Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted from requirement to file a BAR for an acquisition that is not significant to the Filer from a practical, commercial, business, or financial perspective.

Applicable Legislative Provisions

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

September 27, 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
WPT INDUSTRIAL REAL ESTATE
INVESTMENT TRUST
(THE FILER)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief pursuant to Part 13 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) from (i) the requirement in Part 8 of NI 51-102 to file a business acquisition report (a BAR) in respect of the indirect acquisition (the Acquisition) by WPT Industrial, LP (the Partnership) (the Filer's operating subsidiary) from Welsh Property Trust, LLC (Welsh) of an industrial property located in Pontoon Beach, Illinois, United States (the Property) completed on July 15, 2013 and (ii) from any requirement under Item 10 of Form 44-101F1 Short Form Prospectus (44-101F1) to disclose the Acquisition as a completed acquisition in a short form prospectus (collectively, the Exemption Sought).

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 each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Nunavut, the Northwest Territories and Yukon Territory.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 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:

The Filer

1. The Filer is an open-ended real estate investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated as of March 4, 2013, as amended and restated on April 26, 2013.

2. The Filer's head office is located in Toronto, Ontario.

3. The Filer is a reporting issuer under the securities legislation in each of the provinces and territories of Canada and is not in default of its reporting issuer obligations under the securities legislation of any of the jurisdictions of Canada.

4. The Filer's trust units are listed and posted for trading on the Toronto Stock Exchange under the symbol "WIR.U" and trade in the United States on the OTCQX marketplace under the symbol "WPTIF".

5. On April 26, 2013, the Filer completed its initial public offering (the IPO) of 10,000,000 trust units of the Filer pursuant to a long form prospectus dated April 18, 2013 (the Prospectus).

6. In connection with the completion of the IPO, the Filer, through the Partnership, indirectly acquired (the IPO Acquisition) from Welsh a portfolio of 35 industrial properties and two office buildings located in the United States (the Initial Properties).

The Acquisition

7. On July 15, 2013, the Partnership (the Filer's operating subsidiary) indirectly acquired the Property from Welsh, the asset and property manager of the Filer and the Partnership following completion of the IPO, pursuant to provisions related to the Filer's right of first opportunity under a non-competition and non-solicitation agreement dated as of April 26, 2013 among the Filer, the Partnership and Welsh.

8. The Property has a single tenant subject to a single lease.

9. Following the Acquisition, the Filer is consolidating the Property for financial reporting purposes, including for its financial statements to be filed on SEDAR in accordance with the Filer's continuous disclosure obligations under NI 51-102.

10. The Acquisition constitutes a "significant acquisition" of the Filer for the purposes of Part 8 of NI 51-102 as described below, requiring the Filer to file a BAR within 75 days of the Acquisition pursuant to section 8.2(1) of NI 51-102.

Financial Statements

11. The Filer was formed on March 4, 2013 and, accordingly, has not been in existence for 12 months and has not completed a full fiscal year. The only audited historical financial statements of the Filer were created following the creation of the Filer for purposes of the Prospectus. Accordingly, the applicable audited historical financial statements of the Filer only reflect assets of US$10.00, unitholders' capital of US$10.00 and financing activities of US$10.00 as a result of the issuance of the initial trust unit of the Filer upon its creation and prior to the completion of the IPO.

12. On July 10, 2013, the Filer filed a business acquisition report in respect of the IPO Acquisition, which, among other things, incorporated by reference from the Prospectus certain audited annual financial statements of the Initial Properties, included an unaudited pro forma condensed consolidated statement of net income and comprehensive income for the year ended December 31, 2012 giving effect to the IPO Acquisition as if it occurred on January 1, 2012 and incorporated by reference from the Prospectus, audited consolidated statements of forecasted net income and comprehensive income for the 12-month period ending March 31, 2014.

13. On August 12, 2013, the Filer filed unaudited condensed consolidated interim financial statements for the three months ended June 30, 2013 and the period from March 4, 2013 to June 30, 2013 (collectively, the "Q2 2013 Financial Statements"), which included (i) an unaudited condensed consolidated interim statement of financial position as at June 30, 2013; and (ii) unaudited condensed consolidated interim statements of net income and comprehensive income for the three months ended June 30, 2013 and the period from March 4, 2013 to June 30, 2013.

14. The Q2 2013 Financial Statements relate to the period from the date of formation of the Filer on March 4, 2013 to the end of its second quarter ended June 30, 2013, but reflect only sixty-six days of operations, namely from April 26, 2013 (the date of the closing of the IPO) to June 30, 2013 (the Filer's second quarter in fiscal year 2013).

Significance Test for the BAR

15. Under Part 8 of NI 51-102, the Filer is required to file a BAR for any completed business acquisition that is determined to be significant based on the acquisition satisfying any of the three significance tests set out in section 8.3(2) of NI 51-102.

16. Under Item 10 of 44-101F1, in certain circumstances, an issuer must disclose in a short form prospectus a completed acquisition that is considered a significant acquisition for the purposes of Part 8 of NI 51-102 and if applicable, include in the short form prospectus financial statements or other information about the acquisition or proposed acquisition.

17. Basic Asset, Investment and Profit or Loss Tests -- The Acquisition is a significant acquisition under each of the asset test, the investment test and the profit or loss test in section 8.3(2) of NI 51-102. In evaluating the significance of an acquisition, including the Property, the basic tests under Part 8 of NI 51-102 require the Filer to calculate the asset test, investment test and profit or loss test using the audited annual financial statements of both the Filer and the Property for the most recently completed financial year of each that ended before the acquisition date. However, the only audited historical financial statements of the Filer were created following the creation of the Filer for purposes of the Prospectus. Accordingly, the applicable audited historical financial statements of the Filer only reflect assets of US$10.00, unitholders' capital of US$10.00 and financing activities of US$10.00 as a result of the issuance of the initial trust unit of the Filer upon its creation and prior to the completion of the IPO. As a result, the application of the basic asset test, the investment test and the profit or loss test under each produces an anomalous result for the Filer in comparison to the results of such tests when re-applying them using the financial metrics of the Filer that existed immediately following the closing of the IPO.

18. Optional Asset Test -- Pursuant to section 8.3(4)(a) of N1 51-102, an acquisition will be "significant" if the Filer's proportionate share of the consolidated assets of the Property exceeds 20 percent of the consolidated assets of the Filer calculated using the interim financial statements of the Filer and the Property for the most recently completed interim period that ended before the acquisition date (the Optional Asset Test). Applying the Optional Asset Test, the Property represented only 11.9% of the Filer's consolidated assets.

19. Optional Investment Test -- Pursuant to section 8.3(4)(b) of N1 51-102, an acquisition will be "significant" if the Filer's consolidated investments in and advances to the Property as at the acquisition date exceeds 20 percent of the consolidated assets of the Filer as at the last day of the most recently completed interim period of the Filer before the acquisition date, excluding any investments in or advances to the Property as at that date (the Optional Investment Test). Applying the Optional Investment Test, the Property represented only 11.9% of the Filer's consolidated assets.

20. In evaluating the significance of an acquisition, including the Property, the Filer is also required to use the profit or loss test contained in section 8.3(2)(c) (the Profit or Loss Test) of NI 51-102 as noted above. Pursuant to the Profit or Loss Test, an acquisition will be "significant" if the Filer's proportionate share of the consolidated specified profit or loss of the Property exceeds 20 percent of the consolidated specified profit or loss of the Filer calculated using the audited annual financial statements of each of the Filer and the Property for the most recently completed financial year of each ended before the acquisition date.

21. Optional Profit or Loss Test -- The Filer is also permitted to use the optional profit or loss test contained in section 8.3(4)(c) of NI 51-102 (Optional Profit or Loss Test). Pursuant to the Optional Profit or Loss Test, significance is determined based upon the Filer's consolidated specified profit or loss for the later of: (i) the most recently completed financial year, without giving effect to the acquisition; or (ii) the 12 months ended on the last day of the most recently completed interim period of the issuer, without giving effect to the acquisition.

22. The Filer respectfully submits that both the Profit or Loss Test and the Optional Profit or Loss Test are inappropriate for determining the significance of the Acquisition. For the purposes of completing its quantitative analysis of either such test, the Filer is required to utilize its most recent audited financial statements or for the 12 months ended on June 30, 2013 (the last day of its most recently completed interim period). However, the only audited historical financial statements of the Filer were created following the creation of the Filer for purposes of the Prospectus and the Filer has not been in existence for 12 months since it was formed on March 4, 2013 as noted above. As a result, the application of the Profit or Loss Test and the Optional Profit or Loss Test each produces an anomalous result for the Filer in comparison to the results of such tests when re-applying them using the financial metrics of the Filer that existed immediately following the closing of the IPO.

23. When using the financial metrics of the Filer that existed upon closing of its IPO (as opposed to the pre-IPO audited historical financial statements described in paragraph 12 above) to calculate the profit or loss test with respect to the Acquisition, the results indicate that the Property represented only 16.4% of the Filer's forecasted net income and comprehensive income for the 12-month period ending March 31, 2014, and 18.0% of the Filer's pro forma net income for the pro forma year ended December 31, 2012, excluding an amount related to interest expense for the fiscal year 2012 on debt included in the historical results of the Initial Properties that was paid off with proceeds from the IPO that has been added back. This interest expense does not exist within the current Filer consolidation.

De Minimis Acquisition

24. The Filer does not believe (nor did it believe at the time that it made the Acquisition) that the Acquisition is significant to it from a practical, commercial, business or financial perspective.

25. The Filer has provided the principal regulator with an additional measure which demonstrates the insignificance of the Acquisition to the Filer. This additional measure reflects that the total gross leaseable area (GLA) of the Property represented just 14.7% to the total GLA of the Filer's entire real estate portfolio immediately following the closing of the IPO.

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.

"Sonny Randhawa"
Manager, Corporate Finance,
Ontario Securities Commission