Securities Law & Instruments

Headnote

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.

December 5, 2013

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
CHOICE PROPERTIES REAL ESTATE INVESTMENT TRUST
(THE “FILER””)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision (the "Exemption Sought") 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 each of the Filer's recent business acquisitions (each, a "Business Acquisition" and, collectively, the "Business Acquisitions") of a portfolio of certain properties located across Canada on October 22, 2013 (the "Loblaw Business Acquisition") and October 28, 2013 (the "Third-Party Business Acquisition"). The properties that the Filer acquired as part of the Loblaw Business Acquisition and the Third-Party Business Acquisition are collectively referred to herein as the "Portfolio".

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 subsection 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, 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 Filer

1. The Filer is an unincorporated open-ended real estate investment trust established under the laws of the Province of Ontario by a declaration of trust and its head office is located in Toronto, Ontario.

2. The Filer 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 trust units of the Filer are listed and posted for trading on the Toronto Stock Exchange under the symbol "CHP.UN".

4. The Filer completed its initial public offering of trust units (the "IPO") on July 5, 2013 pursuant to a long form prospectus in respect thereof dated June 26, 2013.

The Business Acquisitions

5. On October 22, 2013, the Filer acquired the properties in the Portfolio relating to the Loblaw Business Acquisition for an aggregate purchase price to the Filer of approximately $10.74 million (including closing costs of approximately $0.22 million).

6. On October 28, 2013, the Filer acquired the property in the Portfolio relating to the Third-Party Business Acquisition for a purchase price to the Filer of approximately $1.80 million (including closing costs of approximately $0.04 million).

7. Each of the Loblaw Business Acquisition and the Third-Party Business 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 each such Business Acquisition pursuant to subsection 8.2(1) of NI 51-102.

Significance Test for the BAR

8. 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 subsections 8.3(2) or 8.3(4) of NI 51-102.

9. Each of the Business Acquisitions is a significant acquisition under each of the asset test, the investment test and the profit or loss test in subsection 8.3(2) of NI 51-102.

10. The use of the optional profit or loss test in subsection 8.3(4) of NI 51-102 is unavailable to the Filer since the Filer does not yet have 12 months of historical operations.

11. For the purposes of completing its quantitative analysis of the asset test, the investment test and the profit or loss test pursuant to subsection 8.3(2) of NI 51-102 (the "Required Significance Tests"), 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 utilizing the Required Significance Tests each produces an anomalous result for the Filer in comparison to the results of such tests when re-applying them using the current financial metrics of the Filer.

12. If an acquisition is significant based on the Required Significance Tests, a reporting issuer is generally permitted to re-calculate the significance of the acquisition utilizing the optional significance tests set forth in subsection 8.3(4) of NI 51-102 (the "Optional Significance Tests"). For the purposes of completing its quantitative analysis of the asset test and the investment test pursuant to the Optional Significance Tests, the Filer may utilize its most recent interim financial statements, which, in this particular case, are the Filer's unaudited interim financial statements for the period ended September 30, 2013 (the "Q3 Financial Statements"). When utilizing the Q3 Financial Statements to calculate the asset test and the investment test with respect to each of the Business Acquisitions, the results indicate that the Business Acquisitions represented, on a collective basis, only 0.17% of the Filer's consolidated assets and 0.17% of the Filer's consolidated investments. However, since the Filer only has approximately three months of historical operations, it is unable to utilize the profit or loss test under the Optional Significance Tests as this Optional Significance Test requires the Filer to compare the Business Acquisitions against its consolidated specified profit or loss for a 12 month period ended September 30, 2013. Notwithstanding the foregoing, when using the Q3 Financial Statements of the Filer to calculate the profit or loss test with respect to each of the Business Acquisitions, the results indicate that the Business Acquisitions represented, on a collective basis, only 0.97% of the Filer's net operating income.

13. The application of the asset test, investment test and profit or loss test using the Q3 Financial Statements more accurately reflect the true significance of the Business Acquisitions from a business and commercial perspective.

De Minimis Acquisitions

14. The Filer does not believe (nor did it believe at the time that it completed each of the Business Acquisitions) that the Business Acquisitions are significant to it from a practical, commercial, business or financial perspective.

15. The Filer has provided the principal regulator with an additional measure which demonstrates the insignificance of each of the Business Acquisitions to the Filer. This additional measure reflects that (i) the total gross leasable area ("GLA") of the properties in the Portfolio relating to the Loblaw Business Acquisition represented just 0.2% to the total GLA of the Filer's entire real estate portfolio immediately following the Loblaw Business Acquisition, and (ii) the total GLA of the property in the Portfolio relating to the Third-Party Business Acquisition represented just 0.01% to the total GLA of the Filer's entire real estate portfolio immediately following the Third-Party Business Acquisition.

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.

"Sonny Randhawa"
Manager, Corporate Finance
Ontario Securities Commission