 31, 2025, Fairwater would need to either repay the bridge from other sources or exercise the extension option. As discussed above, the extension option requires satisfaction of conditions that Fairwater does not currently meet (specifically, the 1.20x DSCR threshold). Failure to repay the bridge at maturity without a valid extension would constitute an event of default under the Bridge Credit Agreement.
Continued monitoring of covenant compliance is necessary throughout the remaining term of the bridge facility, with particular attention to the Q3 2025 testing date and the trajectory of NOI and SOFR rates heading into the permanent financing closing.
VIII. Recommendations
Based on the analysis set forth in this memorandum, we recommend the following actions:
1.  Confirm Entity-Level Covenant Figures. Request from Naomi T. Sinclair, Chief Financial Officer of Fairwater REIT, the detailed calculations supporting each of the entity-level financial covenants (consolidated leverage ratio, consolidated fixed charge coverage ratio, tangible net worth, and minimum liquidity) as set forth in the compliance certificate delivered to Kensington National Bank, N.A. on August 14, 2025. Our review of the entity-level covenants has been based on the compliance certificate certifications and publicly available financial information; obtaining the underlying calculations and supporting schedules will enable a more complete independent assessment. In particular, we should verify the Total Asset Value methodology and the treatment of REIT distributions within the fixed charge coverage ratio calculation.
2.  Monitor SOFR Trajectory. Given that the Portfolio DSCR could fall below the 1.10x covenant minimum if SOFR increases by approximately 60 basis points, the team should maintain active awareness of interest rate movements and Federal Reserve monetary policy guidance through the targeted permanent loan closing date. We recommend establishing a monitoring protocol under which any SOFR increase exceeding 25 basis points triggers a re-calculation of the projected DSCR and a reassessment of the covenant compliance outlook.
3.  Track NOI Performance. Obtain monthly or quarterly operating reports from Fairwater Residential Management LLC (the affiliated property manager, EIN 52-2953810) for each of the fourteen Sun Belt Portfolio properties. These reports should include occupancy data, effective rental rates, concession activity, and detailed operating expense information. Early detection of any adverse NOI trends will be critical to assessing the risk of a DSCR covenant breach at the September 30, 2025 testing date and to evaluating the availability of the extension option.
4.  Prioritize Permanent Loan Closing Timeline. The thin DSCR cushion under the ongoing covenant (0.069x above the 1.10x minimum) and the current inability to satisfy the extension option DSCR threshold (1.20x) underscore the importance of completing the Clarendon Metropolitan Insurance Company permanent take-out financing on or before the November 28, 2025 targeted closing date. Any delay that pushes the closing beyond December 31, 2025 would require either exercise of the extension option (which is not currently available based on DSCR metrics) or repayment of the bridge from alternative sources. We recommend that the permanent financing workstreams — including borrower due diligence, environmental reports, updated appraisals, title and survey review, and CMBS structuring — be advanced with appropriate urgency to minimize the risk of delay.
5.  Coordinate with REIT Counsel. Coordinate with Crestline & Alderman LLP (Patricia S. Keene, responsible partner) regarding any REIT-specific reporting requirements, distribution obligations, or corporate governance considerations that could affect entity-level covenant compliance during the remaining bridge term. In particular, Fairwater's obligation to distribute at least 90% of taxable income to maintain REIT qualification could affect liquidity and, depending on the definition of fixed charges in the Bridge Credit Agreement, could impact the consolidated fixed charge coverage ratio.
IX. Conclusion
Based on our review of the compliance certificate delivered by Fairwater's Chief Financial Officer and the supporting analysis set forth in this memorandum, we conclude as follows:
Fairwater Real Estate Investment Trust and Fairwater Operating Partnership, L.P. are in compliance with all financial covenants under the Bridge Credit Agreement as of the June 30, 2025 testing date. The Portfolio Loan-to-Value Ratio of 62.34% is within the 65% covenant limit, and the Portfolio Debt Service Coverage Ratio of 1.169x exceeds the 1.10x covenant minimum. The entity-level covenants — consolidated leverage ratio, consolidated fixed charge coverage ratio, tangible net worth, and minimum liquidity — are each satisfied based on the officer's compliance certificate, with exact figures to be confirmed through the follow-up actions recommended above.
No event of default or potential event of default exists under the Bridge Credit Agreement based on the financial covenant analysis as of the initial testing date. The current compliance posture supports the ability to proceed with the permanent take-out financing without impediment from the bridge facility, as the absence of a default is a necessary precondition to the orderly refinancing of the bridge loan.
Notwithstanding the favorable compliance determination as of June 30, 2025, continued monitoring of covenant compliance is strongly recommended throughout the remaining term of the bridge facility. The modest Portfolio DSCR cushion (0.069x above the 1.10x minimum) and the higher DSCR threshold required for the extension option (1.20x, which is not currently satisfied) create a risk profile that warrants ongoing attention to NOI performance, interest rate movements, and the permanent financing closing timeline.
This memorandum is intended solely for the internal use of Calderwood & Harkness LLP and is protected by the attorney-client privilege and the work product doctrine. This memorandum should not be disclosed to any third party without the prior written consent of the responsible partner.
Prepared by:
________________________________________
Marcus Leung Associate, Banking & Finance Calderwood & Harkness LLP
Reviewed by:
________________________________________
Lisa Morrow Lead Associate, Banking & Finance Calderwood & Harkness LLP
Distribution: Philip Hartmann, Partner (Responsible Partner); file copy (Matter No. 1036-00001)
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
Lender | Commitment | Percentage
Kensington National Bank, N.A. | $96,000,000 | 40.00%
Pinnacle Trust Company | $60,000,000 | 25.00%
Greystone Commerce Bank | $48,000,000 | 20.00%
Redfield Capital Markets, LLC | $36,000,000 | 15.00%
Total | $240,000,000 | 100.00%
SPE | Property Name | Location | Units | Appraised Value | Allocated Loan
Fairwater Sun Belt I LLC | Ridgewater at Lakeline | Austin, TX | 320 | $32,500,000 | $20,259,740
Fairwater Sun Belt II LLC | Sagebrush Commons | San Antonio, TX | 288 | $24,800,000 | $15,461,039
Fairwater Sun Belt III LLC | Cypress Bend | Katy, TX | 340 | $30,200,000 | $18,826,494
Fairwater Sun Belt IV LLC | Willowbrook Terrace | Sugar Land, TX | 310 | $29,100,000 | $18,140,779
Fairwater Sun Belt V LLC | Heritage at Stonebriar | Frisco, TX | 342 | $35,800,000 | $22,316,883
Fairwater Sun Belt VI LLC | Peachtree Crossings | Alpharetta, GA | 296 | $28,600,000 | $17,829,091
Fairwater Sun Belt VII LLC | Cumberland Ridge | Smyrna, GA | 264 | $24,200,000 | $15,087,013
Fairwater Sun Belt VIII LLC | Sugarloaf Station | Duluth, GA | 260 | $23,400,000 | $14,588,571
Fairwater Sun Belt IX LLC | Bayshore Landings | Tampa, FL | 308 | $33,800,000 | $21,069,870
Fairwater Sun Belt X LLC | Solara at Millenia | Orlando, FL | 292 | $30,600,000 | $19,075,714
Fairwater Sun Belt XI LLC | Riverside Preserve | Jacksonville, FL | 260 | $22,400,000 | $13,964,935
Fairwater Sun Belt XII LLC | Stonewall Flats | Charlotte, NC | 284 | $28,200,000 | $17,580,000
Fairwater Sun Belt XIII LLC | Crabtree Pointe | Raleigh, NC | 256 | $26,400,000 | $16,458,701
Fairwater Sun Belt XIV LLC | Harpeth Valley | Nashville, TN | 380 | $15,000,000 | $9,341,169
Total | 4,200 | $385,000,000 | $240,000,000
Covenant | Requirement | Actual (June 30, 2025) | Cushion | Status
Portfolio LTV | ≤ 65.00% | 62.34% | 2.66 pp | Compliant
Portfolio DSCR | ≥ 1.10x | 1.169x | 0.069x | Compliant
Consolidated Leverage Ratio | ≤ 65% | Per certificate | TBD | Compliant
Consolidated FCCR | ≥ 1.50x | Per certificate | TBD | Compliant
Tangible Net Worth | ≥ $750,000,000 | Per certificate | TBD | Compliant
Minimum Liquidity | ≥ $50,000,000 | Per certificate | TBD | Compliant

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