Capital BLF/BLF REIT

Overview

Under a CBCA Plan of Arrangement, the shareholders of the Corporation will transfer their shares to a subsidiary Quebec LP of the REIT (BLF LP ) on a taxable basis under a three-corner exchange arrangement, for REIT Units on a 40-for-1 basis (the "Exchange Ratio") - or, if they wish to and elect to transfer on a s. 97(2) rollover basis and their status is consistent with BLF LP qualifying as an excluded subsidiary entity (e.g., they are not individuals), they will transfer their shares to BLF LP for exchangeable LP units of BLF LP (the "Exchangeable LP Units") in accordance with the Exchange Ratio together with an equal number of special voting units of the REIT. The REIT is a Quebec unit trust.

Corporation

It is a CBCA corporation which started operations in 2007 as a capital pool corporation. As at the time of its annual management information circular, it held seven multi-family residential properties in Montreal, Dorval and Québec City representing 694 apartments, and it had two private company shareholders holding 19.99% and 15.5% of its shares. On March 15, 2013 it acquired a further three properties at a cost of $57M, financed in part through a private placement for $23.5M, and announced a further property acquisition in June 2013. It trades on the TSX Venture exchange with a market cap of $33M. (132M shares at $0.25 - so that the Exchange Ratio is targeting a REIT Unit value in the neighbourhood of $10).

Preliminary asset transfer

The Corporation will transfer essentially all its assets to BLF LP in consideration for: the assumption of liabilities; the issuance of promissory note; and the issuance of Class C LP units.

Plan of Arrangement

• Shares held by dissenting Shareholders will be deemed to have been transferred to the Corporation and cancelled so that their only right is to receive the shares' fair value
• Shares of Shareholders who are not Excluded Shareholders (see below) and have elected to receive Exchangeable LP Units (a.k.a. Class B LP Units) will (subject to a potential cap imposed by the general partner in its discretion) be transferred to BLF LP in consideration for the issuance of Exchangeable LP Units and Special Voting Units of the REIT in accordance with the Exchange Ratio
• The remaining Shares will be transferred to BLF LP in consideration for REIT Units in accordance with the Exchange Ratio, which will be issued by the REIT in consideration for the issuance to it by BLF LP of Class A LP Units
• The options under the Corporation's stock option plan will be exchanged for identical options on REIT Units, subject to adjustments based on the Exchange Ratio
• The REIT Unit initially issued to the Corporation for $10 will be redeemed for $10

Post-Arrangement steps

• BLF LP will make a joint s. 97(2) election (and the provincial equivalent) with Shareholders who have transferred their Shares for BLF LP Units provided they furnish it with the election forms within 60 days of the effective date of the Arrangement.
• The Corporation (whose shares will be delisted) will elect to cease to be a public corporation for purposes of the Act
• The Corporation will make a capital distribution, of all the notes owing to it by BLF LP, to its sole shareholder (BLF LP)

Excluded Shareholders

These are defined as any of:

• A non-resident (or a non-Canadian partnership)
• A financial institution
• A person or partnership an interest in which is a tax shelter investment (or who acquires an interest in BLF LP as a tax shelter investment)
• A person or partnership which is not a real estate investment trust, a taxable Canadian corporation, a SIFT trust or an excluded subsidiary entity (all as defined in the Act)

Canadian tax consequences

REIT qualification. Based on external advice, management expects the REIT to qualify as a REIT for 2013 and subsequent taxation years, and has implemented internal controls to ensure that BLF LP satisfies the necessary tests.

BLF LP

Is expected to qualify as an excluded subsidiary entity.

Exchange of Shares

The Canadian tax consequences of a disposition of Shares to BLF LP for Exchangeable LP Units are not discussed. An exchange for REIT Units is taxable.