Milestone Apartments

Overview

Offering of 20 million REIT units ($200 million). Through an indirectly owned Delaware LP (the "Partnership"), the REIT will acquire a portfolio of 52 multi-family residential rental properties in the U.S, appraised at $1.2B. Prior to the offering, ownership and profit interests in the Partnership were held by a partnership ("Milesouth"), which was affiliated with Invesco Ltd., and by an affiliated LLC ("MST Investors"). Milesouth and MST Investors will hold exchangeable Class B units of the Partnership.

Structure

A direct Delaware LLC subsidiary of the REIT ("US Holdco") will hold all the Class A units of the Partnership, and control the general partner of the Partnership. The Partnership will hold the 52 properties through subsidiary partnerships.

Following closing, Milesouth/ MST Investors will hold 14M REIT units and 8.923M Partnership units (being Class B exchangeable units).

Unitholders

In order to assist in qualifying as a U.S. REIT, the declaration of trust will prohibit any person from actually or constructively owning more than 9.8% of the REIT units, subject to any exemptions granted by the board. There also is an expropriation provision re over 5% blocks discussed re FIRPTA below. There will be a unitholder rights plan.

Management

The CEO is Managing Partner of Milestone. A member of the Milestone group is the asset manager. After 10 years at the latest, asset management will be internalized without termination fees unless the independent trustees determine otherwise. The property manager is an LLC owned by the Partnership.

Debt

Debt level targeted at below 55% of consolidated gross book value ($646M at closing).

Distributions

Monthly, at a rate (after the first montly distribution) of $0.05417 per unit, representing 90% of AFFO. As distributions will be paid in Canadian dollars, the REIT will hedge its first two years of dollar distributions from U.S. Holdco.

Implementation of Structure

The following transactions will occur upon closing of the offering:

• the REIT will acquire units of the Partnership in exchange for 14M units of the REIT
• the REIT will contribute the net proceeds of the offering and its Partnership units to US Holdco in subscription for preferred and common shares
• US Holdco will use the proceeds received from the REIT to purchase Partnership units from Milesouth for $180.6M, and acquire for nominal consideration the membership interest in the general partner of the partnership which is a general partner of the Partnership
• at the same time, the LPA for the Partnership will be amended so that the partnership interests of US Holdco and Milesouth/MST Investors will be Class A, and Class B exchangeable, units respectively

Canadian tax consequences

SIFT tax. Management does not anticipate that the REIT will hold any non-portfolio property, so that it should not be considered to be a SIFT trust.

FAPI

A portion of the income earned by US Holdco (and CFAs of the Partnership, or certain subsidiary partnerships thereof) will be foreign accrual property income, and included in the income of the REIT.

FTCs

The tax disclosure is not directed to investors who hold more than 5% of the REIT units for Code purposes. The U.S. withholding tax deducted in respect of a distribution paid on a REIT unit in a taxation year will generally be characterized as "non-business income tax," and may be deducted as a foreign tax credit where the resident holder has sufficient non-business income from U.S. sources. Alternatively, such non-business income tax (including any amount not deductible as a foreign tax credit) generally may be deducted by the holder in computing the holder's income. A resident holder's ability to apply U.S. withholding taxes in the foregoing manner may be affected where the holder does not have sufficient taxes otherwise payable under Part I of the Tax Act, or sufficient U.S. source income in the taxation year the U.S. withholding taxes are paid, or where the holder has other U.S. sources of income or losses, or has paid other U.S. taxes.

U.S. tax consequences

REIT/U.S. corporation status. The REIT is treated as a U.S. corporation for all Code purposes under Code s. 7874 and, accordingly, is permitted to elect to be treated as a real estate investment trust. The REIT will elect real estate investment trust status beginning with its taxable year ending December 31, 2013. Management intends to make timely distributions sufficient to satisfy the annual distribution requirements.

Ordinary distributions to non-US holders

Distributions that are neither attributable to gains from the sale or exchange by the REIT of U.S. real property interests ("USRPIs"), nor designated as capital gains dividends, will be treated as dividends of ordinary income to the extent they are made out of the REIT's current or accumulated earnings and profits, so that qualified residents of Canada generally are entitled to a 15% withholding rate on such distributions under the Treaty. RRSPs, RRIFs and DPSPs may be eligible for exemption. Distributions received by a TFSA, RESP or RDSP will be treated for the above purposes as received by the beneficiary or annuitant.

Management anticipates that there will be distributions in excess of the REIT's current and accumulated earnings and profits. These will reduce the adjusted tax basis of the non-resident holder's units. Because management expects that the REIT units will be considered to be regularly traded on an established securities market (see below), it does not expect to be required to withhold on such excess distributions made to non-US holders owning 5% or fewer of the outstanding units during the applicable testing period.

FIRPTA re distributions

A distributions of proceeds attributable to the sale or exchange by the REIT of USRPIs will not be subject to FIRPTA tax or branch profits tax and instead will be treated as an ordinary distribution if (as anticipated -see below) the REIT units qualify as regularly traded on an established securities market located in the U.S. and the recipient unitholder does not own more than 5% of the units at any time during the preceding one year. A non-US unitholder who fails to give notice of becoming the owner or constructive owner of more than 5% of the units, will have the excess (over 5%) units sold, with the lesser of the original purchase price for the excess units and the net sales proceeds being remitted to it.

FIRPTA re unit dispositions

Although the REIT is expected to be a U.S. real property holding corporation ("USRPHC"), the REIT units will not be treated as an interest in a USRPHC to a disposing unitholder who does not own or constructively own more than 5% of the units at any time in the five years preceding the disposition (or such shorter period as the units were held), if the units qualify as "regularly traded on an established securities market" - and the purchaser would not be requried to withhold, if the units are considered "regularly traded on an established securities market" regardless whether the selling unitholder held more than 5% of the outstanding units during the applicable testing period. As the REIT has received indications that at least two brokers or dealers are willing to regularly quote and make a market in the REIT units on the pink sheets and/or the OTCQX, the units should qualify as "regularly traded" on an established securities market in the U.S. A more rigorous test would apply if reliance were placed on the TSX as the relevant securities market for these purposes.