Starlight

Overview

The Fund will hold three apartment buildings, with a purchase price of U.S.$80.6 million, in Texas, through wholly-owned LLCs of Starlight U.S. Multi-Family Core REIT Inc. (the "U.S. REIT"), an indirectly owned Maryland corporation; and intends to make further acquisitions of apartment buildings in the southern US. It is issuing up to 7.5M units (allocated among different classes) for up to US$75M.

Structure

The general partner of the Fund will be an Ontario corporation owned by Starlight Investments Ltd. (the "Manager"), an Ontario corporation, which is controlled and indirectly owned by Daniel Drimmer. An Ontario LP ("Investment LP") owned directly and through the GP thereof, will hold all of the LP units of a Delaware holding partnership ("Holding LP") which, in turn, will hold 100% of the common shares of the U.S. REIT. The GP of Holding LP will be a Delaware partnership directly and indirectly owned by the Manager. In order that the U.S. REIT will qualify as a REIT for Code purposes, the U.S. REIT will issue up to 125 preferred shares at U.S.$1,000 per share to accredited investors. The preferred shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a dividend yield of 12.5%. Holding LP also will be issued ROC shares (bearing a compounding dividend and redeemable for the subscription amount) by the U.S. REIT, which may also issue interest-bearing REIT Notes.

Fund Units

The Class A and U units of the Fund will pay distributions in Canadian and US dollars, respectively. The Class I units (designed for institutional investors) will not be required to pay a service fee, will be unlisted and convertible into Class A units. Class C units, to be held by an affiliate of the Manager, will not be required to pay a service fee or the agent's fee, will be unlisted, will be convertible into Class A units and will represent a 9.99% voting interest in the Fund.

Debt

After giving effect to the further proposed property acquisitions, the overall mortgage to value ratio will be approximately 60% to 70% of the property acquisitions costs (as increased by any property improvement reserves).

Distributions

Investment LP, as the holder of the LP units of Holding LP, will be entitled to receive a 7% preferred return on those units, and 75% of the excess, with the balance of 25% going to the GP of Holding LP as a carried interest. As around half of the 2013 property purchases are not yet committed, the annual distributions are not estimated. The GP of the Fund will receive 0.01% of cash distributions. No FX hedging of the income of the Fund will occur.

Canadian tax consequences

SIFT tax. The Fund is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated. As it will not hold any taxable Canadian property, it is not subject to non-resident ownership restrictions.

Consent dividends

Any consent dividend deemed to be received by the Fund from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Fund. However, the Fund would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Fund unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The Fund expects that any CFA will satisfy the more-than-five full-time employee test directly or under s. 95(2)(a)(i).

Income allocations

Taxable income of the Fund will be allocated to unitholders based on relative distributions (p. 97).

FTCs

Any U.S. withholding tax on distributions by Holding LP to Investment LP generally will be eligible for foreign tax credits as non-business income taxes, subject to various limitations. The FTC generator proposals are not expected to apply.

U.S. tax consequences

Investment LP/FIRPTA. Investment LP (but not Holding LP) will elect to be treated as a corporation. Distributions made by the U.S. REIT that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by it in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding. The IRS may grant permission to reduce such withholding where it is in excess of the FIRPTA tax applicable to such capital gains dividends or other distributions received from the U.S. REIT. Holding LP will be required to withhold Code s. 1446 withholding at 35% on Investment LP's allocable share of gain from either Holding LP's disposition of U.S. REIT common stock and U.S. REIT ROC shares, or from the U.S. REIT's capital gains dividends and/or distributions made by the U.S. REIT in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares. However, Regulations provide that where a partnership is subject to both s. 1445 and 1446 withholding, it will only be subject to the payment and reporting requirements of s. 1446 with respect to partnership gain from the disposition of US real property interests. Investment LP may also be subject to branch tax - but potentially only at a reduced Treaty rate based on the Treaty residence of the Fund unitholders.

Unitholder tax

Non-U.S. unitholders generally will not be subject to tax upon a disposition of their Fund units.

U.S. REIT FDAP Distributions

Interest and dividends paid to Holding LP will be treated as paid directly to Canadian-resident unitholders of the Fund (through Investment LP and the Fund) because each of Holding LP, Investment LP and the Fund will be treated as fiscally transparent entities in their respective jurisdictions - so that such unitholders who are eligible for benefits under the Canada-U.S. Treaty likely will be treated as the beneficial owners of such "FDAP" income (i.e., for purposes of Article IV, para. 6). Accordingly, ordinary REIT dividends treated as being paid by the U.S. REIT will be subject to U.S. withholding at a rate (subject to documentary requirements) of: - generally 0% for RRSPs; 15% for individuals owning less than 10% of the stock of the U.S. REIT; and 30% for corporations provided that the U.S. REIT is not "diversified." Interest on the U.S. REIT Notes will be eligible for 0% withholding if the Fund unitholder is eligible for Treaty benefits and provides appropriate withholding tax documentation.

Interest deduction

Holding LP and the U.S. REIT intend to treat the U.S. REIT Notes as debt, so that the U.S. REIT will claim interest deductions. Discussion of s. 163(j) earnings strippings rule.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code.