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Fam Real Estate Investment Trust
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 a property that have been owned by multiple owners over previous two years and unable to obtain historical accounting records -- comparative period financial statements impractical to prepare -- recent audited interim financial statements for the property will be provided.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4, 13.1.
February 18, 2015
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 FAM 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 a decision pursuant to Section 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) that the Filer be exempt from the requirement to include the financial statement disclosure prescribed under section 8.4 of NI 51-102 and Item 3 of Form NI 51-102F4 Business Acquisition Report relating to financial statement disclosure for significant acquisitions, so that the Filer does not need to include in the business acquisition report (BAR) of the Filer relating to the Acquisition (as defined herein), the BAR Required Financials (as defined herein), but include the BAR Alternative Financials (as defined herein) (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 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 each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (collectively, 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-ended real estate investment trust established under the laws of the Province of Ontario pursuant to an amended and restated Declaration of Trust dated as of December 17, 2014.
2. The Filer is authorized to issue an unlimited number of units ("Units") and an unlimited number of special voting units ("Special Voting Units"). As at the date hereof, there were 14,935,795 Units outstanding and 5,073,818 Special Voting Units outstanding.
3. 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.
4. The Units are listed and posted for trading on the Toronto Stock Exchange ("TSX") under the symbol "F.UN". The REIT also has warrants ("Warrants") outstanding, each of which entitles the holder thereof to acquire a Unit at an exercise price of $10.50 per Warrant at any time prior to 5:00 p.m. (Toronto time) on December 28, 2015. The Warrants are listed and posted for trading on the TSX under the symbol "F.WT".
5. On December 17, 2014, the Filer completed the acquisition (the "Acquisition") of a portfolio of seven office properties (the "Acquisition Properties") from Slate GTA Suburban Office Inc. ("Slate GTA") for approximately $190.0 million. As partial consideration for the Acquisition, the Filer paid approximately $144.0 million in cash, which was funded from a mortgage secured by the Acquisition Properties. The remaining consideration was satisfied by the delivery of 2,794,363 Units and 2,096,686 Class B exchangeable units (the "Class B Units") of FAM II Limited Partnership, a limited partnership managed and controlled by the Filer, along with 2,096,686 Special Voting Units which accompany and attach to Class B Units.
6. The Acquisition represents a "significant acquisition" as defined in NI 51-102, and accordingly, the Filer is required to prepare and file a business acquisition report ("BAR") on or before March 2, 2015.
7. In accordance with Section 8.4 of NI 51-102, the BAR relating to the Acquisition Properties must include certain financial statements for the Acquisition Properties, being:
(a) financial statements as at and for the years ended December 31, 2013 and December 31, 2012, being the most recently completed financial year of the Acquisition Properties ended on or before the acquisition date and the financial year immediately preceding such financial year, with the financial statements as at and for the year ended December 31, 2013 being audited, in accordance with the subsections 8.4(1) and 8.4(2) of NI 51-102;
(b) unaudited financial statements for the 9 month interim periods ended September 30, 2014 and September 30, 2013, being the most recently completed interim period of the Acquisition Properties ended on or before the acquisition date and the comparable period in the preceding financial year, in accordance with subsection 8.4(3) of NI 51-102; and
(c) pro forma statement of financial position of the Filer as at September 30, 2014 (the date of the Filer's most recent interim financial statements filed), that give effect to the Acquisition, as if it had taken place as at such date, in accordance with subsection 8.4(5) of NI 51-102, and pro forma income statements of the Filer for the year ended December 31, 2013 and the 9 months ended September 30, 2014 giving effect to the Acquisition as if it occurred at the beginning of the 2013 financial year,
(collectively, the "BAR Required Financials").
8. Prior to the Acquisition, the Acquisition Properties had been owned by Slate GTA since May 15, 2013. For the period from January 1, 2012 to May 14, 2013, the Acquisition Properties were owned by another entity (the "Prior Owner") unrelated to Slate GTA or the Filer.
9. Slate GTA will provide the Filer with the required financial statements for the period from the date of acquisition of the Acquisition Properties by Slate GTA on May 15, 2013 to September 30, 2014 for inclusion in the BAR.
10. For the period from January 1, 2012 to May 14, 2013, the Filer and Slate GTA have been seeking the historical accounting records for that period from the Prior Owner. Following all reasonable efforts made by the REIT and Slate GTA, it has been determined that the Prior Owner is not in possession of any historical accounting records which would assist the Filer in preparing any of the historical financial statements for the Acquisition Properties required to be included in the BAR. However, the Filer is able to access from a third party accounting firm sufficient historical accounting records to construct the required financial statements for the period from January 1, 2012 to December 31, 2012.
11. In light of the foregoing, it is proposed that in lieu of the BAR Required Financials, the BAR would include:
(a) audited financial statements as at December 31, 2013 and for the period from May 15, 2013 to December 31, 2013;
(b) audited financial statements as at and for the 9 month interim period ended September 30, 2014; and
(c) a pro forma statement of financial position of the Filer as at September 30, 2014 giving effect to the Acquisition, and a pro forma income statements of the Filer for the year ended December 31, 2013 (but only giving effect to the acquisition of the Acquisition Properties by Slate GTA since May 15, 2013) and the 9 months ended September 30, 2014,
(collectively, the "BAR Alternative Financials").
12. In addition, the BAR will include: (a) a summary of the independent property appraisals conducted by Altus Group Limited regarding each of the Acquisition Properties; (b) a description of the environmental site reconnaissance letters prepared by an independent environmental consultant regarding each of the Acquisition Properties; (c) a description of each property condition assessment report prepared by an independent consultant regarding each of the Acquisition Properties, including identified immediate work and capital expenditures recommended by the consultant over the next ten years; and (d) disclosure of the fact that the existing historical accounting records for the Acquisition Properties are not sufficient to create the required audited financial statements for the Acquisition Properties.
13. The Filer is also relying on the exemption to prepare comparative financial information in respect of the Acquisition Properties for the 9 months ended September 30, 2013 pursuant to Section 8.9 of NI 51-102 as, among other things, it is impracticable to present prior period information on a basis consistent with the financial information in respect of the Acquisition Properties for the 9 months ended September 30, 2014.
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 that the BAR for the Acquisition includes the BAR Alternative Financials.
"Sonny Randhawa"
Manager, Corporate Finance
Ontario Securities Commission