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Notice to Northern Property Limited Partnership
Class B Unitholders
Re: Taxation of Distributions Made in 2002
Northern Property Limited Partnership ("NPLP") made distributions for the period of June 1, 2002 to December 31, 2002 aggregating to $.6769 per unit. The provisions of the partnership agreement call for the distributions on the Class B units to be equal to those made to the Unitholders of Northern Property Real Estate Investment Trust ("NP REIT"). The income generated by the partnership, including rental, dividends and capital gains, will be allocated to the Class B Unitholders in the same proportion as the income was generated by the partnership. Because of the potential for a return of capital, the allocated income may be less than total distributions.
For 2002, the distributions to the Class B Unitholders of NPLP are treated as follows for income tax purposes:
• 25.82% of the distributions are currently taxable in the form of limited partnership income, for which a T5013 supplementary will be issued. This allocation of income will be treated as regular taxable income to each Unitholder.
• 71.08% of the distributions will be treated as a dividend received from a Canadian corporation. As such, it will be subject to a preferential tax treatment that all dividends from Canadian corporation receive (subject to the dividend tax credit). The T5013 supplementary, which will be issued, will disclose this information.
• 3.10% of the distributions are not currently taxable and will be treated as a return of capital for income tax purposes (see discussion below).
Return of Capital & Adjusted Cost Base
The calculation of adjusted cost base is complicated as it pertains to partnerships, and is cumulative over your period of ownership. It is recommended that you, with your professional advisors, track your adjusted cost basis on an annual basis.
Your initial adjusted cost basis will be equal to your elected value that you transferred your Urbco Inc. shares to NPLP, effective May 30, 2002, or $10 per unit if you did not elect. This is then adjusted each year for the allocation of income and the distributions you receive. As the distributions may be partially characterized as a return of capital, this would have the impact of reducing your overall adjusted cost basis in NPLP units. Should your adjusted cost basis become negative in a year, you must report a capital gain in that year.
Ownership Advisory
NPLP Class B units may only be held be residents of Canada. In the event that any Class B units are held by non-residents, through the powers of the general partner and the trustees of NP REIT, steps will be taken to exchange those units for units of NP REIT.
NORTHERN PROPERTY REIT
Signed
Debra Boyle, Chief Financial Officer
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