H&R REIT calls special meeting to consider previously announced internal reorganization



    TORONTO, Aug. 27 /CNW/ - H&R Real Estate Investment Trust (the "REIT")
announces today that it has called a special meeting of unitholders for
September 19, 2008 (the "Special Meeting") to consider, among other things, an
internal reorganization (the "Reorganization") of the REIT which was
previously announced by the REIT in its May 16, 2008 press release.

    The Reorganization would result in the following:

    (i)    the completion of certain transactions in the course of which each
           unitholder would receive, for each REIT unit held, a unit of a
           "sister" trust ("H&R Finance Trust"). Thereafter, each issued and
           outstanding REIT unit would trade together with a unit of
           H&R Finance Trust as a "Stapled Unit"; and

    (ii)   the completion of certain transactions whereby H&R TT (LP) Inc., a
           wholly-owned subsidiary of the REIT, would ultimately transfer all
           of its assets (which primarily consist of an interest in a
           partnership that holds the Telus Tower in Calgary, Alberta) to
           the REIT.

    The Reorganization is subject to approval of the unitholders of the REIT
by way of the affirmative vote of two-thirds of the votes cast by unitholders
present in person or by proxy at the Special Meeting, together with certain
other customary conditions. The Board of Trustees of the REIT has unanimously
determined that the Reorganization is in the best interests of the REIT, and
accordingly, the Board of Trustees unanimously recommends that unitholders
vote FOR the Reorganization.

    In connection with the Reorganization, the REIT obtained an interim order
of the Court of Queen's Bench of Alberta dated August 15, 2008 confirming,
among other things, the calling and holding of the Special Meeting. In
addition, the REIT received (i) an advance income tax ruling from the Canada
Revenue Agency confirming certain Canadian federal income tax consequences of
the Reorganization, (ii) conditional approval from the Toronto Stock Exchange
(the "TSX") for the listing (but not posting for trading) of the H&R Finance
Trust units to be issued pursuant to the Reorganization and the listing and
posting for trading of the Stapled Units which will result from the
Reorganization, subject to the satisfaction of customary listing requirements
of the TSX, and (iii) certain exemptive relief from the local securities
regulatory authority or regulator in each of the provinces and territories of
    Assuming completion of the Reorganization, unitholders' investments would
be held through two separate trusts, the REIT and H&R Finance Trust. Units of
these two trusts would trade together as Stapled Units under the ticker symbol
"HR.UN", meaning that units of each trust will not trade independently.
Although the Reorganization is intended to be economically neutral, the steps
of the Reorganization are highly technical and follow the advance tax ruling
issued by the Canada Revenue Agency. In addition, assuming completion of the
Reorganization and based on June 30, 2008 figures and exchange rates, the REIT
will be required to record a realized loss on foreign exchange of
approximately $28 million on its income statement as a result of the
Reorganization. Such non-cash item will be added back when calculating the
REIT's distributable cash and will not have any impact on the cash
distribution to unitholders of the REIT.
    Assuming completion of the Reorganization, it is intended that
unitholders would receive distributions from both the REIT and H&R Finance
Trust. Of the current annualized cash distribution to unitholders of $1.44 per
unit, it is expected that approximately $0.11 will be distributed by H&R
Finance Trust. H&R Finance Trust's sole activity would be to hold debt issued
by a wholly-owned U.S. subsidiary of the REIT through which the REIT holds its
U.S. interests. It is contemplated that H&R Finance Trust would distribute to
its unitholders substantially all of its cash flow, consisting primarily of
interest paid by the wholly-owned U.S. subsidiary of the REIT, less
administration and other expenses. Among other things, this would allow the
REIT to access the capital markets by indirectly borrowing money from the
unitholders, which is ultimately expected to result in U.S. tax savings. Due
to these U.S. tax savings, and anticipated U.S. non-resident withholding tax
savings, it is anticipated that the combined distributions of the REIT and H&R
Finance Trust would exceed the distributions that would have been payable by
the REIT in future years in the absence of implementing the Reorganization.
    The discussion immediately below must be read in conjunction with, and
incorporates by reference, the opinion received by the REIT from its Canadian
tax counsel of the principal Canadian federal income tax consequences of the
Reorganization, which appears under the heading "Certain Canadian Federal
Income Tax Considerations" in the management information circular (the
"Circular") being mailed to unitholders of the REIT on or before August 29,
2008, and being filed concurrently at www.sedar.com. Unitholders are urged to
read the full text of such opinion contained in the Circular, and incorporated
herein. The REIT will have a deemed tax year end, but does not expect to incur
any Canadian federal income tax liability as a result of completion of the
Reorganization. Unitholders will be considered to have received a
return-of-capital distribution approximately equal to the fair market value of
the H&R Finance Trust units distributed to them. The distribution will reduce
the tax cost of unitholders' REIT units, but such holders will not incur a
Canadian federal income tax liability solely as a result of the receipt of
such distribution (except that unitholders whose current tax cost of their
REIT units is less than approximately $0.91 per unit (as estimated by the REIT
as at August 20, 2008) will realize a capital gain to the extent of such
deficiency). Non-resident unitholders will be subject to a one-time 15%
withholding tax on the amount of such distribution, although in certain
limited circumstances such tax may be refundable. This non-resident
withholding tax is currently estimated by the REIT to be approximately
$0.14 per unit of the REIT, which the REIT believes is not material in the
context of the Reorganization.
    The following must be read in conjunction with, and incorporates by
reference, the summary of an opinion received by the REIT from its U.S. tax
counsel regarding the material U.S. federal income tax consequences of the
Reorganization, which appears under the heading "Material U.S. Federal Income
Tax Consequences" in the Circular. Unitholders are urged to read the full text
of the summary of the opinion contained in the Circular, and incorporated
herein. Unitholders would be treated as receiving a distribution in an amount
equal to the value of the H&R Finance Trust units received by such
unitholders. The REIT now believes it is likely to be treated as a "passive
foreign investment company" (PFIC) for U.S. federal income tax purposes.
Various elections are available to U.S. shareholders of a PFIC. The tax
treatment of distributions by the REIT to a U.S. unitholder depends on which
of those elections, if any, the U.S. unitholder has made. Distributions paid
by the REIT to non-U.S. unitholders should not be subject to U.S. taxation.
    H&R Finance Trust is intended to be treated as a "fixed investment trust"
that is classified as a grantor trust, with the result that each unitholder
should be treated for U.S. federal tax purposes as directly holding their
proportionate share of the debt to be issued by the U.S. subsidiary of the
REIT to H&R Finance Trust and as earning directly their proportionate share of
the interest payments on such debt. Future interest payments to H&R Finance
Trust that are treated as received by U.S. unitholders would be taxable in the
hands of such unitholders at ordinary income rates. Interest payments to H&R
Finance Trust that are treated as received by non-U.S. unitholders who own
less than 10% of the outstanding REIT units and who comply with applicable
documentation requirements should generally be exempt from U.S. withholding
tax. The interest payments on the debt issued by the U.S. subsidiary should
generally be fully deductible by the U.S. subsidiary.
    The REIT does not expect to seek a ruling from the Internal Revenue
Service with respect to the U.S. tax consequences of the Reorganization, but
has received an opinion from the REIT's U.S. counsel confirming that the U.S.
tax consequences should be as described above.
    The foregoing is qualified in its entirety by the more detailed
information appearing in the Circular. Unitholders are urged to carefully read
the Circular before making their decision with regards to the Reorganization.
If the Reorganization is approved by the unitholders and assuming satisfaction
(or waiver) of all other closing conditions, including receipt of a final
order of the Court of Queen's Bench of Alberta, it is anticipated that the
Reorganization will be completed on or about October 1, 2008.

    About H&R REIT

    The REIT is a TSX-listed, open-ended real estate investment trust, which
owns a North American portfolio of 34 office, 124 industrial and 129 retail
properties comprising approximately 43 million square feet, with a net book
value of $4.5 billion. The foundation of the REIT's success is a disciplined
strategy that leads to consistent and profitable growth.

    Certain information in this news release may contain forward-looking
statements within the meaning of applicable securities laws including, among
others, statements relating to the REIT's objectives, strategies to achieve
those objectives, the REIT's beliefs, plans, estimates and intentions, and
similar statements concerning anticipated future events, results,
circumstances, performance or expectations that are not historical facts.
Forward-looking statements generally can be identified by words such as
"outlook", "objective", "may", "will", "expect", "intend", "estimate",
"anticipate", "believe", "should", "plans" or "continue" or similar
expressions suggesting future outcomes or events. Such forward-looking
statements reflect the REIT's current beliefs and are based on information
currently available to management. Forward-looking statements are provided for
the purpose of presenting information about management's current expectations
and plans relating to the future and readers are cautioned that such
statements may not be appropriate for other purposes. These statements are not
guarantees of future performance and are based on the REIT's estimates and
assumptions that are subject to risks and uncertainties, including those
described under "Risk Factors" in the REIT's annual information form and those
discussed in the REIT's materials filed with the Canadian securities
regulatory authorities from time to time, which could cause the actual results
and performance of the REIT to differ materially from the forward-looking
statements contained in this news release. Those risks and uncertainties
include, among other things, risks related to: the tax position and
consequence unique to each unitholder; the failure to obtain all approvals
required to implement the Reorganization; Unit prices; availability of cash
for distributions; development and financing relating to the Bow Development;
credit risk and tenant concentration; interest rate and other debt related
risks; tax risk; ability to access capital markets; dilution; lease rollover
risk; construction risks; real property ownership; currency risk; government
regulation; investment eligibility; unitholder liability; co-ownership
interest in properties; dependence on key personnel; mezzanine financing
credit risk; competition for real property investments; influence of H&R
Property Management Ltd. over the REIT; potential conflicts of interest;
redemption right; and statutory remedies. Material factors or assumptions that
were applied in drawing a conclusion or making an estimate set out in the
forward looking statements include that the information utilized by the REIT
to determine the tax consequences of the Reorganization to the REIT and its
unitholders is accurate and remains unchanged, the general economy remains
stable; interest rates are relatively stable; and equity and debt markets
continue to provide access to capital. The REIT cautions that this list of
factors is not exhaustive. Although the forward looking statements contained
in this news release are based upon what the REIT believes are reasonable
assumptions, there can be no assurance that actual results will be consistent
with these forward looking statements. All forward looking statements in this
news release are qualified by these cautionary statements. The forward looking
statements are made only as of the date that such statements are made and the
REIT, except as required by applicable law, assumes no obligation to update or
revise them to reflect new information or the occurrence of future events or
circumstances. In compliance with U.S. Treasury Department Circular 230,
please be aware that: (i) any U.S. federal tax advice contained in this press
release is not intended to be used and cannot be used for the purpose of
avoiding penalties that may be imposed under the Internal Revenue Code; (ii)
such advice was prepared in the expectation that it may be used in connection
with the promotion (within the meaning of Circular 230) of the Reorganization;
and (iii) investors should seek advice based on their particular circumstances
from an independent tax advisor.

For further information:

For further information: Larry Froom, Chief Financial Officer, H&R REIT,
(416) 635-7520; Additional information on the REIT is available on the REIT's
website at: www.hr-reit.com

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