1036-00005 · Client 1036 · Transaction Documents/Tax & REIT

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REIT COMPLIANCE SIDE LETTER

Side Letter to the Amended and Restated Operating Agreement of Harbor Point Development JV, LLC

Dated as of January 12, 2026

CONFIDENTIAL TREATMENT REQUESTED

This REIT Compliance Side Letter (this "Side Letter") is entered into as of January 12, 2026, by and between:

FAIRWATER HP MANAGER, LLC, a Maryland limited liability company ("Fairwater Manager"), whose sole member is Fairwater Real Estate Investment Trust, a Maryland real estate investment trust listed on the New York Stock Exchange under the ticker symbol "FWT" ("Fairwater REIT" or the "REIT Member");

and

PRESCOTT HP INVESTOR, LLC, a Delaware limited liability company ("Prescott Investor"), whose sole member is Prescott Capital Partners, LP, a Delaware limited partnership ("Prescott").

Fairwater Manager and Prescott Investor are each referred to herein individually as a "Party" and collectively as the "Parties."

This Side Letter is entered into simultaneously with, and supplements, that certain Amended and Restated Operating Agreement of Harbor Point Development JV, LLC, a Delaware limited liability company (the "Company" or the "JV"), dated as of January 12, 2026 (the "Operating Agreement"), by and between Fairwater Manager, as Managing Member holding a thirty percent (30%) membership interest in the Company, and Prescott Investor, as a non-managing member holding a seventy percent (70%) membership interest in the Company.

Addresses of the Parties:

Fairwater HP Manager, LLC c/o Fairwater Real Estate Investment Trust 7200 Pratt Street, Suite 1400 Baltimore, MD 21202

Prescott HP Investor, LLC c/o Prescott Capital Partners, LP 400 Lexington Avenue, 32nd Floor New York, NY 10170

RECITALS

A. The Company was formed as a Delaware limited liability company pursuant to a Certificate of Formation filed with the Office of the Secretary of State of the State of Delaware, with Incorporators & Associates, Inc., 1209 Orange Street, Wilmington, Delaware 19801, serving as its registered agent in the State of Delaware. The Company has applied for an employer identification number with the Internal Revenue Service (EIN: 84-6213950, applied for).

B. The Company was formed for the purpose of acquiring, developing, and operating a Class A mixed-use project known as "Harbor Point Towers" (the "Project"), which shall consist of two (2) twenty-eight (28)-story residential towers comprising approximately six hundred ten (610) residential rental units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, to be constructed on an approximately 8.2-acre waterfront site located at 1500–1580 Wills Street, Baltimore, Maryland 21231 (Block 7419, Lots 1–6, Baltimore City), with a total estimated project cost of Five Hundred Seventy-Six Million Dollars ($576,000,000).

C. Fairwater Manager's sole member, Fairwater Real Estate Investment Trust, has elected to be taxed as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), effective for its taxable year ended December 31, 2005, and continuously thereafter. In order to maintain its qualification as a REIT, Fairwater REIT must continuously satisfy certain requirements under the Code, including, but not limited to: (i) the gross income tests set forth in Section 856(c)(2) and Section 856(c)(3) of the Code (the seventy-five percent (75%) and ninety-five percent (95%) gross income tests, respectively); (ii) the asset tests set forth in Section 856(c)(4) of the Code; (iii) the distribution requirements set forth in Section 857(a) of the Code; and (iv) the prohibition on being "closely held" set forth in Section 856(h) of the Code. Failure to satisfy any of these requirements could result in the loss of REIT status, which would have material adverse tax consequences for Fairwater REIT and its shareholders.

D. The Company will be treated as a partnership for federal income tax purposes and will not make an election to be classified as an association taxable as a corporation under Treasury Regulations Section 301.7701-3. Fairwater HP Manager, LLC has been designated to serve as the Partnership Representative of the Company under Section 6223 of the Code, as set forth in the Operating Agreement.

E. In connection with the formation of the Company and the development of the Project, Fairwater Manager has committed to contribute Seventy-Two Million Dollars ($72,000,000) in equity capital to the Company, representing thirty percent (30%) of the total joint venture equity commitment of Two Hundred Forty Million Dollars ($240,000,000), and Prescott Investor has committed to contribute One Hundred Sixty-Eight Million Dollars ($168,000,000) in equity capital to the Company, representing seventy percent (70%) of such total joint venture equity commitment, in each case pursuant to the terms and conditions set forth in the Operating Agreement and the Capital Contribution Agreement of even date herewith.

F. The Parties desire to set forth in this Side Letter certain covenants, agreements, and protections designed to ensure that the operations, activities, and investments of the Company do not jeopardize Fairwater REIT's continued qualification as a REIT under the Code, and to establish certain consent rights, information rights, and remedial provisions in furtherance of such objective.

G. This Side Letter is executed and delivered in connection with, and should be read in conjunction with, the following related documents: (i) the Operating Agreement; (ii) that certain Joint Venture Agreement, dated as of January 12, 2026, by and between Fairwater Manager and Prescott Investor (the "JV Agreement"); (iii) that certain Tax Protection Agreement, dated as of January 12, 2026, among the Company, Fairwater Manager, and Prescott Investor (the "Tax Protection Agreement"); and (iv) that certain Capital Contribution Agreement, dated as of January 12, 2026, among the Company, Fairwater Manager, and Prescott Investor (the "Capital Contribution Agreement").

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

SECTION 1: DEFINITIONS

1.1 Incorporation by Reference. Capitalized terms used but not otherwise defined in this Side Letter shall have the meanings ascribed to such terms in the Operating Agreement. In the event of any conflict between a definition set forth in the Operating Agreement and a definition set forth in this Side Letter, the definition set forth in this Side Letter shall control for purposes of this Side Letter.

1.2 Defined Terms. As used in this Side Letter, the following terms shall have the meanings set forth below:

(a) "Asset Tests" means the asset tests set forth in Section 856(c)(4) of the Code, including, without limitation, the requirement that at the close of each quarter of each taxable year of a REIT, (i) at least seventy-five percent (75%) of the value of the REIT's total assets consist of real estate assets (as defined in Section 856(c)(5)(B) of the Code), cash and cash items (including receivables), and government securities, (ii) not more than twenty-five percent (25%) of the value of the REIT's total assets be represented by securities (other than those described in clause (i)), (iii) of such twenty-five percent (25%), the value of any one issuer's securities not exceed five percent (5%) of the value of the REIT's total assets, and (iv) the REIT not hold securities possessing more than ten percent (10%) of the total voting power or ten percent (10%) of the total value of the outstanding securities of any one issuer (subject to applicable exceptions and safe harbors set forth in Section 856(c)(4) of the Code and applicable Treasury Regulations).

(b) "Closely Held Test" means the prohibition under Section 856(h) of the Code that provides, in relevant part, that a REIT shall not be "closely held" as determined under Section 542(a)(2) of the Code (as modified by Section 856(h)), which generally provides that a corporation is "closely held" if at any time during the last half of the taxable year more than fifty percent (50%) in value of its outstanding stock is owned, directly or indirectly, by or for not more than five (5) individuals (as defined in Section 542(a)(2) of the Code to include certain entities).

(d) "Distribution Requirement" means the requirement under Section 857(a)(1) of the Code that a REIT distribute dividends (other than capital gain dividends) to its shareholders in an amount at least equal to ninety percent (90%) of the REIT's REIT Taxable Income (as adjusted) for the taxable year, determined without regard to the deduction for dividends paid and excluding any net capital gain.

(e) "Gross Income Tests" means the seventy-five percent (75%) gross income test under Section 856(c)(2) of the Code and the ninety-five percent (95%) gross income test under Section 856(c)(3) of the Code.

(f) "Impermissible Tenant Service Income" means income described in Section 856(d)(7) of the Code, which generally includes income attributable to the provision of services to tenants of a REIT's property (or to the management or operation of a REIT's property) that are not "usually or customarily rendered" in connection with the rental of space for occupancy only and are not rendered through a taxable REIT subsidiary or an independent contractor from whom the REIT derives no income.

(g) "Prohibited Transaction" means a transaction described in Section 857(b)(6) of the Code, generally including the sale or other disposition of property described in Section 1221(a)(1) of the Code (i.e., property held primarily for sale to customers in the ordinary course of a trade or business) that is not a "foreclosure property" (as defined in Section 856(e) of the Code) and that does not satisfy the safe harbor requirements set forth in Section 857(b)(6)(C) of the Code.

(h) "Qualifying REIT Income" means income that constitutes qualifying income for purposes of either or both of the Gross Income Tests, including, without limitation, (i) rents from real property (as defined in Section 856(d) of the Code), (ii) interest on obligations secured by mortgages on real property, (iii) gain from the sale or other disposition of real property that is not property described in Section 1221(a)(1) of the Code, (iv) dividends or other distributions on, and gain from the sale of, shares in other REITs, (v) abatements and refunds of taxes on real property, (vi) income and gain derived from foreclosure property, and (vii) such other items of income as may qualify under Section 856(c)(2) or Section 856(c)(3) of the Code, as applicable.

(i) "REIT Requirements" means all requirements of Sections 856 through 860 of the Code (and any applicable Treasury Regulations promulgated thereunder) that must be satisfied for Fairwater REIT to qualify and maintain its status as a real estate investment trust under the Code, including, without limitation, the Gross Income Tests, the Asset Tests, the Distribution Requirement, the Closely Held Test, the organizational requirements of Section 856(a) of the Code, and any other requirement imposed by the Code or Treasury Regulations on entities qualifying as REITs.

(j) "REIT Taxable Income" means the taxable income of Fairwater REIT determined under Section 857(b)(2) of the Code, including Fairwater REIT's allocable share of income, gain, deduction, and loss from the Company (as determined under the Operating Agreement and applicable provisions of the Code and Treasury Regulations), computed without regard to the deduction for dividends paid and excluding any net capital gain.

(k) "Treasury Regulations" means the temporary and final regulations promulgated under the Code by the United States Department of the Treasury, as such regulations may be amended from time to time.

SECTION 2: PRESCOTT COVENANTS REGARDING REIT INCOME TESTS

2.1 General Covenant. Prescott Investor covenants and agrees that it shall not, and shall not cause, direct, or permit the Company to, take any action or enter into any transaction that Prescott Investor knows, or reasonably should know, would cause the Company to derive income that does not constitute Qualifying REIT Income, to the extent that such income, when allocated to Fairwater Manager (and through Fairwater Manager to Fairwater REIT in its capacity as the sole member of Fairwater Manager), would cause Fairwater REIT to fail to satisfy either the seventy-five percent (75%) Gross Income Test under Section 856(c)(2) of the Code or the ninety-five percent (95%) Gross Income Test under Section 856(c)(3) of the Code. This covenant shall apply to all actions taken by, or at the direction of, Prescott Investor, whether in its capacity as a member of the Company, a designee on any committee established under the Operating Agreement, or in any other capacity in which Prescott Investor has the ability to influence the operations or activities of the Company.

2.2 Specific Prohibitions. Without limiting the generality of Section 2.1 above, Prescott Investor agrees that it shall not cause, direct, or permit the Company to:

(a) enter into any lease, license, management agreement, or other arrangement for the provision of services to tenants of the Project that would give rise to Impermissible Tenant Service Income within the meaning of Section 856(d)(7) of the Code, unless and to the extent such services are provided (i) through a taxable REIT subsidiary of Fairwater REIT (a "TRS"), or (ii) through an independent contractor (as defined in Section 856(d)(3) of the Code) from whom the Company and Fairwater REIT derive no income, in each case in compliance with Section 856(d)(7)(C) of the Code and applicable Treasury Regulations;

(b) acquire or hold, through the Company or any subsidiary thereof, any asset or security that would cause Fairwater REIT's pro rata share of the Company's assets to fail to satisfy any of the Asset Tests under Section 856(c)(4) of the Code at the close of any calendar quarter, including, without limitation, (i) securities of any single issuer representing more than five percent (5%) of the value of Fairwater REIT's total assets or more than ten percent (10%) of the total voting power or value of such issuer's outstanding securities, or (ii) non-real estate assets that would cause less than seventy-five percent (75%) of the value of Fairwater REIT's total assets to consist of real estate assets, cash and cash items, and government securities;

(c) engage in dealer activities or other transactions with respect to Company assets that would constitute a Prohibited Transaction, or that would be treated as the sale or other disposition of property described in Section 1221(a)(1) of the Code, unless such disposition satisfies the safe harbor requirements of Section 857(b)(6)(C) of the Code or Fairwater Manager has provided its prior written consent to such disposition after consultation with Fairwater REIT's tax advisors; or

(d) enter into any lease, sublease, or other arrangement with a "related person" (as defined in Section 856(d)(2)(B) of the Code) if such arrangement would cause rents received by the Company from such person to fail to qualify as "rents from real property" under Section 856(d) of the Code, including, without limitation, any arrangement where rent is based, in whole or in part, on the income or profits of any person, except to the extent permitted under Section 856(d)(2)(A) of the Code.

2.3 Consent Right. To the extent any proposed action by the Company or any member thereof could reasonably be expected to affect Fairwater REIT's ability to satisfy any of the REIT Requirements, Fairwater Manager shall have the right to withhold its consent to such action in its sole and absolute discretion, and such withholding of consent shall not constitute a breach of the Operating Agreement, this Side Letter, the JV Agreement, or any fiduciary or other duty (contractual or otherwise) owed by Fairwater Manager to Prescott Investor, the Company, or any other person. In exercising such consent right, Fairwater Manager shall act in good faith and shall use commercially reasonable efforts to propose an alternative structure or course of action that achieves the economic objectives of the proposed action while preserving Fairwater REIT's REIT qualification, to the extent such an alternative structure is reasonably available.

2.4 Good Faith Determination. In the event of a bona fide dispute between the Parties regarding whether a proposed action by the Company or any member thereof would adversely affect Fairwater REIT's qualification as a REIT under the Code, the Parties shall submit such dispute to Alderman & Fields, CPAs, LLP, or, if Alderman & Fields, CPAs, LLP is unable or unwilling to serve in such capacity, to another nationally recognized independent accounting firm mutually acceptable to the Parties (such firm, the "Independent Tax Advisor"), for a written opinion as to whether such proposed action would, if consummated, reasonably be expected to cause Fairwater REIT to fail to satisfy any of the REIT Requirements. The cost and expense of obtaining such opinion shall be borne by the Company as an operating expense. The determination of the Independent Tax Advisor shall be final and binding upon the Parties, absent manifest error. Each Party shall cooperate with the Independent Tax Advisor and shall provide such information as the Independent Tax Advisor may reasonably request in connection with its analysis. If the Independent Tax Advisor determines that the proposed action would not reasonably be expected to cause Fairwater REIT to fail to satisfy the REIT Requirements, Fairwater Manager shall not unreasonably withhold its consent to such action.

SECTION 3: CLOSELY HELD PROTECTIONS

3.1 Prescott Investor Representation. Prescott Investor represents and warrants to Fairwater Manager and to Fairwater REIT, as of the date hereof, that: (a) Prescott Investor is not, and no direct or indirect beneficial owner of Prescott Investor is, an "individual" (within the meaning of Section 542(a)(2) of the Code, which includes certain trusts, private foundations, and other entities treated as individuals for purposes of such provision) who would be treated as owning, directly or through the constructive ownership rules of Section 544 of the Code (as modified by Section 856(h) of the Code), shares of beneficial interest of Fairwater REIT such that Fairwater REIT would be "closely held" within the meaning of Section 856(h) of the Code; and (b) to the best of Prescott Investor's knowledge, after reasonable inquiry, no direct or indirect beneficial owner of Prescott Capital Partners, LP or Prescott Capital GP, LLC owns, directly or through attribution under Section 544 of the Code, any shares of beneficial interest of Fairwater REIT.

3.2 Ongoing Covenant. Prescott Investor agrees that, during the term of this Side Letter, it shall not, and shall cause its direct and indirect beneficial owners not to, directly or indirectly, acquire beneficial ownership of any shares of beneficial interest of Fairwater REIT (NYSE: FWT), including common shares, preferred shares, or any other equity securities, if such acquisition, when combined with any existing beneficial ownership (determined with application of the constructive ownership rules of Section 544 of the Code, as modified by Section 856(h) of the Code), would cause Fairwater REIT to be "closely held" under Section 856(h) of the Code. Prescott Investor shall use commercially reasonable efforts to inform its direct and indirect beneficial owners of the restrictions set forth in this Section 3.2.

3.3 Transfer Restrictions. Prescott Investor shall not sell, assign, transfer, pledge, encumber, or otherwise dispose of (collectively, "Transfer") all or any portion of its membership interest in the Company to any person or entity if such Transfer would, directly or through the constructive ownership rules of Section 544 of the Code (as modified by Section 856(h) of the Code), cause Fairwater REIT to be "closely held" under Section 856(h) of the Code. Any purported Transfer in violation of this Section 3.3 shall be void ab initio and of no force or effect, and neither the Company nor Fairwater Manager shall be required to recognize or give effect to such purported Transfer. This restriction is in addition to, and not in limitation of, any transfer restrictions set forth in the Operating Agreement.

3.4 Information Rights. Prescott Investor shall promptly provide to Fairwater Manager, upon written request delivered in accordance with the notice provisions of Section 12.5 of this Side Letter (such request not to be made more than twice per calendar year unless Fairwater Manager reasonably believes that circumstances have changed since the most recent request), such information regarding the ownership structure of Prescott Investor, Prescott Capital Partners, LP, and Prescott Capital GP, LLC as is reasonably necessary for Fairwater REIT to determine compliance with the Closely Held Test and applicable Treasury Regulations, including, without limitation, information regarding (a) the identity and ownership percentage of each limited partner holding a five percent (5%) or greater interest in Prescott Capital Partners, LP, (b) the identity and ownership percentage of each member of Prescott Capital GP, LLC, and (c) to the extent known to Prescott Investor after reasonable inquiry, whether any such person owns shares of beneficial interest of Fairwater REIT. Prescott Investor shall provide such information within thirty (30) days of receipt of any such written request. Any information provided pursuant to this Section 3.4 shall be treated as confidential information in accordance with the confidentiality provisions of the Operating Agreement.

SECTION 4: GROSS INCOME TESTING COOPERATION

4.1 Cooperation Obligation. Prescott Investor shall cooperate in good faith with Fairwater Manager to ensure that the Company's income satisfies the Gross Income Tests applicable to Fairwater REIT. Without limiting the generality of the foregoing, Prescott Investor shall:

(a) provide to Fairwater Manager, within thirty (30) days after the end of each calendar quarter, such information regarding the Company's income for such quarter as Fairwater Manager or its tax advisors may reasonably request, in such detail and format as is reasonably necessary to enable Fairwater Manager to determine whether the Company's income, when allocated to Fairwater REIT, satisfies the Gross Income Tests, including a breakdown of income by category (rents from real property, interest, gain from disposition of real property, fees, and other income);

(b) cooperate with respect to any restructuring of the Company's activities, operations, or investments that Fairwater Manager reasonably determines to be necessary to ensure compliance with the Gross Income Tests, including, without limitation, the establishment of taxable REIT subsidiaries, the engagement of independent contractors, or the modification of tenant service arrangements; provided, however, that any such restructuring shall not be required to the extent it would materially and adversely affect Prescott Investor's economic interest in the Company (including Prescott Investor's right to receive distributions under the distribution waterfall provisions of the Operating Agreement or its capital account balance), unless Prescott Investor consents in writing to such restructuring; and

(c) execute such documents and instruments, and provide such certificates, representations, questionnaires, or other information, as may be required by the Internal Revenue Service or as may be reasonably requested by Fairwater REIT's independent auditors or tax counsel (including, as of the date hereof, Alderman & Fields, CPAs, LLP, as the Company's accountant, and Calderwood & Harkness LLP, as counsel to Fairwater Manager) in connection with Fairwater REIT's compliance with the REIT Requirements.

4.2 Annual Compliance Certificate. The Company, acting through Fairwater Manager in its capacity as Managing Member, shall cause Alderman & Fields, CPAs, LLP (the Company's accountant and tax return preparer) to prepare and deliver to both Fairwater Manager and Prescott Investor, annually, within ninety (90) days after the end of each fiscal year of the Company, a schedule (the "Annual REIT Income Schedule") analyzing the Company's gross income for such fiscal year under the categories set forth in Section 856(c)(2) and Section 856(c)(3) of the Code. The Annual REIT Income Schedule shall include: (i) a detailed categorization of the Company's gross income into Qualifying REIT Income and non-qualifying income; (ii) a calculation of Fairwater REIT's pro rata share of each such category of income; and (iii) a determination of whether the Company's income, as allocated to Fairwater REIT, would satisfy or fail to satisfy each of the Gross Income Tests. The cost and expense of preparing the Annual REIT Income Schedule shall be borne by the Company as an operating expense.

4.3 Advance Notice of Transactions. Prescott Investor shall give Fairwater Manager not less than fifteen (15) business days' prior written notice before causing, directing, or consenting to the Company entering into any transaction outside the ordinary course of the Company's business that could reasonably be expected to generate income that is not Qualifying REIT Income, including, without limitation, (a) the disposition of any real property or interest therein, (b) the provision of services to tenants or third parties, (c) the acquisition of non-real estate assets, (d) the entry into any hedging or derivative transaction, or (e) the making of any loan or extension of credit. Such notice shall describe the proposed transaction in reasonable detail, including the nature and estimated amount of income expected to be derived therefrom, to allow Fairwater Manager sufficient opportunity to evaluate the impact of such transaction on Fairwater REIT's Gross Income Tests and to exercise its consent rights under Section 2.3 of this Side Letter.

SECTION 5: ASSET TEST COMPLIANCE

5.1 Company Assets. Fairwater Manager, in its capacity as Managing Member, shall use commercially reasonable efforts to ensure that the Company's assets, as allocated to Fairwater REIT through its indirect ownership interest in the Company (through Fairwater HP Manager, LLC), satisfy the Asset Tests under Section 856(c)(4) of the Code at the close of each calendar quarter and at all other applicable testing dates. In furtherance of this obligation, Fairwater Manager shall (a) monitor the composition of the Company's assets on an ongoing basis, (b) consult with the Company's accountant (Alderman & Fields, CPAs, LLP) and Fairwater REIT's tax counsel regarding the classification of Company assets for purposes of the Asset Tests, and (c) take such corrective actions as may be reasonably necessary to bring the Company's asset composition into compliance with the Asset Tests, including the disposition or restructuring of any non-qualifying assets.

5.2 Prescott Cooperation. Prescott Investor shall not cause, direct, or consent to the Company acquiring, holding, or retaining any asset or security that would cause Fairwater REIT's pro rata share of the Company's assets to fail any of the Asset Tests under Section 856(c)(4) of the Code. Without limiting the generality of the foregoing, Prescott Investor acknowledges that the Asset Tests require, among other things, that at least seventy-five percent (75%) of the value of a REIT's total assets consist of real estate assets (as defined in Section 856(c)(5)(B) of the Code), cash and cash items (including receivables), and government securities, and that the Company's primary asset — the Project — constitutes a "real estate asset" for purposes of the Asset Tests. Prescott Investor shall cooperate with Fairwater Manager in structuring any proposed investment, acquisition, or other transaction involving the Company's assets to ensure continued compliance with the Asset Tests.

5.3 Quarterly Reporting. Fairwater Manager shall provide Prescott Investor with a summary, within forty-five (45) days after the end of each calendar quarter, of the Company's asset composition for purposes of the Asset Tests, including (a) the aggregate value of the Company's real estate assets, (b) the aggregate value of the Company's cash and cash items and government securities, and (c) the aggregate value of any other assets held by the Company, in each case as of the close of such calendar quarter. Such summary shall be provided to the extent such information is relevant to actions requiring Prescott Investor's consent under the Operating Agreement or to Prescott Investor's obligations under this Side Letter.

SECTION 6: MANDATORY DISTRIBUTION OF REIT TAXABLE INCOME

6.1 Forced Distribution Right. Notwithstanding anything to the contrary in the Operating Agreement, the JV Agreement, or any other agreement among the Parties (including, without limitation, any provisions of the Operating Agreement relating to reinvestment of cash flow, establishment of reserves, or restrictions on distributions), Fairwater Manager shall have the right, upon written notice to Prescott Investor delivered in accordance with the notice provisions of Section 12.5 of this Side Letter, to cause the Company to distribute to Fairwater Manager an amount not less than one hundred percent (100%) of the REIT Taxable Income of Fairwater REIT that is attributable to Fairwater REIT's indirect interest in the Company for such taxable year (the "REIT Distribution Amount"), to the extent of available cash of the Company or, if available cash is insufficient to satisfy the full REIT Distribution Amount, from the first available cash of the Company thereafter.

The purpose of this forced distribution right is to enable Fairwater REIT to satisfy the Distribution Requirement under Section 857(a)(1) of the Code, which requires a REIT to distribute to its shareholders, as dividends, at least ninety percent (90%) of the REIT's REIT Taxable Income (as adjusted) for each taxable year, and to avoid the imposition of the four percent (4%) excise tax under Section 4981 of the Code on undistributed REIT income. The Parties acknowledge that Fairwater REIT's ability to make the required distributions to its shareholders is dependent, in substantial part, upon Fairwater REIT's receipt of distributions from the Company through Fairwater Manager.

6.2 Timing. The REIT Distribution Amount shall be distributed by the Company to Fairwater Manager no later than December 31 of the relevant taxable year; provided, however, that if the Company's taxable year has ended but the Company's federal income tax return (IRS Form 1065) has not yet been filed and the final amount of REIT Taxable Income attributable to Fairwater REIT's interest in the Company has not yet been determined, the Company shall distribute the estimated REIT Distribution Amount by December 31 and shall make any required true-up distribution in accordance with Section 6.3 below. Fairwater Manager shall notify Prescott Investor in writing of the estimated REIT Distribution Amount not less than thirty (30) days before the required distribution date, together with a reasonable explanation of the basis for such estimate, including the assumptions and calculations used to determine the estimate.

6.3 True-Up. If the actual REIT Taxable Income attributable to Fairwater REIT's indirect interest in the Company for any taxable year, as finally determined upon completion of the Company's partnership tax return (IRS Form 1065) by Alderman & Fields, CPAs, LLP (or upon the conclusion of any audit or other adjustment proceedings), differs from the estimated REIT Distribution Amount previously distributed to Fairwater Manager pursuant to Section 6.2 above, the following true-up mechanism shall apply:

(a) Underdistribution. If the actual REIT Taxable Income attributable to Fairwater REIT's interest in the Company exceeds the estimated REIT Distribution Amount previously distributed, the Company shall make a supplemental distribution to Fairwater Manager in an amount equal to such excess within thirty (30) days of the date on which such actual amount is finally determined, to the extent of available cash of the Company. If available cash is insufficient to fund such supplemental distribution in full, the Company shall distribute the available cash and shall distribute the remaining balance from the first available cash of the Company thereafter.

(b) Overdistribution. If the actual REIT Taxable Income attributable to Fairwater REIT's interest in the Company is less than the estimated REIT Distribution Amount previously distributed, the excess amount distributed to Fairwater Manager shall, at Fairwater Manager's election (exercised by written notice to Prescott Investor within fifteen (15) days of the date on which such actual amount is finally determined), be treated as either (i) an advance on future distributions otherwise payable to Fairwater Manager under the Operating Agreement, which shall be credited against the next succeeding distribution(s) otherwise payable to Fairwater Manager, or (ii) returned by Fairwater Manager to the Company within thirty (30) days of such election.

6.4 Corresponding Distribution to Prescott Investor. To the extent any distribution is made to Fairwater Manager pursuant to this Section 6, a corresponding pro rata distribution shall be made simultaneously to Prescott Investor in accordance with the respective membership interest percentages of the members (i.e., thirty percent (30%) to Fairwater Manager and seventy percent (70%) to Prescott Investor), so that the relative economic positions of the members are not disproportionately affected by distributions made pursuant to this Section 6; provided, however, that Prescott Investor may elect, by written notice delivered to Fairwater Manager not less than ten (10) days prior to the applicable distribution date, to waive its right to receive all or any portion of such corresponding distribution, in which case the Company shall retain the amount of the waived distribution as working capital or reserves.

6.5 No Impairment of Waterfall. Distributions made pursuant to this Section 6 shall be treated as advances against, and shall be credited to, distributions otherwise payable to the members under the distribution waterfall provisions of the Operating Agreement (including the provisions providing for return of capital contributions, the nine percent (9.0%) preferred return compounded quarterly, the sixty/forty (60/40) catch-up tranche, and the base twenty/eighty (20/80) and second-tier thirty/seventy (30/70) residual split tranches), and shall not alter, amend, or impair the economic terms of the distribution waterfall set forth in the Operating Agreement. For the avoidance of doubt, distributions made pursuant to this Section 6 shall reduce the amounts otherwise distributable to the members at each applicable tier of the distribution waterfall in the same manner as any other interim distribution made by the Company under the Operating Agreement.

SECTION 7: PROHIBITED TRANSACTION SAFE HARBOR

7.1 Safe Harbor Compliance. The Company and each member shall use commercially reasonable efforts to ensure that any sale, exchange, or other disposition of Company assets (including the Project or any portion thereof) complies with the safe harbor for prohibited transactions set forth in Section 857(b)(6)(C) of the Code, to the extent reasonably necessary to avoid the imposition of the one hundred percent (100%) prohibited transaction tax under Section 857(b)(6)(A) of the Code on Fairwater REIT. The safe harbor requirements include, without limitation: (a) the property must be held for not less than two (2) years (or, in the case of certain property, seven (7) years) prior to disposition; (b) aggregate expenditures made during the two-year period preceding the date of disposition that are includible in the basis of the property must not exceed thirty percent (30%) of the net selling price of the property; (c) the REIT must not have made more than seven (7) sales of property (other than sales of foreclosure property and involuntary conversions) during the taxable year; or (d) the aggregate adjusted bases of property sold during the taxable year must not exceed ten percent (10%) of the aggregate bases of all the REIT's assets at the beginning of the taxable year; together with such other requirements as may be applicable under Section 857(b)(6)(C) of the Code. The Parties acknowledge that the applicability of the specific safe harbor requirements depends on the particular facts and circumstances of each disposition and agree to consult with the Company's tax advisors in advance of any proposed disposition to determine the applicable safe harbor requirements.

7.2 Prescott Consent and Cooperation. In connection with any proposed disposition of the Project or any portion thereof (including, without limitation, any sale, exchange, contribution, or other transfer of all or substantially all of the Company's assets), Fairwater Manager may structure the transaction to comply with the Prohibited Transaction safe harbor under Section 857(b)(6)(C) of the Code, and Prescott Investor shall reasonably cooperate with such structuring, including by executing such documents, agreements, and instruments as may be reasonably required; provided, however, that such cooperation shall not require Prescott Investor to (a) incur any material additional cost (beyond de minimis administrative costs) that is not reimbursed by the Company, (b) agree to a material delay in the closing of any disposition (in excess of thirty (30) days beyond the originally scheduled closing date), or (c) accept a reduction in the net proceeds otherwise payable to Prescott Investor in connection with such disposition.

7.3 Disposition Fee. For the avoidance of doubt, the disposition fee of one percent (1.0%) of the gross sale price payable to Fairwater Manager under the Operating Agreement in connection with the sale or other disposition of the Project (the "Disposition Fee") shall not be characterized as dealer income, commission income, or other non-qualifying income to Fairwater REIT and shall be structured to comply with applicable REIT requirements. To the extent necessary, the Parties shall cooperate in good faith to structure the Disposition Fee as a fee for services rendered by Fairwater Manager in its capacity as Managing Member, or in such other manner as is consistent with the treatment of such fee as Qualifying REIT Income or otherwise not adverse to Fairwater REIT's REIT qualification.

SECTION 8: TENANT SERVICES AND TAXABLE REIT SUBSIDIARY

8.1 Independent Contractor / TRS Requirement. To the extent the Company provides, or arranges for the provision of, services to tenants of the Project that are not "usually or customarily rendered" in connection with the rental of space for occupancy only within the meaning of Section 856(d)(1)(B) of the Code and applicable Treasury Regulations (including, without limitation, concierge services, valet parking, laundry services, cable or internet services beyond basic connectivity, and any other services that would constitute "impermissible tenant services" if provided directly by the Company), such services shall be provided exclusively through one of the following structures:

(a) an independent contractor (as defined in Section 856(d)(3) of the Code) that is adequately compensated for such services and from whom neither the Company nor Fairwater REIT derives or receives any income, whether directly or indirectly; or

(b) a taxable REIT subsidiary ("TRS") of Fairwater REIT, as defined in Section 856(l) of the Code, that has been duly designated as such pursuant to a joint election filed by Fairwater REIT and such subsidiary under Section 856(l)(1) of the Code, in compliance with the requirements of Section 856(d)(7)(C) of the Code and applicable Treasury Regulations;

in each case such that the provision of such services does not give rise to Impermissible Tenant Service Income to the Company or to Fairwater REIT.

8.2 Approval Right. Fairwater Manager shall have the sole right to determine, in good faith and after consultation with Fairwater REIT's tax advisors, whether any proposed service to be provided to tenants of the Project would constitute a service that is not "usually or customarily rendered" in connection with the rental of space for occupancy only and would therefore give rise to Impermissible Tenant Service Income if provided directly by the Company. In the event Fairwater Manager determines that a proposed service would give rise to Impermissible Tenant Service Income, Fairwater Manager shall have the sole right to direct the manner in which such service is to be provided (whether through an independent contractor, a TRS, or otherwise), subject to any applicable major decision consent requirements set forth in the Operating Agreement. Prescott Investor shall cooperate with Fairwater Manager in implementing any such determination, including by executing such documents and agreements as may be reasonably necessary.

SECTION 9: REPRESENTATIONS AND WARRANTIES

9.1 Fairwater Manager Representations. Fairwater Manager represents and warrants to Prescott Investor, as of the date hereof, as follows:

(a) REIT Status. Fairwater Real Estate Investment Trust is duly organized and validly existing as a real estate investment trust under the laws of the State of Maryland, is in good standing with the Maryland State Department of Assessments and Taxation (SDAT ID: D19847321), and has elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Code, effective for its taxable year ended December 31, 2005, and continuously thereafter through the date hereof.

(b) Continuous REIT Qualification. Fairwater REIT has satisfied all of the REIT Requirements for each taxable year since its initial REIT election through and including its most recently completed taxable year, and, to the best of Fairwater Manager's knowledge, no event or circumstance has occurred that would reasonably be expected to cause Fairwater REIT to fail to satisfy any of the REIT Requirements for the current taxable year.

(c) Entity Status. Fairwater HP Manager, LLC (EIN: 52-2201889) is duly formed, validly existing, and in good standing under the laws of the State of Maryland, and is a disregarded entity for federal income tax purposes within the meaning of Treasury Regulations Section 301.7701-3, with Fairwater Real Estate Investment Trust as its sole member. Fairwater HP Manager, LLC has not elected to be classified as an association taxable as a corporation.

(d) Authority. Fairwater Manager has the requisite power and authority to execute, deliver, and perform its obligations under this Side Letter. The execution, delivery, and performance of this Side Letter by Fairwater Manager have been duly authorized by all necessary action on the part of Fairwater Manager and Fairwater REIT, including authorization by the board of trustees of Fairwater REIT at a duly convened meeting held on December 18, 2025, and this Side Letter constitutes a legal, valid, and binding obligation of Fairwater Manager, enforceable against Fairwater Manager in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity.

9.2 Prescott Investor Representations. Prescott Investor represents and warrants to Fairwater Manager and to Fairwater REIT, as of the date hereof, as follows:

(a) Entity Status. Prescott HP Investor, LLC (EIN: 13-4603217) is duly formed, validly existing, and in good standing under the laws of the State of Delaware, and is a disregarded entity for federal income tax purposes within the meaning of Treasury Regulations Section 301.7701-3, with Prescott Capital Partners, LP (EIN: 13-4587612) as its sole member. Prescott HP Investor, LLC has not elected to be classified as an association taxable as a corporation.

(b) Prescott Structure. Prescott Capital Partners, LP is a limited partnership duly formed, validly existing, and in good standing under the laws of the State of Delaware, with Prescott Capital GP, LLC, a Delaware limited liability company, serving as its sole general partner.

(c) No Closely Held Issue. As of the date hereof, neither Prescott Investor nor any of its direct or indirect beneficial owners (including any partner of Prescott Capital Partners, LP or any member of Prescott Capital GP, LLC) holds, beneficially or of record, any shares of beneficial interest of Fairwater REIT (whether common shares, preferred shares, or any other class or series of equity securities). Prescott Investor is not aware of any fact, circumstance, or arrangement that would cause Fairwater REIT to be "closely held" within the meaning of Section 856(h) of the Code as a result of the transactions contemplated by the Operating Agreement, this Side Letter, or any of the related documents described in Recital G.

(d) Authority. Prescott Investor has the requisite power and authority to execute, deliver, and perform its obligations under this Side Letter. The execution, delivery, and performance of this Side Letter by Prescott Investor have been duly authorized by all necessary action on the part of Prescott Investor, Prescott Capital Partners, LP, and Prescott Capital GP, LLC, and this Side Letter constitutes a legal, valid, and binding obligation of Prescott Investor, enforceable against Prescott Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity.

SECTION 10: REMEDIES

10.1 Breach by Prescott Investor. If Prescott Investor breaches any covenant, agreement, representation, or warranty under this Side Letter and such breach causes, or would reasonably be expected to cause, Fairwater REIT to fail to satisfy any of the REIT Requirements (including, without limitation, the Gross Income Tests, the Asset Tests, the Distribution Requirement, or the Closely Held Test), then:

(a) Indemnification. Prescott Investor shall indemnify, defend, and hold harmless Fairwater REIT, Fairwater Manager, and their respective affiliates, officers, directors, trustees, employees, and agents (collectively, the "Fairwater Indemnified Parties") from and against any and all losses, damages, liabilities, taxes (including, without limitation, any excise tax imposed under Section 4981 of the Code on undistributed REIT income, any entity-level tax imposed under Section 857(b)(1) of the Code on REIT taxable income not distributed, any tax imposed under Section 857(b)(5) of the Code on income from foreclosure property, and any one hundred percent (100%) prohibited transaction tax imposed under Section 857(b)(6)(A) of the Code), penalties, interest, and expenses (including reasonable attorneys' fees, accountants' fees, and other professional fees and disbursements) actually incurred by any Fairwater Indemnified Party as a result of, or arising out of, such failure of Fairwater REIT to satisfy the REIT Requirements.

(b) Remedial Actions. Fairwater Manager shall have the right, but not the obligation, to take such remedial actions as are reasonably necessary to cure or mitigate the effects of such failure of Fairwater REIT to satisfy the REIT Requirements, at Prescott Investor's sole cost and expense. Such remedial actions may include, without limitation, (i) restructuring the Company's operations, activities, or investments, (ii) causing the Company to dispose of non-qualifying assets, (iii) causing the Company to terminate or modify leases, service agreements, or other arrangements that give rise to non-qualifying income, and (iv) causing the Company to make distributions to Fairwater Manager in amounts necessary to satisfy the Distribution Requirement. Fairwater Manager shall give Prescott Investor reasonable prior notice of any such remedial action and shall use commercially reasonable efforts to minimize any adverse impact on Prescott Investor's economic interest in the Company, but Fairwater Manager shall not be required to obtain Prescott Investor's consent before taking any remedial action that Fairwater Manager reasonably determines to be necessary to prevent or cure a failure of Fairwater REIT to satisfy the REIT Requirements.

10.2 Specific Performance. The Parties acknowledge and agree that the covenants, agreements, and obligations set forth in this Side Letter are of a special and unique nature, that Fairwater REIT's continued qualification as a REIT is of critical importance to Fairwater REIT and its shareholders, and that a breach by Prescott Investor of any covenant or agreement under this Side Letter would cause irreparable harm to Fairwater REIT for which monetary damages may be an inadequate remedy. Accordingly, Fairwater Manager (on behalf of itself and Fairwater REIT) shall be entitled to seek and obtain specific performance of the covenants and agreements contained in this Side Letter, as well as temporary, preliminary, and permanent injunctive relief, in addition to any other remedies available at law or in equity, without the necessity of posting any bond or other security and without the need to prove actual damages or the inadequacy of monetary damages.

10.3 Limitation on Prescott Investor Liability. Notwithstanding anything to the contrary in this Side Letter, Prescott Investor shall not be liable under Section 10.1 or otherwise for any failure of Fairwater REIT to satisfy any of the REIT Requirements to the extent such failure is attributable solely to: (a) actions or omissions of Fairwater REIT, Fairwater Manager, or any of their respective affiliates (other than actions or omissions directed by Prescott Investor or taken at Prescott Investor's request); (b) a failure of Fairwater REIT to satisfy the REIT Requirements with respect to income, assets, or activities unrelated to the Company; or (c) changes in the Code, Treasury Regulations, or official published guidance of the Internal Revenue Service occurring after the date hereof that could not have been reasonably anticipated by Prescott Investor as of the date hereof. The burden of proof with respect to any defense raised by Prescott Investor under this Section 10.3 shall rest with Prescott Investor.

SECTION 11: TAX MATTERS COORDINATION

11.1 Partnership Representative. As set forth in the Operating Agreement and the Tax Protection Agreement, Fairwater HP Manager, LLC serves as the "partnership representative" (within the meaning of Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015) of the Company. In its capacity as partnership representative, Fairwater HP Manager, LLC shall have the authority and responsibility to act on behalf of the Company in connection with any federal income tax audit, examination, or other administrative or judicial proceeding involving the Company, subject to the rights and obligations of the parties as set forth in the Operating Agreement and the Tax Protection Agreement. Prescott Investor acknowledges and consents to the designation of Fairwater HP Manager, LLC as partnership representative and agrees to cooperate in good faith with Fairwater HP Manager, LLC in connection with any such proceeding.

11.2 Coordination with Tax Protection Agreement. This Side Letter is intended to supplement, and shall be read in conjunction with, the Tax Protection Agreement of even date herewith among the Company, Fairwater Manager, and Prescott Investor. The provisions of this Side Letter and the Tax Protection Agreement are intended to be complementary and mutually reinforcing. In the event of any conflict or inconsistency between the provisions of this Side Letter and the provisions of the Tax Protection Agreement with respect to any matter relating to Fairwater REIT's qualification as a REIT under the Code or the preservation of Fairwater REIT's REIT status, the provisions of this Side Letter shall control and govern. In all other respects, the Tax Protection Agreement shall remain in full force and effect in accordance with its terms.

11.3 Tax Elections. The Company shall make (or refrain from making) such tax elections as are reasonably requested by Fairwater Manager to preserve Fairwater REIT's qualification as a REIT under the Code, including, without limitation, elections under Section 754 of the Code, elections with respect to depreciation methods and recovery periods, and elections with respect to Maryland pass-through entity taxes (including any election under the Maryland Pass-Through Entity Tax provisions of the Annotated Code of Maryland, Tax-General Article, Section 10-102.1, or any successor provision); provided, however, that (a) Fairwater Manager shall give Prescott Investor reasonable prior notice of any such requested election (not less than fifteen (15) business days' prior written notice, unless a shorter notice period is required due to a filing deadline), (b) Fairwater Manager shall provide a reasonable explanation of the purpose and expected tax consequences of such election, and (c) the Company shall not be required to make any election that would materially and adversely affect Prescott Investor's after-tax returns from the Company, as reasonably determined by Prescott Investor in consultation with its own tax advisors, unless Fairwater Manager demonstrates that such election is necessary to preserve Fairwater REIT's REIT qualification and there is no reasonably available alternative that would achieve the same objective without such material adverse effect on Prescott Investor.

SECTION 12: MISCELLANEOUS

12.1 Governing Law. This Side Letter shall be governed by and construed in accordance with the laws of the State of Maryland, without regard to the conflict of laws principles thereof that would result in the application of the laws of any other jurisdiction. The foregoing choice of law is consistent with the governing law provision of the Operating Agreement. Each Party irrevocably submits to the exclusive jurisdiction of the state and federal courts located in Baltimore City, Maryland for the adjudication of any dispute arising out of or relating to this Side Letter.

12.2 Entire Agreement. This Side Letter, together with the Operating Agreement, the JV Agreement, the Tax Protection Agreement, and the Capital Contribution Agreement (and any exhibits, schedules, or annexes thereto), constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior negotiations, discussions, correspondence, and agreements (whether written or oral) among the Parties relating to the subject matter hereof. No representation, warranty, covenant, or agreement not expressly set forth herein or in the foregoing documents shall be binding upon or enforceable against any Party.

12.3 Amendments. This Side Letter may not be amended, supplemented, modified, or waived except by a written instrument duly executed by both Parties. No oral amendment, modification, or waiver shall be effective for any purpose. Any amendment to this Side Letter that would adversely affect the rights of Fairwater REIT as an intended third-party beneficiary under Section 12.8 shall require the prior written consent of Fairwater REIT.

12.4 Successors and Assigns. This Side Letter shall be binding upon and shall inure to the benefit of the Parties and their respective successors, heirs, legal representatives, and permitted assigns. No Party may assign its rights or obligations under this Side Letter to any person without the prior written consent of the other Party, which consent may be withheld in such other Party's sole discretion; provided, however, that Fairwater Manager may assign its rights and obligations under this Side Letter to any successor Managing Member of the Company that is a direct or indirect subsidiary of Fairwater REIT without Prescott Investor's consent, and Prescott Investor may assign its rights and obligations under this Side Letter in connection with a permitted transfer of its membership interest in the Company under the Operating Agreement, so long as such assignee assumes in writing all of Prescott Investor's obligations under this Side Letter. Any purported assignment in violation of this Section 12.4 shall be void and of no force or effect.

12.5 Notices. All notices, requests, demands, consents, waivers, and other communications under this Side Letter shall be in writing and shall be deemed to have been duly given if (a) delivered by hand (with written confirmation of receipt), (b) sent by nationally recognized overnight courier (with tracking confirmation), (c) sent by registered or certified mail (return receipt requested, postage prepaid), or (d) transmitted by electronic mail (with confirmation of receipt), to the Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12.5):

If to Fairwater Manager:

Fairwater HP Manager, LLC c/o Fairwater Real Estate Investment Trust 7200 Pratt Street, Suite 1400 Baltimore, MD 21202

Attention: Theresa M. Calloway, General Counsel

Email: tcalloway@fairwaterreit.com

with a copy (which shall not constitute notice) to:

Calderwood & Harkness LLP 100 International Drive, Suite 2600 Baltimore, MD 21202

Attention: Douglas Fairchild

Email: dfairchild@calderwoodharkness.com

If to Prescott Investor:

Prescott HP Investor, LLC c/o Prescott Capital Partners, LP 400 Lexington Avenue, 32nd Floor New York, NY 10170

Attention: Andrew M. Castellano

Email: acastellano@prescottcapital.com

with a copy (which shall not constitute notice) to:

Whitmore, Calder & Briggs LLP 51 West 52nd Street New York, NY 10019

Attention: Samuel T. Briggs III

Email: sbriggs@whitmorecalder.com

Notices delivered by hand or by overnight courier shall be deemed given upon receipt. Notices sent by registered or certified mail shall be deemed given on the fifth (5th) business day after deposit in the United States mail. Notices transmitted by electronic mail shall be deemed given upon confirmation of receipt by the recipient.

12.6 Counterparts. This Side Letter may be executed in any number of counterparts (including by means of electronic signature or facsimile), each of which shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same instrument. Signatures delivered by facsimile or by electronic transmission in portable document format (PDF) shall have the same force and effect as original signatures.

12.7 Severability. If any provision of this Side Letter, or the application of any such provision to any person or circumstance, shall be held invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provision of this Side Letter, and the remaining provisions shall continue in full force and effect; provided, however, that the Parties shall negotiate in good faith to replace any such invalid, illegal, or unenforceable provision with a valid, legal, and enforceable provision that, to the greatest extent possible, achieves the intended economic and legal effect of the invalid, illegal, or

REIT COMPLIANCE SIDE LETTER
Side Letter to the Amended and Restated Operating Agreement of Harbor Point Development JV, LLC
Dated as of January 12, 2026
CONFIDENTIAL TREATMENT REQUESTED
This REIT Compliance Side Letter (this "Side Letter") is entered into as of January 12, 2026, by and between:
FAIRWATER HP MANAGER, LLC, a Maryland limited liability company ("Fairwater Manager"), whose sole member is Fairwater Real Estate Investment Trust, a Maryland real estate investment trust listed on the New York Stock Exchange under the ticker symbol "FWT" ("Fairwater REIT" or the "REIT Member");
and
PRESCOTT HP INVESTOR, LLC, a Delaware limited liability company ("Prescott Investor"), whose sole member is Prescott Capital Partners, LP, a Delaware limited partnership ("Prescott").
Fairwater Manager and Prescott Investor are each referred to herein individually as a "Party" and collectively as the "Parties."
This Side Letter is entered into simultaneously with, and supplements, that certain Amended and Restated Operating Agreement of Harbor Point Development JV, LLC, a Delaware limited liability company (the "Company" or the "JV"), dated as of January 12, 2026 (the "Operating Agreement"), by and between Fairwater Manager, as Managing Member holding a thirty percent (30%) membership interest in the Company, and Prescott Investor, as a non-managing member holding a seventy percent (70%) membership interest in the Company.
Addresses of the Parties:
Fairwater HP Manager, LLC c/o Fairwater Real Estate Investment Trust 7200 Pratt Street, Suite 1400 Baltimore, MD 21202
Prescott HP Investor, LLC c/o Prescott Capital Partners, LP 400 Lexington Avenue, 32nd Floor New York, NY 10170
RECITALS
A. The Company was formed as a Delaware limited liability company pursuant to a Certificate of Formation filed with the Office of the Secretary of State of the State of Delaware, with Incorporators & Associates, Inc., 1209 Orange Street, Wilmington, Delaware 19801, serving as its registered agent in the State of Delaware. The Company has applied for an employer identification number with the Internal Revenue Service (EIN: 84-6213950, applied for).
B. The Company was formed for the purpose of acquiring, developing, and operating a Class A mixed-use project known as "Harbor Point Towers" (the "Project"), which shall consist of two (2) twenty-eight (28)-story residential towers comprising approximately six hundred ten (610) residential rental units and approximately forty-five thousand (45,000) square feet of ground-floor retail space, to be constructed on an approximately 8.2-acre waterfront site located at 1500–1580 Wills Street, Baltimore, Maryland 21231 (Block 7419, Lots 1–6, Baltimore City), with a total estimated project cost of Five Hundred Seventy-Six Million Dollars ($576,000,000).
C. Fairwater Manager's sole member, Fairwater Real Estate Investment Trust, has elected to be taxed as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), effective for its taxable year ended December 31, 2005, and continuously thereafter. In order to maintain its qualification as a REIT, Fairwater REIT must continuously satisfy certain requirements under the Code, including, but not limited to: (i) the gross income tests set forth in Section 856(c)(2) and Section 856(c)(3) of the Code (the seventy-five percent (75%) and ninety-five percent (95%) gross income tests, respectively); (ii) the asset tests set forth in Section 856(c)(4) of the Code; (iii) the distribution requirements set forth in Section 857(a) of the Code; and (iv) the prohibition on being "closely held" set forth in Section 856(h) of the Code. Failure to satisfy any of these requirements could result in the loss of REIT status, which would have material adverse tax consequences for Fairwater REIT and its shareholders.
D. The Company will be treated as a partnership for federal income tax purposes and will not make an election to be classified as an association taxable as a corporation under Treasury Regulations Section 301.7701-3. Fairwater HP Manager, LLC has been designated to serve as the Partnership Representative of the Company under Section 6223 of the Code, as set forth in the Operating Agreement.
E. In connection with the formation of the Company and the development of the Project, Fairwater Manager has committed to contribute Seventy-Two Million Dollars ($72,000,000) in equity capital to the Company, representing thirty percent (30%) of the total joint venture equity commitment of Two Hundred Forty Million Dollars ($240,000,000), and Prescott Investor has committed to contribute One Hundred Sixty-Eight Million Dollars ($168,000,000) in equity capital to the Company, representing seventy percent (70%) of such total joint venture equity commitment, in each case pursuant to the terms and conditions set forth in the Operating Agreement and the Capital Contribution Agreement of even date herewith.
F. The Parties desire to set forth in this Side Letter certain covenants, agreements, and protections designed to ensure that the operations, activities, and investments of the Company do not jeopardize Fairwater REIT's continued qualification as a REIT under the Code, and to establish certain consent rights, information rights, and remedial provisions in furtherance of such objective.
G. This Side Letter is executed and delivered in connection with, and should be read in conjunction with, the following related documents: (i) the Operating Agreement; (ii) that certain Joint Venture Agreement, dated as of January 12, 2026, by and between Fairwater Manager and Prescott Investor (the "JV Agreement"); (iii) that certain Tax Protection Agreement, dated as of January 12, 2026, among the Company, Fairwater Manager, and Prescott Investor (the "Tax Protection Agreement"); and (iv) that certain Capital Contribution Agreement, dated as of January 12, 2026, among the Company, Fairwater Manager, and Prescott Investor (the "Capital Contribution Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
SECTION 1: DEFINITIONS
1.1 Incorporation by Reference. Capitalized terms used but not otherwise defined in this Side Letter shall have the meanings ascribed to such terms in the Operating Agreement. In the event of any conflict between a definition set forth in the Operating Agreement and a definition set forth in this Side Letter, the definition set forth in this Side Letter shall control for purposes of this Side Letter.
1.2 Defined Terms. As used in this Side Letter, the following terms shall have the meanings set forth below:
(a) "Asset Tests" means the asset tests set forth in Section 856(c)(4) of the Code, including, without limitation, the requirement that at the close of each quarter of each taxable year of a REIT, (i) at least seventy-five percent (75%) of the value of the REIT's total assets consist of real estate assets (as defined in Section 856(c)(5)(B) of the Code), cash and cash items (including receivables), and government securities, (ii) not more than twenty-five percent (25%) of the value of the REIT's total assets be represented by securities (other than those described in clause (i)), (iii) of such twenty-five percent (25%), the value of any one issuer's securities not exceed five percent (5%) of the value of the REIT's total assets, and (iv) the REIT not hold securities possessing more than ten percent (10%) of the total voting power or ten percent (10%) of the total value of the outstanding securities of any one issuer (subject to applicable exceptions and safe harbors set forth in Section 856(c)(4) of the Code and applicable Treasury Regulations).
(b) "Closely Held Test" means the prohibition under Section 856(h) of the Code that provides, in relevant part, that a REIT shall not be "closely held" as determined under Section 542(a)(2) of the Code (as modified by Section 856(h)), which generally provides that a corporation is "closely held" if at any time during the last half of the taxable year more than fifty percent (50%) in value of its outstanding stock is owned, directly or indirectly, by or for not more than five (5) individuals (as defined in Section 542(a)(2) of the Code to include certain entities).
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor provisions thereto.
(d) "Distribution Requirement" means the requirement under Section 857(a)(1) of the Code that a REIT distribute dividends (other than capital gain dividends) to its shareholders in an amount at least equal to ninety percent (90%) of the REIT's REIT Taxable Income (as adjusted) for the taxable year, determined without regard to the deduction for dividends paid and excluding any net capital gain.
(e) "Gross Income Tests" means the seventy-five percent (75%) gross income test under Section 856(c)(2) of the Code and the ninety-five percent (95%) gross income test under Section 856(c)(3) of the Code.
(f) "Impermissible Tenant Service Income" means income described in Section 856(d)(7) of the Code, which generally includes income attributable to the provision of services to tenants of a REIT's property (or to the management or operation of a REIT's property) that are not "usually or customarily rendered" in connection with the rental of space for occupancy only and are not rendered through a taxable REIT subsidiary or an independent contractor from whom the REIT derives no income.
(g) "Prohibited Transaction" means a transaction described in Section 857(b)(6) of the Code, generally including the sale or other disposition of property described in Section 1221(a)(1) of the Code (i.e., property held primarily for sale to customers in the ordinary course of a trade or business) that is not a "foreclosure property" (as defined in Section 856(e) of the Code) and that does not satisfy the safe harbor requirements set forth in Section 857(b)(6)(C) of the Code.
(h) "Qualifying REIT Income" means income that constitutes qualifying income for purposes of either or both of the Gross Income Tests, including, without limitation, (i) rents from real property (as defined in Section 856(d) of the Code), (ii) interest on obligations secured by mortgages on real property, (iii) gain from the sale or other disposition of real property that is not property described in Section 1221(a)(1) of the Code, (iv) dividends or other distributions on, and gain from the sale of, shares in other REITs, (v) abatements and refunds of taxes on real property, (vi) income and gain derived from foreclosure property, and (vii) such other items of income as may qualify under Section 856(c)(2) or Section 856(c)(3) of the Code, as applicable.
(i) "REIT Requirements" means all requirements of Sections 856 through 860 of the Code (and any applicable Treasury Regulations promulgated thereunder) that must be satisfied for Fairwater REIT to qualify and maintain its status as a real estate investment trust under the Code, including, without limitation, the Gross Income Tests, the Asset Tests, the Distribution Requirement, the Closely Held Test, the organizational requirements of Section 856(a) of the Code, and any other requirement imposed by the Code or Treasury Regulations on entities qualifying as REITs.
(j) "REIT Taxable Income" means the taxable income of Fairwater REIT determined under Section 857(b)(2) of the Code, including Fairwater REIT's allocable share of income, gain, deduction, and loss from the Company (as determined under the Operating Agreement and applicable provisions of the Code and Treasury Regulations), computed without regard to the deduction for dividends paid and excluding any net capital gain.
(k) "Treasury Regulations" means the temporary and final regulations promulgated under the Code by the United States Department of the Treasury, as such regulations may be amended from time to time.
SECTION 2: PRESCOTT COVENANTS REGARDING REIT INCOME TESTS
2.1 General Covenant. Prescott Investor covenants and agrees that it shall not, and shall not cause, direct, or permit the Company to, take any action or enter into any transaction that Prescott Investor knows, or reasonably should know, would cause the Company to derive income that does not constitute Qualifying REIT Income, to the extent that such income, when allocated to Fairwater Manager (and through Fairwater Manager to Fairwater REIT in its capacity as the sole member of Fairwater Manager), would cause Fairwater REIT to fail to satisfy either the seventy-five percent (75%) Gross Income Test under Section 856(c)(2) of the Code or the ninety-five percent (95%) Gross Income Test under Section 856(c)(3) of the Code. This covenant shall apply to all actions taken by, or at the direction of, Prescott Investor, whether in its capacity as a member of the Company, a designee on any committee established under the Operating Agreement, or in any other capacity in which Prescott Investor has the ability to influence the operations or activities of the Company.
2.2 Specific Prohibitions. Without limiting the generality of Section 2.1 above, Prescott Investor agrees that it shall not cause, direct, or permit the Company to:
(a) enter into any lease, license, management agreement, or other arrangement for the provision of services to tenants of the Project that would give rise to Impermissible Tenant Service Income within the meaning of Section 856(d)(7) of the Code, unless and to the extent such services are provided (i) through a taxable REIT subsidiary of Fairwater REIT (a "TRS"), or (ii) through an independent contractor (as defined in Section 856(d)(3) of the Code) from whom the Company and Fairwater REIT derive no income, in each case in compliance with Section 856(d)(7)(C) of the Code and applicable Treasury Regulations;
(b) acquire or hold, through the Company or any subsidiary thereof, any asset or security that would cause Fairwater REIT's pro rata share of the Company's assets to fail to satisfy any of the Asset Tests under Section 856(c)(4) of the Code at the close of any calendar quarter, including, without limitation, (i) securities of any single issuer representing more than five percent (5%) of the value of Fairwater REIT's total assets or more than ten percent (10%) of the total voting power or value of such issuer's outstanding securities, or (ii) non-real estate assets that would cause less than seventy-five percent (75%) of the value of Fairwater REIT's total assets to consist of real estate assets, cash and cash items, and government securities;
(c) engage in dealer activities or other transactions with respect to Company assets that would constitute a Prohibited Transaction, or that would be treated as the sale or other disposition of property described in Section 1221(a)(1) of the Code, unless such disposition satisfies the safe harbor requirements of Section 857(b)(6)(C) of the Code or Fairwater Manager has provided its prior written consent to such disposition after consultation with Fairwater REIT's tax advisors; or
(d) enter into any lease, sublease, or other arrangement with a "related person" (as defined in Section 856(d)(2)(B) of the Code) if such arrangement would cause rents received by the Company from such person to fail to qualify as "rents from real property" under Section 856(d) of the Code, including, without limitation, any arrangement where rent is based, in whole or in part, on the income or profits of any person, except to the extent permitted under Section 856(d)(2)(A) of the Code.
2.3 Consent Right. To the extent any proposed action by the Company or any member thereof could reasonably be expected to affect Fairwater REIT's ability to satisfy any of the REIT Requirements, Fairwater Manager shall have the right to withhold its consent to such action in its sole and absolute discretion, and such withholding of consent shall not constitute a breach of the Operating Agreement, this Side Letter, the JV Agreement, or any fiduciary or other duty (contractual or otherwise) owed by Fairwater Manager to Prescott Investor, the Company, or any other person. In exercising such consent right, Fairwater Manager shall act in good faith and shall use commercially reasonable efforts to propose an alternative structure or course of action that achieves the economic objectives of the proposed action while preserving Fairwater REIT's REIT qualification, to the extent such an alternative structure is reasonably available.
2.4 Good Faith Determination. In the event of a bona fide dispute between the Parties regarding whether a proposed action by the Company or any member thereof would adversely affect Fairwater REIT's qualification as a REIT under the Code, the Parties shall submit such dispute to Alderman & Fields, CPAs, LLP, or, if Alderman & Fields, CPAs, LLP is unable or unwilling to serve in such capacity, to another nationally recognized independent accounting firm mutually acceptable to the Parties (such firm, the "Independent Tax Advisor"), for a written opinion as to whether such proposed action would, if consummated, reasonably be expected to cause Fairwater REIT to fail to satisfy any of the REIT Requirements. The cost and expense of obtaining such opinion shall be borne by the Company as an operating expense. The determination of the Independent Tax Advisor shall be final and binding upon the Parties, absent manifest error. Each Party shall cooperate with the Independent Tax Advisor and shall provide such information as the Independent Tax Advisor may reasonably request in connection with its analysis. If the Independent Tax Advisor determines that the proposed action would not reasonably be expected to cause Fairwater REIT to fail to satisfy the REIT Requirements, Fairwater Manager shall not unreasonably withhold its consent to such action.
SECTION 3: CLOSELY HELD PROTECTIONS
3.1 Prescott Investor Representation. Prescott Investor represents and warrants to Fairwater Manager and to Fairwater REIT, as of the date hereof, that: (a) Prescott Investor is not, and no direct or indirect beneficial owner of Prescott Investor is, an "individual" (within the meaning of Section 542(a)(2) of the Code, which includes certain trusts, private foundations, and other entities treated as individuals for purposes of such provision) who would be treated as owning, directly or through the constructive ownership rules of Section 544 of the Code (as modified by Section 856(h) of the Code), shares of beneficial interest of Fairwater REIT such that Fairwater REIT would be "closely held" within the meaning of Section 856(h) of the Code; and (b) to the best of Prescott Investor's knowledge, after reasonable inquiry, no direct or indirect beneficial owner of Prescott Capital Partners, LP or Prescott Capital GP, LLC owns, directly or through attribution under Section 544 of the Code, any shares of beneficial interest of Fairwater REIT.
3.2 Ongoing Covenant. Prescott Investor agrees that, during the term of this Side Letter, it shall not, and shall cause its direct and indirect beneficial owners not to, directly or indirectly, acquire beneficial ownership of any shares of beneficial interest of Fairwater REIT (NYSE: FWT), including common shares, preferred shares, or any other equity securities, if such acquisition, when combined with any existing beneficial ownership (determined with application of the constructive ownership rules of Section 544 of the Code, as modified by Section 856(h) of the Code), would cause Fairwater REIT to be "closely held" under Section 856(h) of the Code. Prescott Investor shall use commercially reasonable efforts to inform its direct and indirect beneficial owners of the restrictions set forth in this Section 3.2.
3.3 Transfer Restrictions. Prescott Investor shall not sell, assign, transfer, pledge, encumber, or otherwise dispose of (collectively, "Transfer") all or any portion of its membership interest in the Company to any person or entity if such Transfer would, directly or through the constructive ownership rules of Section 544 of the Code (as modified by Section 856(h) of the Code), cause Fairwater REIT to be "closely held" under Section 856(h) of the Code. Any purported Transfer in violation of this Section 3.3 shall be void ab initio and of no force or effect, and neither the Company nor Fairwater Manager shall be required to recognize or give effect to such purported Transfer. This restriction is in addition to, and not in limitation of, any transfer restrictions set forth in the Operating Agreement.
3.4 Information Rights. Prescott Investor shall promptly provide to Fairwater Manager, upon written request delivered in accordance with the notice provisions of Section 12.5 of this Side Letter (such request not to be made more than twice per calendar year unless Fairwater Manager reasonably believes that circumstances have changed since the most recent request), such information regarding the ownership structure of Prescott Investor, Prescott Capital Partners, LP, and Prescott Capital GP, LLC as is reasonably necessary for Fairwater REIT to determine compliance with the Closely Held Test and applicable Treasury Regulations, including, without limitation, information regarding (a) the identity and ownership percentage of each limited partner holding a five percent (5%) or greater interest in Prescott Capital Partners, LP, (b) the identity and ownership percentage of each member of Prescott Capital GP, LLC, and (c) to the extent known to Prescott Investor after reasonable inquiry, whether any such person owns shares of beneficial interest of Fairwater REIT. Prescott Investor shall provide such information within thirty (30) days of receipt of any such written request. Any information provided pursuant to this Section 3.4 shall be treated as confidential information in accordance with the confidentiality provisions of the Operating Agreement.
SECTION 4: GROSS INCOME TESTING COOPERATION
4.1 Cooperation Obligation. Prescott Investor shall cooperate in good faith with Fairwater Manager to ensure that the Company's income satisfies the Gross Income Tests applicable to Fairwater REIT. Without limiting the generality of the foregoing, Prescott Investor shall:
(a) provide to Fairwater Manager, within thirty (30) days after the end of each calendar quarter, such information regarding the Company's income for such quarter as Fairwater Manager or its tax advisors may reasonably request, in such detail and format as is reasonably necessary to enable Fairwater Manager to determine whether the Company's income, when allocated to Fairwater REIT, satisfies the Gross Income Tests, including a breakdown of income by category (rents from real property, interest, gain from disposition of real property, fees, and other income);
(b) cooperate with respect to any restructuring of the Company's activities, operations, or investments that Fairwater Manager reasonably determines to be necessary to ensure compliance with the Gross Income Tests, including, without limitation, the establishment of taxable REIT subsidiaries, the engagement of independent contractors, or the modification of tenant service arrangements; provided, however, that any such restructuring shall not be required to the extent it would materially and adversely affect Prescott Investor's economic interest in the Company (including Prescott Investor's right to receive distributions under the distribution waterfall provisions of the Operating Agreement or its capital account balance), unless Prescott Investor consents in writing to such restructuring; and
(c) execute such documents and instruments, and provide such certificates, representations, questionnaires, or other information, as may be required by the Internal Revenue Service or as may be reasonably requested by Fairwater REIT's independent auditors or tax counsel (including, as of the date hereof, Alderman & Fields, CPAs, LLP, as the Company's accountant, and Calderwood & Harkness LLP, as counsel to Fairwater Manager) in connection with Fairwater REIT's compliance with the REIT Requirements.
4.2 Annual Compliance Certificate. The Company, acting through Fairwater Manager in its capacity as Managing Member, shall cause Alderman & Fields, CPAs, LLP (the Company's accountant and tax return preparer) to prepare and deliver to both Fairwater Manager and Prescott Investor, annually, within ninety (90) days after the end of each fiscal year of the Company, a schedule (the "Annual REIT Income Schedule") analyzing the Company's gross income for such fiscal year under the categories set forth in Section 856(c)(2) and Section 856(c)(3) of the Code. The Annual REIT Income Schedule shall include: (i) a detailed categorization of the Company's gross income into Qualifying REIT Income and non-qualifying income; (ii) a calculation of Fairwater REIT's pro rata share of each such category of income; and (iii) a determination of whether the Company's income, as allocated to Fairwater REIT, would satisfy or fail to satisfy each of the Gross Income Tests. The cost and expense of preparing the Annual REIT Income Schedule shall be borne by the Company as an operating expense.
4.3 Advance Notice of Transactions. Prescott Investor shall give Fairwater Manager not less than fifteen (15) business days' prior written notice before causing, directing, or consenting to the Company entering into any transaction outside the ordinary course of the Company's business that could reasonably be expected to generate income that is not Qualifying REIT Income, including, without limitation, (a) the disposition of any real property or interest therein, (b) the provision of services to tenants or third parties, (c) the acquisition of non-real estate assets, (d) the entry into any hedging or derivative transaction, or (e) the making of any loan or extension of credit. Such notice shall describe the proposed transaction in reasonable detail, including the nature and estimated amount of income expected to be derived therefrom, to allow Fairwater Manager sufficient opportunity to evaluate the impact of such transaction on Fairwater REIT's Gross Income Tests and to exercise its consent rights under Section 2.3 of this Side Letter.
SECTION 5: ASSET TEST COMPLIANCE
5.1 Company Assets. Fairwater Manager, in its capacity as Managing Member, shall use commercially reasonable efforts to ensure that the Company's assets, as allocated to Fairwater REIT through its indirect ownership interest in the Company (through Fairwater HP Manager, LLC), satisfy the Asset Tests under Section 856(c)(4) of the Code at the close of each calendar quarter and at all other applicable testing dates. In furtherance of this obligation, Fairwater Manager shall (a) monitor the composition of the Company's assets on an ongoing basis, (b) consult with the Company's accountant (Alderman & Fields, CPAs, LLP) and Fairwater REIT's tax counsel regarding the classification of Company assets for purposes of the Asset Tests, and (c) take such corrective actions as may be reasonably necessary to bring the Company's asset composition into compliance with the Asset Tests, including the disposition or restructuring of any non-qualifying assets.
5.2 Prescott Cooperation. Prescott Investor shall not cause, direct, or consent to the Company acquiring, holding, or retaining any asset or security that would cause Fairwater REIT's pro rata share of the Company's assets to fail any of the Asset Tests under Section 856(c)(4) of the Code. Without limiting the generality of the foregoing, Prescott Investor acknowledges that the Asset Tests require, among other things, that at least seventy-five percent (75%) of the value of a REIT's total assets consist of real estate assets (as defined in Section 856(c)(5)(B) of the Code), cash and cash items (including receivables), and government securities, and that the Company's primary asset — the Project — constitutes a "real estate asset" for purposes of the Asset Tests. Prescott Investor shall cooperate with Fairwater Manager in structuring any proposed investment, acquisition, or other transaction involving the Company's assets to ensure continued compliance with the Asset Tests.
5.3 Quarterly Reporting. Fairwater Manager shall provide Prescott Investor with a summary, within forty-five (45) days after the end of each calendar quarter, of the Company's asset composition for purposes of the Asset Tests, including (a) the aggregate value of the Company's real estate assets, (b) the aggregate value of the Company's cash and cash items and government securities, and (c) the aggregate value of any other assets held by the Company, in each case as of the close of such calendar quarter. Such summary shall be provided to the extent such information is relevant to actions requiring Prescott Investor's consent under the Operating Agreement or to Prescott Investor's obligations under this Side Letter.
SECTION 6: MANDATORY DISTRIBUTION OF REIT TAXABLE INCOME
6.1 Forced Distribution Right. Notwithstanding anything to the contrary in the Operating Agreement, the JV Agreement, or any other agreement among the Parties (including, without limitation, any provisions of the Operating Agreement relating to reinvestment of cash flow, establishment of reserves, or restrictions on distributions), Fairwater Manager shall have the right, upon written notice to Prescott Investor delivered in accordance with the notice provisions of Section 12.5 of this Side Letter, to cause the Company to distribute to Fairwater Manager an amount not less than one hundred percent (100%) of the REIT Taxable Income of Fairwater REIT that is attributable to Fairwater REIT's indirect interest in the Company for such taxable year (the "REIT Distribution Amount"), to the extent of available cash of the Company or, if available cash is insufficient to satisfy the full REIT Distribution Amount, from the first available cash of the Company thereafter.
The purpose of this forced distribution right is to enable Fairwater REIT to satisfy the Distribution Requirement under Section 857(a)(1) of the Code, which requires a REIT to distribute to its shareholders, as dividends, at least ninety percent (90%) of the REIT's REIT Taxable Income (as adjusted) for each taxable year, and to avoid the imposition of the four percent (4%) excise tax under Section 4981 of the Code on undistributed REIT income. The Parties acknowledge that Fairwater REIT's ability to make the required distributions to its shareholders is dependent, in substantial part, upon Fairwater REIT's receipt of distributions from the Company through Fairwater Manager.
6.2 Timing. The REIT Distribution Amount shall be distributed by the Company to Fairwater Manager no later than December 31 of the relevant taxable year; provided, however, that if the Company's taxable year has ended but the Company's federal income tax return (IRS Form 1065) has not yet been filed and the final amount of REIT Taxable Income attributable to Fairwater REIT's interest in the Company has not yet been determined, the Company shall distribute the estimated REIT Distribution Amount by December 31 and shall make any required true-up distribution in accordance with Section 6.3 below. Fairwater Manager shall notify Prescott Investor in writing of the estimated REIT Distribution Amount not less than thirty (30) days before the required distribution date, together with a reasonable explanation of the basis for such estimate, including the assumptions and calculations used to determine the estimate.
6.3 True-Up. If the actual REIT Taxable Income attributable to Fairwater REIT's indirect interest in the Company for any taxable year, as finally determined upon completion of the Company's partnership tax return (IRS Form 1065) by Alderman & Fields, CPAs, LLP (or upon the conclusion of any audit or other adjustment proceedings), differs from the estimated REIT Distribution Amount previously distributed to Fairwater Manager pursuant to Section 6.2 above, the following true-up mechanism shall apply:
(a) Underdistribution. If the actual REIT Taxable Income attributable to Fairwater REIT's interest in the Company exceeds the estimated REIT Distribution Amount previously distributed, the Company shall make a supplemental distribution to Fairwater Manager in an amount equal to such excess within thirty (30) days of the date on which such actual amount is finally determined, to the extent of available cash of the Company. If available cash is insufficient to fund such supplemental distribution in full, the Company shall distribute the available cash and shall distribute the remaining balance from the first available cash of the Company thereafter.
(b) Overdistribution. If the actual REIT Taxable Income attributable to Fairwater REIT's interest in the Company is less than the estimated REIT Distribution Amount previously distributed, the excess amount distributed to Fairwater Manager shall, at Fairwater Manager's election (exercised by written notice to Prescott Investor within fifteen (15) days of the date on which such actual amount is finally determined), be treated as either (i) an advance on future distributions otherwise payable to Fairwater Manager under the Operating Agreement, which shall be credited against the next succeeding distribution(s) otherwise payable to Fairwater Manager, or (ii) returned by Fairwater Manager to the Company within thirty (30) days of such election.
6.4 Corresponding Distribution to Prescott Investor. To the extent any distribution is made to Fairwater Manager pursuant to this Section 6, a corresponding pro rata distribution shall be made simultaneously to Prescott Investor in accordance with the respective membership interest percentages of the members (i.e., thirty percent (30%) to Fairwater Manager and seventy percent (70%) to Prescott Investor), so that the relative economic positions of the members are not disproportionately affected by distributions made pursuant to this Section 6; provided, however, that Prescott Investor may elect, by written notice delivered to Fairwater Manager not less than ten (10) days prior to the applicable distribution date, to waive its right to receive all or any portion of such corresponding distribution, in which case the Company shall retain the amount of the waived distribution as working capital or reserves.
6.5 No Impairment of Waterfall. Distributions made pursuant to this Section 6 shall be treated as advances against, and shall be credited to, distributions otherwise payable to the members under the distribution waterfall provisions of the Operating Agreement (including the provisions providing for return of capital contributions, the nine percent (9.0%) preferred return compounded quarterly, the sixty/forty (60/40) catch-up tranche, and the base twenty/eighty (20/80) and second-tier thirty/seventy (30/70) residual split tranches), and shall not alter, amend, or impair the economic terms of the distribution waterfall set forth in the Operating Agreement. For the avoidance of doubt, distributions made pursuant to this Section 6 shall reduce the amounts otherwise distributable to the members at each applicable tier of the distribution waterfall in the same manner as any other interim distribution made by the Company under the Operating Agreement.
SECTION 7: PROHIBITED TRANSACTION SAFE HARBOR
7.1 Safe Harbor Compliance. The Company and each member shall use commercially reasonable efforts to ensure that any sale, exchange, or other disposition of Company assets (including the Project or any portion thereof) complies with the safe harbor for prohibited transactions set forth in Section 857(b)(6)(C) of the Code, to the extent reasonably necessary to avoid the imposition of the one hundred percent (100%) prohibited transaction tax under Section 857(b)(6)(A) of the Code on Fairwater REIT. The safe harbor requirements include, without limitation: (a) the property must be held for not less than two (2) years (or, in the case of certain property, seven (7) years) prior to disposition; (b) aggregate expenditures made during the two-year period preceding the date of disposition that are includible in the basis of the property must not exceed thirty percent (30%) of the net selling price of the property; (c) the REIT must not have made more than seven (7) sales of property (other than sales of foreclosure property and involuntary conversions) during the taxable year; or (d) the aggregate adjusted bases of property sold during the taxable year must not exceed ten percent (10%) of the aggregate bases of all the REIT's assets at the beginning of the taxable year; together with such other requirements as may be applicable under Section 857(b)(6)(C) of the Code. The Parties acknowledge that the applicability of the specific safe harbor requirements depends on the particular facts and circumstances of each disposition and agree to consult with the Company's tax advisors in advance of any proposed disposition to determine the applicable safe harbor requirements.
7.2 Prescott Consent and Cooperation. In connection with any proposed disposition of the Project or any portion thereof (including, without limitation, any sale, exchange, contribution, or other transfer of all or substantially all of the Company's assets), Fairwater Manager may structure the transaction to comply with the Prohibited Transaction safe harbor under Section 857(b)(6)(C) of the Code, and Prescott Investor shall reasonably cooperate with such structuring, including by executing such documents, agreements, and instruments as may be reasonably required; provided, however, that such cooperation shall not require Prescott Investor to (a) incur any material additional cost (beyond de minimis administrative costs) that is not reimbursed by the Company, (b) agree to a material delay in the closing of any disposition (in excess of thirty (30) days beyond the originally scheduled closing date), or (c) accept a reduction in the net proceeds otherwise payable to Prescott Investor in connection with such disposition.
7.3 Disposition Fee. For the avoidance of doubt, the disposition fee of one percent (1.0%) of the gross sale price payable to Fairwater Manager under the Operating Agreement in connection with the sale or other disposition of the Project (the "Disposition Fee") shall not be characterized as dealer income, commission income, or other non-qualifying income to Fairwater REIT and shall be structured to comply with applicable REIT requirements. To the extent necessary, the Parties shall cooperate in good faith to structure the Disposition Fee as a fee for services rendered by Fairwater Manager in its capacity as Managing Member, or in such other manner as is consistent with the treatment of such fee as Qualifying REIT Income or otherwise not adverse to Fairwater REIT's REIT qualification.
SECTION 8: TENANT SERVICES AND TAXABLE REIT SUBSIDIARY
8.1 Independent Contractor / TRS Requirement. To the extent the Company provides, or arranges for the provision of, services to tenants of the Project that are not "usually or customarily rendered" in connection with the rental of space for occupancy only within the meaning of Section 856(d)(1)(B) of the Code and applicable Treasury Regulations (including, without limitation, concierge services, valet parking, laundry services, cable or internet services beyond basic connectivity, and any other services that would constitute "impermissible tenant services" if provided directly by the Company), such services shall be provided exclusively through one of the following structures:
(a) an independent contractor (as defined in Section 856(d)(3) of the Code) that is adequately compensated for such services and from whom neither the Company nor Fairwater REIT derives or receives any income, whether directly or indirectly; or
(b) a taxable REIT subsidiary ("TRS") of Fairwater REIT, as defined in Section 856(l) of the Code, that has been duly designated as such pursuant to a joint election filed by Fairwater REIT and such subsidiary under Section 856(l)(1) of the Code, in compliance with the requirements of Section 856(d)(7)(C) of the Code and applicable Treasury Regulations;
in each case such that the provision of such services does not give rise to Impermissible Tenant Service Income to the Company or to Fairwater REIT.
8.2 Approval Right. Fairwater Manager shall have the sole right to determine, in good faith and after consultation with Fairwater REIT's tax advisors, whether any proposed service to be provided to tenants of the Project would constitute a service that is not "usually or customarily rendered" in connection with the rental of space for occupancy only and would therefore give rise to Impermissible Tenant Service Income if provided directly by the Company. In the event Fairwater Manager determines that a proposed service would give rise to Impermissible Tenant Service Income, Fairwater Manager shall have the sole right to direct the manner in which such service is to be provided (whether through an independent contractor, a TRS, or otherwise), subject to any applicable major decision consent requirements set forth in the Operating Agreement. Prescott Investor shall cooperate with Fairwater Manager in implementing any such determination, including by executing such documents and agreements as may be reasonably necessary.
SECTION 9: REPRESENTATIONS AND WARRANTIES
9.1 Fairwater Manager Representations. Fairwater Manager represents and warrants to Prescott Investor, as of the date hereof, as follows:
(a) REIT Status. Fairwater Real Estate Investment Trust is duly organized and validly existing as a real estate investment trust under the laws of the State of Maryland, is in good standing with the Maryland State Department of Assessments and Taxation (SDAT ID: D19847321), and has elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Code, effective for its taxable year ended December 31, 2005, and continuously thereafter through the date hereof.
(b) Continuous REIT Qualification. Fairwater REIT has satisfied all of the REIT Requirements for each taxable year since its initial REIT election through and including its most recently completed taxable year, and, to the best of Fairwater Manager's knowledge, no event or circumstance has occurred that would reasonably be expected to cause Fairwater REIT to fail to satisfy any of the REIT Requirements for the current taxable year.
(c) Entity Status. Fairwater HP Manager, LLC (EIN: 52-2201889) is duly formed, validly existing, and in good standing under the laws of the State of Maryland, and is a disregarded entity for federal income tax purposes within the meaning of Treasury Regulations Section 301.7701-3, with Fairwater Real Estate Investment Trust as its sole member. Fairwater HP Manager, LLC has not elected to be classified as an association taxable as a corporation.
(d) Authority. Fairwater Manager has the requisite power and authority to execute, deliver, and perform its obligations under this Side Letter. The execution, delivery, and performance of this Side Letter by Fairwater Manager have been duly authorized by all necessary action on the part of Fairwater Manager and Fairwater REIT, including authorization by the board of trustees of Fairwater REIT at a duly convened meeting held on December 18, 2025, and this Side Letter constitutes a legal, valid, and binding obligation of Fairwater Manager, enforceable against Fairwater Manager in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity.
9.2 Prescott Investor Representations. Prescott Investor represents and warrants to Fairwater Manager and to Fairwater REIT, as of the date hereof, as follows:
(a) Entity Status. Prescott HP Investor, LLC (EIN: 13-4603217) is duly formed, validly existing, and in good standing under the laws of the State of Delaware, and is a disregarded entity for federal income tax purposes within the meaning of Treasury Regulations Section 301.7701-3, with Prescott Capital Partners, LP (EIN: 13-4587612) as its sole member. Prescott HP Investor, LLC has not elected to be classified as an association taxable as a corporation.
(b) Prescott Structure. Prescott Capital Partners, LP is a limited partnership duly formed, validly existing, and in good standing under the laws of the State of Delaware, with Prescott Capital GP, LLC, a Delaware limited liability company, serving as its sole general partner.
(c) No Closely Held Issue. As of the date hereof, neither Prescott Investor nor any of its direct or indirect beneficial owners (including any partner of Prescott Capital Partners, LP or any member of Prescott Capital GP, LLC) holds, beneficially or of record, any shares of beneficial interest of Fairwater REIT (whether common shares, preferred shares, or any other class or series of equity securities). Prescott Investor is not aware of any fact, circumstance, or arrangement that would cause Fairwater REIT to be "closely held" within the meaning of Section 856(h) of the Code as a result of the transactions contemplated by the Operating Agreement, this Side Letter, or any of the related documents described in Recital G.
(d) Authority. Prescott Investor has the requisite power and authority to execute, deliver, and perform its obligations under this Side Letter. The execution, delivery, and performance of this Side Letter by Prescott Investor have been duly authorized by all necessary action on the part of Prescott Investor, Prescott Capital Partners, LP, and Prescott Capital GP, LLC, and this Side Letter constitutes a legal, valid, and binding obligation of Prescott Investor, enforceable against Prescott Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the enforcement of creditors' rights generally and to general principles of equity.
SECTION 10: REMEDIES
10.1 Breach by Prescott Investor. If Prescott Investor breaches any covenant, agreement, representation, or warranty under this Side Letter and such breach causes, or would reasonably be expected to cause, Fairwater REIT to fail to satisfy any of the REIT Requirements (including, without limitation, the Gross Income Tests, the Asset Tests, the Distribution Requirement, or the Closely Held Test), then:
(a) Indemnification. Prescott Investor shall indemnify, defend, and hold harmless Fairwater REIT, Fairwater Manager, and their respective affiliates, officers, directors, trustees, employees, and agents (collectively, the "Fairwater Indemnified Parties") from and against any and all losses, damages, liabilities, taxes (including, without limitation, any excise tax imposed under Section 4981 of the Code on undistributed REIT income, any entity-level tax imposed under Section 857(b)(1) of the Code on REIT taxable income not distributed, any tax imposed under Section 857(b)(5) of the Code on income from foreclosure property, and any one hundred percent (100%) prohibited transaction tax imposed under Section 857(b)(6)(A) of the Code), penalties, interest, and expenses (including reasonable attorneys' fees, accountants' fees, and other professional fees and disbursements) actually incurred by any Fairwater Indemnified Party as a result of, or arising out of, such failure of Fairwater REIT to satisfy the REIT Requirements.
(b) Remedial Actions. Fairwater Manager shall have the right, but not the obligation, to take such remedial actions as are reasonably necessary to cure or mitigate the effects of such failure of Fairwater REIT to satisfy the REIT Requirements, at Prescott Investor's sole cost and expense. Such remedial actions may include, without limitation, (i) restructuring the Company's operations, activities, or investments, (ii) causing the Company to dispose of non-qualifying assets, (iii) causing the Company to terminate or modify leases, service agreements, or other arrangements that give rise to non-qualifying income, and (iv) causing the Company to make distributions to Fairwater Manager in amounts necessary to satisfy the Distribution Requirement. Fairwater Manager shall give Prescott Investor reasonable prior notice of any such remedial action and shall use commercially reasonable efforts to minimize any adverse impact on Prescott Investor's economic interest in the Company, but Fairwater Manager shall not be required to obtain Prescott Investor's consent before taking any remedial action that Fairwater Manager reasonably determines to be necessary to prevent or cure a failure of Fairwater REIT to satisfy the REIT Requirements.
10.2 Specific Performance. The Parties acknowledge and agree that the covenants, agreements, and obligations set forth in this Side Letter are of a special and unique nature, that Fairwater REIT's continued qualification as a REIT is of critical importance to Fairwater REIT and its shareholders, and that a breach by Prescott Investor of any covenant or agreement under this Side Letter would cause irreparable harm to Fairwater REIT for which monetary damages may be an inadequate remedy. Accordingly, Fairwater Manager (on behalf of itself and Fairwater REIT) shall be entitled to seek and obtain specific performance of the covenants and agreements contained in this Side Letter, as well as temporary, preliminary, and permanent injunctive relief, in addition to any other remedies available at law or in equity, without the necessity of posting any bond or other security and without the need to prove actual damages or the inadequacy of monetary damages.
10.3 Limitation on Prescott Investor Liability. Notwithstanding anything to the contrary in this Side Letter, Prescott Investor shall not be liable under Section 10.1 or otherwise for any failure of Fairwater REIT to satisfy any of the REIT Requirements to the extent such failure is attributable solely to: (a) actions or omissions of Fairwater REIT, Fairwater Manager, or any of their respective affiliates (other than actions or omissions directed by Prescott Investor or taken at Prescott Investor's request); (b) a failure of Fairwater REIT to satisfy the REIT Requirements with respect to income, assets, or activities unrelated to the Company; or (c) changes in the Code, Treasury Regulations, or official published guidance of the Internal Revenue Service occurring after the date hereof that could not have been reasonably anticipated by Prescott Investor as of the date hereof. The burden of proof with respect to any defense raised by Prescott Investor under this Section 10.3 shall rest with Prescott Investor.
SECTION 11: TAX MATTERS COORDINATION
11.1 Partnership Representative. As set forth in the Operating Agreement and the Tax Protection Agreement, Fairwater HP Manager, LLC serves as the "partnership representative" (within the meaning of Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015) of the Company. In its capacity as partnership representative, Fairwater HP Manager, LLC shall have the authority and responsibility to act on behalf of the Company in connection with any federal income tax audit, examination, or other administrative or judicial proceeding involving the Company, subject to the rights and obligations of the parties as set forth in the Operating Agreement and the Tax Protection Agreement. Prescott Investor acknowledges and consents to the designation of Fairwater HP Manager, LLC as partnership representative and agrees to cooperate in good faith with Fairwater HP Manager, LLC in connection with any such proceeding.
11.2 Coordination with Tax Protection Agreement. This Side Letter is intended to supplement, and shall be read in conjunction with, the Tax Protection Agreement of even date herewith among the Company, Fairwater Manager, and Prescott Investor. The provisions of this Side Letter and the Tax Protection Agreement are intended to be complementary and mutually reinforcing. In the event of any conflict or inconsistency between the provisions of this Side Letter and the provisions of the Tax Protection Agreement with respect to any matter relating to Fairwater REIT's qualification as a REIT under the Code or the preservation of Fairwater REIT's REIT status, the provisions of this Side Letter shall control and govern. In all other respects, the Tax Protection Agreement shall remain in full force and effect in accordance with its terms.
11.3 Tax Elections. The Company shall make (or refrain from making) such tax elections as are reasonably requested by Fairwater Manager to preserve Fairwater REIT's qualification as a REIT under the Code, including, without limitation, elections under Section 754 of the Code, elections with respect to depreciation methods and recovery periods, and elections with respect to Maryland pass-through entity taxes (including any election under the Maryland Pass-Through Entity Tax provisions of the Annotated Code of Maryland, Tax-General Article, Section 10-102.1, or any successor provision); provided, however, that (a) Fairwater Manager shall give Prescott Investor reasonable prior notice of any such requested election (not less than fifteen (15) business days' prior written notice, unless a shorter notice period is required due to a filing deadline), (b) Fairwater Manager shall provide a reasonable explanation of the purpose and expected tax consequences of such election, and (c) the Company shall not be required to make any election that would materially and adversely affect Prescott Investor's after-tax returns from the Company, as reasonably determined by Prescott Investor in consultation with its own tax advisors, unless Fairwater Manager demonstrates that such election is necessary to preserve Fairwater REIT's REIT qualification and there is no reasonably available alternative that would achieve the same objective without such material adverse effect on Prescott Investor.
SECTION 12: MISCELLANEOUS
12.1 Governing Law. This Side Letter shall be governed by and construed in accordance with the laws of the State of Maryland, without regard to the conflict of laws principles thereof that would result in the application of the laws of any other jurisdiction. The foregoing choice of law is consistent with the governing law provision of the Operating Agreement. Each Party irrevocably submits to the exclusive jurisdiction of the state and federal courts located in Baltimore City, Maryland for the adjudication of any dispute arising out of or relating to this Side Letter.
12.2 Entire Agreement. This Side Letter, together with the Operating Agreement, the JV Agreement, the Tax Protection Agreement, and the Capital Contribution Agreement (and any exhibits, schedules, or annexes thereto), constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior negotiations, discussions, correspondence, and agreements (whether written or oral) among the Parties relating to the subject matter hereof. No representation, warranty, covenant, or agreement not expressly set forth herein or in the foregoing documents shall be binding upon or enforceable against any Party.
12.3 Amendments. This Side Letter may not be amended, supplemented, modified, or waived except by a written instrument duly executed by both Parties. No oral amendment, modification, or waiver shall be effective for any purpose. Any amendment to this Side Letter that would adversely affect the rights of Fairwater REIT as an intended third-party beneficiary under Section 12.8 shall require the prior written consent of Fairwater REIT.
12.4 Successors and Assigns. This Side Letter shall be binding upon and shall inure to the benefit of the Parties and their respective successors, heirs, legal representatives, and permitted assigns. No Party may assign its rights or obligations under this Side Letter to any person without the prior written consent of the other Party, which consent may be withheld in such other Party's sole discretion; provided, however, that Fairwater Manager may assign its rights and obligations under this Side Letter to any successor Managing Member of the Company that is a direct or indirect subsidiary of Fairwater REIT without Prescott Investor's consent, and Prescott Investor may assign its rights and obligations under this Side Letter in connection with a permitted transfer of its membership interest in the Company under the Operating Agreement, so long as such assignee assumes in writing all of Prescott Investor's obligations under this Side Letter. Any purported assignment in violation of this Section 12.4 shall be void and of no force or effect.
12.5 Notices. All notices, requests, demands, consents, waivers, and other communications under this Side Letter shall be in writing and shall be deemed to have been duly given if (a) delivered by hand (with written confirmation of receipt), (b) sent by nationally recognized overnight courier (with tracking confirmation), (c) sent by registered or certified mail (return receipt requested, postage prepaid), or (d) transmitted by electronic mail (with confirmation of receipt), to the Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12.5):
If to Fairwater Manager:
Fairwater HP Manager, LLC c/o Fairwater Real Estate Investment Trust 7200 Pratt Street, Suite 1400 Baltimore, MD 21202
Attention: Theresa M. Calloway, General Counsel
Email: tcalloway@fairwaterreit.com
with a copy (which shall not constitute notice) to:
Calderwood & Harkness LLP 100 International Drive, Suite 2600 Baltimore, MD 21202
Attention: Douglas Fairchild
Email: dfairchild@calderwoodharkness.com
If to Prescott Investor:
Prescott HP Investor, LLC c/o Prescott Capital Partners, LP 400 Lexington Avenue, 32nd Floor New York, NY 10170
Attention: Andrew M. Castellano
Email: acastellano@prescottcapital.com
with a copy (which shall not constitute notice) to:
Whitmore, Calder & Briggs LLP 51 West 52nd Street New York, NY 10019
Attention: Samuel T. Briggs III
Email: sbriggs@whitmorecalder.com
Notices delivered by hand or by overnight courier shall be deemed given upon receipt. Notices sent by registered or certified mail shall be deemed given on the fifth (5th) business day after deposit in the United States mail. Notices transmitted by electronic mail shall be deemed given upon confirmation of receipt by the recipient.
12.6 Counterparts. This Side Letter may be executed in any number of counterparts (including by means of electronic signature or facsimile), each of which shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same instrument. Signatures delivered by facsimile or by electronic transmission in portable document format (PDF) shall have the same force and effect as original signatures.
12.7 Severability. If any provision of this Side Letter, or the application of any such provision to any person or circumstance, shall be held invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provision of this Side Letter, and the remaining provisions shall continue in full force and effect; provided, however, that the Parties shall negotiate in good faith to replace any such invalid, illegal, or unenforceable provision with a valid, legal, and enforceable provision that, to the greatest extent possible, achieves the intended economic and legal effect of the invalid, illegal, or