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. 8.2, 13.1.
September 29, 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 AUTOMOTIVE PROPERTIES REAL ESTATE INVESTMENT TRUST (THE "FILER")
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 relief from the requirement in Part 8 of National Instrument 51-102 -- Continuous Disclosure Obligations ("NI 51-102") to file a business acquisition report (a "BAR") in respect of the Filer's acquisition (the "Third-Party Tenant Portfolio Acquisition") of a portfolio of third-party tenant properties located across Canada (the "Third-Party Tenant Portfolio") in connection with the Filer's initial public offering ("IPO") of trust units on July 22, 2015 (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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador.
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined in this decision.
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. The Filer was established pursuant to a declaration of trust dated June 1, 2015 as amended and restated on July 22, 2015.
2. The Filer's head office is located at 133 King Street East, Suite 300, Toronto, Ontario, M5C 1G6.
3. The Filer is a reporting issuer (or the equivalent thereof) under the securities legislation of each of the provinces of Canada and is not in default of securities legislation in any jurisdiction.
4. The trust units of the Filer are listed and posted for trading on the Toronto Stock Exchange under the trading symbol "APR.UN".
5. The Filer completed its IPO of trust units on July 22, 2015, pursuant to a long form prospectus in respect thereof dated July 10, 2015 (the "IPO Prospectus").
6. The net proceeds of the IPO were used by the Filer as partial consideration in connection with the Filer's indirect acquisition from 893353 Alberta Inc. and its subsidiaries of a portfolio of 26 automotive dealership properties located in Canada on July 22, 2015 in conjunction with the closing of the IPO.
The Third-Party Tenant Portfolio Acquisition
7. In connection with the closing of the IPO on July 22, 2015, the Filer acquired the Third-Party Tenant Portfolio in conjunction with its IPO of trust units for an aggregate purchase price of approximately $45.2 million (including closing costs of approximately $1.0 million).
8. The Third-Party Tenant Portfolio Acquisition constitutes a "significant acquisition" of the Filer for the purposes of Part 8 of NI 51-102, requiring the Filer to file a BAR within 75 days of the Third-Party Tenant Portfolio Acquisition pursuant to section 8.2(1) of NI 51-102.
Significance Test for the BAR
9. 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.
10. The Third-Party Tenant Portfolio 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.
11. For the purposes of completing its quantitative analysis of the asset test, the investment test and the profit or loss test, the Filer is required to utilize its most recent audited financial statements. Such audited historical financial statements of the Filer were created following the creation of the Filer for purposes of the Filer's IPO Prospectus. Accordingly, the applicable audited historical financial statements of the Filer only reflect assets of $10.00, unitholders' equity of $10.00 and financing activities of $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 Filer's IPO. As a result, the application of the asset test, the investment test and the 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 Filer's IPO.
12. When using the financial metrics of the Filer that existed upon the closing of its IPO (as opposed to the above-mentioned pre-IPO audited historical financial statements) to calculate the asset test, investment test and profit or loss test with respect to the Third-Party Tenant Portfolio Acquisition, the results indicate that the Third-Party Tenant Portfolio Acquisition represented only 12.5% of the Filer's consolidated assets, 12.2% of the Filer's consolidated investments and less than 14.3% of the Filer's forecasted net operating income. The application of the asset test, investment test and profit or loss test using the financial metrics of the Filer that existed immediately following the closing of its IPO more accurately reflect the true significance of the Third-Party Tenant Portfolio Acquisition from a practical, commercial, business and financial perspective.
De Minimis Acquisition
13. The Filer does not believe (nor did it believe at the time that it made the Third-Party Tenant Portfolio Acquisition) that the Third-Party Tenant Portfolio Acquisition is significant to it from a practical, commercial, business or financial perspective.
14. The Filer has provided the principal regulator with an additional measure which demonstrates the insignificance of the Third-Party Tenant Portfolio Acquisition to the Filer. This additional measure reflects that the total gross leasable area of the Third-Party Tenant Portfolio represented less than 13% to the total gross leasable area of the Filer's entire real estate portfolio immediately following the closing of its IPO.
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.