Securities Law & Instruments

Headnote

OSC Rule 13-502 Fees -- subsidiary entity applied for relief from requirement to pay participation fees because subsidiary entity could not avail itself of statutory exemptions in section 2.6 of OSC Rule 13-502 Fees due to timing difference between subsidiary entity's reference fiscal year and parent's reference fiscal year -- relief granted subject to conditions

Applicable Legislative Provisions

OSC Rule 13-502 Fees, ss. 2.2, 2.6, 6.1.

IN THE MATTER OF ONTARIO SECURITIES COMMISSION RULE 13-502 FEES

AND

IN THE MATTER OF GRANITE REAL ESTATE INC.

ORDER

WHEREAS the Ontario Securities Commission (the Commission) has received an application from Granite Real Estate Inc. (Granite Co. or the Filer), for an order by the Commission, under section 6.1 of Ontario Securities Commission Rule 13-502 Fees (OSC Rule 13-502) that the requirement under section 2.2 of OSC Rule 13-502 to pay an annual participation fee for each of its fiscal years shall not apply to the Filer;

AND WHEREAS terms defined in National Instrument 14-101 Definitions have the same meaning if used in this order, unless otherwise defined; provided that the terms "parent" and "subsidiary entity" have the same meaning as defined in OSC Rule 13-502;

AND WHEREAS the Filer has represented to the Commission that:

1. Granite Co. is a corporation incorporated under the Business Corporations Act (Quebec). Granite Co. is a reporting issuer under the laws of Ontario and the other provinces of Canada.

2. Prior to January 4, 2013, Granite Co.'s common shares were listed and posted for trading on the Toronto Stock Exchange (the TSX) and the New York Stock Exchange (the NYSE), and Granite Co. was a "Class 1 reporting issuer" under OSC Rule 13-502.

3. On January 3, 2013, Granite Co. completed a transaction, by way of a plan of arrangement, to convert from a corporate structure to a stapled unit real estate investment trust structure (the Conversion Transaction). Under the plan of arrangement, through a series of steps, each holder of common shares of Granite Co. exchanged such common shares for "stapled units" (Stapled Units), each Stapled Unit consisting of one trust unit of Granite Real Estate Investment Trust (Granite REIT), a trust formed under Ontario law, and one common share of Granite REIT Inc. (Granite GP), a corporation formed under the Business Corporations Act (British Columbia). The components of the Stapled Units are "stapled" and trade together as Stapled Units on the TSX and the NYSE, and the Granite Co. common shares were de-listed and no longer trade on any exchange or public market.

4. Granite REIT is a Canadian-based real estate investment trust engaged, directly and through its subsidiaries, primarily in the acquisition, development, construction, leasing, management and ownership of a predominantly industrial rental portfolio of properties in North America and Europe.

5. Granite GP acts as the general partner of Granite REIT Holdings Limited Partnership (Granite LP), a limited partnership formed under the laws of Quebec. Granite REIT is the sole limited partner of Granite LP.

6. Granite LP owns all of the outstanding common shares of Granite Co. and has done so since January 3, 2013.

7. Granite Co. is the co-debtor under $265 million of 6.05% Senior Unsecured Debentures Series 1 due December 22, 2016 (the Debentures). The Debentures were issued under a trust indenture dated December 22, 2004 between Granite Co. and BNY Trust Company of Canada, and were distributed in Canada under a base shelf prospectus dated March 19, 2004 and a prospectus supplement dated December 16, 2004. As part of the Conversion Transaction, two of Granite Co.'s affiliates (the Other Co-debtors) became co-debtors under the Debentures and the Debentures were guaranteed by each of Granite REIT and Granite GP.

8. Each of Granite REIT and Granite GP is a reporting issuer in Ontario and has been a reporting issuer since January 3, 2013.

9. After completion of the Conversion Transaction, Granite Co. remained a reporting issuer in Ontario and the other provinces of Canada due to the outstanding Debentures. However, Granite Co. obtained exemptive relief from, among other things, the continuous disclosure requirements under National Instrument 51-102 -- Continuous Disclosure Obligations under a Decision dated December 21, 2012 entitled In the Matter of Granite Real Estate Inc. (the Filer) on its own behalf and on behalf of Granite REIT Holdings Limited Partnership and Granite Europe Limited Partnership formed or to be formed as part of a conversion of the Filer to a Real Estate Investment Trust Structure.

10. Granite REIT prepares and files combined financial statements (Combined Financial Statements) that combine its consolidated results with those of Granite GP, under International Financial Reporting Standards (IFRS). IFRS requires the consolidation of Granite REIT and Granite Co. in the Combined Financial Statements and, as such, the capitalization of Granite Co. will be included in the Combined Financial Statements for the year ended December 31, 2013 that are prepared and filed by Granite REIT.

11. Granite Co. is currently a "Class 2 reporting issuer" under OSC Rule 13-502.

12. At the time of filing Combined Financial Statements for the year ended December 31, 2013, Granite REIT and Granite GP will pay participation fees under OSC Rule 13-502, as "Class 1 reporting issuers" based on the calculated capitalization of the Stapled Units pursuant to section 2.7 of OSC Rule 13-502.

13. Granite Co. was a reporting issuer on December 31, 2011. Under the current version of OSC Rule 13-502, which came into force on April 1, 2013, Granite Co. will have a "reference fiscal year" of its last fiscal year ended before May 1, 2012, which is the year ended December 31, 2011. Therefore, under the current version of OSC Rule 13-502, Granite Co. would be required to calculate and pay a participation fee as a "Class 2 reporting issuer", pursuant to section 2.8 of OSC Rule 13-502, based on the applicable balance sheet items as at December 31, 2011, unless an exemption is available.

14. Neither Granite REIT nor Granite GP was a reporting issuer on December 31, 2011 (the last completed fiscal year of Granite Co. ended before May 1, 2012). Under the current version of OSC Rule 13-502, Granite REIT and Granite GP will have a "reference fiscal year" of the year ended December 31, 2013 (the previous fiscal year), since they did not become reporting issuers until January 3, 2013. Accordingly, Granite Co. has a different "reference fiscal year" than Granite REIT and Granite GP.

15. Granite Co. does not meet the requirements for exemption under section 2.6(1)(a), (d) or (e) of OSC Rule 13-502. Granite Co. does not meet the requirements for exemption under section 2.6(2)(a), (d) or (e) of OSC Rule 13-502, since, at the end of its "reference fiscal year", it did not have a parent that was a reporting issuer; its capitalization for its reference fiscal year was not included in the capitalization of the parent for the parent's reference fiscal year; and it did not rely on a continuous disclosure exemption for its reference fiscal year.

16. However, Granite Co., as a subsidiary entity of Granite REIT, would satisfy the requirements of section 2.6(2) with respect to its most recently completed fiscal year (which is its parent's reference fiscal year), since (a) at the end of its most recently completed fiscal year, Granite Co. had a parent that was a reporting issuer, (b) applicable accounting standards require the consolidation of the parent and Granite Co., (c) Granite Co.'s parent will pay a participation fee under section 2.2 of OSC Rule 13-502 determined with reference to the parent's capitalization for the parent's reference fiscal year, (d) the capitalization of Granite Co. for its most recently completed fiscal year was included in the capitalization of its parent for the parent's reference fiscal year, and (e) Granite Co. relied on an exemption from continuous disclosure for its most recently completed fiscal year . The Other Co-debtors will qualify for the exemption under section 2.6(2), since they have the same reference fiscal year as the parent Granite REIT.

17. Under the previous version of OSC Rule 13-502, in force prior to April 1, 2013, the exemption under section 2.6 of OSC Rule 13-502 was based on the previous fiscal year for both the parent and the subsidiary entity reporting issuer, and Granite Co. would have qualified for exemption from annual participation fees.

18. For the year ended December 31, 2012 and prior years, an annual participation fee was paid to the Commission with reference to Granite Co.'s capitalization in accordance with the previous version of OSC Rule 13-502.

THE ORDER of the Commission is that the requirement under section 2.2 of OSC Rule 13-502 to pay an annual participation fee for each of its fiscal years shall not apply to the Filer, provided that:

(a) the Filer is a subsidiary entity in respect of a participation fee determined with reference to the Filer's capitalization for the reference fiscal year of a parent of the Filer,

(b) at the end of the Filer's most recently completed fiscal year, a parent of the Filer was a reporting issuer,

(c) the accounting standards pursuant to which the parent's financial statements are prepared under Ontario securities law require the consolidation of the parent and the Filer,

(d) the parent has paid a participation fee applicable to the parent under section 2.2 of OSC Rule 13-502 determined with reference to the parent's capitalization for the parent's reference fiscal year,

(e) the capitalization of the Filer for its most recently completed fiscal year was included in the capitalization of the parent for the parent's reference fiscal year,

(f) throughout the reference fiscal year of the parent, the Filer was entitled to rely on an exemption, waiver or approval from the requirements in subsections 4.1(1), 4.3(1) and 5.1(1) and sections 5.2 and 6.1 of National Instrument 51-102 Continuous Disclosure Obligations,

(g) the Filer files a notice titled "Subsidiary Entity Exemption Notice" at the time it would be required to pay a participation fee under section 2.3 of OSC Rule 13-502 identifying the Filer, the parent, the parent's reference fiscal year and stating that the Filer meets each of conditions (a) through (f) of this Order, and

(h) this Order shall immediately expire upon the earlier of:

(i) three years from the date of this Order; and

(ii) the effective date of any amendments to OSC Rule 13-502, other than any amendments that have already been adopted prior to the date of this Order.

DATED this 4th day of March, 2014

"Huston Loke"
Director, Corporate Finance