Killam Properties Inc. Announces Proposed Conversion to a Real Estate Investment Trust

HALIFAX, NOVA SCOTIA–(Marketwired – Oct. 6, 2015) –

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Killam Properties Inc. (TSX:KMP) (“Killam“) is pleased to announce that its Board of Directors has unanimously approved the proposed reorganization of Killam into a real estate investment trust to be named Killam Apartment Real Estate Investment Trust (the “REIT” or “Killam Apartment REIT“). The reorganization will be accomplished by way of a plan of arrangement and, among other approvals, will be subject to shareholder approval at a special meeting to be held on or about December 8, 2015.

“The proposed REIT conversion is expected to enhance long-term shareholder value by maximizing cash distributions to investors in the most tax efficient way possible”, said Philip Fraser, Killam’s President and CEO.

“The proposed REIT structure will not result in a change in Killam’s strategy, portfolio or operations. The strategy of Killam Apartment REIT will remain consistent with Killam’s existing strategy, maximizing its value and long-term profitability by concentrating on three key areas of growth: 1) increasing the earnings of its existing portfolio, 2) expanding its portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer assets, and 3) developing high-quality properties in its core markets.”

“Killam Apartment REIT’s distribution policy will also remain consistent with Killam’s current dividend policy; initially the monthly distribution will be $0.05 per REIT unit per month, or $0.60 per REIT unit on an annualized basis, the same level of Killam’s current dividend rate per common share.”

Reasons for Reorganizing

The proposal to convert Killam to a REIT structure is the result of an extensive review of Killam’s business model conducted by its Board of Directors. The Board of Directors intends to recommend, in an information circular for the Killam shareholder meeting, that the shareholders vote in favour of the plan of arrangement (the “Arrangement“). The Board of Directors believes that the conversion of Killam to a REIT will enhance long-term shareholder value for the following reasons:

• The REIT provides a tax efficient vehicle to deliver cash flow from Killam’s business to investors;
• The REIT structure represents the preferred Canadian public market structure for owning real estate;
• The REIT structure allows Killam to be more comparable to its peers and increases its investment profile to REIT investors.

Details of the Arrangement

The proposed reorganization will be effected pursuant to an arrangement under the Canada Business Corporations Act. The Arrangement is subject to the approval of 66 2/3 % of the votes cast by holders of Killam’s common shares. Directors and officers of Killam, who collectively control 5.8% of Killam’s common shares, have indicated their intention to vote in favour of the Arrangement.

Under the terms of the Arrangement, Killam shareholders will receive one unit of the REIT (“REIT Unit“) for each Killam common share held, unless a qualifying shareholder elects to receive Exchangeable LP Units (“Exchangeable Units“) in a partnership controlled by the REIT in exchange for their common shares of Killam. The Exchangeable Units are intended to be economically equivalent to and exchangeable for REIT Units on a one-for-one basis, and will be accompanied by special voting units of the REIT that provide their holders with equivalent voting rights to holders of REIT Units. A maximum of 20% of Killam’s common shares outstanding may be exchanged for Exchangeable Units.

In connection with the Arrangement, the REIT will assume all of the covenants and obligations of Killam in respect of the outstanding convertible debentures of Killam. Provided the Arrangement is completed, holders of Killam’s convertible debentures will thereafter be entitled to receive REIT Units on any future conversion of their debentures.

In addition to the requirement for shareholder approval, the completion of the Arrangement and conversion of Killam common shares into either REIT Units or Exchangeable Units will be contingent on the concurrent completion of a number of events, including: (a) all necessary third party regulatory and court approvals; and (b) receipt of approval from the Toronto Stock Exchange, subject only to the filing of required documents and payment of fees.

Further details on the Arrangement will be set out in an information circular expected to be mailed to shareholders on or about November 10, 2015, in advance of the special meeting for the purpose of obtaining shareholder approval to be held on or about December 8, 2015.

Although the timing of the completion of the conversion process cannot be predicted with certainty, management anticipates the REIT conversion to be completed on January 1, 2016.

Tax Impact for Shareholders

The transaction contemplated by the Arrangement will result in a disposition of Killam common shares for Canadian tax purposes, and the immediate acquisition of REIT Units at a value equal to the fair value, on the date of the transaction. If a shareholder holds Killam common shares outside of a tax efficient vehicle (such as an RRSP, RRIF or TFSA) this may result in a taxable capital gain or loss to report for 2016, the year the conversion is expected to be completed. A shareholder who elects to exchange Killam common shares for Exchangeable Units may be able to defer the tax event associated with the Arrangement. Exchangeable Units may allow for certain tax efficiencies; however they will be subject to additional restrictions and limitations. Shareholders should review the information circular to be mailed in November for a further discussion of tax considerations of the Arrangement.

Corporate Profile

Killam Properties Inc., based in Halifax, Nova Scotia, is one of Canada’s largest residential landlords, owning, operating, and developing multi-family apartments and manufactured home communities.

For further information please visit the Investor Relations section of Killam’s website at www.killamproperties.com/investor-relations.

Cautionary Statement

Certain statements in this press release may constitute forward-looking statements including: (i) the intention to complete the Arrangement; (ii) the expected benefits of the Arrangement to Killam and its shareholders; (iii) the future strategy of the REIT, which are based on our expectations, estimates, forecast and projections, which we believe are reasonable as of the current date. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect, including, but not limited to, the ability of the REIT to satisfy the conditions necessary to complete the Arrangement, including the requirements of the Toronto Stock Exchange and shareholder and court approval, and the expected performance of the REIT following closing of the Arrangement. Additional, important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, local real estate conditions, including the development of properties in close proximity to Killam’s properties, competition, availability and cost of additional real estate properties, changes in government regulation, dependence on tenants’ financial condition, interest rates, the availability of equity and debt financing, environmental matters, tax related matters, and reliance on key personnel. There can be no assurances that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The factors identified above are not intended to represent a complete list of the factors that could affect Killam and the REIT. For more exhaustive information on these risks and uncertainties, you should refer to our most recently filed annual information form which is available at www.sedar.com. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made and should not be relied upon as of any other date. Other than as required by law, Killam does not undertake to update any of such forward-looking statements.