1036-00006 · Client 1036 · Correspondence

status-update-letter-to-client.docx DOCUMENT M&A / Corporate

6 / 12 ← → ✕

CALDERWOOD & HARKNESS LLP Attorneys at Law

1750 K Street NW, Suite 900 Washington, DC 20006

Telephone: (202) 554-8100 Facsimile: (202) 554-8101 www.calderwoodharkness.com

October 1, 2025

VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL

Anita Bashar Reeves, Esq. General Counsel Fairwater Real Estate Investment Trust 2400 Harbor Promenade, Suite 1100 Baltimore, MD 21202

Re: Status Update — Private Letter Ruling Request Regarding REIT Qualification in Connection with Proposed Acquisition of the Southgate Portfolio

Matter No.: 1036-00006

Client EIN Reference: 52-4718263

Dear Ms. Reeves:

1. Purpose and Introduction

We write to provide Fairwater Real Estate Investment Trust ("Fairwater" or the "Trust," EIN 52-4718263) with a comprehensive status update on the private letter ruling request that Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") has submitted to the Internal Revenue Service ("IRS") National Office on behalf of the Trust. As of the date of this letter, October 1, 2025, the matter has been opened and is currently in closing status, meaning the submission has been finalized and shipped to the IRS, and the Firm is awaiting formal acknowledgment of receipt from the IRS National Office.

As you know, this engagement was initiated pursuant to the engagement letter dated July 14, 2025, executed on behalf of Fairwater by Jonathan M. Hirota, Vice President, Tax, and countersigned by the undersigned on behalf of Calderwood & Harkness. The scope of the engagement, as set forth therein, encompasses the preparation and submission of a private letter ruling request to the IRS regarding Fairwater's continued qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with two interrelated transactions: (a) the proposed acquisition by Fairwater of the Southgate Portfolio — consisting of eleven mixed-use properties totaling approximately 3.1 million rentable square feet — from Thornfield Development Group, LLC, for an aggregate purchase price of approximately $812 million (the "Acquisition"); and (b) the related formation and capitalization of a new taxable REIT subsidiary, Fairwater Southgate TRS, Inc. (the "TRS"), which will serve as the operating lessee of certain of the Southgate Portfolio properties pursuant to intercompany lease arrangements.

This letter summarizes the submission that has been made, recapitulates the rulings requested, outlines the anticipated IRS processing timeline and next steps, provides an update on engagement economics and fee status, and addresses communication protocols going forward. We encourage you to review this letter carefully and to share it with the members of your team who are involved in the Acquisition and related REIT qualification matters.

2. Summary of Submission

We are pleased to confirm that the private letter ruling request was finalized and submitted to the IRS National Office, Associate Chief Counsel (Income Tax & Accounting), at 1111 Constitution Avenue NW, Washington, DC 20224, on September 22, 2025. The submission package was shipped via Severin Partners LLC overnight delivery service under Severin Partners LLC tracking number 7749-2281-3364. Based on tracking information available to us, delivery was expected and is believed to have been confirmed on September 23, 2025, one business day following shipment.

The submission package was comprehensive and included the following materials:

1. Signed Private Letter Ruling Request. The signed ruling request letter, which incorporated the required penalties-of-perjury declaration as mandated by Revenue Procedure 2025-1. The ruling request set forth in detail the relevant facts, proposed transactions, applicable legal authorities, and the specific rulings sought by Fairwater.

2. IRS Form 2848 — Power of Attorney and Declaration of Representative. A properly executed IRS Form 2848 was included, signed by Jonathan M. Hirota, Vice President, Tax, on behalf of Fairwater, designating the following individuals as Fairwater's authorized representatives before the IRS in connection with this ruling request:

• Sylvia Hartwell, Partner, Calderwood & Harkness LLP (PTIN: P01882447)

• Garrett Simmons, Associate, Calderwood & Harkness LLP (PTIN: P02094518)

3. IRS User Fee Payment. The applicable IRS user fee of $38,000 — corresponding to Category 2 (Specific Issues) under Revenue Procedure 2025-1, Appendix A — was submitted with the ruling request. Payment was made by check drawn on Ridgeline National Bank, N.A., check number 00471826, payable to "United States Treasury."

4. Supporting Exhibits. The submission package included a number of supporting exhibits intended to facilitate the IRS's review of the ruling request, specifically:

• An organizational chart depicting Fairwater's current corporate structure and the anticipated post-Acquisition structure, including the position of Fairwater Southgate TRS, Inc. within the overall organizational hierarchy;

• A copy of Fairwater's Articles of Trust, as amended and currently in effect;

• A summary of the eleven Southgate Portfolio properties, including property descriptions, locations, acreage, building specifications, tenant rosters, occupancy data, and current and projected rental income;

• A summary of the arm's-length rent appraisal prepared by Caldwell Valuation Group, LLC, dated August 30, 2025, which supports the proposed annual base rent of $18,700,000 under the intercompany lease arrangements between Fairwater and the TRS;

• A copy of the proposed form of intercompany lease between Fairwater and Fairwater Southgate TRS, Inc.; and

• A REIT qualification metrics schedule, setting forth Fairwater's projected compliance with the income tests, asset tests, and distribution requirements under the Code, both pre- and post-Acquisition.

We note for the record that client sign-off on the final submission package was received from Jonathan M. Hirota on September 19, 2025, following the circulation of the draft ruling request to Mr. Hirota and your office on September 15, 2025. Mr. Hirota's review and approval were received within the timeline discussed during our internal status call on September 12, 2025, and we appreciate the prompt turnaround by Fairwater's tax team.

3. Recap of Rulings Requested

For ease of reference, we briefly recapitulate below the three principal rulings sought in the private letter ruling request. These rulings address the core REIT qualification issues raised by the Acquisition and the formation of the TRS:

Ruling 1 — Rents from Real Property. The ruling request asks the IRS to confirm that rents received by Fairwater from Fairwater Southgate TRS, Inc. under the proposed intercompany leases for the use of real property within the Southgate Portfolio will constitute "rents from real property" within the meaning of Section 856(d) of the Code. This ruling is conditioned on the representation that such rents will be established and maintained at arm's-length rates, as required by Section 856(d)(7)(B). The proposed annual base rent of $18,700,000 is supported by the independent fair market rent appraisal prepared by Caldwell Valuation Group, LLC, dated August 30, 2025, which concluded that the proposed rental rates are consistent with prevailing market rents for comparable mixed-use properties in the relevant geographic markets. Qualification of such rents as "rents from real property" is critical to Fairwater's satisfaction of the 75% and 95% gross income tests under Section 856(c)(2) and Section 856(c)(3) of the Code.

Ruling 2 — Asset Tests. The ruling request asks the IRS to confirm that the formation and initial capitalization of Fairwater Southgate TRS, Inc. — at a projected TRS asset value of approximately $147 million, representing approximately 1.83% of Fairwater's projected post-Acquisition total assets of approximately $8.03 billion — will not cause Fairwater to fail the 20% TRS asset test under Section 856(c)(4)(B)(ii) of the Code. In addition, the ruling request seeks confirmation that the Acquisition and TRS formation will not cause Fairwater to fail the 75% real estate asset test or the 25% non-real-estate asset test under Section 856(c)(4) of the Code. The ruling request includes detailed asset schedules and pro forma balance sheet projections demonstrating Fairwater's anticipated compliance with each of the applicable asset tests on a post-Acquisition basis, with substantial margins of safety.

Ruling 3 — Tenant Improvement Allowances. The ruling request asks the IRS to confirm that certain tenant improvement allowances to be funded by Fairwater and provided to third-party retail tenants within the Southgate Portfolio will not be treated as "impermissible tenant service income" under Section 856(d)(7)(C)(i) of the Code. The ruling request details the nature and terms of the tenant improvement allowances at issue, which are customary in the commercial real estate industry and are structured to comply with the requirements for exclusion from impermissible tenant service income treatment. The request distinguishes these allowances from the provision of tenant services that would give rise to non-qualifying income for purposes of the REIT gross income tests.

Together, these three rulings, if issued favorably, will provide Fairwater with a substantial degree of certainty regarding the Trust's continued REIT qualification following consummation of the Acquisition and the implementation of the intercompany lease structure with the TRS.

4. Anticipated Next Steps and IRS Processing Timeline

We set forth below our current expectations regarding the IRS's processing of the ruling request and the principal milestones that we anticipate over the coming months.

4.1 IRS Acknowledgment Letter

The IRS National Office is expected to issue a formal acknowledgment letter within approximately 30 to 45 days of receipt of the submission. Based on the believed September 23, 2025 delivery date, we anticipate receiving the acknowledgment letter by approximately late October to early November 2025. The acknowledgment letter will serve several purposes: it will formally confirm the IRS's receipt of the ruling request, assign a unique control number to the matter for tracking and correspondence purposes, and identify the IRS attorney who has been assigned primary responsibility for reviewing the submission. Upon receipt of the acknowledgment letter, we will promptly forward a copy to your office and to Mr. Hirota.

4.2 Assignment to IRS Branch

Based on the subject matter of the ruling request — specifically, REIT qualification under Sections 856 through 860 of the Code — we anticipate that the ruling request will be assigned to Branch 2 — Financial Institutions & Products, which operates under the jurisdiction of the Associate Chief Counsel (Income Tax & Accounting). Branch 2 has primary responsibility for issuing guidance and private letter rulings relating to REITs, regulated investment companies, and other specialized investment vehicles. We have had prior experience working with attorneys in this branch on comparable REIT ruling requests, and we believe the branch is well-equipped to handle the issues presented in Fairwater's submission.

4.3 Pre-Ruling Conference

Following assignment of the ruling request to a reviewing attorney, the IRS may elect to schedule a pre-ruling conference to discuss the facts, representations, and legal analysis set forth in the ruling request. A pre-ruling conference is a common procedural step in matters of this complexity and provides an opportunity for the reviewing attorney to ask questions, request clarification on particular points, and discuss the IRS's preliminary views on the issues presented.

If a pre-ruling conference is scheduled, Calderwood & Harkness will promptly coordinate scheduling with Jonathan M. Hirota and your office. Sylvia Hartwell and Garrett Simmons will attend the conference as Fairwater's designated representatives under the Form 2848 filed with the ruling request. Depending on the topics to be discussed, it may also be advisable for Mr. Hirota or another representative of Fairwater's tax team to participate in the conference, either in person or by telephone. We will discuss the appropriate level of client participation with you as the conference date approaches.

4.4 Estimated Total Processing Time

Based on our experience with private letter ruling requests of this nature and complexity, and taking into account current IRS staffing levels and processing backlogs, we estimate that the total processing time from acknowledgment of receipt to issuance of the ruling will be approximately 90 to 180 days. Accordingly, applying these estimates to the anticipated acknowledgment date, we project that a ruling could be issued between late Q4 2025 and Q1 2026.

We note that this estimate is inherently uncertain and may be affected by range factors outside our control, including the complexity of the issues as perceived by the reviewing attorney, the IRS's current workload, staffing transitions, and any supplemental submissions or information requests that may arise during the review process. We will keep you apprised of any developments that may affect the anticipated timeline.

As you are aware, the expected closing of the Southgate Portfolio Acquisition, currently estimated for Q1 2026, is subject to receipt of a favorable IRS ruling on the matters addressed in the ruling request. To the extent the IRS's processing timeline extends beyond our current estimates, we will coordinate with your office and with Fairwater's transaction counsel to evaluate the implications for the Acquisition timeline and to consider any appropriate steps, such as a request for expedited processing under Revenue Procedure 2025-1, if warranted.

4.5 Supplemental Submissions

During the review process, the IRS may request additional information or supplemental submissions to clarify facts, address additional issues, or respond to questions raised by the reviewing attorney. Calderwood & Harkness is fully prepared to respond promptly to any such requests, and we will coordinate with your office and Mr. Hirota's team to obtain any additional information that may be needed from Fairwater.

It is critically important that Fairwater promptly notify Calderwood & Harkness if any material facts change prior to the issuance of the ruling. By way of example and not limitation, such changes could include modifications to the Purchase and Sale Agreement executed August 1, 2025, between Fairwater and Thornfield Development Group, LLC; changes to the proposed intercompany lease terms between Fairwater and Fairwater Southgate TRS, Inc.; adjustments to the projected REIT qualification metrics (including asset values, income projections, or distribution plans); or any other developments that could affect the factual representations made in the ruling request. If any such changes occur, supplemental representations must be filed with the IRS to update the record, and failure to do so could jeopardize the validity of any ruling issued. We ask that you and Mr. Hirota remain vigilant on this point and communicate any developments to us without delay.

5. Engagement Economics and Fee Status

We provide below a summary of the engagement economics and fee status through September 30, 2025, for your records and internal tracking purposes.

Professional Fees Incurred Through September 30, 2025: The total incurred professional fees for this engagement through September 30, 2025, are $412,600.00. We note that this amount reflects a courtesy write-down of $112.50 from the calculated total of $412,712.50, representing a minor billing adjustment applied to the September billing cycle.

Disbursements Incurred Through September 30, 2025: Total disbursements incurred through September 30, 2025, are $2,814.37. These disbursements consist of Severin Partners LLC shipping charges, printing and reproduction costs, and online legal research charges incurred in connection with the preparation and submission of the ruling request.

IRS User Fee: As noted above, the IRS user fee of $38,000.00 was submitted with the ruling request and has been recorded as a separate client-reimbursable disbursement. This fee is not included in the professional fee or disbursement totals set forth above.

Engagement Fee Cap: The engagement fee cap established under the July 14, 2025 engagement letter is $485,000.00, exclusive of disbursements and the IRS user fee.

Remaining Fee-Cap Headroom: Based on the professional fees incurred to date, the remaining headroom under the fee cap is $72,400.00 ($485,000.00 minus $412,600.00). We believe this remaining headroom is expected to be sufficient to cover the anticipated remaining work on this engagement, including the preparation of any supplemental submissions that may be requested by the IRS, responses to IRS information requests, preparation for and attendance at a pre-ruling conference (if scheduled), and review and analysis of the ruling when issued.

A detailed billing summary, including a breakdown of professional fees by timekeeper and a detailed schedule of disbursements, will be provided separately by Leonard Cross, billing partner on this matter. Mr. Cross can be reached directly should you have any questions regarding the billing details.

We also wish to note that if the matter were to require extraordinary additional work beyond the scope of the original engagement — for example, in the unlikely event that the IRS proposes to issue an adverse ruling and Fairwater elects to pursue a formal protest, request a conference of right, or appeal the determination through IRS administrative channels — the fee cap and scope of engagement would need to be revisited in consultation with Fairwater. We do not currently anticipate that such circumstances will arise, but we raise the issue here for completeness and in the interest of transparency.

6. Key Contacts and Communication Protocol

The primary contacts at Calderwood & Harkness for this matter are as follows:

Sylvia Hartwell, Partner, Tax Practice Group — Responsible Partner Telephone: (202) 554-8142

Email: shartwell@calderwoodharkness.com

Garrett Simmons, Associate, Tax Practice Group — Lead Associate Telephone: (202) 554-8267

Email: gsimmons@calderwoodharkness.com

We request that any correspondence received directly by Fairwater from the IRS relating to this private letter ruling request — including, without limitation, any acknowledgment letters, information requests, proposed adverse determinations, or other communications — be forwarded promptly to both Sylvia Hartwell and Garrett Simmons at the contact information set forth above. Prompt forwarding of any such correspondence is essential to ensure that Calderwood & Harkness can take timely action on Fairwater's behalf and comply with any IRS deadlines.

Calderwood & Harkness will provide periodic status updates to your office as material developments occur throughout the IRS review process. In particular, we will promptly notify Fairwater upon receipt of the IRS acknowledgment letter, upon assignment of the matter to a reviewing attorney, and upon scheduling of any pre-ruling conference. We will also advise you immediately of any information requests or supplemental submissions requested by the IRS.

7. Confidentiality Note

We take this opportunity to remind Fairwater that a private letter ruling, if issued by the IRS, may only be relied upon by the taxpayer to whom it is addressed — in this case, Fairwater Real Estate Investment Trust. A private letter ruling cannot be cited or relied upon as precedent by any other taxpayer. See Section 6110(k)(3) of the Code.

Additionally, please be aware that the IRS is required by law, under Section 6110 of the Code, to make private letter rulings available for public inspection. However, prior to public release, the IRS is required to redact taxpayer-identifying information, including names, addresses, and other details that could identify the taxpayer. Fairwater will have an opportunity to review the proposed redactions and request additional deletions before the ruling is made publicly available, pursuant to the procedures set forth in Section 6110(c) of the Code.

8. Closing

We appreciate the opportunity to represent Fairwater Real Estate Investment Trust on this important matter. The Acquisition of the Southgate Portfolio represents a significant strategic transaction for the Trust, and we understand the critical importance of obtaining a favorable private letter ruling to provide certainty regarding Fairwater's continued REIT qualification. We are committed to achieving the best possible outcome for Fairwater in connection with this ruling request.

Please do not hesitate to contact me or Garrett Simmons if you or Jonathan M. Hirota have any questions regarding the status of the ruling request, the anticipated IRS processing timeline, or any other aspect of this engagement. We stand ready to proceed with the next steps upon receipt of the IRS acknowledgment letter and will keep you fully informed of all material developments.

Thank you for your continued confidence in Calderwood & Harkness.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Sylvia Hartwell Partner, Tax Practice Group Calderwood & Harkness LLP 1750 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 554-8142

Email: shartwell@calderwoodharkness.com

cc:

Margaret Eloise Kwan, Chief Executive Officer, Fairwater Real Estate Investment Trust

Douglas R. Pellegrini, Chief Financial Officer, Fairwater Real Estate Investment Trust

Jonathan M. Hirota, Vice President, Tax, Fairwater Real Estate Investment Trust

Leonard Cross, Billing Partner, Calderwood & Harkness LLP

Garrett Simmons, Lead Associate, Calderwood & Harkness LLP

Leila Nazari, Associate, Calderwood & Harkness LLP

Enclosures: None. A detailed billing summary will be provided separately by Leonard Cross.

CALDERWOOD & HARKNESS LLP Attorneys at Law
1750 K Street NW, Suite 900 Washington, DC 20006
Telephone: (202) 554-8100 Facsimile: (202) 554-8101 www.calderwoodharkness.com
October 1, 2025
VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL
Anita Bashar Reeves, Esq. General Counsel Fairwater Real Estate Investment Trust 2400 Harbor Promenade, Suite 1100 Baltimore, MD 21202
Re: Status Update — Private Letter Ruling Request Regarding REIT Qualification in Connection with Proposed Acquisition of the Southgate Portfolio
Matter No.: 1036-00006
Client EIN Reference: 52-4718263
Dear Ms. Reeves:
1. Purpose and Introduction
We write to provide Fairwater Real Estate Investment Trust ("Fairwater" or the "Trust," EIN 52-4718263) with a comprehensive status update on the private letter ruling request that Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") has submitted to the Internal Revenue Service ("IRS") National Office on behalf of the Trust. As of the date of this letter, October 1, 2025, the matter has been opened and is currently in closing status, meaning the submission has been finalized and shipped to the IRS, and the Firm is awaiting formal acknowledgment of receipt from the IRS National Office.
As you know, this engagement was initiated pursuant to the engagement letter dated July 14, 2025, executed on behalf of Fairwater by Jonathan M. Hirota, Vice President, Tax, and countersigned by the undersigned on behalf of Calderwood & Harkness. The scope of the engagement, as set forth therein, encompasses the preparation and submission of a private letter ruling request to the IRS regarding Fairwater's continued qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with two interrelated transactions: (a) the proposed acquisition by Fairwater of the Southgate Portfolio — consisting of eleven mixed-use properties totaling approximately 3.1 million rentable square feet — from Thornfield Development Group, LLC, for an aggregate purchase price of approximately $812 million (the "Acquisition"); and (b) the related formation and capitalization of a new taxable REIT subsidiary, Fairwater Southgate TRS, Inc. (the "TRS"), which will serve as the operating lessee of certain of the Southgate Portfolio properties pursuant to intercompany lease arrangements.
This letter summarizes the submission that has been made, recapitulates the rulings requested, outlines the anticipated IRS processing timeline and next steps, provides an update on engagement economics and fee status, and addresses communication protocols going forward. We encourage you to review this letter carefully and to share it with the members of your team who are involved in the Acquisition and related REIT qualification matters.
2. Summary of Submission
We are pleased to confirm that the private letter ruling request was finalized and submitted to the IRS National Office, Associate Chief Counsel (Income Tax & Accounting), at 1111 Constitution Avenue NW, Washington, DC 20224, on September 22, 2025. The submission package was shipped via Severin Partners LLC overnight delivery service under Severin Partners LLC tracking number 7749-2281-3364. Based on tracking information available to us, delivery was expected and is believed to have been confirmed on September 23, 2025, one business day following shipment.
The submission package was comprehensive and included the following materials:
1. Signed Private Letter Ruling Request. The signed ruling request letter, which incorporated the required penalties-of-perjury declaration as mandated by Revenue Procedure 2025-1. The ruling request set forth in detail the relevant facts, proposed transactions, applicable legal authorities, and the specific rulings sought by Fairwater.
2. IRS Form 2848 — Power of Attorney and Declaration of Representative. A properly executed IRS Form 2848 was included, signed by Jonathan M. Hirota, Vice President, Tax, on behalf of Fairwater, designating the following individuals as Fairwater's authorized representatives before the IRS in connection with this ruling request:
• Sylvia Hartwell, Partner, Calderwood & Harkness LLP (PTIN: P01882447)
• Garrett Simmons, Associate, Calderwood & Harkness LLP (PTIN: P02094518)
3. IRS User Fee Payment. The applicable IRS user fee of $38,000 — corresponding to Category 2 (Specific Issues) under Revenue Procedure 2025-1, Appendix A — was submitted with the ruling request. Payment was made by check drawn on Ridgeline National Bank, N.A., check number 00471826, payable to "United States Treasury."
4. Supporting Exhibits. The submission package included a number of supporting exhibits intended to facilitate the IRS's review of the ruling request, specifically:
• An organizational chart depicting Fairwater's current corporate structure and the anticipated post-Acquisition structure, including the position of Fairwater Southgate TRS, Inc. within the overall organizational hierarchy;
• A copy of Fairwater's Articles of Trust, as amended and currently in effect;
• A summary of the eleven Southgate Portfolio properties, including property descriptions, locations, acreage, building specifications, tenant rosters, occupancy data, and current and projected rental income;
• A summary of the arm's-length rent appraisal prepared by Caldwell Valuation Group, LLC, dated August 30, 2025, which supports the proposed annual base rent of $18,700,000 under the intercompany lease arrangements between Fairwater and the TRS;
• A copy of the proposed form of intercompany lease between Fairwater and Fairwater Southgate TRS, Inc.; and
• A REIT qualification metrics schedule, setting forth Fairwater's projected compliance with the income tests, asset tests, and distribution requirements under the Code, both pre- and post-Acquisition.
We note for the record that client sign-off on the final submission package was received from Jonathan M. Hirota on September 19, 2025, following the circulation of the draft ruling request to Mr. Hirota and your office on September 15, 2025. Mr. Hirota's review and approval were received within the timeline discussed during our internal status call on September 12, 2025, and we appreciate the prompt turnaround by Fairwater's tax team.
3. Recap of Rulings Requested
For ease of reference, we briefly recapitulate below the three principal rulings sought in the private letter ruling request. These rulings address the core REIT qualification issues raised by the Acquisition and the formation of the TRS:
Ruling 1 — Rents from Real Property. The ruling request asks the IRS to confirm that rents received by Fairwater from Fairwater Southgate TRS, Inc. under the proposed intercompany leases for the use of real property within the Southgate Portfolio will constitute "rents from real property" within the meaning of Section 856(d) of the Code. This ruling is conditioned on the representation that such rents will be established and maintained at arm's-length rates, as required by Section 856(d)(7)(B). The proposed annual base rent of $18,700,000 is supported by the independent fair market rent appraisal prepared by Caldwell Valuation Group, LLC, dated August 30, 2025, which concluded that the proposed rental rates are consistent with prevailing market rents for comparable mixed-use properties in the relevant geographic markets. Qualification of such rents as "rents from real property" is critical to Fairwater's satisfaction of the 75% and 95% gross income tests under Section 856(c)(2) and Section 856(c)(3) of the Code.
Ruling 2 — Asset Tests. The ruling request asks the IRS to confirm that the formation and initial capitalization of Fairwater Southgate TRS, Inc. — at a projected TRS asset value of approximately $147 million, representing approximately 1.83% of Fairwater's projected post-Acquisition total assets of approximately $8.03 billion — will not cause Fairwater to fail the 20% TRS asset test under Section 856(c)(4)(B)(ii) of the Code. In addition, the ruling request seeks confirmation that the Acquisition and TRS formation will not cause Fairwater to fail the 75% real estate asset test or the 25% non-real-estate asset test under Section 856(c)(4) of the Code. The ruling request includes detailed asset schedules and pro forma balance sheet projections demonstrating Fairwater's anticipated compliance with each of the applicable asset tests on a post-Acquisition basis, with substantial margins of safety.
Ruling 3 — Tenant Improvement Allowances. The ruling request asks the IRS to confirm that certain tenant improvement allowances to be funded by Fairwater and provided to third-party retail tenants within the Southgate Portfolio will not be treated as "impermissible tenant service income" under Section 856(d)(7)(C)(i) of the Code. The ruling request details the nature and terms of the tenant improvement allowances at issue, which are customary in the commercial real estate industry and are structured to comply with the requirements for exclusion from impermissible tenant service income treatment. The request distinguishes these allowances from the provision of tenant services that would give rise to non-qualifying income for purposes of the REIT gross income tests.
Together, these three rulings, if issued favorably, will provide Fairwater with a substantial degree of certainty regarding the Trust's continued REIT qualification following consummation of the Acquisition and the implementation of the intercompany lease structure with the TRS.
4. Anticipated Next Steps and IRS Processing Timeline
We set forth below our current expectations regarding the IRS's processing of the ruling request and the principal milestones that we anticipate over the coming months.
4.1 IRS Acknowledgment Letter
The IRS National Office is expected to issue a formal acknowledgment letter within approximately 30 to 45 days of receipt of the submission. Based on the believed September 23, 2025 delivery date, we anticipate receiving the acknowledgment letter by approximately late October to early November 2025. The acknowledgment letter will serve several purposes: it will formally confirm the IRS's receipt of the ruling request, assign a unique control number to the matter for tracking and correspondence purposes, and identify the IRS attorney who has been assigned primary responsibility for reviewing the submission. Upon receipt of the acknowledgment letter, we will promptly forward a copy to your office and to Mr. Hirota.
4.2 Assignment to IRS Branch
Based on the subject matter of the ruling request — specifically, REIT qualification under Sections 856 through 860 of the Code — we anticipate that the ruling request will be assigned to Branch 2 — Financial Institutions & Products, which operates under the jurisdiction of the Associate Chief Counsel (Income Tax & Accounting). Branch 2 has primary responsibility for issuing guidance and private letter rulings relating to REITs, regulated investment companies, and other specialized investment vehicles. We have had prior experience working with attorneys in this branch on comparable REIT ruling requests, and we believe the branch is well-equipped to handle the issues presented in Fairwater's submission.
4.3 Pre-Ruling Conference
Following assignment of the ruling request to a reviewing attorney, the IRS may elect to schedule a pre-ruling conference to discuss the facts, representations, and legal analysis set forth in the ruling request. A pre-ruling conference is a common procedural step in matters of this complexity and provides an opportunity for the reviewing attorney to ask questions, request clarification on particular points, and discuss the IRS's preliminary views on the issues presented.
If a pre-ruling conference is scheduled, Calderwood & Harkness will promptly coordinate scheduling with Jonathan M. Hirota and your office. Sylvia Hartwell and Garrett Simmons will attend the conference as Fairwater's designated representatives under the Form 2848 filed with the ruling request. Depending on the topics to be discussed, it may also be advisable for Mr. Hirota or another representative of Fairwater's tax team to participate in the conference, either in person or by telephone. We will discuss the appropriate level of client participation with you as the conference date approaches.
4.4 Estimated Total Processing Time
Based on our experience with private letter ruling requests of this nature and complexity, and taking into account current IRS staffing levels and processing backlogs, we estimate that the total processing time from acknowledgment of receipt to issuance of the ruling will be approximately 90 to 180 days. Accordingly, applying these estimates to the anticipated acknowledgment date, we project that a ruling could be issued between late Q4 2025 and Q1 2026.
We note that this estimate is inherently uncertain and may be affected by range factors outside our control, including the complexity of the issues as perceived by the reviewing attorney, the IRS's current workload, staffing transitions, and any supplemental submissions or information requests that may arise during the review process. We will keep you apprised of any developments that may affect the anticipated timeline.
As you are aware, the expected closing of the Southgate Portfolio Acquisition, currently estimated for Q1 2026, is subject to receipt of a favorable IRS ruling on the matters addressed in the ruling request. To the extent the IRS's processing timeline extends beyond our current estimates, we will coordinate with your office and with Fairwater's transaction counsel to evaluate the implications for the Acquisition timeline and to consider any appropriate steps, such as a request for expedited processing under Revenue Procedure 2025-1, if warranted.
4.5 Supplemental Submissions
During the review process, the IRS may request additional information or supplemental submissions to clarify facts, address additional issues, or respond to questions raised by the reviewing attorney. Calderwood & Harkness is fully prepared to respond promptly to any such requests, and we will coordinate with your office and Mr. Hirota's team to obtain any additional information that may be needed from Fairwater.
It is critically important that Fairwater promptly notify Calderwood & Harkness if any material facts change prior to the issuance of the ruling. By way of example and not limitation, such changes could include modifications to the Purchase and Sale Agreement executed August 1, 2025, between Fairwater and Thornfield Development Group, LLC; changes to the proposed intercompany lease terms between Fairwater and Fairwater Southgate TRS, Inc.; adjustments to the projected REIT qualification metrics (including asset values, income projections, or distribution plans); or any other developments that could affect the factual representations made in the ruling request. If any such changes occur, supplemental representations must be filed with the IRS to update the record, and failure to do so could jeopardize the validity of any ruling issued. We ask that you and Mr. Hirota remain vigilant on this point and communicate any developments to us without delay.
5. Engagement Economics and Fee Status
We provide below a summary of the engagement economics and fee status through September 30, 2025, for your records and internal tracking purposes.
Professional Fees Incurred Through September 30, 2025: The total incurred professional fees for this engagement through September 30, 2025, are $412,600.00. We note that this amount reflects a courtesy write-down of $112.50 from the calculated total of $412,712.50, representing a minor billing adjustment applied to the September billing cycle.
Disbursements Incurred Through September 30, 2025: Total disbursements incurred through September 30, 2025, are $2,814.37. These disbursements consist of Severin Partners LLC shipping charges, printing and reproduction costs, and online legal research charges incurred in connection with the preparation and submission of the ruling request.
IRS User Fee: As noted above, the IRS user fee of $38,000.00 was submitted with the ruling request and has been recorded as a separate client-reimbursable disbursement. This fee is not included in the professional fee or disbursement totals set forth above.
Engagement Fee Cap: The engagement fee cap established under the July 14, 2025 engagement letter is $485,000.00, exclusive of disbursements and the IRS user fee.
Remaining Fee-Cap Headroom: Based on the professional fees incurred to date, the remaining headroom under the fee cap is $72,400.00 ($485,000.00 minus $412,600.00). We believe this remaining headroom is expected to be sufficient to cover the anticipated remaining work on this engagement, including the preparation of any supplemental submissions that may be requested by the IRS, responses to IRS information requests, preparation for and attendance at a pre-ruling conference (if scheduled), and review and analysis of the ruling when issued.
A detailed billing summary, including a breakdown of professional fees by timekeeper and a detailed schedule of disbursements, will be provided separately by Leonard Cross, billing partner on this matter. Mr. Cross can be reached directly should you have any questions regarding the billing details.
We also wish to note that if the matter were to require extraordinary additional work beyond the scope of the original engagement — for example, in the unlikely event that the IRS proposes to issue an adverse ruling and Fairwater elects to pursue a formal protest, request a conference of right, or appeal the determination through IRS administrative channels — the fee cap and scope of engagement would need to be revisited in consultation with Fairwater. We do not currently anticipate that such circumstances will arise, but we raise the issue here for completeness and in the interest of transparency.
6. Key Contacts and Communication Protocol
The primary contacts at Calderwood & Harkness for this matter are as follows:
Sylvia Hartwell, Partner, Tax Practice Group — Responsible Partner Telephone: (202) 554-8142
Email: shartwell@calderwoodharkness.com
Garrett Simmons, Associate, Tax Practice Group — Lead Associate Telephone: (202) 554-8267
Email: gsimmons@calderwoodharkness.com
We request that any correspondence received directly by Fairwater from the IRS relating to this private letter ruling request — including, without limitation, any acknowledgment letters, information requests, proposed adverse determinations, or other communications — be forwarded promptly to both Sylvia Hartwell and Garrett Simmons at the contact information set forth above. Prompt forwarding of any such correspondence is essential to ensure that Calderwood & Harkness can take timely action on Fairwater's behalf and comply with any IRS deadlines.
Calderwood & Harkness will provide periodic status updates to your office as material developments occur throughout the IRS review process. In particular, we will promptly notify Fairwater upon receipt of the IRS acknowledgment letter, upon assignment of the matter to a reviewing attorney, and upon scheduling of any pre-ruling conference. We will also advise you immediately of any information requests or supplemental submissions requested by the IRS.
7. Confidentiality Note
We take this opportunity to remind Fairwater that a private letter ruling, if issued by the IRS, may only be relied upon by the taxpayer to whom it is addressed — in this case, Fairwater Real Estate Investment Trust. A private letter ruling cannot be cited or relied upon as precedent by any other taxpayer. See Section 6110(k)(3) of the Code.
Additionally, please be aware that the IRS is required by law, under Section 6110 of the Code, to make private letter rulings available for public inspection. However, prior to public release, the IRS is required to redact taxpayer-identifying information, including names, addresses, and other details that could identify the taxpayer. Fairwater will have an opportunity to review the proposed redactions and request additional deletions before the ruling is made publicly available, pursuant to the procedures set forth in Section 6110(c) of the Code.
8. Closing
We appreciate the opportunity to represent Fairwater Real Estate Investment Trust on this important matter. The Acquisition of the Southgate Portfolio represents a significant strategic transaction for the Trust, and we understand the critical importance of obtaining a favorable private letter ruling to provide certainty regarding Fairwater's continued REIT qualification. We are committed to achieving the best possible outcome for Fairwater in connection with this ruling request.
Please do not hesitate to contact me or Garrett Simmons if you or Jonathan M. Hirota have any questions regarding the status of the ruling request, the anticipated IRS processing timeline, or any other aspect of this engagement. We stand ready to proceed with the next steps upon receipt of the IRS acknowledgment letter and will keep you fully informed of all material developments.
Thank you for your continued confidence in Calderwood & Harkness.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Sylvia Hartwell Partner, Tax Practice Group Calderwood & Harkness LLP 1750 K Street NW, Suite 900 Washington, DC 20006 Telephone: (202) 554-8142
Email: shartwell@calderwoodharkness.com
cc:
Margaret Eloise Kwan, Chief Executive Officer, Fairwater Real Estate Investment Trust
Douglas R. Pellegrini, Chief Financial Officer, Fairwater Real Estate Investment Trust
Jonathan M. Hirota, Vice President, Tax, Fairwater Real Estate Investment Trust
Leonard Cross, Billing Partner, Calderwood & Harkness LLP
Garrett Simmons, Lead Associate, Calderwood & Harkness LLP
Leila Nazari, Associate, Calderwood & Harkness LLP
Enclosures: None. A detailed billing summary will be provided separately by Leonard Cross.

CALDERWOOD & HARKNESS LLP Attorneys at Law

VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts