Slate Retail/ SUSO 2/GAR

Overview

SUSO 2 will be merged into SUSO 1 under s. 132.2. SUSO 1 will also acquire two of the GAR LPs (GAR A and C), with the GAR A and C unitholders receiving, at their option, units of SUSO 1 or exchangeable units of a subsidiary Delaware LP. A more complex exchangeable units structure will govern the acquisition of a third GAR partnership (GAR B), which will give unitholders who remain unitholders of GAR B the economic equivalence of ownership of SUSO 1 Units. The relative equity values going into the transaction are estimated to be SUSO 1 (38.2%), SUSO 2 (47.5%) and GAR (14.3%). The "Combination Transaction" is conditional on the SUSO 1 class U units (referred to as Class U Units of the "REIT" once the Combination Transaction is completed) being approved for listing on the TSX.

SUSO 1 and SUSO 2

Separate unlisted mutual fund trusts, each holding a portfolio of U.S. grocery-anchored retail rental properties through an Ontario LP which, in turn, holds a Delaware holding LP.

GAR

LPs which raised equity by private placement to invest in U.S. anchored retail properties.

SUSO 1 Unit Classes

The Class A Units of SUSO 1 were offered in Canadian dollars solely for the convenience of Unitholders wishing to pay the subscription price in Canadian dollars and receive distributions in Canadian dollars representing the equivalent of the U.S. dollar distributions on the other units. The Class U and Class I Units were offered in U.S. dollars and distributions paid in U.S. dollars. Class A and Class U Units were offered through a public offering, while Class I Units were offered through a private placement. Rights and characteristics of each Class I Unit are identical to those for each Class A Unit and Class U Unit, except that each Class I Unit was not required to pay agents' fees.

Resulting structure

The resulting "REIT" will hold notes and units ("Investment LP1 Units") of an Ontario LP ("Investment LP1") which is a foreign corporation for Code purposes, which will hold all the units (Class A LP1 Units") of a Delaware LP ("Limited Partnership 1"), which will hold units ("Class A LP2 Units") of another Delaware LP ("Limited Partnership 2"). Some of the former GAR A and GAR C unitholders will hold exchangeable units of Limited Partnership 2 ("Class B LP2 Units").

GAR B structure

The unitholders of GAR B will hold GAR B Exchangeable Units. GAR B will hold LP Units of GAR Holdings (a Delaware LP directly or indirectly holding retail properties) and Class C LP2 Units of Limited Partnership 2. "Each Class C LP2 Unit, taken together with the units of GAR Holdings held by GAR B, will, in all material respects, be economically equivalent to ownership of Class U Units, subject to adjustment in respect of U.S. corporate income taxes paid by REIT and/or certain subsidiaries of the REIT." "GAR B also will be authorized to issue class A limited partnership units, which generally will be issued to the REIT in connection with a redemption of GAR B Exchangeable Units." The holders of GAR B Exchangeable Units will have the right to cause GAR B to redeem all or a portion of such GAR B Exchangeable Units for Class U Units (of the REIT) or cash, at the option of the GAR B general partner.

Proposed transactions

In connection with the implementation of the Combination Transaction:

1. The SUSO 1 declaration of trust will be amended to make the SUSO 1 class I units convertible into SUSO 1 class U units (a.k.a., Class U Units) and to rename SUSO 1 as Slate Retail REIT (the "REIT").
2. The SUSO 2 declaration of trust will be amended to add a right of SUSO 2 to redeem SUSO 2 Units by delivering SUSO 1 class U units.
3. SUSO 1 will acquire all of the assets of SUSO 2 in consideration for SUSO 1 class U units.
4. SUSO 2 will redeem all SUSO 2 Units (except for any SUSO 2 Units acquired by SUSO 1) by delivering SUSO 1 class U units to SUSO 2 Unitholders.
5. In consideration for their units of GAR A or GAR C, the limited partners of such partnerships will receive, at their election, either SUSO 1 class U units or Class B LP2 Units.
6. The unitholders of GAR B may exchange their units for SUSO 1 class U units or GAR B Exchangeable Units, and will be issued one Special Voting Unit (of the REIT) for each GAR B Exchangeable Unit held. Each GAR B Exchangeable Unit will be redeemable for one Class U Unit or cash, as determined by GAR B.
7. The indirect holders of the general partner interests of Holding LP1 (the principal holding subsidiary of SUSO 1), Holding LP2 (the principal holding subsidiary of SUSO 2) and GAR Holdings (the principal holding subsidiary of GAR) will transfer their interests to Limited Partnership 2 in consideration for Class B LP2 Units, thereby resulting in a crystallization of the general partner interests.
8. The SUSO entities and GAR will effect a reorganization to rationalize the resulting structure.

The Combination Transaction will be effected based on the relative values of the Holding Partnerships, as compared to the total value of the REIT.

Canadian tax consequences

Conversions It is unclear if the conversion of SUSO 1 class A or class I Units into Class U Units would be a disposition.

S. 132.2 merger

Provided that a joint s. 132.2 election is made on a timely basis, there should be no resulting net income to SUSO 2 or tax liability to its unitholders as a result of the Combination Transaction, which will constitute a qualifying exchange.

FTCG rules

No assurance is given respecting the Foreign Tax Credit Generator rules.

U.S. tax consequences

ECI taxation. The REIT, Investment LP1 and GAR B will elect to be corporations under the Code and they each will be considered to have a permanent establishment in the U.S. Accordingly, Investment LP1 and GAR B (as foreign corporations) will be subject to U.S. corporate income taxation on the net rental income which they derive (through subsidiary Holdings LP) from a U.S. trade or business and on gains from the sale of U.S. real properties that are allocable to them or on the sale of subsidiary investments. Income or gains of subsidiary LPs allocable to them generally will be subject under Code s. 1446 to withholding at a 35% rate, which generally will also apply in lieu of any FIRPTA withholding requirements, with such withholding being allowed as a credit on their U.S. federal income tax returns. Investment LP and GAR B also will be liable for a 5% branch profits tax (subject to the $500,000 Treaty exemption) on their after-tax earnings.

Interest

The REIT and Investment LP1 intend to treat the Investment LP1 Notes held by the REIT as debt. The earnings stripping rules (Code s. 163(j)) may apply. Interest received by the REIT on the Investment LP1 Notes will be subject to 0% withholding by virtue of the Canada-U.S. Treaty.