Northview/True North -- summary under REIT Mergers

Overview

NPR proposes to add approximately 14,000 multi-family residential suites through a series of transactions with True North, affiliates of Starlight and affiliates of the Public Sector Pension Investment Board (''PSP''). NPR will acquire all of True North's assets pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the ''Arrangement'') in a merger described in s. 132.2 of the ITA, with each unitholder of True North receiving 0.3908 trust units of NPR (''NPR Ordinary Units'') for each True North "Ordinary Unit" held. Holders of exchangeable units in six subsidiary LPs of True North are given the choice of exchanging their LP units for NPR units or for new redeemable units of the same partnerships, i.e., LP units which are redeemable for NPR units. The tax disclosure treats an exchange for such new redeemable LP units as being eligible for a s. 97(2) rollover. On closing, former True North Ordinary Unitholders will own approximately 25.0% of Northview on a fully-diluted basis (i.e., including the redeemable units of the subsidiary LPs). NPR has also agreed to acquire 33 additional apartment properties from a joint venture between affiliates of Starlight and PSP, as well as from affiliates of Starlight directly, for consideration including units of subsidiary LPs. These transactions take the form of vendor LPs transferring the beneficial ownership of real estate (including Ontario properties) to new Ontario LPs for notes and Class B units, then NPR subscribing for Class A units, with such proceeds used to redeem the notes.

True North

Is an Ontario unit trust listed on the TSX with a portfolio of 83 residential rental properties, all of which are held through six subsidiary Ontario LPs (the "Ture North Partnerships"), in which it holds Class A LP units and others hold Class B exchangeable LP units, with a wholly-owned Ontario corporate subsidiary ("True North GP") being the GP. Daniel Drimmer and affiliates holds the equivalent of a 41.2% interest in the trust, mostly in the form of Class B LP units.

NPR

Is an Alberta unit trust listed on the TSX holding a portfolio of multi-suite residential rental properties. Its most significant subsidiary is NPR Limited Partnership, an Alberta LP.

Institutional (Starlight and IMH) Portfolio

NPR will acquire the Institutional Portfolio for $535 million at a ''going-in'' capitalization rate of 5.5%. The Institutional Portfolio comprises 33 properties with a total of 4,650 multi-family suites located in Ontario, New Brunswick and Nova Scotia. The purchase price for the Institutional Portfolio will be satisfied by a combination of $316 million in cash, approximately $49 million of assumed mortgages, the issuance to the Vendors of approximately 5.1 million NPR Ordinary Units valued at a $23.03 per NPR Ordinary Unit, and the issuance to the Vendors of approximately 2.3 million of Class B LP Units valued at $23.03 per Class B LP Unit. The Institutional Portfolio comprises seven apartment properties held by Starlight through subsidiary LPs (the "Starlight Portfolio") and 26 apartment properties held through subsidiary LPs by a joint venture between Starlight and PSP (the "IMH Portfolio").

Plan of Arrangement

1. True North will subscribe for 10 redeemable retractable preferred shares of True North GP;
2. True North and NPR will pay, as a special distribution on their Ordinary Units, the amount of any undistributed taxable income for their taxation years that will be deemed to end under s. 132.2;
3. each Dissenting Units will be transferred to True North for a debt claim to be paid fair value;
4. the conversion price for True North convertible debentures will be amended;
5. the limited partnership agreement of each of the True North Partnerships will be amended to create the Redeemable Units, each of which will be redeemable for 0.3908 NPR Ordinary Units ;
6. the holders of True North Partnerships Class B Units will exchange their Units for either (i) 0.3908 NPR Ordinary Units for each True North Partnerships Class B Unit; or (ii) (if so elected in the case of non-U.S. residents) Redeemable Units of the applicable True North Partnership;
7. True North will transfer all its property to NPR in exchange for NPR Ordinary Units and the assumption by NPR of certain obligations;
8. True North Special Voting Units will be redeemed and NPR will issue NPR Special Voting Units to holders of True North Partnerships Class B Units;
9. True North will redeem each outstanding True North Ordinary Unit in exchange for 0.3908 NPR Ordinary Units;
10. the True North Deferred Units, RURs; and Unit Options will be redeemed;
11. Red-Starlight LP will transfer the real property interests of the Red-Starlight LP portion of the Starlight Portfolio to New1 LP (as well as shares of a (nominee?) subsidiary to a new Ontario LP ("New1 LP") and New1 LP will issue to Red-Starlight LP 194,896 Class B limited partnership units of New1 LP and a non-interest bearing demand promissory note having a principal amount of $10,711,533 (the "Red LP Note");
12. NPR shall subscribe for 194,896 Class A limited partnership units of New1 LP and New1 LP shall repay the Red LP Note;
13. after the acquisition of various nominee corporations by a new Ontario LP ("New2 LP), D. D. Acquisitions Partnership will transfer the real property interests of the D.D. Acquisitions Partnership portion of the Starlight Portfolio to New2 LP and New2 LP willl: (i) assume $16,307,372 in debt, (ii) issue to D.D. Acquisitions Partnership 684,157 Class B limited partnership units of New2 LP, and (iii) issue to D.D. Acquisitions Partnership a non-interest bearing demand promissory note having a principal amount of $58,036,472 (the "New DDA Note");
14. NPR will subscribe for 684,157 Class A limited partnership units of New2 LP and New2 LP will repay the New DDA Note;
15. similar transactions to 12 to 15 above will be engaged in to acquire the IMH portfolio; and
16. True North will be formally dissolved.

Canadian tax consequences

S. 132.2 exchange. Provided True North and NPR file the election under section 132.2 of the Tax Act as described above, the Contemplated Transactions will constitute a ''qualifying exchange." True North and NPR have indicated their mutual intention that the amount of taxable gains on the asset transfer to NPR will be reduced to the greatest degree possible and it is currently the view of management that True North should not realize any net income (including taxable capital gains) as a result of such transfer. Accordingly, NPR will generally be deemed under section 132.2 of the Tax Act to acquire True North's assets at a cost that is expected to be materially lower than the fair market value of the True North assets so acquired. The cost of the assets held by True North's Subsidiaries which will be indirectly acquired by NPR under the Plan of Arrangement will generally not be affected.

S. 97(2) exchange

Holders of True North Partnerships Class B Units who exchange their Units for Redeemable Units of the applicable partnership and who jointly elect under s. 97(2) will be considered to have disposed of their units for an elected amount which complies with s. 97(2). An electing Unitholder must provide the election form with the necessary information within 90 days of the Effective Date.

Fiscal year end changes

NPR and True North are seeking CRA approval to change the fiscal and taxation year end of certain Subsidiaries (which includes NPR LP and the True North Partnerships) in order to ensure that substantially all of the income and net taxable capital gains earned by such Subsidiaries up to and including the Effective Date of the Arrangement will be allocated to NPR Unitholders and to holders of NPR Class B LP Units, or to True North Unitholders and True North Class B LP Unitholders, as the case may be.

REIT exception for NPR

Based on a review of NPR's assets and revenues, including the assets to be acquired by NPR as a consequence of the Contemplated Transactions and the revenues expected to be derived therefrom, management expects that NPR will satisfy the tests to qualify for the REIT Exception for its taxation year that will be deemed to end as a result of the consummation of the Contemplated Transactions and for its taxation year that will be deemed to begin immediately after such year-end, in each case both under the REIT Exception. In addition, management of NPR intends to conduct the affairs of NPR so that NPR will continue to qualify for the REIT Exception at all future times….