Extendicare REIT
TSX : EXE.UN

Extendicare REIT

April 18, 2008 08:00 ET

Extendicare REIT Declares April 2008 Distribution and Announces Change to the Composition of Distributions for U.S. Tax Purposes and Related U.S. Tax Withholding

MARKHAM, ONTARIO--(Marketwire - April 18, 2008) - Extendicare Real Estate Investment Trust ("Extendicare REIT" or the "REIT") (TSX:EXE.UN) today announced that it has declared a cash distribution of C$0.0925 per unit of the REIT (the "REIT Units") for the month of April 2008, which is payable to unitholders of record at the close of business on April 30, 2008, and will be paid on May 15, 2008.

Extendicare Limited Partnership (the "Partnership") also announced that it has declared a cash distribution of C$0.0925 per Class B limited partnership unit (the "Exchangeable LP Units") for the month of April 2008, which is payable to unitholders of record at the close of business on April 30, 2008, and will be paid on May 15, 2008.

The current annualized distribution rate of the REIT and Partnership is C$1.11 per unit, payable in monthly distributions of C$0.0925 per unit. In accordance with the distribution policy of both the REIT and the Partnership, unitholders of record at the close of business on the last business day of each calendar month will be paid a distribution on or about the 15th day of the following month.

Management estimates that approximately 70% of the 2008 distributions of the REIT and Partnership will be characterized as tax deferred returns of capital for Canadian residents. The remaining 30% of distributions of the REIT paid in 2008 are expected to be taxed as dividends and those paid to Canadian residents are eligible dividends as per the Income Tax Act (Canada) (the "Act"). To the extent a portion of the remaining 30% of distributions of the Partnership allocated in 2008 is taxed as dividends, those paid to Canadian residents are eligible dividends as per the Act. Extendicare REIT is not required to, and does not, calculate its "earnings and profits" pursuant to the United States Internal Revenue Code of 1986, as amended (the "Code"), and therefore no portion of its distributions represent qualified dividend income for U.S. tax purposes.

The REIT has a Distribution Reinvestment Plan, which provides Canadian resident holders of REIT Units and Exchangeable LP Units with the opportunity to increase their respective investments at a 3% discount to the volume weighted average trading price of the REIT Units on the TSX for the five trading days immediately preceding the distribution payment date. A copy of the Plan package is available on the REIT's website at www.extendicare.com in the Investors section.

Change to the Composition of Distributions for U.S. Tax Purposes and Related U.S. Tax Withholding

Extendicare REIT and the Partnership also announce a change impacting all unitholders to the taxation of certain distributions for U.S. tax purposes beginning with the May 2008 distribution. This announcement is relevant for (i) how certain income will be taxed for U.S. tax purposes to U.S. persons who hold REIT Units and/or Exchangeable LP Units ("U.S. Holders") and (ii) U.S. withholding tax issues for non-U.S. persons who hold REIT Units and/or Exchangeable LP Units ("Non-U.S. Holders"). The change to the composition of distributions does not affect Canadian taxation of distributions, including the Canadian tax withholding obligations of the REIT in respect of distributions to non-Canadian holders of Units.

The change to the composition of distributions arises from the financing structure implemented for the 2007 acquisition of Tendercare. Interest payments to be made semi-annually in May and November by a wholly owned U.S. subsidiary of Extendicare REIT will be treated as U.S. source interest income of the REIT and Partnership, and consequently of the unitholders for a portion of distributions in respect of those months, for U.S. tax purposes. The actual amount of U.S. source interest income pertaining to distributions to be declared in May and November will be disclosed in the distribution press releases for those months. The estimated U.S. source interest income for the first payment from October 24, 2007 to May 31, 2008, is C$0.0496 per unit. The amount of U.S. source interest income for the interest calculation to the end of November 2008 is estimated to be approximately $0.0347 per unit, assuming a one-month LIBOR of 2.71% and 70,490,924 REIT and Exchangeable LP units outstanding.

The related U.S. tax treatment in respect of the distributions for May and November to U.S. Holders and Non-U.S. Holders is described more fully below.

1. Non-U.S. Holders

The portion of the distributions that constitute U.S. source interest income is subject to U.S. withholding tax at a 30% statutory rate. A Non- U.S. Holder may be eligible for the portfolio interest exemption under Sections 871 and 881 (the "Portfolio Interest Exemption") of the Code. A Non-U.S. Holder may assert entitlement to the Portfolio Interest Exemption by submitting a valid Form W-8BEN to their broker/administrator. This is explained in more detail in the Management Proxy Circular dated September 13, 2006.

2. U.S. Holders

The portion of the distributions that constitute U.S. source interest income is subject to U.S. backup withholding tax at the 28% statutory rate. U.S. Holders who receive distributions of U.S. source income can avoid backup withholding by submitting a valid Form W-9 to their broker/administrator.

Obligation to Withhold

Extendicare REIT and the Partnership will withhold any applicable U.S. withholding tax before distributions are forwarded to Computershare Trust Company of Canada ("Computershare"), the transfer agent for the REIT Units and Exchangeable LP Units, for payment to registered holders, including CDS. Computershare withholds Canadian withholding tax from the distributions paid to registered holders, other than CDS. The broker/administrator holding the REIT and Exchangeable LP units is responsible for withholding Canadian withholding tax before paying the distributions to U.S. persons and foreign residents.

This is not intended to be legal or tax advice to any unitholder. Unitholders or potential unitholders should consult their own tax advisors for advice with respect to the tax treatment of the distributions based on their particular circumstances.

About Us

Extendicare REIT, through its wholly owned subsidiaries, is a major provider of long-term care and related services in North America. Through its subsidiaries, Extendicare operates 269 nursing and assisted living facilities in North America, with capacity for approximately 30,300 residents. As well, Extendicare's subsidiaries offer medical specialty services such as subacute care and rehabilitative therapy services in the United States, and home health care services in Canada, and employ approximately 37,700 people in North America.

Forward-looking Statements

Information provided by Extendicare REIT from time to time, including this release, contains or may contain forward-looking statements concerning anticipated financial events, results, circumstances, economic performance or expectations with respect to the REIT and its subsidiaries, including its business operations, business strategy, and financial condition. Forward-looking statements can be identified because they generally contain the words "expect", "intend", "anticipate", "believe", "estimate", "plan" or "objective" or other similar expressions. Forward-looking statements reflect management's beliefs and assumptions and are based on information currently available, and the REIT assumes no obligation to update any forward-looking statement. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the REIT to differ materially from those expressed or implied in the statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on the REIT's forward-looking statements. Further information can be found in the disclosure documents filed by Extendicare REIT with the securities regulatory authorities, available at www.sedar.com and on the REIT's website at www.extendicare.com.

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