Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to a real estate investment trust (REIT) from the requirement to file a business acquisition report (BAR) under Part 8 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) in connection with the REIT's acquisition of a medical office complex -- Acquisition is not significant under the asset and investment test in section 8.3(2) of NI 51-102, but is significant under the income test -- REIT submitted that the calculation of consolidated income from continuing operations of the REIT for purposes of the income test under section 8.3(2) of NI 51-102 produces anomalous results because the significance of the acquisition is exaggerated out of proportion 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 -- REIT provided the principal regulator with additional measures that show that, as a business, commercial, financial and practical matter, the acquisition should not be considered as a significant acquisition for the REIT -- The results from these measures are generally consistent with the results of the asset and investment tests under section 8.3(2) of NI 51-102 -- Relief granted based on the REIT's representations that as a business, commercial, financial and practical matter, the acquisition should not be considered as a significant acquisition for the REIT.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, Part 8 and s. 13.1.

July 22, 2011

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

NORTHWEST HEALTHCARE PROPERTIES

REAL ESTATE INVESTMENT TRUST

(the "Filer" or the "REIT")

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") 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 ("BAR") in connection with the Filer's acquisition of the Tawa Centre in Edmonton, Alberta (the "Tawa Centre") which was completed on June 1, 2011 (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, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

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 in this decision.

Representations

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

The REIT

1. The REIT is an unincorporated open-ended real estate investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust with its head office in Toronto, Ontario.

2. The REIT is a reporting issuer under the securities legislation of each of the provinces and territories of Canada and is not in default of securities legislation in any jurisdiction.

3. The units of the REIT are listed and posted for trading on the Toronto Stock Exchange under the trading symbol "NWH.UN".

4. The REIT completed its initial public offering (the "IPO") on March 25, 2010 pursuant to its final long form prospectus dated March 17, 2010.

5. The proceeds of the IPO were used by the REIT to indirectly acquire a portfolio of income-producing properties with a focus on leasing space to doctors, dentists, other medical professionals and related healthcare service providers such as pharmacies, laboratories and diagnostic imaging clinics from NorthWest Operating Trust.

The Tawa Centre acquisition

6. On June 1, 2011, the REIT acquired the Tawa Centre for an aggregate purchase price of $25.95 million.

7. The acquisition of the Tawa Centre constitutes a "significant acquisition" of the REIT for purposes of Part 8 of NI 51-102, requiring the REIT to file a BAR within 75 days of the acquisition pursuant to section 8.2(1) of NI 51-102. The financial year of the acquired business is December 31.

Significance Test for the BAR

8. Under Part 8 of NI 51-102, the REIT 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.

9. The acquisition of the Tawa Centre is not a significant acquisition under the asset test in section 8.3(2) of NI 51-102 as the value of the Tawa Centre represented only approximately 1.7% of the consolidated assets of the REIT as of December 31, 2010.

10. The acquisition of the Tawa Centre is not a significant acquisition under the investment test in section 8.3(2) of NI 51-102 as the REIT's acquisition costs represented only approximately 3.3% of the consolidated assets of the REIT as of December 31, 2010.

11. However, the acquisition of the Tawa Centre would be a significant acquisition under the income test in section 8.3(2) of NI 51-102. In particular, the Tawa Centre represents approximately 29.6% of the REIT's income from continuing operations as of December 31, 2010.

12. The calculation of consolidated income from continuing operations of the REIT for purposes of the income test under NI 51-102 produces anomalous results because the significance of the acquisition is exaggerated out of proportion to its significance on an objective basis in comparison to the results of the other significance tests and all other business, commercial and practical factors. Specifically, since the property was originally purchased by the vendor in 2007, the cost basis for amortization will be significantly reduced as compared to the REIT in that the vendor would have amortized a significant portion of the purchase price related to the in-place lease costs and customer relationships which would result in a significantly lower amortization expense for the Tawa Centre, particularly as compared to the REIT.

De Minimis Acquisition

13. The REIT does not believe (nor did it believe at the time it made the acquisition) that the acquisition of the Tawa Centre is significant to it from a practical, commercial, business or financial perspective.

14. The Filer has provided the principal regulator with additional measures which further demonstrate the insignificance of Tawa Centre acquisition to the Filer and which are generally consistent with the results of the asset test and the investment test. These additional measures include measures based on:

(a) how the Tawa Centre represents only a certain percentage of the REIT's assets, the REIT's revenues and the REIT's consolidated net operating income for the period from March 25 to December 31, 2010 (pro forma the REIT's acquisition in the first quarter of 2011 of the Dundas-Edward Centre in Toronto, Ontario, the Hys Centre in Edmonton, Alberta, a subsequent acquisition of the REIT completed in the first quarter of 2011, and the Malvern Medical Arts Building, an acquisition of the REIT completed on April 30, 2011),

(b) the commercial gross leaseable area ("GLA") of the Tawa Centre when compared to the aggregate GLA of the REIT's portfolio of buildings,

(c) the number of tenants in the Tawa Centre when compared to the aggregate number of tenants in the REIT's portfolio of buildings,

(d) the number of parking stalls in the Tawa Centre when compared to the aggregate number of parking stalls in the REIT's portfolio of buildings,

(e) how the Tawa Centre will represent only a certain percentage of the REIT's overall net income before value adjustments and Class B limited partnership unit distributions (which are considered liabilities under IFRS notwithstanding their equity-like nature and properties) based upon current projections for the period from January 1, 2011 to December 31, 2011,

(f) how no additional management or increased G&A costs associated with the acquisition of the Tawa Centre were incurred by the REIT,

(g) the amount and term of the mortgage that the REIT assumed in respect of the Tawa Centre when compared to the REIT's aggregate debt, and

(h) the number of employees of the REIT working at the Tawa Centre when compared to the total number of employees of the REIT.

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.

"Michael Brown"
Assistant Manager
Ontario Securities Commission