Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 51-102 Continuous Disclosure Obligations -- Application for relief from requirement in Section 8.4 of NI 51-102 to include certain financial statement disclosure in a business acquisition report required to be filed in connection with a significant acquisition -- Vendor not in possession of, and unable to, access or obtain certain financial statements for the period prior to the acquisition of the property -- Filer completed the acquisition of the subject properties -- Filer has made every reasonable effort to obtain access to, or copies of, the historical accounting records in respect of the acquired the subject properties but such efforts were unsuccessful -- Certain financial statements are not material since the subject properties are not material in the context of the combined operations of the filers and its portfolio of properties as a whole -- Prospectus includes satisfactory alternative financial statements or other information required to be included in, or incorporated by reference into, a business acquisition report filed under Part 8 of NI 51-102 -- Relief granted subject to conditions.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4(1) and (3).

July 25, 2014

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 subsections 8.4(1) and (3) of NI 51-102 provided that the business acquisition report (BAR) for the Acquisition (defined below) includes Proposed Alternative Disclosure (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 (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 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 3300 Bloor Street West, Suite 1801, West Tower, Toronto, ON, M8X 2X2.

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 theBusiness 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 in Canada. The Filer is currently not in default of any applicable requirements under the securities legislation.

3. The units of the Filer are listed and posted on the Toronto Stock Exchange (the TSX) under the symbol "TN.UN".

4. 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. Prior to the Acquisition, the Filer owned an aggregate of 6,002 residential suites located in Alberta, Ontario, Québec, New Brunswick and Nova Scotia.

5. The Filer entered into an agreement with various entities controlled by Daniel Drimmer (collectively, the Vendor) whereby the Filer acquired on June 27, 2014, 29 properties (the Properties) comprised of 2,824 residential suites and an instalment note (the Acquisition) for an aggregate price of approximately $286.0 million.

6. Each Vendor entity is formed under the laws of the Province of Ontario. In addition to controlling each Vendor entity, Mr. Drimmer is the sole shareholder of Starlight Investments Ltd. (Starlight), the asset manager of the Filer. Daniel Drimmer is also a trustee of the Filer.

7. A special committee of independent trustees of the Filer was established for the purposes of supervising the process to be 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, the applicable policies of the TSX, applicable law and the Filer's governing documents.

8. In anticipation of funding of the Acquisition, the Filer filed a short form prospectus dated June 9, 2014, that contained full true and plain disclosure regarding the Acquisition.

9. The Acquisition may be considered an "acquisition of related businesses" pursuant to section 8.1 of NI 51-102 and as result would constitute a "significant acquisition" of the Filer for the purposes of NI 51-102, as determined in accordance with the tests prescribed by section 8.3 of NI 51-102. The Filer will therefore be required to file a BAR within 75 days of the completion of the Acquisition pursuant to section 8.2 of NI 51-102.

10. Pursuant to section 8.4 of NI 51-102, the business acquisition report for the Acquisition 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 (the Audited Requirements); and

(ii) unaudited financial statements for the financial year immediately preceding the most recently completed financial year of the business acquired (the Comparative Unaudited Requirements).

(collectively, the BAR Financial Statement Requirements).

11. Subsection 8.4(8) of NI 51-102 provides that if a reporting issuer required to include financial statements for more than one business because the significant acquisition involves an acquisition of related businesses, the financial statement 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.

12. Complete financial records for six Properties which were acquired by the Vendor during 2012, being 33 Richmond Street West, Oshawa, Ontario, 155 Market Street, Hamilton, Ontario, 285 Erb Street West, Waterloo, Ontario, 10 Cartier Court, Brockville, Ontario, 2 Colborne Street West, Lindsay, Ontario and 25 Westwood Court, Lindsay, Ontario; and two Properties which were acquired by the Vendor on February 1, 2013 and April 8, 2013, being 1 Rosemount Drive, Toronto, Ontario and 840 Water Street, Peterborough, Ontario, respectively (the Subject Properties), representing approximately 7% of the balance sheet requirements relating to the Comparative Unaudited Requirements for the year ended December 31, 2012, and approximately 19.3% of the operating results of the Properties for the fiscal year 2012 relating to the Comparative Unaudited Requirements (or approximately 9.9% of the operating results over fiscal 2012 and 2013), as well as approximately 0.7% of the operating results of the Properties (relating to two of the Subject Properties) for the fiscal year 2013 and 2.7% of the operating results of the Properties (relating to two of the Subject Properties) for the comparative three month period ended March 31, 2013, do not exist (the Unavailable Financial Information). The Filer will have complete financial information to satisfy the audited balance sheet for December 31, 2013, for all of the Properties, which is required by the BAR Financial Statement Requirements.

13. The Subject Properties were acquired by the Vendor from small, non-institutional and relatively unsophisticated sellers, including family owned privately held corporations, which did not maintain adequate historical accounting records. The Vendor, through Starlight, its professional asset manager, routinely requests extensive due diligence regarding each property that the Vendor is considering to acquire.

14. It is submitted that the Subject Properties are relatively immaterial to the Filer and its portfolio of properties, as a whole (including the Properties), in the context of the combined operations of the Filer, including the acquisition of the Properties, as demonstrated by the following: (i) the aggregate appraised value of the Subject Properties is approximately $78.7 million, representing 9.5% of the approximately $824.8 million aggregate appraised value of all of the properties that the Filer currently owns; (ii) the estimated net operating income of the Subject Properties is approximately $3.6 million, representing approximately 7.9% of the approximately $46.3 million pro forma net operating income for all of the properties that the Filer currently owns; and (iii) the number of residential suites represented by the Subject Properties is 724, representing 8.2% of the 8,826 aggregate residential suites that the Filer currently owns.

15. In making the investment decision to acquire the Properties, audited historical financial statements were not relied upon by the Filer. Accordingly, the Filer submits that the Unavailable Financial Information is not material to the investment decision to be made by a potential investor. The Filer has made every reasonable effort to obtain access to, or copies of, the Unavailable Financial Information, but such efforts were unsuccessful. The Vendor does not possess nor have access to, and is not entitled to obtain access to, financial information in respect of the Subject Properties for any period prior to the acquisition of such properties by the Vendor.

16. But for the Unavailable Financial Information, the Filer is able to satisfy the BAR Financial Statement Requirements for the Properties and otherwise satisfy the requirements to prepare and file a BAR in accordance with NI 51-102.

17. The Filer proposes to include in its BAR the following alternative disclosure regarding the Properties, in lieu of the financial statements otherwise required by subsections 8.4(1) and (3):

(a) audited annual carve-out financial statements of the Properties for the year ended December 31, 2013 with unaudited comparative financial statements for the Properties for the year ended December 31, 2012, and unaudited financial statements for the interim periods ended March 31, 2014 and 2013 (in each case, excluding the Unavailable Financial Information) (collectively, the Properties Historical Financial Statements); and

(b) pro forma financial statements of the Filer as at March 31, 2014 and for the three months ended March 31, 2014 and the year ended December 31, 2013 that gives effect to the Acquisition, prepared in accordance with subsection 8.4(5) of NI 51-102 (the Pro Forma Financial Statements).

18. Management of the Filer considers the Properties (including the Subject Properties) to be stable properties, and therefore believes that the Properties Historical Financial Statements for the year ended December 31, 2013 are indicative of the results for the comparative period ended December 31, 2012.

19. Each of the financial statements referred to in paragraph 16 were prepared in accordance with International Financial Reporting Standards applicable to publicly accounted enterprises.

20. The Pro Forma Financial Statements included information regarding all of the Properties (including the Subject Properties).

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 with respect to the BAR provided that the Filer includes in the BAR the following financial statements required to be filed by the Filer in connection with a significant acquisition completed by the Filer in connection with the Acquisition:

a. the Pro Forma Financial Statements; and

b. the Properties Historical Financial Statements.

"Sonny Randhawa"
Manager, Corporate Finance Branch