TransGlobe Apartment Real Estate Investment Trust

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- issuer is a real estate investment trust which holds all of its properties through limited partnerships -- entity holds units in limited partnerships which are exchangeable into and in all material respects the economic equivalent to the issuer's publicly traded units -- issuer may include entity's indirect interest in issuer when calculating market capitalization for the purposes of using the 25% market capitalization for certain related party transactions -- in addition, relief granted from the valuation requirement for certain non-cash assets in connection with a specific related party transaction -- valuation not required of exchangeable limited partnership units since public units can be a proxy for such exchangeable units -- valuation not required for general partnership units which are meant to provide revenue akin to a management services agreement.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.5, 5.7, 6.3.

December 20, 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

TRANSGLOBE APARTMENT REAL ESTATE

INVESTMENT TRUST

(the Filer)

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 (the Legislation) for a decision pursuant to Section 9.1 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions (MI 61-101):

(a) that the Filer be granted an exemption from the minority approval and formal valuation requirements under Part 5 of MI 61-101 relating to any related party transaction of the Filer entered into indirectly by the Filer through the Partnerships (as defined below), if that transaction would qualify for the transaction size exemptions set out in Sections 5.5(a) and 5.7(1)(a) of MI 61-101 if the indirect equity interest in the Filer, in the form of Exchangeable LP Units (as defined below), were included in the calculation of the Filer's market capitalization (the Market Cap Relief); and

(b) that the Filer be granted an exemption from the requirement in Section 6.3(1)(d) of MI 61-101 to obtain a formal valuation of any Exchangeable LP Units and other GP Units (as defined below) to be issued in connection with the Transaction (as defined below) (the Valuation Relief).

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 Québec (together with Ontario, the Jurisdictions).

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.

Representations

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

1. The principal, registered and head office of the Filer is located at 5925 Airport Road, Suite 700 in Mississauga, Ontario.

2. The Filer is an unincorporated, open-ended real estate investment trust established on April 8, 2010 under, and governed by, the laws of the Province of Ontario, pursuant to a declaration of trust dated April 8, 2010 (as amended and restated as of May 6, 2010, and as further amended, supplemented or amended and restated from time to time, the Declaration of Trust).

3. The Filer was formed to own multi-suite, residential rental properties across Canada. As at the date hereof, the Filer owns a portfolio of 65 residential properties principally located in urban centres in the Provinces of Alberta, Ontario, Québec, New Brunswick and Nova Scotia, of which 65 of the 67 properties were acquired from TransGlobe (as defined below) as part of the closing of its initial public offering (the IPO) of trust units (the Units) in May 2010.

4. The Filer is authorized to issue an unlimited number of Units and an unlimited number of special voting units (the Special Voting Units). As at December 1, 2010, there were 24,735,971 Units and 5,325,112 Special Voting Units issued and outstanding. The number of Special Voting Units outstanding at any point in time is equivalent to, and accompanies, the number of outstanding units of limited partnerships managed and controlled by the Filer that are exchangeable into Units for the purpose of providing voting rights with respect to the Filer to the holder of such exchangeable securities.

5. The Filer's Units are listed on the Toronto Stock Exchange under the symbol "TGA.UN".

6. TransGlobe Investment Management Ltd. (being the promoter of the Filer) and other companies and entities controlled or under the direction of the Drimmer family (collectively, TransGlobe) hold all 5,325,112 Special Voting Units issued and outstanding. Such Special Voting Units were issued to accompany the issue of 5,325,112 Class B LP Units (as defined below) which are also held by TransGlobe. The 5,325,112 Special Voting Units and 5,325,112 Class B LP Units in aggregate held by TransGlobe represent, as at December 1, 2010, an approximate 18% voting and effective economic interests in the Filer (on a non-diluted basis).

7. The Filer holds all of its residential rental properties through eleven limited partnerships (the Existing Partnerships) managed and controlled by the Filer. Each such Existing Partnership is authorized to issue an unlimited number of class A general partnership units (the Class A GP Units), class B general partnership units (the Class B GP Units), class A limited partnership units (the Class A LP Units) and class B limited partnership units (the Class B LP Units).

8. All of the outstanding Class A GP Units of the Existing Partnerships are held by a wholly-owned subsidiary of the Filer which is the managing general partner of such limited partnerships, and all of the outstanding Class B GP Units of the Existing Partnerships are held by a TransGlobe entity (TGGP) which carries on specific administrative and/or management duties and responsibilities on behalf of such limited partnerships, but remains subject to the oversight of the Filer, in consideration for cash distribution calculated as a percentage of the gross book value and gross property revenue of such Existing Partnerships on such Class B GP Units.

9. The Filer has been advised by the lead underwriter of the Filer's IPO (the Lead Underwriter) that, as of December 1, 2010, the base annual cash distribution payable to TGGP pursuant to the terms of the limited partnership agreements of the Existing Partnerships, each dated May 10, 2010, is within the range of the annual fees typically payable to external managers by publicly traded, TSX-listed, real estate investment trusts in Canada that have external management structures (excluding hotel real estate investment trusts).

10. All the outstanding Class A LP Units are held by the Filer and all the outstanding Class B LP Units are held by TransGlobe.

11. The Filer is party to a non-competition agreement with the principals of TransGlobe which gives the Filer a right of first opportunity to acquire multi-suite residential rental properties from TransGlobe, which right has been disclosed by the Filer in its IPO prospectus as being one of its competitive strengths. As further disclosed in the Filer's IPO prospectus, such non-competition agreement also requires the Filer to undertake any acquisition of real property through one or more Existing Partnerships or newly created limited partnerships (New Partnerships, and collectively with the Existing Partnerships, the Partnerships) managed and controlled by the Filer, but with TGGP carrying on specific administrative and/or management duties and responsibilities on behalf thereof.

12. The Filer, through a number of New Partnerships and in a series of transaction steps, proposes to acquire (the Transaction) a portfolio of real estate properties (the Acquisition Properties) and promissory notes in the aggregate principal amount of approximately $2.8 million (the Notes) from TransGlobe and its co-owners (the Vendors) for consideration, excluding the assumption of mortgages and/or debt, of approximately $107.4 million payable to the Vendors to be comprised of a combination of approximately $89.4 million in cash and the issue of approximately 1.75 million class B limited partnership units of the New Partnerships having a value of approximately $18.0 million.

13. The New Partnerships to be created by the Filer in connection with the Transaction will, in all material respects, have terms and conditions, including capital structure, consistent with the Existing Partnerships and as otherwise described herein. In particular, the class B limited partnership units of the New Partnerships to be issued in connection with the Transaction will have the same attributes, in all material respects, as the Class B LP Units and as otherwise described herein (collectively with the Class B LP Units, the Exchangeable LP Units). In respect of each of the New Partnerships to be created for the Transaction, the Filer will also cause the issuance to TGGP of class B general partnership units having the same attributes, in all material respects, as the Class B GP Units (including cash distribution entitlement described in paragraph 8 hereof as required by the non-competition agreement) (collectively with the Class B GP Units, the GP Units).

14. The Transaction is subject to the applicable requirements of MI 61-101 relating to, among other things, preparation of a formal valuation of the non-cash assets involved in the Transaction (the Non-Cash Valuation Requirements) and the approval by a majority of the votes cast by disinterested unitholders of the Filer entitled to vote on the Transaction at a duly constituted meeting of unitholders (the Unitholders) of the Filer held to consider the Transaction (collectively with the Non-Cash Valuation Requirements, the Minority Protections).

15. A committee of independent trustees of the Filer (the Special Committee) has been established by the Filer for the purpose of supervising the preparation of a formal valuation of the Acquisition Properties (the Acquisition Properties Valuation) and the Notes (the Notes Valuation).

16. The Special Committee has retained CB Richard Ellis, Limited and Stonecap Securities Inc. (Stonecap) to prepare the Acquisition Properties Valuation and the Notes Valuation, respectively, under the supervision of the Special Committee, which to the knowledge of the Filer and the Special Committee has been prepared in accordance with MI 61-101.

17. The Special Committee has also retained Stonecap to act as an independent financial advisor to the Special Committee in evaluating the Transaction and Stonecap has prepared a formal 'fairness opinion' that speaks to fairness from a financial point of view, of the consideration of the Transaction, to the Unitholders.

18. An annual and special meeting of Unitholders will be held to obtain the approval of the Transaction by a majority of the minority Unitholders (the Unitholder Meeting) as required by MI 61-101.

19. The information circular to be mailed to Unitholders in connection with the Unitholder Meeting (the Information Circular) will comply with the requirements of applicable securities law and will disclose, among other matters, that the Filer has no knowledge of any material non-public information concerning Filer or its securities that has not been generally disclosed, in accordance with subsection 6.3(2)(b) of MI 61-101.

20. The Exchangeable LP Units are, and shall be, in all material respects, economically equivalent to the Units:

a. The Exchangeable LP Units are, and shall be, exchangeable on a one-for-one basis for Units (subject to customary anti-dilution adjustments) at any time at the option of the holder thereof.

b. The distributions to be made on the Exchangeable LP Units are, and shall be, equal to the distributions that the holder of the Exchangeable LP Units would have received if it was holding Units that may be obtained upon the exchange of such Exchangeable LP Units.

c. Each Exchangeable LP Unit are, and shall be, accompanied by a Special Voting Unit of the Filer so that the holder of the Exchangeable LP Units is provided with voting rights on matters respecting the Filer equal to the number of Units that may be obtained upon the exchange of the Exchangeable LP Units to which such Special Voting Units are attached.

21. The Exchangeable LP Units represent, and shall represent, part of the equity value of the Filer and, moreover, the economic interests that underlie the Exchangeable LP Units are, and shall be, based solely upon the assets and operations held directly or indirectly by the operating entities of the Filer.

22. The Exchangeable LP Units are not, and shall not be, listed and posted for trading on the Toronto Stock Exchange or any other stock exchange.

23. Although TransGlobe was granted additional rights at the time of the Filer's IPO including pre-emptive rights, registrations rights, tag/drag rights, board appointment rights and limited approval rights, these rights are based on ownership thresholds that treat Exchangeable LP Units and Units on a combined basis. As a result, by acquiring Exchangeable LP Units in connection with the Transaction rather than Units, TransGlobe does not gain any additional or unique rights or benefits that they would not otherwise have. Any additional rights attached to the Exchangeable LP Units arise solely by virtue of the Exchangeable LP Units being limited partnership units and would be customary rights associated with limited partnership units. Other than the rights described above, the Exchangeable LP Units would carry no other rights that would impact their value.

24. The Filer is a reporting issuer or the equivalent thereof in each Jurisdiction and is not in default of any requirement of Canadian securities legislation.

25. The issue of GP Units is solely ancillary to the Transaction in order to support the external management structure of the Filer which structure was established as part of the IPO of the Filer. This external management structure was disclosed in the prospectus for the IPO of the Filer.

26. A related party transaction that is subject to MI 61-101 may be exempt, pursuant to Section 5.5(a) of MI 61-101, from the Minority Protections, among other requirements, if at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction exceeds 25% of the issuer's market capitalization.

27. The Filer may not be entitled to rely on the automatic transaction size exemptions available from the requirements relating to related party transactions in MI 61-101 because although the definition of market capitalization in MI 61-101 includes the value of equity securities of the issuer that are convertible into listed equity securities of the issuer, it does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.

28. If the Exchangeable LP Units are not included in the market capitalization of the Filer, the equity value of the Filer will be understated by the value of TransGlobe's aggregate limited partnership interest in the Partnerships, currently being approximately 18%. As a result, related party transactions by the Filer that are entered into indirectly by the Filer may be subject to the Minority Protections in circumstances where the fair market value of the transactions are effectively less than 25% of the fully diluted market capitalization of the Filer.

29. Section 6.3(2)(a) of MI 61-101 provides an exemption from the Non-Cash Valuation Requirement where the non-cash consideration or assets are securities of a reporting issuer or are securities of a class for which there is a published market.

30. Stonecap has confirmed that it agrees with the facts set out in this application.

Decision

Market Cap Relief

The principal regulator is satisfied that the decision meets the test set out in MI 61-101 for the principal regulator to make the decision.

The decision of the principal regulator is that the Market Cap Relief is granted provided that:

(a) the transaction would qualify for the market capitalization exemption contained in MI 61-101 if the Exchangeable LP Units were considered an outstanding class of equity securities of the Filer that were convertible into Units;

(b) there be no material change to the terms of the Exchangeable LP Units and the Special Voting Units, as described above; and

(c) any annual report or equivalent of the Filer that is required to be filed in accordance with applicable securities laws, contain the following disclosure, with any immaterial modifications as the context may require:

"Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions ("MI 61-101") provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. TransGlobe Apartment Real Estate Investment Trust (the "REIT") has applied for exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, would permit it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of the REIT's market capitalization if TransGlobe's indirect economic and voting interest in the REIT was included in the calculation of the REIT's market capitalization. As a result, the 25% threshold above which the minority approval and valuation requirements would apply would be increased to reflect the approximately 18% indirect interest in the REIT held by TransGlobe."

Valuation Relief

The principal regulator is satisfied that the decision meets the test set out in MI 61-101 for the principal regulator to make the decision.

The decision of the principal regulator is that the Valuation Relief is granted provided the Filer complies with subsection 6.3(2) of Multilateral Instrument 61-101 other than clause (a) thereof.