IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, C. S.5 AS AMENDED (THE ACT)
AND
IN THE MATTER OF
IRISH RESIDENTIAL PROPERTIES REIT PLC (IRES REIT) AND CANADIAN APARTMENT PROPERTIES REAL ESTATE INVESTMENT TRUST (CAPREIT, AND TOGETHER WITH IRES REIT, THE FILERS)
DECISION
Background
The Ontario Securities Commission (the Commission) has received an application from the Filers for a decision pursuant to section 74 of the Act for an exemption from the prospectus requirement in section 53 of the Act (the prospectus requirement) in connection with the first trades of (i) ordinary shares of IRES REIT (the Ordinary Shares) acquired in reliance upon exemptions from the prospectus requirement (prospectus exemptions); and (ii) ordinary shares of IRES REIT (the Incentive Ordinary Shares) issued by IRES REIT upon the exercise of stock options (or other similar awards) (Stock Options) acquired in reliance upon prospectus exemptions, directly or indirectly by:
(a) CAPREIT (directly or indirectly through its affiliates from time to time); and
(b) certain individuals who are or were employees, officers, and directors or trustees, as applicable, of IRES REIT, IRES Fund Management Limited (IRES Fund Management), CAPREIT, CAPREIT Limited Partnership or their respective affiliates from time to time (the Employees).
Specifically, the Filers request relief under the Act from the prospectus requirement for first trades of Ordinary Shares held directly or indirectly by CAPREIT or the Employees and first trades of Incentive Ordinary Shares issued upon the exercise of Stock Options held directly or indirectly by the Employees, where the relevant Ordinary Shares or Stock Options were distributed during the period beginning on April 16, 2014 and ending immediately prior to November 1, 2017 (the Transition Date, and such period referred to as the Pre-Foreign Issuer Period), being a period during which time IRES REIT, but for the fact that the chief executive officer was resident in Canada and employed by IRES REIT until the Transition Date, would satisfy the conditions to the Foreign Issuer Exemption (as defined below) under subsections 2.8(2) and (3) of OSC Rule 72-503 Distributions Outside Canada (OSC Rule 72-503) (the Requested Relief).
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
CAPREIT and IRES
CAPREIT was formed in 1997 and is an internally-managed, unincorporated, open-ended real estate investment trust governed under the laws of the Province of Ontario. CAPREIT is a reporting issuer in all provinces and territories of Canada and its units are listed for trading on the Toronto Stock Exchange under the symbol “CAR.UN”.
IRES REIT was incorporated in Ireland on July 2, 2013 as a company under the Irish Companies Act and is domiciled in Ireland. During all relevant periods, its head office has been located in Ireland.
IRES REIT is a property investment company which acquires, holds, manages and develops investments primarily focused on residential accommodations and ancillary or strategically located commercial property on the island of Ireland.
IRES REIT is externally managed by IRES Fund Management, which is a limited liability corporation governed under the laws of Ireland and is an indirect wholly-owned subsidiary of CAPREIT.
IRES REIT is not a reporting issuer in the Province of Ontario or any other province or territory of Canada, nor are any of its securities listed or posted for trading on any exchange or market located in Canada.
The Ordinary Shares are listed on the Irish Stock Exchange Public Limited Company, trading as Euronext Dublin (the Irish Stock Exchange). IRES REIT is in compliance with all securities laws of Ireland. In addition, IRES REIT is in good standing with the rules of the Irish Stock Exchange.
In 2014, IRES REIT completed a €200 million initial offering of its Ordinary Shares (the Initial Offering) on the Irish Stock Exchange. In concurrent private placements in various jurisdictions, including in Canada solely in Ontario (the Ontario Private Placement), CAPREIT, indirectly through its subsidiary CAPREIT Limited Partnership, beneficially acquired approximately 20% and certain other Canadian investors (comprised primarily of institutional investors qualifying as “permitted clients” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, and to a lesser extent as accredited investors pursuant to National Instrument 45-106 Prospectus Exemptions (NI 45-106)), acquired less than 3%, of the outstanding Ordinary Shares in connection with the Initial Offering.
In a decision in the matter of Irish Residential Properties REIT Limited (the predecessor to IRES REIT) dated April 11, 2014, the Commission provided relief from the 10% De Minimus Condition (as defined below) for certain trades in the Ordinary Shares that were acquired by CAPREIT and such other Canadian investors who qualified as “permitted clients” in connection with the Ontario Private Placement. Following the Ontario Private Placement, Ordinary Shares were also acquired, and may continue to be acquired, by CAPREIT (directly or indirectly through its affiliates) on a prospectus-exempt basis pursuant to exemptions available under NI 45-106 or under open market purchases.
Ordinary Shares were also acquired, and may continue to be acquired, by the Employees. The Ordinary Shares were acquired by the Employees on a prospectus-exempt basis pursuant to exemptions available under NI 45-106 (including as “accredited investors” or pursuant to section 2.24 of NI 45-106) or under open market purchases. In addition, certain Employees have been issued and may continue to be issued Stock Options.
During the Pre-Foreign Issuer Period, the principal executive officer of IRES REIT was ordinarily resident in Canada. However, there were at all times significant senior level functions carried out or supported by individuals resident and in Ireland, including at all times the Chair of the board of directors of IRES REIT (the IRES REIT Board), and subject to the ultimate decision-making authority of the IRES REIT Board. On the dates of the distributions on April 16, 2014 and March 26, 2015, in addition to the principal executive officer, who also served as a director, there were three Irish-domiciled directors, one of whom also served at all relevant times as the Chair, and one other Canadian-domiciled director.
While the principal executive officer during the Pre-Foreign Issuer Period would have been considered to be ordinarily resident in Canada, he was not carrying out his duties exclusively from Canada. For example, he attended board meetings in Ireland and carried out other functions while in Ireland. During such time, key functions or positions were held at various times by individuals based in Ireland and carried out from Ireland.
On and as of the Transition Date, a majority of the executive officers of IRES REIT have been ordinarily resident outside of Canada and the IRES REIT Board has been constituted of a majority of directors who are ordinarily resident outside of Canada. The position of Chair has also at all times been fulfilled by an individual who is not a Canadian resident.
With respect to the IRES REIT Board in particular:
(a) from November 1, 2017 to June 1, 2018 there were five directors who would be considered to be ordinarily resident outside of Canada and one director who would be considered to be ordinarily resident in Canada (being the former principal executive officer after his resignation as chief executive officer of IRES REIT); and
(b) from June 1, 2018 to the present there have been six directors who would be considered to be ordinarily resident outside of Canada and one director who would be considered to be ordinarily resident in Canada, being initially the former principal executive officer after his resignation as chief executive officer of IRES REIT and thereafter the individual who replaced him on the IRES REIT Board.