Realty Trust Sunstone

No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. These securities have not been and will not be registered under the United States Securities Act of 1933, as amended and may not be offered or sold in the U.S. PROSPECTUS Initial Public Offering September 28, 2010 SUNSTONE U.S. OPPORTUNITY (NO. 3) REALTY TRUST (the “Trust”) SUNSTONE (NO. 3) LIMITED PARTNERSHIP (the “Master LP”) (collectively, the Trust and the Master LP are referred to herein as the “Issuers”) Minimum: $5,000,000 (4,000 Trust Units) Maximum: $50,000,000 (40,000 Trust Units) $1,250 per Trust Unit (the “Offering”) Except as otherwise stated in the Prospectus, all dollar amounts, including the price per Trust Unit, are stated in U.S. dollars. This Prospectus qualifies the distribution of up to 40,000 units of the Trust (each a “Trust Unit”) at a price of $1,250 per Trust Unit (the “Offering Price”). Purchasers are required to acquire a minimum of ten Trust Units. Additional subscriptions may be made of single Trust Units. Trust Units cannot be purchased or held by “non- residents” of Canada, as defined in the Tax Act. Price to Public(1) Agents’ Commission(2) Proceeds to Issuer Per Trust Unit Per Trust Unit $1,250 $100(3) $1,150 Minimum Offering 4,000 Trust Units $5,000,000 $400,000(3) $4,600,000(4) Maximum Offering 40,000 Trust Units $50,000,000 $4,000,000(3) $46,000,000(4) (1) The Offering Price was determined by negotiation between the Lead Agent and the Trust. No third-party valuation was obtained. (2) A commission and fees will be paid to the Agents and any sub-agents in connection with this Offering, at a rate equal to 8% of the gross proceeds of the Offering (the “Agents’ Commission”). (3) As a further incentive to the Agents, the Holding GPs have agreed to pay to the Agents a trailer fee equal to 25% of any amounts realized by the Holding GPs in respect of their GP Interests. The Agents may assign all or part of their compensation entitlements to sub-agents effecting sales of Trust Units. As well, Sunstone US will pay to the Agents, on an annual basis in arrears, a trailer fee equal to 1/6th of the Asset Management Fees paid to Sunstone US. Such trailer fee will only be paid by Sunstone US to the Agents if it is collected by it. The Agents may assign all or part of the trailer fee to sub-agents effecting sales of Trust Units. Pursuant to the Cost Sharing and Recovery Agreements, the Agents’ Commission and expenses incurred with respect to the Offering will be borne entirely by the Holding LPs (refer to “Plan of Distribution – Agency Agreement”). (4) Before deduction of the balance of the expenses of the Offering estimated at $400,000 to $600,000. The Prospectus also qualifies the distribution to the Trust of up to 40,000 units of the Master LP (each a “Master LP Unit”) having a price of $1,248.75 per Master LP Unit. Unless an amendment to the Final Prospectus (herein defined) is filed and the British Columbia Securities Commission, as principal regulator pursuant to Part 3 of Multilateral Instrument 11-102, “Passport System”, has issued a receipt for the amendment, the distribution of these securities will cease within 90 days after the date of the Receipt for the Final Prospectus. If an amendment to the Final Prospectus is filed and the principal regulator has issued a receipt for the amendment, the distribution of these securities will cease within 90 days after the date of the receipt for such amendment, unless a further amendment to the Final Prospectus is filed and the principal regulator has issued a receipt for the further amendment. In any case, the total period of distribution must not end more than 180 days from the date of the Receipt for the Final Prospectus. This is a “blind pool” Offering. Although the Issuers expect that the available net proceeds of the Offering will be applied in the purchase of one or more Properties, the specific Properties in which the net proceeds will be invested have not yet been determined. In any event, if the maximum Offering of 40,000 Trust Units is sold, the Issuers expect that approximately $45,400,000 (approximately 90.8% of the gross proceeds of the Offering) will be applied to the purchase price and other acquisition costs of one or more Properties (including Financing Fees payable as described herein), and to the creation of working capital reserves and reserves for renovations and upgrades. If only the minimum Offering of 4,000 Trust Units is sold, the Issuers expect that approximately $4,200,000 (approximately 84.0% of the gross proceeds of the Offering) will be applied to the purchase price and other acquisition costs of one or more Properties (including Financing Fees payable as described herein), and to the creation of working capital reserves and reserves for renovations and upgrades. There is no market through which these securities may be sold and purchasers may not be able to resell securities purchased under this Prospectus. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities, and the extent of issuer regulation. See “Risk Factors”. As at the date of this Prospectus, neither the Trust nor the Master LP has any of their securities listed or quoted, has not applied to list or quote any of their securities, nor intends to apply to list or quote any of their securities, on the Toronto Stock Exchange, a U.S. marketplace, or a marketplace outside Canada and the United States of America including the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc. An investment in the securities offered by this Prospectus must be considered speculative as the securities are subject to certain risk factors as set out under the heading “Risk Factors”. An investment in Trust Units is appropriate only for Purchasers who have the capacity to absorb a loss of some or all of their investment. The cumulative, non-compounded Minimum Returns of 8% per annum payable to limited partners of the Holding LPs, which will ultimately form part of the distributions available from the Trust to Trust Unitholders, are preferred returns, but are not guaranteed and may not be paid on a current basis in each year or at all. “Related Parties” (as defined in the Glossary of Terms) shall not, in total, subscribe for more than 9.9% of the Trust Units sold pursuant to the Offering. Given the uncertainties involved in connection with predicting the Trust’s annual earnings and debt servicing requirements, it is impossible to determine the amount of earnings that the Trust will require to attain an earnings coverage ratio of one-to-one. The return on an investment in the Trust Units is not comparable to the return on an investment in a fixed- income security. Cash distributions, including a return of a Trust Unitholder’s original investment, are not - ii - guaranteed and their recovery by an investor is at risk and the anticipated return on investment is based upon many performance assumptions. Although the Trust intends to distribute its available cash to the holders of Trust Units, such cash distributions may be reduced or suspended. The ability of the Trust to make cash distributions and the actual amount distributed will depend on the operations of the Properties acquired by the Holding LPs, and will be subject to various factors including those referenced in the “Risk Factors” section of this Prospectus. In addition, the market value of the Trust Units may decline if the Trust is unable to meet its cash distribution targets in the future, and that decline may be significant. It is important for Purchasers to consider the particular risk factors that may affect the real estate and hotel investment markets generally and therefore the stability of the distributions to Trust Unitholders (refer to “Risk Factors” for a more complete discussion of these risks and their potential consequences). Subject to the qualifications and assumptions discussed under the heading “Canadian Federal Income Tax Considerations”, the Trust Units will, on the date of closing, be qualified for investment by RRSPs and similar Plans. If the Trust ceases to qualify as a mutual fund trust, a Trust Unit will cease to be a qualified investment for RRSPs and similar Plans. Adverse tax consequences will generally apply to a Plan and/or its annuitant, beneficiary thereunder or holder thereof, if the Plan acquires or holds property that is not a qualified investment for the Plan, or in respect of a TFSA, it acquires or holds property that is a prohibited investment (refer to “Canadian Federal Income Tax Considerations”). The after-tax return from an investment in Trust Units to Trust Unitholders who are subject to Canadian income tax can be made up of both a return on and a return of capital, and will depend, in part, on the composition for tax purposes of distributions paid by the Trust (portions of which distributions may be fully or partially taxable or may be tax deferred). Subject to the SIFT Measures (as defined herein) and various other tax considerations (refer to “Canadian Federal Income Tax Considerations” and “U.S.

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