Securities Law & Instruments

Headnote

Subsection 74(1) -- Subsection 74(1) -- Application for exemption from prospectus requirement in connection with first trade of shares of issuer by the applicant and certain employees (defined in decision document) through exchange or market outside of Canada or to person or company outside of Canada -- issuer not a reporting issuer in any jurisdiction in Canada -- conditions of the exemption in section 2.14 of National Instrument 45-102 Resale of Securities not satisfied as residents of Canada own more than 10% of the total number of shares -- relief granted subject to conditions, including at the date of the trade, the issuer is not a reporting issuer in any jurisdiction of Canada where that concept exists, the trade is made through an exchange or market outside of Canada or to a person or company outside of Canada, seller does not undertake any intentional efforts to pre-arrange a transaction with a buyer in Canada, Canadian residents other than the applicant and certain employees do not own, directly or indirectly, more than 10% of the outstanding ordinary shares of the issuer, Canadian residents other than the applicant and certain employees do not represent in number more than 10% of the total number of owners of ordinary shares, the applicant acquired not more than 25% of the issued and outstanding ordinary shares from time to time on reliance upon prospectus exemptions, relief to certain employees shall only apply to ordinary shares or underlying shares issued in reliance upon the prospectus exemptions contained in subsection 2.24 of NI 45-106, employees acquire not more than 20% of the issued and outstanding ordinary shares from time to time, prior to the third anniversary of the date of the decision the issuer delivers to the principal regulator a certificate setting out information as to the percentage of ordinary shares owned by residents of Canada and the percentage of owners represented by residents of Canada, and the relief shall terminate on the date that is five years after the date of the decision.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).

National Instrument 45-102 Resale of Securities, s. 2.14.

October 16, 2015

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5 AS AMENDED (THE "ACT") AND IN THE MATTER OF IRISH RESIDENTIAL PROPERTIES REIT PLC ("IRES REIT") AND CANADIAN APARTMENT PROPERTIES REAL ESTATE INVESTMENT TRUST ("CAPREIT", AND TOGETHER WITH IRES REIT, THE "APPLICANTS")

DECISION

Background

The principal securities regulator in the Jurisdiction has received an application from the Applicants for a decision pursuant to section 74 of the of the Act for an exemption from the prospectus requirement contained in section 53 of the Act in connection with the first trades of ordinary shares of IRES REIT (the "Ordinary Shares") acquired in reliance upon exemptions from the prospectus requirement under the Act ("prospectus exemptions") directly or indirectly by (a) CAPREIT (directly or indirectly through its affiliates) from time to time; (b) certain individuals who are or were employees, officers, and directors of IRES REIT, IRES Fund Management Limited, CAPREIT, CAPREIT Limited Partnership or their respective affiliates from time to time; and (c) a trustee of CAPREIT (collectively, the "Requested Relief").

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Applicants:

IRES REIT

1. IRES REIT was incorporated in Ireland on July 2, 2013 as a company under the Irish Companies Act and is domiciled in Ireland.

2. IRES REIT is a property investment company which acquires, holds and manages investments primarily focused on residential real estate located on the Island of Ireland and ancillary and/or strategically located commercial property, for third party rental on the Island of Ireland.

3. IRES REIT is externally managed by IRES Fund Management Limited, which is a private company governed under the laws of Ireland and is an indirect wholly-owned subsidiary of CAPREIT.

4. IRES REIT is not a reporting issuer or its equivalent in the Jurisdiction or any other province or territory of Canada, nor are any of its securities listed or posted for trading on any exchange or market located in Canada.

5. IRES REIT's Ordinary Shares have been admitted to the official list of the Irish Stock Exchange and to trading on the main securities market of the Irish Stock Exchange (the "Irish Stock Exchange"). IRES REIT is in compliance with all securities laws of Ireland. In addition, IRES REIT is in good standing with the rules of the Irish Stock Exchange.

6. Based on the reasonable enquiries of IRES REIT, Canadian residents, excluding CAPREIT:

a) owned approximately 1.61% of the issued and outstanding Ordinary Shares and represented approximately 1.48% of the total number of owners of the Ordinary Shares, based on 417,000,000 Ordinary Shares issued and outstanding;

b) owned approximately 7.3% of the issued and outstanding Ordinary Shares and represented approximately 3.0% of the total number of owners of the Ordinary Shares, on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards (as defined below); and

c) owned approximately 4.6% of the issued and outstanding Ordinary Shares and represented approximately 2.8% of the total number of owners of the Ordinary Shares, on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards but excluding the Employee Incentive Awards issued to the IRES Group Employee (as defined below).

7. The foregoing representation is based on the reasonable enquiries of IRES REIT regarding the beneficial ownership of the issued and outstanding Ordinary Shares generally as at April 7, 2015 (being 417,000,000 Ordinary Shares), and IRES REIT has no reason to believe that the beneficial ownership of the Ordinary Shares by Canadian residents or the representation of Canadian residents as a percentage of the total number of owners of the Ordinary Shares would be materially different as of the date of this decision.

8. Securityholders of IRES REIT in Ontario (the "Jurisdiction") are entitled to all relevant disclosure that is required to be provided to securityholders generally under various provisions of Irish legislation. The main disclosure requirements are pursuant to the Irish Listing Rules and the Irish Transparency Regulations, and consist of regular continuous disclosure filings (such as annual and semi-annual financial reports, reports of acquisitions and dispositions of securities, etc.) as well as timely disclosure obligations relating to insider information/market abuse (such as disclosure of insider information, and certain changes in the business and/or capital). Such disclosures are usually provided through announcements made via a prescribed Regulatory Information Service, and in Ireland through the announcement service provided by the Irish Stock Exchange. Certain disclosures such as annual reports and accounts and notices of annual general meeting are generally sent to registered securityholders, regardless of where they are resident and are required to be published on IRES REIT's website.

CAPREIT

9. CAPREIT was formed in 1997 and is an internally-managed, unincorporated, open-ended real estate investment trust governed under the laws of the province of Ontario. CAPREIT is a reporting issuer in all provinces and territories of Canada and its units are listed for trading on the Toronto Stock Exchange under the symbol "CAR.UN". The head office of CAPREIT is located at 11 Church Street, Suite 401, Toronto, Ontario, Canada, M5E 1W1.

10. On April 16, 2014 IRES REIT completed a [Euro]200 million initial offering of its Ordinary Shares (the "Initial Offering") on the Irish Stock Exchange. In a concurrent private placement conducted into the Jurisdiction (the "Original Ontario Private Placement"), CAPREIT, through its subsidiary CAPREIT Limited Partnership, beneficially acquired approximately 20% and certain other Canadian investors (comprised primarily of institutional investors qualifying as "permitted clients" as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103")) acquired less than 3%, of the outstanding Ordinary Shares of IRES REIT in connection with the Initial Offering. The decision in the matter of Irish Residential Properties REIT Limited (the predecessor to IRES REIT) (the "Original Decision") dated April 11, 2014 provided relief from the from the prospectus requirement in section 53 of the Act for certain trades in the Ordinary Shares that were acquired by CAPREIT (through its subsidiary) and such other Canadian investors who qualified as "permitted clients" (the "Original Permitted Clients", each as identified in the Form 45-106F1 filed with the OSC) in connection with the Original Ontario Private Placement.

11. On March 26, 2015, IRES REIT completed an offering (the "Second Offering") on the Irish Stock Exchange along with concurrent private placements in various jurisdictions (the "Private Placements"), including in Canada solely in the Jurisdiction (the "Ontario Private Placement").

12. CAPREIT, through its subsidiary CAPREIT Limited Partnership, beneficially acquired additional Ordinary Shares under the Ontario Private Placement following which it beneficially owned Ordinary Shares representing approximately 15.7% of the issued and outstanding Ordinary Shares. Subject to certain exceptions, certain Ordinary Shares beneficially acquired by CAPREIT through CAPREIT Limited Partnership on the closing of the Second Offering under the Ontario Private Placement are subject to a two year lock-up period (commencing as of April 16, 2014), pursuant to a lock-up agreement that CAPREIT Limited Partnership entered into on April 14, 2014 in connection with the Initial Offering (the "Lock-up"). The Lock-up applies in respect of Ordinary Shares beneficially acquired by CAPREIT in the Original Ontario Private Placement conducted in conjunction with the Initial Offering, and in respect of the securities beneficially acquired by CAPREIT under the Ontario Private Placement conducted in conjunction with the Second Offering.

13. CAPREIT, directly or indirectly through its affiliates, currently intends to maintain an ownership of up to 25% of the issued and outstanding Ordinary Shares from time to time given its strategic position in, and relationship with, IRES REIT and intends to therefore subscribe (directly or indirectly through its affiliates), to purchase or acquire additional Ordinary Shares of IRES REIT from time to time in order to do so.

The Employees

14. Ordinary Shares have been acquired, and may continue to be acquired, by certain Canadian resident individuals who are or were: (a) employees, officers, and directors (or their equivalent) of IRES REIT (the "IRES Group Employees"); or (b) employees, officers, and directors (or their equivalent) of CAPREIT, CAPREIT Limited Partnership, IRES Fund Management Limited and/or any of their respective affiliates (the "CAPREIT Group Employees") who have or had a tangible connection to IRES REIT through their role in the organization and establishment of IRES REIT or in the ongoing business and operations of IRES REIT (the IRES Group Employees and the CAPREIT Group Employees collectively referred to as the "Employees").

15. The Ordinary Shares have been acquired by the Employees on a prospectus exempt basis pursuant to exemptions available under National Instrument 45-106 Prospectus Exemptions ("NI 45-106") or under open market purchases, and certain Employees have been issued and will continue to be issued stock options (or other similar awards, referred to collectively as the "Employee Incentive Awards") by IRES REIT that are exercisable to acquire, or may otherwise result in the issuance of, Ordinary Shares (the "Incentive Ordinary Shares").

16. The Requested Relief in respect of the Employees is requested only in respect of Ordinary Shares issued on a prospectus exempt basis pursuant to subsection 2.24 of NI 45-106, and in respect of Incentive Ordinary Shares underlying Employee Incentive Awards issued on a prospectus exempt basis pursuant to subsection 2.24 of NI 45-106.

17. The aggregate percentage of the issued and outstanding Incentive Ordinary Shares underlying Employee Incentive Awards to be held by the Employees is expected to be no more than 10% of the issued and outstanding Ordinary Shares from time to time.

IRES Group Employees

18. The IRES Group Employees, currently comprising of one individual, qualify to acquire Employee Incentive Awards and/or Ordinary Shares on a prospectus exempt basis under subsection 2.24 of NI 45-106.

19. As of the date of this decision, the IRES Group Employee owns, directly or indirectly, 500,000 Ordinary Shares and 12,510,000 options to acquire Incentive Ordinary Shares, representing in aggregate approximately 2.9% of the issued and outstanding Ordinary Shares on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards.

CAPREIT Group Employees

20. The CAPREIT Group Employees qualify to acquire Employee Incentive Awards and/or Ordinary Shares under subsection 2.24 of NI 45-106 on the basis that employees, officers and directors (or their equivalent) of CAPREIT Limited Partnership, CAPREIT or any of their respective affiliates are "consultants" of IRES REIT (as such term is defined in NI 45-106).

21. Of the CAPREIT Group Employees, currently 13 Canadian resident individuals (which excludes the Trustee) have been granted Employee Incentive Awards comprised of stock options under the stock option plan of IRES REIT (the "Option Plan") to acquire Incentive Ordinary Shares. As of the date of this decision, assuming 100% exercise of all outstanding Employee Incentive Awards, such CAPREIT Group Employees would acquire, in aggregate, 11,054,924 Incentive Ordinary Shares (subject to adjustment in accordance with the terms of the Option Plan), representing approximately 2.76% of the issued and outstanding Ordinary Shares and approximately 1.6% of the total number of owners of the Ordinary Shares (being approximately 2.5 % and 1.6%, respectively, on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards). One CAPREIT Group Employee has been issued 1,000,000 Ordinary Shares on a prospectus exempt basis under subsection 2.24 of NI 45-106, representing approximately 0.24% of the issued and outstanding Ordinary Shares (being 0.22% on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards). The job titles of the 13 CAPREIT Group Employees along with a description of how their employment is related to IRES REIT are as set forth at Schedule "A" to this decision.

22. It is expected that the number of CAPREIT Group Employees to whom Employee Incentive Awards comprised of stock options may be granted will increase from 13 to approximately 35 over time, with such additional CAPREIT Group Employees holding commensurate positions as those described in Schedule "A."

The Trustee

23. To a very limited extent, the "accredited investor" exemption under section 2.3 of NI 45-106 has been relied upon in connection with the issuance of Employee Incentive Awards by one individual (the "Trustee"). The Trustee does not qualify for the prospectus exemption under subsection 2.24 of NI 45-106 for technical reasons as the Trustee is a trustee of CAPREIT. The Trustee was instrumental in developing the opportunity for CAPREIT in Ireland, including identifying the specific real estate assets for IRES REIT. The Trustee was issued 2,000,000 stock options under IRES REIT's Option Plan on April 16, 2014 exercisable to acquire 2,000,000 Incentive Ordinary Shares (the "Trustee Incentive Ordinary Shares") (subject to adjustment in accordance with the terms of the Option Plan), representing approximately 0.48% of the issued and outstanding Ordinary Shares, or approximately 0.45% on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards.

Reasons for the Relief

24. Based on the reasonable enquiries of IRES REIT, on a fully diluted basis assuming the exercise of all outstanding Employee Incentive Awards resulting in an aggregate of 443,814,924 Ordinary Shares that would be issued and outstanding:

a) CAPREIT would own approximately 14.69% of the issued and outstanding Ordinary Shares and represent approximately 0.12% of the total number of owners of the Ordinary Shares;

b) the CAPREIT Group Employees (excluding the Trustee) would own approximately 2.7% of the issued and outstanding Ordinary Shares and represent approximately 1.6% of the total number of owners of the Ordinary Shares;

c) the IRES REIT Group Employees would own approximately 2.93% of the issued and outstanding Ordinary Shares and represent approximately 0.12% of the total number of owners of the Ordinary Shares; and

d) the Trustee would own approximately 0.45% of the issued and outstanding Ordinary Shares and represent approximately 0.12% of the total number of owners of the Ordinary Shares.

25. The foregoing representation is based on the reasonable enquiries of IRES REIT regarding the beneficial ownership of the issued and outstanding Ordinary Shares generally as at April 7, 2015, and IRES REIT has no reason to believe that the beneficial ownership of the Ordinary Shares by Canadian residents or the representation of Canadian residents as a percentage of the total number of owners of the Ordinary Shares would be materially different as of the date of this decision.

26. The first trade in the Ordinary Shares by CAPREIT (directly or indirectly through its affiliates), the Employees or the Trustee in reliance upon a prospectus exemption would be deemed a distribution pursuant to National Instrument 45-102 Resale of Securities ("NI 45-102") unless, among other things, IRES REIT has been a reporting issuer for the four months immediately preceding the trade in the Jurisdiction. Since IRES REIT is not a reporting issuer or its equivalent in the Jurisdiction, the Ordinary Shares acquired in reliance upon a prospectus exemption would be subject to an indefinite hold period.

27. Subsection 2.14(1) of NI 45-102 provides an exemption from the prospectus requirement for the first trade in securities of a non-reporting issuer distributed under a prospectus exemption. Specifically, subsection 2.14(1) states that the prospectus requirement does not apply to the first trade of a security distributed under an exemption from the prospectus requirement if:

(a) the issuer of the security:

(i) was not a reporting issuer in any jurisdiction of Canada at the distribution date; or

(ii) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

(b) at the distribution date, after giving effect to the issue of the security and any other securities of the same class or series that were issued at the same time as or as part of the same distribution as the security, residents of Canada:

(i) did not own directly or indirectly more than 10 percent of the outstanding securities of the class or series; and

(ii) did not represent in number more than 10 percent of the total number of owners directly or indirectly of securities of the class or series (15 (b)(i) and (ii); and

(c) the trade is made:

(i) through an exchange, or a market, outside of Canada; or

(ii) to a person or company outside of Canada.

28. Subsection 2.14(2) of NI 45-102 provides an exemption from the prospectus requirement for the first trade in underlying securities of a non-reporting issuer where the convertible, exchangeable or multiple convertible security that directly or indirectly entitled or required the holder to acquire the underlying securities is distributed under a prospectus exemption. Specifically, subsection 2.14(2) states that the prospectus requirement does not apply to the first trade of an underlying security if:

(a) the convertible security, exchangeable security or multiple convertible security that, directly or indirectly, entitled or required the holder to acquire the underlying security was distributed under an exemption from the prospectus requirement;

(b) the issuer of the underlying security

i. was not a reporting issuer in any jurisdiction of Canada at the distribution date of the convertible security, exchangeable security or multiple convertible security, or

ii. is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

(c) the conditions in paragraph 2.14(1)(b) would have been satisfied for the underlying security at the time of the initial distribution of the convertible security, exchangeable security or multiple convertible security; and

(d) the condition in paragraph 2.14 (1)(c) is satisfied.

29. Except for the condition in subparagraph 2.14(1)(b)(i), the Ordinary Shares and Incentive Ordinary Shares acquired directly or indirectly by CAPREIT and by the Employees in reliance upon prospectus exemptions from time to time, would satisfy all of the criteria of subsection 2.14(1) or subsection 2.14(2) of NI 45-102 to permit such holders to rely on the prospectus exemptions contained in subsection 2.14(1) or subsection 2.14(2) of NI 45-102 to trade such Ordinary Shares or Incentive Ordinary Shares through an exchange or market outside Canada or to a person or company outside of Canada.

Decision

This decision evidences the decision of the principal regulator (the "Decision").

The principal regulator is satisfied that the test contained in the legislation that provides the principal regulator with the jurisdiction to make the Decision has been met.

The Decision of the principal regulator under the legislation is that the Requested Relief is granted, provided that:

a) with respect to the first trade of the Ordinary Shares,

A. the issuer of the security:

i. was not a reporting issuer in any jurisdiction of Canada at the distribution date; or

ii. is not a reporting issuer in any jurisdiction of Canada at the date of the trade; and

B. the trade is made:

i. through an exchange, or a market, outside of Canada; or

ii. to a person or company outside of Canada;

b) with respect to the first trade of the Incentive Ordinary Shares or the Trustee Incentive Ordinary Shares,

A. the convertible security, exchangeable security or multiple convertible security that, directly or indirectly, entitled or required the holder to acquire the underlying security was distributed under an exemption from the prospectus requirement;

B. the issuer of the underlying security

i. was not a reporting issuer in any jurisdiction of Canada at the distribution date of the convertible security, exchangeable security or multiple convertible security, or

ii. is not a reporting issuer in any jurisdiction of Canada at the date of the trade; and

C. the trade is made:

i. through an exchange, or a market, outside of Canada; or

ii. to a person or company outside of Canada;

c) with respect to trades made through an exchange or a market outside of Canada, the seller does not undertake any intentional efforts to pre-arrange a transaction with a buyer in Canada;

d) as at the distribution date of the Ordinary Shares or the initial distribution of the Employee Incentive Awards, as applicable, Canadian residents, other than CAPREIT (directly or indirectly through its affiliates) and the Employees, do not own, directly or indirectly, more than 10% of the outstanding Ordinary Shares;

e) as at the distribution date of the Ordinary Shares or the initial distribution of the Employee Incentive Awards, as applicable, Canadian residents, other than the Employees, do not represent in number more than 10% of the total number of owners, directly or indirectly, of Ordinary Shares;

f) CAPREIT acquires (directly or indirectly through its affiliates), not more than 25% of the issued and outstanding Ordinary Shares from time to time in reliance upon prospectus exemptions;

g) the Requested Relief in respect of the Employees shall only apply to Ordinary Shares issued in reliance upon the prospectus exemptions contained in subsection 2.24 of NI 45-106 and to Incentive Ordinary Shares underlying Employee Incentive Awards issued to the Employees in reliance upon the prospectus exemptions contained in subsection 2.24 of NI 45-106;

h) the Requested Relief in respect of the Trustee shall apply to the Trustee Incentive Ordinary Shares;

i) the Employees acquire, directly or indirectly, in aggregate, not more than 20% of the issued and outstanding Ordinary Shares from time to time in reliance upon prospectus exemptions;

j) prior to the third anniversary date of this Decision, IRES REIT delivers to the principal regulator a certificate, based on reasonable enquiries made by IRES REIT and as of a date within three months of the third anniversary date of this Decision, setting out information as to the percentage of Ordinary Shares owned, directly or indirectly, by residents of Canada, and the percentage of owners, directly or indirectly, of the Ordinary Shares represented by residents of Canada, including the respective percentage of Ordinary Shares owned by and percentage of owners represented by, each of CAPREIT, the CAPREIT Group Employees, the IRES REIT Group Employees and the Trustee; and

k) the Requested Relief shall terminate on the date that is five years after the date of this Decision, except with respect to the first trades of any Incentive Ordinary Shares acquired, directly or indirectly, by the Employees provided the related Employee Incentive Award is granted or issued on or prior to the fifth anniversary date of this Decision.

"Monica Kowal"
"Grant Vingoe"
Vice-Chair
Vice-Chair
Ontario Securities Commission
Ontario Securities Commission

 

Schedule "A"

 

Position

Connection to IRES REIT

 

1.

President and Chief Executive Officer, CAPREIT, Director, IRES Fund Management Limited and Director, IRES REIT

Chief Executive Officer of CAPREIT, service provider to IRES REIT, Director of IRES Fund Management, investment advisor and property manager of IRES REIT, and Director of IRES REIT

 

2.

Chief Operating Officer, CAPREIT

Fulfils duties of Chief Operating Officer for IRES REIT

 

3.

General Counsel and Corporate Secretary, CAPREIT and Corporate Secretary, IRES Fund Management Limited

Coordinates and supervises legal services to IRES REIT, in particular, in relation to real estate transactions and in respect of execution on all real estate transactions

 

4.

Chief Financial Officer, CAPREIT

Fulfils duties of Chief Financial Officer for IRES REIT

 

5.

VP, Accounting, CAPREIT

Responsible for property accounting for IRES REIT

 

6.

VP, Business Process Improvement, CAPREIT

Responsible for business process improvements for IRES REIT

 

7.

VP, Procurement and Energy Management, CAPREIT

Responsible for coordinating procurement and energy management for IRES REIT

 

8.

VP, Sales and Marketing, CAPREIT

Responsible for sales and marketing for IRES REIT

 

9.

VP, Human Resources, CAPREIT

Responsible for human resources for IRES REIT

 

10.

VP, Information Technology of CAPREIT

Responsible for providing information technology services to IRES REIT

 

11.

Managing Director, CAPREIT

Managing Director of operations in Ireland

 

12.

Associate Counsel, CAPREIT and Corporate Secretary, IRES REIT

Corporate secretary of IRES REIT and coordinates and supervises legal services to IRES REIT

 

13.

Director, Financial Reporting, CAPREIT

Responsible for financial reporting for IRES REIT