Subversive Acquisition LP — Interim / Quarterly Report 2020

Feb 9, 2021

SUBVERSIVE REAL ESTATE ACQUISITION REIT LP UNAUDITED INTERIM FINANCIAL STATEMENTS

AS AT SEPTEMBER 30, 2020 (Expressed in U.S. Dollars)

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NOTICE TO READER

These unaudited condensed interim September 30, 2020 financial statements have been restated from the financial statements filed by the REIT LP on November 13, 2020. The restatement has been described in Note 14 in these unaudited interim financial statements. The notice of no auditor review has also been removed.

(signed) “ Michael Auerbach ” (signed) “ Leland Hensch ” Michael Auerbach Leland Hensch Chief Executive Officer Chief Financial Officer

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1. CORPORATE INFORMATION

Subversive Real Estate Acquisition REIT LP (the “ REIT LP ”, “ we ”, “ our ” or “ us ”) is a limited partnership formed under the laws of the Province of Ontario for the purpose of effecting, directly or indirectly, an acquisition of one or more businesses or assets, by way of a merger, amalgamation, arrangement, equity exchange, asset acquisition, equity purchase, reorganization, or any other similar business combination involving the REIT LP, which we refer to as the “Qualifying Transaction”. Subversive Real Estate Sponsor LLC (“ Subversive Sponsor ”), Inception Altanova Sponsor, LLC and CG Investments Inc. IV are sponsors of the REIT LP (collectively, the “ Sponsors ”). The amended and restated limited partnership agreement (the “ A&R LPA ”) of the REIT LP is filed on SEDAR at www.sedar.com.

The REIT LP was established under the Limited Partnership Act (Ontario) on November 12, 2019. The REIT LP’s head office is located at 135 Grand Street, 2nd Floor, New York, New York 10013 and its registered office is located at 333 Bay Street, Suite 3400, Toronto, Ontario, M5H 2S7, Canada.

The September 30, 2020 financial statements were originally authorized for issuance by the Board of Directors of the General Partner of the REIT LP on November 13, 2020 and restated and amended for issuance on February 9, 2021.

2. SIGNIFICANT EVENTS

Due to its negative working capital position, the REIT LP’s ability to continue as a going concern is dependent upon the continued support of its Sponsors, and/or upon the completion of the Qualifying Transaction or on the approval of an extension of the permitted timeline should the Qualifying Transaction not be completed. There can also be no assurance that we will be successful in completing our Qualifying Transaction. In the event a Qualifying Transaction does not occur the escrowed cash will be returned to Class A restricted voting unit holders and the Sponsors will have no recourse against the escrowed cash.

These uncertainties may cast significant doubt upon the REIT LP’s ability to continue as a going concern and the ultimate appropriateness of using accounting principles applicable to a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the REIT LP be unable to continue as a going concern. If the REIT LP is not able to continue as a going concern, the REIT LP may be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these financial statements. These differences may be material.

On November 12, 2019, the REIT LP issued the general partner interest to Subversive Real Estate Acquisition REIT (GP) Inc. (the “ General Partner ”), the REIT LP’s General Partner, in exchange for proceeds of U.S.$10.00. The General Partner is responsible for the management and control of the REIT LP in accordance with the A&R LPA. On November 12, 2019, the REIT LP issued one proportionate voting unit (“ Proportionate Voting Unit ”) to Subversive Sponsor. On December 31, 2019, the REIT LP issued 58,820 Proportionate Voting Units of the REIT LP to the Founders (“ Founders’ Proportionate Voting Units ”) at approximately U.S.$0.425 per Proportionate Voting Unit for aggregate proceeds of U.S.$25,000. Our Sponsors and the General Partners’ directors and officers, Michael Auerbach, Leland Hensch, Richard Acosta, Omar Mangalji, Scott

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Baker, Octavio Boccalandro, Craig Hatkoff, Anne Sullivan, Eric Clarke, Michael Miller, Dylan Marcoot and Dylan Hart, comprise our Founders.

On January 8, 2020, the REIT LP closed its initial public offering (the “ Offering ”) of 20,000,000 Class A Restricted Voting units (the “ Class A Restricted Voting Units ”) at U.S.$10.00 per Class A Restricted Voting Unit, for gross proceeds of U.S.$200,000,000. Each Class A Restricted Voting Unit consists of one restricted voting unit of the REIT LP (each, a “ Restricted Voting Unit ”) and one right of the REIT LP (each, a “ Right ”). Each Restricted Voting Unit, unless previously redeemed, will be automatically renamed “Limited Partnership Units” following the closing of the Qualifying Transaction (the “ Closing ”). Each Right represents the entitlement to automatically receive, for no additional consideration, one-eighth (1/8) of one Restricted Voting Unit (which at such time will represent one-eighth (1/8) of a Limited Partnership Unit, subject to adjustment under the terms of the Qualifying Transaction). The REIT LP’s Class A Restricted Voting Units commenced trading on the Neo Exchange Inc. (the “ Exchange ”) under the symbol SVX.UN on January 8, 2020. The Class A Restricted Voting Units separated into Restricted Voting Units and Rights on February 18, 2020, and trade under the symbols “SVX.U” and “SVX.RT.U”, respectively.

In connection with the Offering, the REIT LP granted the underwriters a non-transferable option to purchase up to an additional 3,000,000 Class A Restricted Voting Units, at a price of U.S.$10.00 per Class A Restricted Voting Unit, to cover over-allotments, if any, and for market stabilization purposes. The underwriters partially exercised the over-allotment option to acquire 2,500,000 Class A Restricted Voting Units and the over-allotment closed on January 23, 2020. Due to the partial exercise of the over-allotment option, an aggregate of 1,259 Proportionate Voting Units were relinquished without compensation by the Sponsors on January 23, 2020. As a result, following the exercise of the over-allotment option and relinquishment of the 1,259 Proportionate Voting Units, the Founders own an aggregate of 57,561 Proportionate Voting Units (excluding Proportionate Voting Units underlying the Class B Units).

Concurrent with the closing of the Offering, the Sponsors purchased an aggregate of 512,000 class B Units (“ Class B Units ”) at an offering price of U.S.$10.00 per Class B Unit, for gross proceeds of U.S.$5,120,000. Each Class B Unit consists of 1/100 of a Proportionate Voting Unit and one Right. In connection with the partial exercise of the over-allotment, the Sponsors purchased an aggregate of 12,500 additional Class B Units, for additional gross proceeds of U.S.$125,000.

The proceeds of U.S.$225,000,000 from the Offering were placed in an escrow account (the “ Escrow Account ”) with Olympia Trust Company (“ Olympia ”), pursuant to an escrow agreement between the REIT LP and Olympia (the “ Escrow Agreement ”) and will be released upon consummation of the Qualifying Transaction in accordance with the terms and conditions of the Escrow Agreement.

On October 7, 2020 the REIT LP announced that it had entered into binding agreements to acquire real properties in the amount of approximately US$97.4 million and originate or acquire US$85.4 million of first lien mortgages..

On November 26, 2020, the REIT LP announced that it has determined not to proceed with its previously announced qualifying transaction and that it was exploring an alternative qualifying transaction. The REIT LP also announced that Michael Auerbach and Leland Hensch will become

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the Chief Executive Officer and Chief Financial Officer, respectively, of the general partner of the REIT LP (the “General Partner”), effective immediately.

On January 4, 2021, the REIT LP announced that it executed a confidential definitive agreement in connection with a potential transaction, which would, if consummated, qualify as the REIT LP’s qualifying transaction. Accordingly, the REIT LP is permitted until April 8, 2021 (15 months following the closing of its initial public offering) to conclude its qualifying transaction.

On January 26, 2021, the REIT LP announced the details of the previously announced entry into a definitive agreement in connection with a potential transaction which would, if consummated, qualify as the REIT LP’s qualifying transaction. Pursuant to the qualifying transaction, the REIT LP will combine with Intercure Ltd. (“Intercure”) (dba Canndoc) (TASE: INCR), Israel’s leading cannabis company. Canndoc, a wholly owned subsidiary of Intercure, is Israel’s largest licensed cannabis producer and one of the first to offer Good Manufacturing Practices (GMP) certified and pharmaceutical-grade medical cannabis products in pharmacies across Israel.

Concurrently, the REIT LP also announced a US$65 million private placement, pursuant to which, in connection with the closing of the Qualifying Transaction, it will issue 6.5 million units at a price per unit of US$10.00 (the “Private Placement”).

Under the terms of the Qualifying Transaction, Intercure is valued at US$300 million preQualifying Transaction and Private Placement.

Both the Qualifying Transaction and Private Placement are subject to a number of closing conditions, including obtaining shareholder approval from Intercure’s shareholders and listing approval from the NASDAQ.

3. BASIS OF PREPARATION

(a) Basis of preparation

These unaudited interim financial statements of the REIT LP as at September 30, 2020 and for the period from January 1, 2020 through September 30, are prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting” and in accordance International Financial Reporting Standards. The REIT LP was established on November 12, 2019 and accordingly no comparatives have been provided for the income statements and cash flows.

(b) Basis of measurement

The unaudited interim financial statements of the Company have been prepared on a historical cost basis. The REIT LP’s functional and presentation currency is the U.S. dollar.

(c) Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant assumptions were used in determining the fair value of Rights attached to the Class A Restricted Voting Units at inception.

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Financial instruments

Financial assets and liabilities are recognized when the REIT LP becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or are assigned, and the REIT LP has transferred substantially all risks and rewards of ownership in respect of the asset. Financial liabilities are derecognized when the related obligation is discharged, cancelled or when it expires.

Management determines the classification of financial instruments at initial recognition with reflection of the business model and cash flow characteristics of the financial instruments. Financial assets are classified at fair value through profit or loss (‘‘FVTPL’’) or at amortized cost. Financial liabilities are classified at amortized cost.

Financial instruments classified as FVTPL are carried at fair value in the statement of financial position and any gains or losses are recorded in net income in the period in which they arise. There were no items classified as FVTPL. Financial instruments classified at amortized cost include securities held in escrow. The Class A Restricted Voting Units subject to redemption have been classified as liabilities for accounting purposes and are recorded at amortized cost.

(b) Impairment of financial asset at amortized cost

At each financial statement reporting date, the REIT LP assesses whether there is objective evidence that a recorded financial asset is impaired. Impairment exists if one or more events have occurred after the initial recognition of the asset and those events have objectively given rise to an expected negative impact on the estimated future cash flows of the financial asset that can be reliably estimated. The REIT LP recognizes impairment if the expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of this difference is recognized as the impaired amount and is recorded as profit or loss. An impairment of a financial asset carried at amortized cost is reversed in subsequent periods if the amount of the loss decreased and the decrease can be related objectively to an event occurring after the impairment was recognized.

(c) Income tax

Pursuant to the Limited Partnership Agreement (“the Partnership”), all of the investment income, expense and realized capital gains and losses of the Partnership are allocated to the limited partners and the General Partner. These financial statements do not provide for income taxes as the limited partners and the General Partner are taxed individually on their share of the Partnership’s income.

(d) Per unit information

Basic income or loss per Class B Unit is calculated by dividing the net income or loss by the weighted average number of Class B Units, Proportionate Voting Units and General Partnership Unit outstanding during the period. The calculation excludes the effect of Class A Restricted Voting Units, as the Class A Restricted Voting Units have been classified in these financial statements as financial liabilities.

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5. RESTRICTED CASH HELD IN ESCROW

The following cash balances were held in escrow at Olympia trust company as at September 30, 2020:

	AS AT AS AT SEPTEMBER 30, 2020 DECEMBER 31, 2019
Bank of Montreal GIC - USD due 15-Jun-2021 BNS Corp USD Investment Savings Account NB GIC - USD due 15-Jun-2021 NBC NBI Altamir CP Account RBC Bank BDN - USD due 01-Oct-2020 REN USD High Interest Savings Account Cash (in Escrow)	25,030,781 $ - $ 77,958,715 $ - $ 19,502,858 $ - $ 9,978,590 $ - $ 78,509,902 $ - $ 15,016,053 $ - $ 2,421 $ - $
	225,999,320 $ - $

These balances are valued at amortized cost which approximates fair value due to the short-term nature of the items.

6. CLASS A RESTRICTED VOTING UNITS SUBJECT TO REDEMPTION

(a) Authorization

The REIT LP is authorized to issue an unlimited number of Class A Restricted Voting Units. The holders of Class A Restricted Voting Units have no pre-emptive rights or other subscription rights and there are no sinking fund provisions applicable to these units.

(b) Voting Rights

The holders of the Class A Restricted Voting Units are entitled to vote on and receive notice of meetings on all matters requiring unitholder approval (including any proposed extension to the permitted timeline and approval of the Qualifying Transaction if otherwise required under applicable law) other than the election and/or removal of directors of the General Partner and auditors of the REIT LP prior to Closing. Prior to the Qualifying Transaction, holders of the Class A Restricted Voting Units are not entitled to vote at (or receive notice of or meeting materials in connection with) meetings held only to consider the election and/or removal of directors and auditors.

(c) Redemption Rights

Only holders of Class A Restricted Voting Units are entitled to have their units redeemed and receive the escrow proceeds (net of applicable taxes and other permitted deductions) in the event the Qualifying Transaction does not occur within the permitted timeline, in the event of the Qualifying Transaction, and in the event of an extension to the permitted timeline. The Rights which were issued with the Class A Restricted Voting units have no redemption rights.

(d) Classification

The REIT LP has classified its Class A Restricted Voting Units as financial liabilities within the unaudited balance sheet. The REIT LP recorded a discount to the $225,000,000 of gross proceeds from the Offering in the amount of $19,988,541, representing the fair value of the Rights, and

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$2,946,522, representing the transaction costs associated with the Class A Restricted Voting Units. The fair value of the Rights was arrived at by dividing the $225,000,000 of Class A Restricted Voting Unit gross proceeds by the fully diluted unit value of the REIT LP and dividing the quotient by eight. The difference between the estimated fair value of the Rights and the Class A Restricted Voting Unit value at the time of the Offering is allocated to the Class A Restricted Voting Unit liability within the unaudited balance sheet. The aggregate discount of $22,935,063 is being amortized over 12 months using the effective interest rate method. For the period from January 1, 2020 through September 30, 2020, the REIT LP recorded $16,333,657 of amortization of the issue costs in connection with the Rights. Interest earned on the escrow funds of $1,004,609 has been credited to the Class A Restricted Voting Units.

7. UNITHOLDERS’ EQUITY

The REIT LP is authorized to issue an unlimited number of Class B Units. The holders of Class B Units have no pre-emptive rights or other subscription rights and there are no sinking fund provisions applicable to these units.

(a) Voting Rights

The holders of the Class B Units are entitled to vote at all meetings of unitholders and on all matters requiring a unitholder vote, with the exception of an extension of the permitted timeline, which will only be voted upon by holders of Class A Restricted Voting Units.

(b) Redemption Rights

Holders of Class B Units, being the Founders, do not have access to, and cannot benefit from, any proceeds held in the escrow account, and as such, do not have any redemption rights with respect to their Class B Units. The Founders (including the Sponsors) will, however, be entitled to such redemption rights using proceeds from the escrow account with respect to any Class A Restricted Voting Units they may acquire pursuant to or following the Offering.

8. TRANSACTION COSTS

Transaction costs are directly related to the Offering and consist mainly of legal, accounting, printing, filing and underwriting costs. Transaction costs incurred from November 12, 2019 (date of formation) through September 30, 2020 were allocated between Unitholders’ Equity and units subject to redemption on the following basis:

	Class A Restricted Voting Units	Class A Rights	Class B Units	Total
Professional fees (legal, accounting, etc.)	$ 847,411	$ 82,622	$ 21,784	$ 951,817
Underwriters’ commission	$ 1,765,836	$ 172,168	-	$1,938,005
Listing	$ 155,996	$ 15,460	-	$ 171,455

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	Class A Restricted Voting Units	Class A Rights	Class B Units	Total
Other	$ 177,279	$ 17,285	$ 4,557	$ 199,121
Total	$ 2,946,522	$ 287,535	$ 26,341	$3,260,398

The Underwriters are entitled to an underwriting commission equal up to $12,375,000 or 5.5% of the gross proceeds of the Class A Restricted Voting Units issued under the Offering. The REIT LP paid $1,938,005 to the Underwriters at the closing of the Offering, of which $1,413,750 was used to settle CG Investment Inc. IV’s Class B Unit sponsors share purchase obligation. The balance of the underwriting commission of $10,436,995, or 4.6% of the gross proceeds (the “Deferred Amount”) of the Class A Restricted Voting Units, has been deferred and will only be paid upon successful completion of the Qualifying Transaction as follows: (A) as to 3.6% of the gross proceeds to the Underwriters; and (B) as to 1.0% of the gross proceeds, released only at the General Partner’s sole discretion, in whole or in part, as it sees fit, for payment to parties of the General Partner’s choosing and may be paid to the Underwriters. If the Qualifying Transaction is not consummated within the permitted timeline, no Deferred Amount shall be payable. Due to its association with an uncertain future Qualifying Transaction, the contingent liability of deferred underwriting commission balance has not been recorded in the Interim Financial Statements. Transaction costs were prorated between Class A Restricted Voting Units, Class A Rights and Class B Units by the amount of proceeds received.

9. FINANCIAL INSTRUMENTS

All financial instruments for which fair value is recognized or disclosed are categorized within a fair value hierarchy, described as follows:

Level 1 − Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities

Level 2 − Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means

Level 3 − valuation techniques with significant unobservable market inputs.

The cash and securities held in escrow are measured using level 1 inputs.

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10. FINANCIAL RISK MANAGEMENT

(a) Market risk

Market risk is the risk that a material loss arises from fluctuations in a financial instrument’s fair value. For purposes of this disclosure, the REIT LP segregates market risk into two categories: fair value risk and interest rate risk.

(b) Fair value risk

Fair value risk is the potential for loss from an adverse movement in market prices. The REIT LP has minimal fair value risk as the only financial instruments carried at fair value are cash and cash and securities held in escrow.

(c) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due

to changes in interest rates. The REIT LP’s exposure to interest rate risk is nominal.

11. CAPITAL MANAGEMENT

The REIT LP defines the capital that it manages as its Class A Restricted Voting Units and its Unitholders’ Equity.

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The REIT LP’s primary objective in managing capital is to ensure capital preservation in order to benefit from acquisition opportunities as they arise. To the extent that the REIT LP requires additional funding for general ongoing expenses or in connection with the Qualifying Transaction, the REIT LP may seek funding by way of unsecured loans from the Sponsors and/or its affiliates, which loans would bear interest at no more than the U.S. dollar prime rate plus 1.0%. The lender under the loans would not have recourse against the funds held in the escrow account, and thus the loans will not reduce the value thereof. Such loans will collectively be subject to a maximum aggregate principal amount equal to 10% of the escrowed funds and may only be repayable in cash no earlier than the Closing. Such loans may only be convertible into units and/or Rights in connection with the Closing. The REIT LP may also seek to raise additional funds through a rights offering in respect of units available to our unitholders, in accordance with the requirements of applicable securities legislation and the Exchange’s rules, and subject to the consent of the Underwriters, subject to the conditions outlined further in the Prospectus.

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12. GENERAL AND ADMINISTRATIVE EXPENSES

The REIT LP had the following general and administrative expenses for the period from January 1, 2020 through September 30, 2020:

Fees connected to qualifying transaction	$ 3,528,279
Regulatory	17,039
Administrative	217,697
Total	$ 3,763,015

13. RELATED PARTY TRANSACTIONS

On March 12, 2020 the REIT LP formally engaged Atlas Management, LLC (“Atlas”) as an independent contractor for the provision of consulting services (the “Services”). Such Services include assistance with the identification and evaluation of real estate assets as potential acquisition targets for the Qualifying Transaction; and the negotiation, execution and closing of such acquisitions, together with such ancillary services as may reasonably be requested from time to time by the REIT LP. Atlas has agreed to make its Management Team available to perform the Services. Its Management Team includes Richard Acosta, Michael Miller, Eric Clarke, Dylan Marcoot and Dylan Hart, all of whom are Founders of the REIT LP. The term of the REIT LP’s engagement with Atlas will continue until the REIT LP successfully closes the Qualifying Transaction, or if no such transaction takes place on or prior to such time, at the end of any period (including any extensions) permitted for the REIT LP to complete the Qualifying Transaction. During the term, the REIT LP shall pay a consulting fee of $62,500 per month (inclusive of applicable taxes) to Atlas.

The REIT LP has executed an administrative services agreement with Subversive Sponsor, which will make available to the REIT LP administrative support and certain related services as may be required by the REIT LP, including the utilization of office space and utilities. Pursuant to the agreement, in exchange for the administrative services the REIT LP shall pay to Subversive Sponsor a payment of $10,000 per month. For the period from July 1, 2020 to September 30, 2020, the REIT LP did not make any payments to Subversive Sponsor. The REIT LP did accrue for the obligation, recording $30,000 of administrative fees, which such amount is included in General & Administrative expenses in the REIT LP’s statement of income and in Accrued Expenses in the REIT LP’s balance sheet and further broken down in footnote 12.

14. RESTATEMENT OF THE SEPTEMBER 30, 2020 FINANCIAL STATEMENTS

The REIT LP has restated the unaudited condensed interim financial statements that was filed on November 13, 2020 to reflect the following adjustments:

Certain prepaid expenses relating to the acquisition of real properties announced in the October 7, 2020 binding agreements which was to be the Qualifying Acquisition of the REIT LP have been expensed due to the decision to not proceed with this transaction. Additional expenses incurred relating to this transaction have also been expensed. As a result of these adjustments general and

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administrative expenses have increased by $2.7 million and prepaid expenses have reduced by $1 million and accrued expenses have increased by $1.6 million as compared to the September 30, 2020 financial statements filed on November 13, 2020.

These refiled financial statement show the December 31, 2019 comparative balance sheet instead of the June 30, 2020 numbers on the unaudited balance sheet as at September 30, 2020.

The notes to the unaudited financial statements (Note 2) include additional disclosures on transactions and announcements that were made by the REIT LP since November 13, 2020.

Note 2 to the financial statements includes a description on the material uncertainty to continue as a going concern relating the REIT LP’s negative working capital position and dependence on the Sponsors for continued support.