Killam is converting to a REIT with a limited rollover option

Killam is proposing to effectively convert to a REIT (although, very unusually no statement is made that management actually expects it to qualify as a REIT). Most of its shareholders will exchange their shares for units of the REIT on a taxable basis. However, up to 20% of the shares may instead be exchanged on a s. 97(2) rollover basis for exchangeable units of a subsidiary LP into which Killam will be dropped, with the REIT backstopping the exchange obligations of the LP under an Exchange Agreement.

In order that the subsidiary LP will be an "excluded subsidiary" (i.e., within a safe harbour from the SIFT rules), those electing rollover treatment generally must be taxable Canadian corporations - so that individuals wishing to elect would need to transfer their shares first to a holding company. Killam will then be transferred to a Newco for consideration including an interest-bearing note, followed by their amalgamation, in order to shelter the rental income of the properties now held by Killam through a lower-tier LP.

Convertible debentures of Killam (bearing interest of around 5.5%) will simply be assumed by the REIT in consideration for the issuance of a note to it by Killam.

Neal Armstrong. Summary of Killam Properties Circular under Offerings - REIT and LP Offerings - Domestic REITs.