Retrocom Mid-Market Real Estate Investment Trust

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101, s. 9.1 Protection of Minority Security Holders in Special Transactions -- issuer is a real estate investment trust which holds all of its properties through limited partnership -- entity holds units in limited partnership 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 exemption for certain related party transactions.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.5(a), 5.7(a), 9.1.

February 9, 2011

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

RETROCOM MID-MARKET REAL ESTATE

INVESTMENT TRUST

(the "Filer")

DECISION

Background

The securities regulatory authority or regulator in the Jurisdiction ("Decision Maker") has received an application (the "Application") from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") that the Filer be granted an exemption pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") 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 through Retrocom Limited Partnership ("Retrocom LP") or any other subsidiary entity (as such term is defined in MI 61-101) of Retrocom LP, if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(a) of MI 61-101 if the indirect equity interest in the Filer, which is currently held by MRR Investors Limited Partnership No. 1, MRR Investors Limited Partnership No. 2, MRR Investors Limited Partnership No. 3, MRR Investors Limited Partnership No. 4, MRR Investors Limited Partnership No. 5, and MRR Investors Limited Partnership No. 6, (collectively, the "SC/MMR Group"), in the form of limited partnership units of Retrocom LP, were included in the calculation of the Filer's market capitalization (the "Requested 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 the 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.

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 Filer is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario. The Filer was established pursuant to a declaration of trust dated December 15, 2003, as amended.

2. The Filer's head office is located at 700 Applewood Crescent, Suite 300, Vaughan, Ontario L4K 5X3.

3. The Filer is a reporting issuer (or the equivalent thereof) in each of the Jurisdictions and is not in default of any applicable requirements of the securities legislation thereunder.

4. The Filer is authorized to issue an unlimited number of trust units ("Units") and an unlimited number of special voting units ("Special Voting Units"). As at the date hereof, the Filer had 23,951,848 Units and 9,110,268 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 Exchangeable LP Units (defined below) issued and outstanding.

5. The Units are listed and posted for trading on the Toronto Stock Exchange (the "TSX") under the trading symbol "RMM.UN".

6. Retrocom LP is a limited partnership formed under the laws of the Province of Ontario and is governed by the limited partnership agreement of Retrocom LP dated February 11, 2004, as amended. Retrocom LP's head office is located at 700 Applewood Crescent, Suite 300, Vaughan, Ontario L4K 5X3.

7. Retrocom LP is not a reporting issuer (or the equivalent thereof) in any jurisdiction and none of its securities are listed or posted for trading on any stock exchange or other market.

8. Retrocom LP is authorized to issue an unlimited number of Class A limited partnership units ("Class A Units"), of which 1,407,064,116 Class A Units are issued and outstanding and held by the Filer, and an unlimited number of exchangeable Class B limited partnership units ("Exchangeable LP Units"), of which 9,110,268 Exchangeable LP Units are issued and outstanding and held by the SC/MRR Group. The Exchangeable LP Units were issued to SC/MRR Group in connection with the Filer's acquisition of 4 properties comprising the SmartCentres Portfolio (the "SmartCentres Transaction") from SC/MRR Group on July 8, 2008.

9. The SC/MRR Group is comprised of six limited partnerships formed for purposes of the SmartCentres Transaction. Mr. Mitchell Goldhar, owner of SmartCentres Inc. and SmartCentres Management Inc., is also the president of the general partner of each of such limited partnerships. As a result of the SmartCentres Transaction, there was a change in effective control of the Filer to the SC/MRR Group. As part of the SmartCentres Transaction, SmartCentres Management Inc. provides leasing, development and re-development services in respect of all of Retrocom LP's real estate assets and property management services for the 4 properties comprising the SmartCentres Portfolio. The Filer has regularly disclosed its relationship with SC/MRR Group and SmartCentres in its public filings.

10. The principal activity of Retrocom LP is to own income-producing real estate assets and it is the operating entity through which the Filer conducts its business.

11. The Filer currently holds 99.9% of the Class A Units of Retrocom LP. SC/MRR Group holds 100% of the Exchangeable LP Units. The 9,110,268 Special Voting Units and 9,110,268 Exchangeable LP Units held in aggregate by the SC/MMR Group represent, as of the date hereof, an approximately 33% voting and effective economic interest in the Filer (on a non-diluted basis).

12. The Exchangeable LP Units are, in all material respects, economically equivalent to the Units of the Filer:

(a) The Exchangeable LP Units are not transferable (except to affiliates of the current holder or with the agreement of each of the limited partners and the general partner, and subject to certain other conditions) but are exchangeable on a one-for-one basis for Units at any time at the option of the holder thereof.

(b) The distributions to be made on the Exchangeable LP Units are 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 is accompanied by a Special Voting Unit of the Filer so that the holder of the Exchangeable LP Units are 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 Unit to which such Special Voting Unit is attached.

13. If MI 61-101 applies to a related party transaction by an issuer and the transaction is not otherwise exempt:

(a) the issuer must obtain a formal valuation of the transaction in a form satisfying the requirements of MI 61-101 by an independent valuator; and

(b) the issuer must obtain approval of the transaction by disinterested holders of the affected securities of the issuer (together, requirements (a) and (b) are referred to as the "Minority Protections").

14. A related party transaction that is subject to MI 61-101 may be exempt from the Minority Protections 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.

15. The Filer may not be entitled to rely on the automatic size exemptions available under the Legislation from the requirements relating to related party transactions in the Legislation because the definition of market capitalization in the Legislation does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.

16. The Exchangeable LP Units represent part of the equity value of the Filer and provide the holder of the Exchangeable LP Units with economic rights which are, as nearly as practicable, equivalent to the Units. The effect of SC/MRR Group's exchange right is that SC/MRR Group will receive Units upon the exchange of the Exchangeable LP Units. Moreover, the economic interests that underlie the Exchangeable LP Units are identical to those underlying the Units; namely, the assets held directly or indirectly by Retrocom LP.

17. 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 SC/MRR Group's limited partnership interest in Retrocom LP (approximately 33%). As a result, related party transactions by the Filer may be subject to the Minority Protections in circumstances where the fair market value of the transactions is effectively less than 25% of the fully diluted market capitalization of the Filer.

18. Section 1.4 of MI 61-101 treats an operating entity of an income fund on a consolidated basis with its parent trust entity for the purpose of determining which entities are related parties of the issuer and what transactions MI 61-101 should apply to. Therefore, it is consistent that securities of the operating entity, such as the Exchangeable LP Units, be treated on a consolidated basis for the purposes of the determining the market capitalization of the Filer under MI 61-101.

19. The inclusion of the Exchangeable LP Units when determining the Filer's market capitalization is consistent with the logic of including unlisted equity securities of the issuer which are convertible into listed securities of the issuer in determining an issuer's market capitalization in that both are securities that are considered part of the equity value of the issuer whose value is measured on the basis of the listed securities into which they are convertible or exchangeable.

Decision

The Decision Maker 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 Maker under the Legislation is that the Requested Relief be granted to the Filer 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, including the exchange rights associated therewith, as described above and in the Purchaser and Support Agreement dated April 30, 2008 and in the Exchange Agreement dated July 8, 2008, filed in connection with the SmartCentres Transaction; 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. Retrocom Mid-Market Real Estate Investment Trust (the "REIT") has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits 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 SC/MRR Group's indirect equity interest in the REIT is 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, is increased to reflect the approximately 33% indirect interest in the REIT held by SC/MRR Group."