Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from provisions of section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) permitting filer to include alternative financial disclosure in business acquisition report pursuant to section 13.1 of NI 51-102 -- filer acquired properties that have been owned by multiple owners over previous two years -- comparative period financial statements impractical to prepare and potentially confusing to investors -- recent audited interim financial statements for properties provided.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4, 13.1.

July 19, 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
TRUE NORTH 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 of the principal regulator (the Legislation) for an order under section 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) exempting the Filer from the requirements of subsection 8.4(1) of NI 51-102 for the Acquisition (defined below) (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and

(ii) 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 each of the other provinces and territories of Canada.

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-end real estate investment trust established under the laws of the province of Ontario. The Filer's registered and head office is located at 401 The West Mall, Suite 1100, Toronto, Ontario, M9C 5J5.

2. On June 5, 2012, Wand Capital Corporation completed its capital pool company qualifying transaction by way of a plan of arrangement with the Filer under the Business Corporations Act (Ontario). As a result, the Filer became a reporting issuer in each of British Columbia, Alberta and Ontario. On July 11, 2012, upon the issuance of a receipt for a (final) short form prospectus, the Filer became a reporting issuer in every province and territory of Canada.

3. The units of the Filer (Units) were listed on the TSX Venture Exchange (TSXV) from June 11, 2012 until May 2, 2013. On May 3, 2012, the Units were delisted from, and ceased trading on the TSXV, and commenced trading on the Toronto Stock Exchange under the symbol "TN.UN".

4. The Filer is currently not in default of any applicable requirements under the securities legislation of any province or territory of Canada, except that the Filer is in default of its continuous disclosure obligations with respect to the requirement to file a business acquisition report (BAR) under Part 8 of NI 51-102 related to the Acquisiton.

5. The Filer was established to own multi-suite residential rental properties across Canada, the United States and in such other jurisdictions where opportunities may arise, subject to the terms set out in its declaration of trust. Immediately prior to the Acquisition (defined below), the Filer owned an aggregate of 3,953 residential suites located in Ontario, Québec, New Brunswick and Nova Scotia.

6. On February 20, 2013, the Filer completed its previously announced acquisition of 17 properties (the Properties) from D.D. Acquisitions Partnership (the Vendor) for a purchase price of approximately $152.2 million (the Acquisition).

7. The Vendor is a company incorporated under the laws of the province of Ontario and is the asset manager of the Filer. The Vendor is controlled by Daniel Drimmer, who is also a trustee of the Filer.

8. A special committee of independent trustees of the Filer was established for the purposes of supervising the process carried out by the Filer and its professional advisors in connection with the Acquisition, to make recommendations to the trustees of the Filer in respect of matters that it considered relevant with respect to the Acquisition, and to ensure that the Filer completed the acquisition in compliance with the requirements of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101), the applicable policies of the TSXV and applicable law. The special committee retained third parties to provide independent appraisals, environmental assessments and building condition assessments for each of the Properties.

9. As the Acquisition was considered a "related party transaction" under MI 61-101, the Filer was required to obtain prior approval of the Acquisition by a majority of the minority holders of Units (Unitholders) of the Filer at a special meeting of Unitholders held on Tuesday, February 19, 2013. The Acquisition received the requisite Unitholder approval, with approximately 99% of the Unitholders at the meeting (excluding Mr. Drimmer and his affiliates), in person or by proxy, voting in favour.

10. To finance a portion of the Acquisition, the Filer completed a "bought deal" public offering of 15,950,500 subscription receipts on January 30, 2013 for aggregate gross proceeds of approximately $63.8 million.

11. The Acquisition constitutes the "acquisition of related businesses" pursuant to section 8.1 of NI 51-102 and a "significant acquisition" of the Filer for the purposes of NI 51-102, as determined in accordance with the significance tests prescribed by section 8.3 of NI 51-102. The Filer was required to file a BAR within 75 days of the completion of the Acquisition pursuant to section 8.2 of NI 51-102.

12. Pursuant to subsection 8.4(1) of NI 51-102, a BAR must include the following for each business or related business that is acquired:

(i) audited financial statements (i.e., a statement of financial position, a statement of comprehensive income, a statement of changes in equity and a statement of cash flows) for the most recently completed financial year of the business acquired; and

(ii) unaudited financial statements for the financial year immediately preceding the most recently completed financial year of the business acquired;

(collectively, the BAR Financial Statement Requirements).

13. Subsection 8.4(8) of NI 51-102 provides that if a reporting issuer is required to include financial statements for more than one business because the significant acquisition involves an acquisition of related businesses, the financial statements must be presented separately for each business, except for the periods during which the businesses have been under common control or management, in which case the reporting issuer may present the financial statements of the business on a combined basis.

14. The Vendor acquired the Properties over a period extending between December 2002 and January 2012. Specifically:

(a) seven properties were acquired either by the Vendor or a related party prior to 2010 (the Older Properties) and represent approximately 40% of the value of the Acquisition;

(b) nine properties were acquired by the Vendor in the latter half of 2011 and one property was acquired in January 2012 (the Recently Acquired Properties), and represent approximately 60% of the value of the Acquisition.

15. The Older Properties have been under control of the Vendor or a related party of the Vendor for a sufficient period of time to permit the preparation of financial statements in compliance with the BAR Financial Statement Requirements.

16. In connection with the Vendor's acquisition of each Recently Acquired Property, the Vendor requested copies of audited annual financial statements from the original owner. However, in each case, the Vendor was unable to obtain the financial statements or sufficient financial records to allow the financial statements to be reconstructed by the Vendor. As a result, the Filer does not have the financial statements for the Recently Acquired Properties in order to satisfy the BAR Financial Statement Requirements.

17. On May 13, 2013, the Filer filed an amended and restated BAR (the Amended and Restated BAR) that included the following alternative disclosure regarding the Properties, in lieu of the financial statements otherwise required by section 8.4 of NI 51-102 (the Alternative Disclosure):

(a) audited annual carve-out financial statements for the year ended December 31, 2011 for the Older Properties (and reflecting the purchase of the nine Recently Acquired Properties that were acquired by the Vendor between October 18, 2011 and December 19, 2011) with unaudited comparative financial statements for the Older Properties;

(b) audited annual carve-out financial statements for the Properties for the year ended December 31, 2012 (and reflecting the purchase of the one of the Recently Acquired Properties acquired by the Vendor on January 31, 2012);

(c) an unaudited pro forma statement of financial position as at December 31, 2012, and an unaudited pro forma statement of income and comprehensive income for the year ended December 31, 2012 as if the Acquisition had taken place January 1, 2012, prepared in accordance with subsection 8.4(5) of NI 51-102; and

(d) a nine month ended (January 1, 2013 -- September 30, 2013) forecast of net operating income for all of the Properties, on an aggregate basis which, for greater certainty, would include revenue and operating expenses at the property level, but would not include allocated or incremental corporate or trust expenses, or financing costs associated with completing the acquisition.

In addition, the Amended and Restated BAR also included:

(e) a description of any prior appraisals for the Properties of which the Filer is aware and which were conducted within the previous two years;

(f) the current independent property appraisals conducted by CBRE Limited regarding each of the Properties;

(g) a description of the current environmental site reconnaissance letters prepared by an independent environmental consultant regarding each of the Properties;

(h) a description of each building condition assessment report prepared by an independent consultant regarding each of the Properties, including recent capital expenditures made by the Vendor and identified capital expenditures recommended by the consultant over the next ten years; and

(i) disclosure of the fact that the existing historical accounting records for each Recently Acquired Property are not sufficient to create audited financial statements for each property.

18. Each of the financial statements referred to in paragraph 17 have been prepared in accordance with Canadian GAAP applicable to publicly accounted enterprises.

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 provided the Amended and Restated BAR continues to contain the Alternative Disclosure.

"Sonny Randhawa"
Manager, Corporate Finance