Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief from prospectus requirements to allow U.S. parent company to spin off shares of its U.S. subsidiary to investors – distributions not covered by legislative exemptions – U.S. parent company is not a reporting issuer in Canada but is subject to U.S. securities law – U.S. parent company has a de minimis presence in Canada – following the spin off, U.S. subsidiary will become an independent public company in the U.S. and will not be a reporting issuer in Canada but will be subject to U.S. securities law – neither the U.S. parent company nor the U.S. subsidiary is listed on an exchange - no investment decision required from Canadian shareholders in order to receive distributions.

Applicable Legislative Provisions

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

April 15, 2016

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
INVENTRUST PROPERTIES CORP.
(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 (the Legislation) for an exemption (the Exemption Sought) from the prospectus requirement in connection with the distribution (the Spin Off) by the Filer of shares of common stock of Highlands REIT, Inc. (SpinCo), a wholly-owned subsidiary of the Filer, on a pro rata basis and by way of a dividend in specie, to the Filer’s stockholders resident in Canada.

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 the other provinces and territories of Canada.

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 a corporation existing under the laws of the State of Maryland.

2.             The Filer’s head office is located in Oak Brook, Illinois.

3.             The Filer is not a reporting issuer under the securities legislation of any Canadian jurisdiction.

4.             The Filer’s authorized capital stock consists of 1,460,000,000 shares of common stock (the Filer Common Stock) and 40,000,000 shares of preferred stock (the Filer Preferred Stock). As of February 17, 2016, 862,205,672 of Filer Common Stock and no shares of Filer Preferred Stock were outstanding.

5.             On February 21, 2014, FINRA assigned ticker symbol “IARE” to the shares of Filer Common Stock for trading on the OTC Grey Market. Neither shares of Filer Common Stock nor Filer Preferred Stock are listed on any other quotation system or stock exchange, and the Filer has no intention of listing its securities on any Canadian stock exchange.

6.             The Filer is currently subject to the U.S. Securities Exchange Act of 1934, as amended, and the rules, regulations and orders promulgated thereunder.

7.             As of February 17, 2016, there were 26 holders of Filer Common Stock resident in Canada, holding 131,378.682 shares of Filer Common Stock, representing approximately 0.015% of the holders of Filer Common Stockholders worldwide and holdings of approximately 0.015% of the issued and outstanding shares of Filer Common Stock on such date, and these numbers are not expected to have materially changed from such date.

8.             Based on the information above, the number of holders of the Filer and the proportion of Filer Common Stock held by such stockholders in Canada is de minimis.

9.             SpinCo is currently a direct, wholly-owned subsidiary of the Filer incorporated in Maryland on December 16, 2015.

10.          SpinCo’s head office will be located in Oak Brook, Illinois.

11.          SpinCo’s authorized capital stock consists of 1,000,000,000 shares of common stock (SpinCo Common Stock) and 0 shares of preferred stock (SpinCo Preferred Stock). As of February 17, 2016, 100 shares of SpinCo Common Stock and no shares of SpinCo Preferred Stock were issued and outstanding. All of the SpinCo Common Stock is currently held by the Filer.

12.          Neither the Filer nor SpinCo is in default of any of its obligations under the securities legislation of any jurisdiction of Canada.

13.          The purpose of the Spin Off is to spin out the “non-core” assets of the Filer into an independent, self-managed, non-traded REIT.

14.          The Spin Off will be effected by the following principal steps:

a)            by means of a stock distribution that will be taxable for United States federal income tax purposes, the Filer will distribute the outstanding shares of SpinCo Common Stock to the holders of Filer Common Stock on a pro rata basis at a to be determined rate of shares of SpinCo Common Stock for each share of Filer Common Stock held;

b)            fractional shares of SpinCo Common Stock may be issued to holders of Filer Common Stock in connection with the Spin Off; and

c)             the holders of Filer Common Stock will not be required to pay any consideration for the shares of SpinCo Common Stock received in the Spin Off, or to surrender or exchange their shares of Filer Common Stock or take any other action in connection with the Spin Off in order to receive shares of SpinCo Common Stock. The Spin Off will occur automatically without any investment decision on the part of the holders of Filer Common Stock.

15.          Following completion of the Spin Off, SpinCo will cease to be a subsidiary of the Filer and is expected to become an independent, self-managed, non-traded REIT.

16.          It is not anticipated that the shares of SpinCo Common Stock will be listed for trading on any stock exchange following completion of the Spin Off.

17.          SpinCo is not a reporting issuer in any province or territory in Canada, nor are its securities listed on any stock exchange in Canada. SpinCo has no intention to become a reporting issuer in any province or territory in Canada or to list its securities on any Canadian stock exchange following the Spin Off.

18.          The Spin Off will be effected under the laws of the State of Maryland.

19.          Because the Spin Off will be effected by way of a dividend to the holders of Filer Common Stock, no stockholder approval of the Spin Off is required or being sought under Maryland law or any applicable U.S. federal securities laws.

20.          On March 18, 2016, SpinCo filed a registration statement on Form 10-12G with the United States Securities and Exchange Commission (the SEC) detailing the planned Spin Off (the registration statement, as may be amended, the Registration Statement), which Registration Statement was amended by Amendment No. 1 to the Registration Statement filed with the SEC on April 8, 2016 and Amendment No. 2 to the Registration Statement filed with the SEC on April 13, 2016.

21.          After the SEC has completed its review of the Registration Statement, holders of Filer Common Stock will receive a copy of the information statement (the Information Statement) comprising part of the Registration Statement. All materials relating to the Spin Off and the dividend sent by or on behalf of the Filer and SpinCo in the United States, including the Information Statement, will be sent concurrently to the holders of Filer Common Stock resident in Canada.

22.          The Information Statement will contain prospectus level disclosure about SpinCo.

23.          Holders of Filer Common Stock resident in Canada who receive shares of SpinCo Common Stock as a dividend pursuant to the Spin Off will have the benefit of the same rights and remedies in respect of the disclosure documentation received in connection with the Spin Off that are available to holders of Filer Common Stock resident in the United States.

24.          Following completion of the Spin Off, SpinCo will send concurrently to the holders of SpinCo Common Stock resident in Canada the same disclosure materials required to be sent under applicable United States laws to holders of SpinCo Common Stock resident in the United States.

25.          The proposed distributions of SpinCo Common Stock to Canadian shareholders would be exempt from the prospectus requirements under subsection 2.31(2) of National Instrument 45-106 Prospectus Exemptions but for the fact that SpinCo is not a reporting issuer.

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 first trade in shares of SpinCo Common Stock issued in connection with the Spin-Off is deemed to be a distribution unless the conditions in section 2.6 or subsection 2.14(1) of National Instrument 45-102 Resale of Securities are satisfied.

“Edwin P. Kerwin”               
Ontario Securities Commission

“Anne Marie Ryan”
Ontario Securities Commission