Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Issuer required to file business acquisition reports in respect of two significant real estate acquisitions -- Relief from requirement to include certain prescribed financial disclosure in reports -- Reports will include alternative financial disclosure analogous to disclosure required in respect of acquisitions of oil and gas properties.

Applicable Instrument

National Instrument 51-102 Continuous Disclosure Obligations.

January 7, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ALBERTA, MANITOBA, NEW BRUNSWICK, NEWFOUNDLAND,

NOVA SCOTIA, ONTARIO, QUEBEC AND SASKATCHEWAN (THE "JURISDICTIONS")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CALLOWAY REAL ESTATE INVESTMENT TRUST (THE "FILER")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (collectively, the "Decision Makers") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") that relief from the requirements under the Legislation that certain financial statements prescribed by section 8.4(1) and (2) of National Instrument 51-102 and item 3 of Form 51-102F4 of that instrument (the "Continuous Disclosure Requirements") be filed with the business acquisition report prepared by the Filer in connection with the Filer's acquisition of interests in fourteen retail properties be granted on the condition that acceptable alternative financial statements be provided for such acquisitions (the "Requested Relief") (such exemption to be effected in Quebec by a revision of the general order that will provide the same result as an exemption order);

Under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"):

(a) the Alberta Securities Commission is the principal regulator for the application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

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

1. The Filer is an unincorporated closed-end real estate trust established under the laws of the Province of Alberta by a declaration of trust dated December 4, 2001, as amended and restated as of October 24, 2002, October 31, 2003 and February 16, 2004.

2. The Filer's head office is located at 310, 855 -- 8th Avenue SW, Calgary, Alberta T2P 3P1.

3. The Filer is a reporting issuer, or the equivalent, in each of the Jurisdictions and, to the best of its knowledge, is currently not in default of any applicable requirements under the securities legislation thereunder.

4. On October 13, 2004 the Filer concluded negotiations for the acquisition of interests in fourteen retail properties owned by retail mall developers (the "Centres III") for approximately $300,000,000 which acquisitions are expected to close in two transactions. The first transaction ("Phase 1") is in regards to six retail properties approximating $72,800,000 of the aggregate purchase price. Phase 1 closed on November 30, 2004. The second transaction ("Phase 2" and together with Phase 1, the "Acquisition"), in regards to the remaining eight retail properties approximating $227,200,000 of the aggregate purchase price, is expected to close in the first quarter of 2005.

5. The units of the Filer ("Units") are listed and posted on the Toronto Stock Exchange under the symbol CWT.UN.

6. Phase 1 constitutes a "significant acquisition" of the Filer for the purposes of NI 51-102 (exceeding the 40% threshold of the optional significance test as determined in accordance with Section 8.3 of NI 51-102), requiring the Filer to file a business acquisition report within 75 days of the completion of the Phase 1 acquisition pursuant to section 8.2 of NI 51-102.

7. Phase 2 constitutes a "significant acquisition" of the Filer for the purposes of NI 51-102 (with significance between the 20% and 40% threshold of the significance test as determined in accordance with Section 8.3 of NI 51-102), requiring the Filer to file a business acquisition report within 75 days of the completion of the Phase 2 acquisition pursuant to section 8.2 of NI 51-102.

8. Pursuant to section 8.4 of NI 51-102, the business acquisition report for the Phase 1 acquisition must be accompanied by certain financial statements, including: (i) audited financial statements for each of the 2 most recently completed financial years of the business acquired ended more than 45 days before the date of acquisition; (ii) unaudited interim financial statements for the most recently completed interim period of the business acquired that ended before the date of acquisition together with a comparative interim financial statement for the comparative period in the preceding year of the business acquired (the "Phase 1 BAR Financial Statements").

9. Pursuant to section 8.4 of NI 51-102, the business acquisition report for the Phase 2 acquisition must be accompanied by certain financial statements, including: (i) audited financial statements for the most recently completed financial year of the business acquired ended more than 45 days before the date of acquisition; (ii) unaudited interim financial statements for the most recently completed interim period of the business acquired that ended before the date of acquisition together with a comparative interim financial statement for the comparative period in the preceding year of the business acquired (the "Phase 2 BAR Financial Statements").

10. In place of each of the Phase 1 BAR Financial Statements and Phase 2 BAR Financial Statements, the Filer proposes to file statements of net operations (the "Operating Statements") for the aggregate properties acquired in each of Phase 1 and Phase 2 with line items of rental revenue from income properties, property operating costs, amortization of deferred expenses and operating income.

11. Annual audited financial statements and unaudited interim financial statements for the Phase 1 and Phase 2 properties in the format required by section 8.4(1) and 8.4(2) of NI 51-102 do not exist and the information to produce such statements cannot be obtained by the Filer. The property manager (which is also a 40% interest holder in the vendor) refuses to provide this information to the Filer because of the cost and time associated with attempting to compile it and confidentiality obligations and concerns.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted such that Operating Statements shall be provided in place of the Phase 1 BAR Financial Statements and the Phase 2 BAR Financial Statements with the business acquisition report to be filed by the Filer for the Acquisition provided that:

1. The business acquisition report for Phase 1 contains audited Operating Statements for the aggregate properties acquired in Phase 1 for the years ended December 31, 2002 and 2003 and unaudited Operating Statements for the interim period ended September 30, 2004 and 2003.

2. The business acquisition report for Phase 2 contains audited Operating Statements for the aggregate properties acquired in Phase 2 for the most recently completed financial year ended more than 45 days before the date of acquisition and unaudited interim Operating Statements for the most recently completed interim period that ended before the date of acquisition together with a comparative interim Operating Statement for the comparative period in the preceding year.

3. The Operating Statements contain, at a minimum, line items specifying amounts for Rental revenue, Expenses -- Property operating costs, Amortization of deferred expenses, and Operating income and the Operating Statements will contain accompanying notes.

4. The business acquisition report includes:

(a) A description of the properties acquired including square footage, occupancy rate, square footage occupied by and duration of leases with anchor tenants; and

(b) Disclosure of an estimated value of the business, the material assumptions used in preparing the estimate and the identity and relationship to the reporting issuer or to the vendor of the person who prepared the estimates.

Mavis Legg, CA
Manager, Securities Analysis
Alberta Securities Commission