In the Matter of Canadian Real Estate Investment Trust, 2010 CanLII 76246

Headnote National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions - Relief granted from the prospectus requirement for distributions that are steps in a proposed reorganization of a fund – proposed reorganization intended to ensure fund will satisfy the definition of “real estate investment trust” for purposes of tax law – proposed reorganization does not require unitholder approval and has been approved by the fund’s trustees as being in the best interests of the fund – proposed transaction does not change unitholders’ ownership of the fund nor does it change the assets and liabilities of the fund on a consolidated basis – fund unitholders are not making an investment decision in respect of the fund – relief subject to certain conditions,

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 53, 74(1)

Date: December 15, 2010

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the “Jurisdiction”)

AND

IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF CANADIAN REAL ESTATE INVESTMENT TRUST (the “Filer” or the “Fund”)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) that the prospectus requirement shall not apply to the following distributions that are steps in the proposed reorganization (the “Proposed Transaction”) of the Filer:

(a) the distribution by the Fund to the Fund Unitholders of Trust B units (“Trust B Units”); and

(b) the distribution by Trust B of the units of the Fund (“Fund Units”) to the Fund and unitholders of the Fund (the “Fund Unitholders”) in satisfaction of the redemption price for the Trust B Units.

(collectively, the “Exemption Sought”).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in each of the provinces and territories other than Ontario.

Interpretation

Terms defined in National Instrument 14-101 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The principal office of the Fund is located at 175 Bloor Street East, North Tower, Suite 500, P.O. Box 25, Toronto ON M4W 3R8.

2. The Fund is a mutual fund trust within the meaning of the Tax Act which has eight trustees who are individuals resident in Canada. The Fund was established in 1984 for the principal purpose of providing investors with an opportunity to participate in a diversified portfolio of primarily income-producing real property investments located principally in Canada.

3. The book value of the assets of the Fund as of September 30, 2010 was $2.2 billion. The assets of the Fund consist primarily of the directly or indirectly held beneficial interests in 158 commercial properties located primarily in Canada.

4. The Fund also owns all of the issued and outstanding CREIT Holding Trust units (“Holding Trust Units”); the unsecured subordinate notes (“Holding Trust Notes”) of CREIT Holding Trust (“Holding Trust”); and all of the issued and outstanding shares of CREIT Management Limited (“Management GP”).

5. Under the terms of the amended and restated declaration of trust dated May 20, 2010 governing the Fund, as it may be amended and restated from time to time (“Declaration of Trust”), the trustees of the Fund may issue an unlimited number of Fund Units. Each Fund Unit represents an equal interest in the Fund and all Fund Units participate pro rata in any distributions by the Fund. The issued and outstanding Fund Units may be subdivided or consolidated from time to time by the trustees of the Fund.

6. Fund Units are widely held by the public, and to the knowledge of the trustees of the Fund, no person beneficially owns, directly or indirectly, or exercises control or direction over, more than 10% of the issued and outstanding Fund Units. Fund Units are listed and traded on the Toronto Stock Exchange (“TSX”) under the symbol REF.UN. The closing trading price of the Fund Units on the TSX on November 1, 2010 was $32.36, representing a market capitalization for the Fund of approximately $2.2 billion.

7. Holding Trust is an unincorporated open-ended trust established under the laws of the Province of Ontario that qualifies as a “unit trust” pursuant to paragraph 108(2)(a) of the Tax Act. Holding Trust has two individual trustees who are employees of the Fund, both of whom are resident in Canada.

8. Under the terms of the Holding Trust declaration of trust, the trustees of Holding Trust may issue an unlimited number of Holding Trust Units. Each Holding Trust Unit represents an equal undivided beneficial interest in any distribution from Holding Trust.

9. The book value of the assets of Holding Trust as of September 30, 2010 was $63 million. Holding Trust owns a 99.9% limited partnership interest in CREIT Management LP (“Management LP”) which together with the general partnership interest held by Management GP, a wholly owned subsidiary of the Fund, represents 100% of such partnership interests and varying interests in six limited partnerships, which own interests in six shopping centers in Canada (the assets of Holding Trust, herein referred to as the “Holding Trust Assets”).

10. Management LP provides property management services in respect of properties that are either wholly-owned by the Fund (or an entity in which the Fund holds a share or interest) or which are co-owned by the Fund (or an entity in which the Fund holds a share or interest) with an arm’s length person.

11. The Proposed Transaction is intended to modify the current structure of the Fund to ensure that the Fund will satisfy the definition of “real estate investment trust” in the Tax Act before January 1, 2011, such that the Fund will not be subject to the SIFT tax rules in the Income Tax Act (Canada) (the “SIFT Tax Rules”) after December 31, 2010. The steps of the Proposed Transaction are set out in Paragraphs 12 to 25 below.

12. Holding Trust will issue Holding Trust Units to the Fund in satisfaction of the remaining outstanding principal amount of the Holding Trust Notes.

13. Following the issuance of Holding Trust Units described in Paragraph 12, the Holding Trust Notes will be settled and extinguished.

14. A Canadian resident third party settlor will settle a trust to be formed under the laws of the Province of Ontario (“Trust B”) with a nominal cash contribution in exchange for one Trust B Unit.

15. The Fund will also subscribe for Trust B Units for nominal cash consideration. The initial Trust B Unit that will be issued to the third party settlor, as described in Paragraph 14, will be repurchased by Trust B for an amount equal to the cash received from the third party settlor such that the Fund will be the sole unitholder of Trust B.

16. The declaration of trust of Trust B will be substantially the same as the terms of the declaration of trust of Holding Trust such that the rights, privileges and conditions attached to the Trust B Units will be substantially the same as those attached to the Holding Trust Units other than the right of Trust B to redeem the Trust B Units in exchange for Fund Units. The trustee of Trust B will be an individual resident in Canada.

17. Pursuant to an agreement to be entered into between Holding Trust and Trust B, immediately prior to the point in time at which the transfer of assets described in Paragraph 21 will occur (“Transfer Time”), Holding Trust will transfer all of the Holding Trust Assets to Trust B.

18. Following the transfer described in Paragraph 17, the Fund will own all of the Holding Trust Units and all of the Trust B Units and will continue to hold an indirect interest in all of the Holding Trust Assets by reason of its ownership of all of the Trust B Units. Holding Trust will then be wound-up.

19. Trust B is expected to represent less than 5% of the total value of the Fund.

20. The Fund will distribute a certain number of the Trust B Units acquired in Paragraph 15 to all of the Fund Unitholders on a pro-rata basis as a distribution of capital so that Trust B can qualify as a mutual fund trust for purposes of the Tax Act. Trust B will remain as a subsidiary of the Fund after such distribution until its winding up described in Paragraph 25 below. It is expected that less than 5% of the Trust B Units will be distributed to the Fund Unitholders and that the Trust B Units distributed per Fund Unit will represent a value of approximately $0.02 per outstanding Fund Unit. There is no available prospectus exemption for such distribution.

21. Also at the Transfer Time:

a) Trust B will transfer all of the Holding Trust Assets acquired in the transaction described in Paragraph 17 (and any cash received from the Fund on its subscription for Trust B Units as described in Paragraph 14, to the extent such cash will not be required to fund expenses of Trust B) to the Fund; and

b) as consideration for the transfer, the Fund will assume any outstanding liabilities of Trust B and, pursuant to a prospectus exemption, will issue Fund Units to Trust B having an aggregate fair market value equal to the aggregate fair market value of the assets transferred to the Fund less any assumed liabilities. At the Transfer Time, Trust B will have no material outstanding liabilities and the only material assets of Trust B will be the Holding Trust Assets.

22. Immediately after the Transfer Time, Trust B will redeem all of the issued and outstanding Trust B Units held by the Fund and the Fund Unitholders, except for one Trust B Unit which the Fund will continue to hold until the winding-up of Trust B described in Paragraph 25. Trust B will satisfy the redemption price for such Trust B Units by transferring the Fund Units acquired in Paragraph 21 to the Fund and Fund Unitholders. No consideration other than the Fund Units will be received by the Fund or the Fund Unitholders on the redemption of the Trust B Units. The Fund Units that will be received by the Fund upon the redemption of the Trust B Units will be cancelled upon receipt. There is no applicable prospectus exemption for the distribution to Fund Unitholders by Trust B of the Fund Units on the redemption of the Trust B Units as the transfer of those Fund Units would otherwise be subject to a hold period under NI 45-102.

23. The Trust B Unit and the Fund Units issuable in the Proposed Transaction will not be posted for trading on any stock exchange.

24. Immediately after the transactions described in Paragraph 22, pursuant to the terms of the Declaration of Trust, the Trustees will cause the outstanding Fund Units held by the Fund Unitholders to be consolidated on a basis such that the number of Fund Units outstanding following such consolidation will be equal to the number of Fund Units outstanding immediately before the Proposed Transaction. The Fund Unitholders will not receive, and shall not be entitled to receive, any proceeds as a consequence of the consolidation.

25. Trust B will be subsequently wound up. The one Trust B Unit held by the Fund will be cancelled on the wind up.

26. The Proposed Transaction does not require the approval of Fund Unitholders and complies with the constating documents of the Fund. The Trustees of the Fund have approved the Proposed Transaction as being in the best interests of the Unitholders. No related party of the Fund is receiving, directly or indirectly, any benefits as a result of the Proposed Transaction other than benefits received as a holder of Fund Units received by all Fund Unitholders.

27. The Proposed Transaction does not change in the Fund Unitholders’ ownership of the Fund nor does it change the assets or liabilities of the Fund on a consolidated basis.

28. There will not be any Canadian tax payable by Fund Unitholders in respect to the Proposed Transaction other than the immaterial amount of withholding tax that will be payable by non-resident Fund Unitholders on the distribution of Trust B Units. The Fund will pay and remit to the Receiver General, on behalf of each Fund Unitholder that is non-resident, an amount equal to the amount required by the Tax Act to be withheld on behalf of non- resident Fund Unitholders.

29. The Proposed Transaction will be described to Fund Unitholders through a press release but is not anticipated to be reflected in a material change report as the Proposed Transaction does not constitute a material change.

30. The Fund advised its Unitholders in the Fund’s most recently filed Management Discussion & Analysis, dated September 30, 2010, that a restructuring may be required for the REIT to ensure it would qualify as a “real estate investment trust” under the SIFT Tax Rules.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) The Trust B Units that are distributed by the Fund to Fund Unitholders in the Proposed Transaction shall be immediately redeemed by Trust B in accordance with the terms of the Trust B Units in exchange for Fund Units then to be held by Trust B.,

(b) The Fund Units that are issued to the Fund Unitholder as a result of the redemption of the Trust B Units are immediately consolidated without payment of consideration such that the number of Fund Units to be held by each Unitholder immediately after the Proposed Transaction will be equal to the number of Fund Units held immediately before the Proposed Transaction.,

(c) The total number of Fund Units outstanding before and after the Proposed Transaction shall be the same so that the Proposed Transaction does not change the Fund Unitholders’ ownership of the Fund, and

(d) The Trust B Units and the Fund Units to be issued will not be posted for trading on any stock exchange and each of the Trust B Units and the Fund Units to be issued as part of the Proposed Transaction will only be outstanding for a moment in time, and in any event not beyond one day.

“Carol S. Perry” “James D. Carnwath”