KEYreit Board Recommends Unitholders REJECT the Unsolicited Huntingdon Partial Offer and Announces Special Meeting of Unitholders

TORONTO, Feb. 15, 2013 /CNW/ - KEYreit (TSX: KRE.UN) announced today its board of trustees, on the recommendation of its special committee, unanimously recommends that unitholders REJECT the unsolicited partial offer by Huntingdon Capital Corp. If successful, the unsolicited partial offer would give Huntingdon effective control of KEYreit.

"The board strongly believes the unsolicited partial offer is wholly inadequate, coercive, highly opportunistic and does not represent fair value for your units," said Donald Biback, Chairman of the board of trustees. "The partial offer fails to provide unitholders with an appropriate control premium for the units purchased, and provides no premium for units not purchased. It significantly undervalues KEYreit's assets and businesses, which have a proven track record of creating value for unitholders. We urge unitholders to reject Huntingdon's wholly inadequate partial offer."

The board of trustees and management, representing 17% of KEYreit's issued and outstanding units, have stated that they will not tender to Huntingdon's coercive unsolicited partial offer.

The basis for the board's recommendation is contained in a trustees' circular which is available on KEYreit's website www.keyreittruevalue.com and at www.sedar.com. The trustees' circular is also being mailed to unitholders. KEYreit urges unitholders to carefully review the trustees' circular and cover letter. KEYreit also urges unitholders to REJECT the Huntingdon partial offer and NOT TENDER their units.

KEYreit also announced today that it will hold a special meeting of unitholders to approve the unitholder rights plan adopted by the board of trustees on February 8, 2013 and other matters.  The special meeting of unitholders is expected to occur on March 26, 2013.

Letter to unitholders

The complete cover letter to unitholders from the Chairman of the board of trustees follows:

Dear Fellow KEYreit Unitholder:

You recently received an unsolicited partial offer (the "Huntingdon Partial Offer") from Huntingdon Capital Corp. ("Huntingdon"), which already owns approximately 5.5% of KEYreit's units. The Huntingdon Partial Offer is for approximately 45% of KEYreit's units, and if successful, would result in Huntingdon having effective control of KEYreit with more than 50% of the outstanding KEYreit units.

The board of trustees of KEYreit unanimously recommends that you REJECT the Huntingdon Partial Offer and NOT TENDER your units.

KEYreit is the premier small-box retail property owner in Canada

KEYreit is the premier small-box retail property owner with 226 properties in nine provinces across Canada and is the largest quadruple-net lease landlord in Canada. Our specialized niche business model, portfolio of attractive long-term leases and well-located properties, national name brand tenants and outstanding record of growth set us apart from our competitors.

Based on the closing price of KEYreit units on January 28, 2013 (the day before the public announcement of Huntingdon's intent to launch the Huntingdon Partial Offer), we have earned our unitholders returns of 47.6% since going public in October 2005, 72.2% over the past five years and 7.6% over the past twelve months to January 28, 2013.

Our monthly distribution is reliable, and we expect to maintain and grow our monthly distribution through active management of our existing properties and disciplined management of our balance sheet as well as accretive acquisitions and development opportunities. We are in an excellent position to capitalize on our unique strategy and we are excited about the future of KEYreit.

The Huntingdon Partial Offer is wholly inadequate

The board of trustees and a special committee comprised of independent trustees John Jakolev, Donald Biback and George Schott, together with financial and legal advisors, carefully considered the terms and conditions of the Huntingdon Partial Offer and unanimously determined that the Huntingdon Partial Offer is wholly inadequate and does not represent fair value for your units.  In reaching our conclusion that the Huntingdon Partial Offer is not in the best interests of KEYreit and unitholders, we considered the following:

• the Huntingdon Partial Offer is financially inadequate:
• the Huntingdon Partial Offer fails to adequately compensate unitholders for the underlying value of KEYreit's assets and its future growth opportunities;
• the Huntingdon Partial Offer seeks to provide Huntingdon with effective control of KEYreit, without offering an appropriate control premium for the units purchased and without offering any premium for the units not purchased;
• the $7.00 offer price represents only a 13% premium to the closing price per unit of $6.18 on the TSX on January 28, 2013 (the day before the public announcement of Huntingdon's intent to launch the Huntingdon Partial Offer), but more importantly, an effective premium of only 5.9% when pro-rated over all of KEYreit's outstanding units (after taking into account that, if Huntingdon purchases 6,628,940 units pursuant to the Huntingdon Partial Offer, 7,442,939 units would not be purchased by Huntingdon and would therefore receive no premium at all);
• the opinion of equity research analysts has suggested that the Huntingdon Partial Offer does not fully value KEYreit;
• the Huntingdon Partial Offer is opportunistic and capitalizes on KEYreit's temporarily depressed unit price; and
• in the written opinion of BMO Capital Markets, the financial advisor to the special committee, the consideration offered pursuant to the Huntingdon Partial Offer is inadequate, from a financial point of view, to unitholders (other than Huntingdon and its affiliates);
• the Huntingdon Partial Offer is coercive;
• Huntingdon will have the power to reduce or entirely eliminate distributions to unitholders (and has a track record of doing so);
• Huntingdon's plans for KEYreit are vague and may have a potentially adverse impact on unitholders;
• if successful, the Huntingdon Partial Offer would likely have an adverse effect on the liquidity and future value of the units;
• the Huntingdon Partial Offer is highly conditional and discretionary;
• the Huntingdon Partial Offer is not a "permitted bid" under KEYreit's unitholder rights plan;
• the Huntingdon Partial Offer will adversely impact unitholders' future decision-making;
• the Huntingdon Partial Offer may trigger a deemed termination of KEYreit's management arrangements;
• the unanimous recommendation of the special committee of independent trustees to REJECT the Huntingdon Partial Offer; and
• all of KEYreit's trustees and officers have indicated an intention to REJECT the Huntingdon Partial Offer and NOT TENDER their units.

BMO Capital Markets, the financial advisor to the special committee, has provided a written opinion dated February 12, 2013 to the special committee stating that the consideration offered pursuant to the Huntingdon Partial Offer is inadequate, from a financial point of view, to unitholders (other than Huntingdon and its affiliates). The full text of the inadequacy opinion, setting out the scope of review, assumptions and limitations in connection with the opinion, is attached as Appendix "B" to the accompanying trustees' circular and should be reviewed and considered in its entirety in conjunction with the review of the circular.

Further, unitholders should be aware that tendering to the Huntingdon Partial Offer may be a taxable disposition and may result in the payment of taxes by a unitholder.  Unitholders should seek tax advice to address their specific circumstances.

For the reasons set out above and for other reasons, as more particularly described in the accompanying trustees' circular, your board of trustees unanimously recommends that you REJECT the Huntingdon Partial Offer and NOT TENDER your units.

Please take the time to review the trustees' circular accompanying this letter as it sets out the recommendation of your board of trustees with respect to the Huntingdon Partial Offer.  We are confident that you will conclude, as we have, that the Huntingdon Partial Offer fails to provide full value for the KEYreit units and does not adequately reflect the underlying value of KEYreit's assets or growth opportunities within our portfolio and business plan.

If you have tendered your units, you should withdraw them immediately

Unitholders who have tendered units to the Huntingdon Partial Offer and who wish to obtain advice or assistance in withdrawing their units are urged to contact their broker or Kingsdale Shareholder Services Inc., the information agent retained by KEYreit, at 1-888-518-1562. Kingsdale is also available to respond to other enquiries regarding the information in the accompanying trustees' circular.

On behalf of the board of trustees, we thank you for your continued support.

Sincerely,

(signed) "Donald M. Biback"
Donald M. Biback
Trustee and Chair of the Board

About KEYreit

KEYreit (TSX: KRE.UN) is Canada's premier small-box retail property owner with 227 properties in nine provinces across Canada. KEYreit's properties are well located and geographically diverse across Canada with the majority of all properties containing long-term quadruple net leases.

To find out more about KEYreit (TSX: KRE.UN), visit our website at www.keyreit.com.

Forward-Looking Information

This news release contains certain forward looking statements that may constitute "forward-looking information" within the meaning of applicable securities legislation. In some cases, forward-looking information can be identified by the use of terms such as "anticipate", "could", "expect", "seek", "may", "likely", "intend", "will", "believe" or other similar expressions concerning matters that are not historical facts. Forward-looking statements may relate to management's future outlook and anticipated events or results. Forward-looking statements are subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what is currently expected. Such factors include risks relating to KEYreit's reliance on key tenants, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, distributions, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in KEYreit's Annual Information Form for the year ended December 31, 2011. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Other than as required by applicable Canadian securities law, KEYreit does not undertake to update this information at any particular time. Additional information identifying risks and uncertainties is contained in KEYreit's filings with the Canadian securities regulators, available at www.sedar.com.

SOURCE: KEYreit

KEYreit unitholders, please contact:
Kingsdale Shareholder Services Inc.
1-888-518-1562 toll-free in North America
1-416-867-2272 outside of North America (collect calls accepted)
[email protected]

Media, please contact: 
Longview Communications Inc.
Alan Bayless 604-694-6035, [email protected]
Olena Lobach 416-649-8009, [email protected]