Source Energy Services Ltd. — Proxy Solicitation & Information Statement 2024

Dec 20, 2024

SHELTER CANADIAN PROPERTIES LIMITED
Investor Services
2600 Seven Evergreen Place
Winnipeg, Manitoba
R3L 2T3
Telephone: (204) 475-9090
Fax: (204) 452-5505

December 20, 2024

To the Unitholders of
Bluewater Park Apartment Project, Whitby

Management’s Discussion and Analysis

We enclose a copy of the audited financial statements and Management’s Discussion and Analysis (the “Report”) in respect of the above noted Project for the fiscal year ended August 31, 2024. As disclosed in the Report, the Project completed fiscal 2024 with a cash deficiency before major expenditures of $569,500 and a cash deficiency from operations of $1,091,100, after deducting major expenditures in the amount of $521,600. The cash deficiency was funded by the internal cash reserves of the Project and by optional cash advances from Shelter Canadian Properties Limited.

Results of Meeting

A meeting of the Unitholders was held in Winnipeg on September 19, 2024. A quorum was obtained as 78 of the 100 issued and outstanding units of undivided interest, representing 78% of the Project ownership, were represented in person or by proxy.

The purpose of the meeting was to discuss the operations of the Project and specifically, to consider an Extraordinary Resolution which authorized Shelter Canadian Properties Limited and 401759 Ontario Limited to apply to each of the applicable regulatory authorities, requesting a decision that the Project is not a reporting issuer.

In order for an Extraordinary Resolution to be approved, an affirmative vote of at least 66 2/3% of the votes cast at a duly convened meeting of the Unitholders is required. At the meeting, 100% of the votes cast were in favour of the Extraordinary Resolution. Accordingly, the Extraordinary Resolution was approved.

Voluntary Surrender of Reporting Issuer Status

Shelter Canadian is currently working with legal counsel to pursue the necessary legal steps to request the voluntary surrender of reporting issuer status for the Project. Any new information in respect of the voluntary surrender of reporting issuer status will be issued once available.

Upward Refinancing

Existing Debt

Bluewater Park Apartment Project is encumbered by a $19.725 million interest-only first mortgage loan from Canada ICI Capital Corporation (“Canada ICI”), maturing May 4, 2025. The loan provides for interest-only payments at an interest rate equal to the greater of 7.65% or the RBC Prime Rate plus 1.45%. Based on an interest rate of 7.65%, the loan requires payments of $125,747 per month or approximately $1,509,000 per annum.

As the loan matures May 4, 2025, it is necessary to obtain approval from the Limited Partners to refinance the first mortgage loan.

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Upward Refinancing (continued)

Advances Payable

The liabilities of the Project include advances payable to Shelter Canadian, representing optional loan advances which bear interest at prime plus 3% and are repayable from the working capital of the Project. To the extent that working capital is not sufficient to fund interest payments, the accrued interest is capitalized. As of December 1, 2024, advances payable amounted to approximately $683,000.

Upward Refinancing Opportunity

The first mortgage loan was previously upward refinanced in November 2021 to a balance of $19.725 million. As a result of the improved operating performance of the Project and appreciation in value, there is an opportunity to upward refinance the first mortgage loan to a balance in the range of $20.50 million.

Based on a projected interest rate of 4.35% and an amortization period of 30 years, the annual debt service costs for an upward refinanced first mortgage loan of $20.50 million would be approximately $1,219,000.

Based on a payout balance of the existing first mortgage loan of $19.725 million and estimated legal and other fees of $225,000, a new first mortgage loan of $20.50 million would result in net loan proceeds of approximately $550,000. The net proceeds would be used to repay the optional cash advances from Shelter Canadian Properties Limited, to the extent possible.

The refinancing of the first mortgage loan is being discussed with lenders and the projected loan amount of $20.50 million is an estimate. The determination of the actual amount of a potential upward refinanced first mortgage loan will be subject to a "due diligence" process by the lender, including a review of actual results and cash flow projections to ensure that the amount of the upward refinanced loan is not beyond the debt service capability of the Project. Accordingly, rather than providing for a specific loan amount, the Extraordinary Resolution to approve the upward refinancing provides for the first mortgage loan to be refinanced to a maximum balance which shall not exceed the serviceable loan amount as determined by the lender. An Extraordinary Resolution to approve the upward refinancing is being presented at the upcoming meeting.

Extension of Management Term

Shelter Canadian Properties Limited is currently managing the Bluewater Park Apartment Project, pursuant to the terms of the Unitholders' Agreement, as amended.

The "Agreed Term" of management coincides with the maturity date of the first mortgage loan. During the "Agreed Term", Shelter Canadian may be removed as manager for cause only. Following the expiration of the "Agreed Term", Shelter Canadian shall continue to manage the Project until such time as the Unitholders determine otherwise by an Extraordinary Resolution.

In consideration of the ongoing commitment by Shelter Canadian to the success of the Project and for providing our corporate mortgage guarantees, we are requesting that the Agreed Term be extended to coincide with the new maturity date of the proposed upward refinanced first mortgage loan.

Meeting of the Unitholders

A meeting of the Unitholders has been scheduled for Tuesday, February 4, 2025 at 10:00 a.m. in the Boardroom of Shelter Canadian Properties Limited, 2600 Seven Evergreen Place, Winnipeg, Manitoba. Accordingly, we enclose a Notice of Meeting, an Information Circular, and an Instrument of Proxy.

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Meeting of the Unitholders (continued)

The purpose of the meeting is to discuss the operations of the Project and, specifically, to consider two Extraordinary Resolutions, as follows:

1. to authorize Shelter Canadian Properties Limited to upward refinance the existing first mortgage loan of the Project, at the most favourable interest rate attainable, for a maximum term of ten years, to a maximum loan balance which shall not exceed the serviceable loan amount as determined by the lender, with such parties and upon such other terms that Shelter Canadian Properties Limited, in its sole discretion, deems to be in the best interest of the Unitholders, with the mortgage proceeds to be used to discharge the existing first mortgage loan and to repay the optional cash advances from Shelter Canadian Properties Limited, to the extent possible; with the remaining proceeds, if any, to be used to increase the working capital of the Project; and

2. subject to the approval of Extraordinary Resolution No. 1, to approve an extension of the "Agreed Term" of management to coincide with the maturity date of the upward refinanced first mortgage loan, with all other terms of management remaining as stated in the Unitholders' Agreement, as amended.

In order to obtain a quorum for the meeting, two or more persons must be present, holding or representing as proxies for Unitholders not less than 50% of the units. In order for an Extraordinary Resolution to be approved, an affirmative vote of at least 66 2/3% of the votes cast at a duly convened meeting of the Unitholders is required.

If you do not intend to attend the meeting, please return your Instrument of Proxy as soon as possible. Given the possible mail delays as a result of the recent Canada Post strike, alternative delivery methods to return your Instrument of Proxy are provided below:

• a digital image or pdf document of the signed proxy sent via email to mouthwaite@scpl.com
• via fax to (204) 452-5505 - Attention: Matthew Outhwaite
• via courier to 2600 Seven Evergreen Place, Winnipeg, Manitoba R3L 2T3

If you have any questions regarding your investment, please do not hesitate to contact the undersigned.

Yours truly,

SHELTER CANADIAN PROPERTIES LIMITED

MATTHEW OUTHWAITE, CPA, CA
Manager, Investor Services

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Enclosures