National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1 -- business acquisition report -- the applicant requires relief from the requirement to file a business acquisition report -- the acquisition is insignificant applying the asset and investment tests but applying the profit or loss test produces an anomalous results because the significance of the acquisition under this test is disproportionate to its significance on an objective basis in comparison to the results of the other significance tests and all other business, commercial, financial and practical factors -- the applicant has provided additional measures that demonstrate the insignificance of the property to the applicant and that are generally consistent with the results when applying the asset and investment tests.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.
October 26, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF AMERICAN HOTEL INCOME PROPERTIES REIT LP (the Filer)
1 The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) granting relief from the requirement in Part 8 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) to file a business acquisition report (BAR) in connection with the Filer's acquisition of a portfolio of five railway lodging facilities located in New Mexico, South Dakota, Wyoming and Nebraska (the Railway Portfolio) on September 16, 2015 (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application,
(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 Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut, and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
2 Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 51-102 have the same meaning if used in this decision, unless otherwise defined in this decision.
3 This decision is based on the following facts represented by the Filer:
1. the Filer is an Ontario limited partnership established under the laws of the Province of Ontario pursuant to a declaration of limited partnership and its head office is located in Vancouver, British Columbia;
2. the Filer is a reporting issuer under the securities legislation of each of the provinces and territories of Canada;
3. the limited partnership units of the Filer are listed and posted for trading on the Toronto Stock Exchange under the trading symbol "HOT.UN";
4. the Filer is not in default of securities legislation in any jurisdiction;
5. the Filer is in the business of indirectly acquiring hotel properties substantially in the United States;
6. from its February 20, 2013 initial public offering and several subsequent bought deals, the Filer has raised over Cdn$340 million in gross proceeds, the net proceeds of which have been used by the Filer to, among other things, partially finance its indirect acquisition of 78 hotel properties in the United States;
7. on September 16, 2015, the Filer acquired the Railway Portfolio for a total gross purchase price of approximately US$44.8 million, excluding customary closing and post-closing acquisition adjustments;
8. the acquisition of the Railway Portfolio 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 acquisition pursuant to section 8.2(1) of NI 51-102;
Significance Tests for the BAR
9. under Part 8 of NI 51-102, the Filer is required to file a BAR for any completed 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 acquisition of the Railway Portfolio is not a significant acquisition under the asset test in section 8.3(2)(a) of NI 51-102 as the value of the Railway Portfolio represented only approximately 10.3% of the consolidated assets of the Filer as of December 31, 2014;
11. the acquisition of the Railway Portfolio is not a significant acquisition under the investment test in section 8.3(2)(b) of NI 51-102 as the Filer's acquisition costs represented only approximately 10.3% of the consolidated assets of the Filer as of December 31, 2014;
12. the acquisition of the Railway Portfolio would, however, be a significant acquisition under the profit or loss test in section 8.3(2)(c) of NI 51-102; in particular, the Filer's proportionate share of the consolidated specified profit or loss of the Railway Portfolio exceeds 20% of the consolidated specified profit or loss of the Filer calculated using audited annual financial statements of the Filer and unaudited annual financial information for the Railway Portfolio, in each case, for the year ended December 31, 2014;
13. the application of the profit or loss test produces an anomalous result for the Filer because it exaggerates the significance of the Acquisition out of proportion to its significance on an objective basis in comparison to the results of the asset test and investment test;
De Minimis Acquisition
14. the Filer does not believe (nor did it at the time that it made the acquisition) that the acquisition of the Railway Portfolio is significant to it from a commercial, business, practical or financial perspective; and
15. the Filer has provided the principal regulator with additional operational measures that demonstrate the non-significance of the acquisition of the Railway Portfolio to the Filer; these additional operational measures compared other operational information such as net operating income, revenue and number of rooms for the Railway Portfolio to that of the Filer, and the results of those measures are generally consistent with the results of the asset test and the investment test.
4 Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.