Headnote Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption granted from requirement file a BAR for an acquisition that is not significant to the Filer from a practical, commercial, business, or financial perspective. Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.2, 13.1.
December 11, 2013
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 CT REAL ESTATE INVESTMENT TRUST (THE “FILER” OR THE “REIT”)
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”) for relief from the requirement in Part 8 of National Instrument 51-102 — Continuous Disclosure Obligations (“NI 51-102”) to a file a business acquisition report (a “BAR”) in respect of the Filer's acquisition (the “Third Party Tenant Lease Portfolio Acquisition”) of a portfolio of third-party tenant properties located across Canada (the “Third Party Tenant Lease Portfolio”) in connection with the Filer's initial public offering “IPO” of trust units on October 10, 2013 (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 subsection 4.7(1) of Multilateral Instrument 11-102 — Passport System (“MI 11-102”) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.
Interpretation
Terms defined in National Instrument 14-101 — Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
The REIT
The REIT is an unincorporated closed-end real estate investment trust established under the laws of the Province of Ontario by a declaration of trust and its head office is located in Toronto, Ontario.
The REIT is a reporting issuer under the securities legislation of each of the provinces and territories of Canada and is not in default of securities legislation in any jurisdiction.
The trust units of the REIT are listed and posted for trading on the Toronto Stock Exchange under the symbol “CRT.UN”.
The REIT completed its IPO on October 23, 2013 pursuant to a long form prospectus in respect thereof dated October 10, 2013.
The net proceeds of the IPO were used by the REIT as partial consideration of its indirect acquisition from Canadian Tire Corporation, Limited and its subsidiaries of a portfolio of 256 commercial properties located in Canada, comprising 255 retail properties and one distribution centre.
The Third Party Tenant Lease Portfolio Acquisition
In connection with the closing of the IPO on October 23, 2013, the REIT acquired the Third Party Tenant Lease Portfolio in conjunction with its IPO of trust units for an aggregate purchase price of approximately $152 million.
The Third Party Tenant Lease Portfolio Acquisition constitutes a “significant acquisition” of the REIT for the purposes of Part 8 of NI 51-102, requiring the REIT to file a BAR within 75 days of the Third Party Tenant Lease Portfolio Acquisition pursuant to subsection 8.2(1) of NI 51-102.
Significance Test for the BAR
Under Part 8 of NI 51-102, the REIT is required to file a BAR for any completed business acquisition that is determined to be significant based on the acquisition satisfying any of the three significance tests set out in subsection 8.3(2) of NI 51-102.
The Third Party Tenant Lease Portfolio Acquisition is a significant acquisition under each of the asset test, the investment test and the profit or loss test in subsection 8.3(2) of NI 51-102.
For the purposes of completing its quantitative analysis of the asset test, the investment test and the profit or loss test, the REIT is required to utilize its most recent audited financial statements. Such audited historical financial statements of the REIT were created following the creation of the REIT for purposes of the REIT's IPO prospectus. Accordingly, the applicable audited historical financial statements of the REIT only reflect assets of $10.00 and unitholders' equity of $10.00 as a result of the issuance of the initial trust unit of the REIT upon its creation and prior to the completion of the REIT's IPO. As a result, the application of the asset test, the investment test and the profit or loss test each produces an anomalous result for the REIT in comparison to the results of such tests when re-applying them using the financial metrics of the REIT that existed immediately following the closing of the REIT's IPO.
When using the financial metrics of the REIT that existed upon the closing of its IPO (as opposed to the above-mentioned pre-IPO audited historical financial statements) to calculate the asset test, investment test and profit or loss test with respect to the Third Party Tenant Lease Portfolio Acquisition, the results indicate that the Third Party Tenant Lease Portfolio Acquisition represented only 4.21% of the REIT's consolidated assets, 4.30% of the REIT's consolidated investments and 4.30% of the REIT' s forecasted net operating income. The application of the asset test, investment test and profit or loss test using the financial metrics of the REIT that existed immediately following the closing of its IPO more accurately reflect the true significance of the Third Party Tenant Lease Portfolio Acquisition from a practical, commercial, business and financial perspective.
De Minimis Acquisition
The REIT does not believe (nor did it believe at the time that it made the Third Party Tenant Lease Portfolio Acquisition) that the Third Party Tenant Lease Portfolio Acquisition is significant to it from a practical, commercial, business or financial perspective.
The Filer has provided the principal regulator with an additional measure which demonstrates the insignificance of the Third Party Tenant Lease Portfolio Acquisition to the Filer. This additional measure reflects that the total gross leasable area of the Third Party Tenant Lease Portfolio represented just 2.3% to the total gross leasable area of the REIT’s entire real estate portfolio immediately following the closing of its IPO.
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.
“Sonny Randhawa”
Manager, Corporate Finance
Ontario Securities Commission