Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions -- issuer is a real estate investment trust which holds all of its properties through limited partnerships -- application for relief from requirement to obtain separate minority approval for each class of shares -- no difference of interest between holders of Class A Units, Class I Units, Class F Units and Class U Units in connection with the proposed business combination transaction -- safeguards include independent committee, formal valuation, fairness opinions -- declaration of trust of Filer provides that unitholders will vote as a single class unless the nature of the business affects holders of one class of units in a manner materially different from another class -- requiring a vote by class would give a "de facto" veto right to a very small group of shareholders.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions, ss. 4.5, 8.1, 9.1.

Companion Policy to Multilateral Instrument 61-101, s. 3.3.

April 7, 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 SLATE U.S. OPPORTUNITY (NO. 3) REALTY 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") exempting the Filer, pursuant to Section 9.1 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions ("MI 61-101"), from the requirement in Section 8.1(1) of MI 61-101 that, when minority approval for the Proposed Transaction is obtained from holders of units of the Filer, such approval be obtained from the holders of every class of affected securities voting separately as a class, and that instead minority approval be obtained from all of the outstanding Units (as defined herein) voting as a single class (the "Requested Relief").

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; and

(ii) 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 investment trust established under the laws of the Province of Ontario. The Filer is governed pursuant to an amended and restated declaration of trust dated September 13, 2013 (the "Filer DOT").

2. The Filer's head office is located at 200 Front Street West, Suite 2400, Toronto, Ontario M5V 3K2.

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

4. The Filer became a reporting issuer following completion of a long-form prospectus offering of the Class A Units (as defined below), Class F Units (as defined below), Class I Units (as defined below) and Class U Units (as defined below) on October 16, 2013. The Units (as defined below) are not listed on any stock exchange.

5. The Filer focuses on indirectly acquiring, owning and leasing a portfolio of diversified revenue producing commercial real estate properties in the United States with a focus on anchored retail properties.

6. Slate Asset Management L.P. is the manager of the Filer ("Manager").

Capital Structure of the Filer

7. The Filer is authorized to issue an unlimited number of Units consisting of Class A units ("Class A Units"), Class F units ("Class F Units"), Class I units ("Class I Units") and Class U units ("Class U Units"), and together with the Class A Units and Class U Units, the "Units").

8. As of March 19, 2015, the Filer had 3,315,685 Class A Units, 309,265 Class F Units, 1,750,000 Class I Units and 2,120,050 Class U Units issued and outstanding. In particular, as of March 19, 2015:

(i) the Class A Units represented 44.2% of the issued and outstanding Units of the Filer, 44.2% of the voting rights of the Filer and 54.3% of the Minority Vote (as defined below),

(ii) the Class I Units represented 23.3% of the issued and outstanding Units of the Filer, 23.3% of the voting rights of the Filer and 5.9% of the Minority Vote (as defined below),

(iii) the Class F Units represented 4.1% of the issued and outstanding Units of the Filer, 4.1% of the voting rights of the Filer and 5.1% of the Minority Vote (as defined below), and

(iv) the Class U Units represented 28.3% of the issued and outstanding Units of the Filer, 28.3% of the voting rights of the Filer and 34.7% of the Minority Vote (as defined below).

9. The holders of the Class A Units, Class I Units, Class F Units and Class U Units have identical rights and obligations and no holder of Units is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:

(i) Distributions on the Units, including any returns of capital and the distribution of proceeds on the termination of the Filer, are determined and declared in U.S. dollars.

(ii) With respect to the Class A Units and Class F Units, on the date of the applicable distribution the Filer converts the U.S. dollar distribution payable on the Units into Canadian dollars at the spot exchange rate on such distribution date and holders of such Units receive Canadian dollar distributions. This is intended to allow holders of Units the flexibility to receive distributions in Canadian dollars.

(iii) The proportionate entitlement (the "Proportionate Entitlement") of the holders of Class A Units, Class I Units, Class F Units and Class U Units to participate in distributions made by the Filer and to receive proceeds on the redemption of Units and/or a termination of the Filer is determined based on the net U.S. dollar proceeds received by the Filer in respect of such class of Units at the time of the Filer's initial public offering. The net U.S. dollar proceeds received by the Filer in respect of each class of Unit slightly differed as a result of (i) the currency of the unitholder's subscription, and (ii) the amount of agents' fees that were paid in respect of the unitholder's subscription. In particular:

A. On the closing of the Filer's initial public offering, the Filer converted the Canadian dollar subscription amount received from the issuance of Class A Units and Class F Units into U.S. dollars. The net U.S. dollar proceeds received by the Filer in respect of the Class A Units and Class F Units was determined by the Canadian/U.S. dollar exchange rate at which the Filer was able to convert such proceeds at the closing date of the offering;

B. The Class F Units offered in the initial public offering were designed for fee-based accounts. As a result, a lower agents' fee was payable in connection with subscriptions for Class F Units than in connection with subscriptions for the Class A Units and Class U Units. Accordingly the net U.S. dollar proceeds received by the Filer were correspondingly higher in respect of such Class F Units as compared to Class A Units; and

C. Certain investors subscribed for Class I Units in a private placement concurrent with the initial public offering. No agents' fees were paid on subscriptions for Class I Units pursuant to such private placement, and accordingly the net U.S. dollar proceeds received by the Filer were proportionately higher in respect of such Units.

10. An annual service fee equal to 0.5% of the gross subscription proceeds received upon the Filer's initial public offering is currently payable out of the Filer's distributions to registered dealers on behalf of unitholders (in the case of the Class A Units and Class U Units) and to unitholders (in the case of the Class F Units and the Class I Units).

11. As of March 31, 2015, the Manager and the principals of the Manager collectively held 108,000 Units of the Filer.

Proposed Transaction of the Filer

12. On February 25, 2015, it was announced that the Filer had entered into an agreement (as amended and restated on April 2, 2015, the "Acquisition Agreement") with Slate Retail REIT ("SRT") pursuant to which SRT will acquire the assets of the Filer in a U.S.$195 million transaction (the "Proposed Transaction"). On April 2, 2015, the Filer and SRT announced that the Proposed Transaction had been approved by the board of trustees and independent committee of each of the Filer and SRT following the completion of due diligence on behalf of, and satisfactory to, the boards and such committees (including receipt by SRT of a formal valuation in respect of the Filer). The Proposed Transaction remains subject to approval of the unitholders of each of the Filer and SRT, approval of the Toronto Stock Exchange ("TSX") and other customary closing conditions. The Manager, as the Manager of SRT, will not earn an acquisition fee for the Proposed Transaction.

13. Subject to satisfaction of the conditions to closing, SRT will issue 7,513,877 TSX-listed Class U units of SRT ("SRT Consideration Units") to the Filer (at a deemed price per unit equal to U.S.$10.47) as consideration for the acquisition, subject to adjustment depending on the Filer's final working capital at the date of closing. In connection with closing of the Proposed Transaction, the Filer will (i) make a special distribution to its unitholders of the Filer's remaining cash balance; (ii) amend the Filer DOT to, among other things, add a right for the Filer to redeem the Units by delivering SRT Consideration Units to Unitholders; and (iii) distribute SRT Consideration Units to the Filer's unitholders pursuant to a tax-deferred "qualifying exchange" transaction for the purposes of the Income Tax Act (Canada).

14. Pursuant to the Proposed Transaction, Units of each class will be redeemed in accordance with an exchange ratio that corresponds to the Proportionate Entitlement of each class of Units.

15. Currently, the general partner interest in Slate U.S. Opportunity (No. 3) Holding L.P. ("Holding LP") is held by Slate U.S. Opportunity (No. 3) Holding GP L.P. ("Holding GP LP"). SRT and the Filer have agreed pursuant to the Acquisition Agreement that SRT will indirectly acquire any partnership interests of Holding LP (the "GP LP Interests"), and the holders of the GP LP Interests will transfer such interests to subsidiary limited partnerships of SRT, in consideration for 207,150 Class B limited partnership units in the aggregate (the "Class B Consideration Units"), subject to the working capital adjustment.

16. Messrs. Blair and Brady Welch, principals of the Manager and trustees of the Filer, Mr. Samuel Altman, a trustee of the Filer, and a unitholder which holds more than 10% of the outstanding Units, each directly or indirectly hold 95% of the interests in Holding GP LP. Such persons (the "Related Parties") are "related parties" of the Filer and their interests in any Class B Consideration Units received in connection with the foregoing may be considered a "collateral benefit" in respect of the Proposed Transaction.

17. The Proposed Transaction is therefore a "business combination" pursuant to the definition in MI 61-101. As a result, the Proposed Transaction will be subject to the applicable requirements of MI 61-101 relating to, among other things, the approval by a majority of the votes cast by disinterested holders of affected securities entitled to vote on the Proposed Transaction at the Unitholder Meeting (the "Minority Vote"). Because no securities of the Filer are listed or quoted on the TSX or any other exchange specified in Section 4.4 of MI 61-101, the formal valuation requirement in Section 4.3 of MI 61-101 does not apply to the Filer in carrying out the Proposed Transaction.

18. Any Units that are beneficially owned by the Related Parties, or in respect of which the Related Parties exercise control or direction, including Units held by the Manager, will be excluded from the Minority Vote of Unitholders required under MI 61-101 in respect of the Proposed Transaction.

19. The interests of the holders of each class of Units are aligned in respect of the Proposed Transaction. The Proposed Transaction will not have any materially different impact upon any class of Units.

20. In connection with the Proposed Transaction, Units of each class will be redeemed in accordance with an exchange ratio that corresponds to the Proportionate Entitlement of each class of Units. For certainty, all Unitholders, regardless of the class of Units held, will receive the same number of SRT Consideration Units per U.S. dollar invested in the Filer (adjusting to reflect the different agents' fees paid) by the Unitholder at the time of the closing of the Filer's initial public offering in September 2013.

21. In addition, the Proposed Transaction is subject to a number of mechanisms to ensure the interests of Unitholders are protected including:

(i) The Filer has established a committee of independent trustees who, among other things, has engaged independent counsel and financial advisors and has obtained a formal fairness opinion in respect of the Proposed Transaction.

(ii) The calling and holding of a special meeting of all Unitholders in order to consider and, if deemed advisable, approve the Proposed Transaction in accordance with Section 4.2 of MI 61-101.

(iii) The information circular to be mailed to Unitholders in connection with the Unitholder Meeting will comply with the requirements of applicable securities law.

(iv) Unitholder approval of the Proposed Transaction in accordance with MI 61-101 (subject to the Requested Relief).

22. The division of the Units into Class A Units, Class I Units, Class F Units, and Class U Units is related only to the currency of each investor's investment at the time of the Filer's initial public offering and such investor's relationship with its broker or agent, which affected the net proceeds received by the Filer on the initial issuance of Units. Other than the different proportional entitlement to distributions and service fees that was determined at the time of their initial issuance, the holders of the Class A Units, Class F Units, Class I Units and Class U Units all have the same rights and obligations.

23. The Filer DOT provides that Unitholders will vote as a single class in respect of any matter to be voted upon unless the Board of Trustees determines that nature of the business to be transacted at the meeting affects holders of one class of Units in a manner materially different from its effect on holders of another class of Units, in which case the Unitholders of the affected class will vote separately as a class.

24. Under the Filer DOT, the Proposed Transaction will require the approval of two thirds of the votes cast by holders of the outstanding Units voting as a single class.

25. In connection with the Proposed Transaction, Units of each class will be redeemed in accordance with an exchange ratio that corresponds to the Proportionate Entitlement of each class of Units. For certainty, all Unitholders, regardless of the class of Units held, will receive the same number of SRT Consideration Units per U.S. dollar invested in the Filer (adjusting to reflect the different agents' fees paid) by the Unitholder at the time of the closing of the Filer's initial public offering in September 2013.

26. The Filer is of the view that the interests of the holders of each class of Units are aligned in respect of the Proposed Transaction. The Proposed Transaction will not have any materially different impact upon any class of Units. The Board of Trustees did not determine that the Proposed Transaction affects holders of one class of Units in a manner materially different from its effect on holders of another class of Units and therefore decided that a class by class vote is not necessary for the Proposed Transaction.

27. The Filer has included information about this application for the Requested Relief in a press release dated March 31, 2015.

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 Requested Relief is granted, provided that the mechanisms set out in Paragraph 21 are implemented and remain in place as described herein.

"Naizam Kanji"
Director
Office of Mergers and Acquisitions
Ontario Securities Commission