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 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 and immediately following the private placements, including the Ontario private placements, the Canadian security holders will beneficially own, directly or indirectly, no more than 25% of the total issued and outstanding ordinary shares.

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.

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE "JURISDICTION") AND IN THE MATTER OF IRISH RESIDENTIAL PROPERTIES REIT LIMITED ("IRES REIT") AND CANADIAN APARTMENT PROPERTIES REAL ESTATE INVESTMENT TRUST ("CAPREIT", AND TOGETHER WITH IRES REIT, THE "APPLICANTS")

ORDER

Background

The principal securities regulator (the "Decision Maker") in the Jurisdiction has received an application from the Applicants for a decision pursuant to Section 74(1) of the Securities Act (Ontario) for discretionary relief from the 10% De Minimis Condition (as defined below) under paragraph 2.14(1)(b) of National Instrument 45-102 Resale of Securities ("NI 45-102") for certain trades of ordinary shares of IRES REIT (the "Ordinary Shares") that are proposed to be distributed to CAPREIT and institutional investors in the Jurisdiction on a prospectus exempt basis (the "Ontario Private Placements" and such relief referred to herein as the "Requested Resale 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:

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

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

3. IRES REIT is a property investment company which will acquire, hold and manage investments primarily focused on residential real estate and related loans and ancillary and/or strategically located commercial property in Ireland.

4. IRES REIT will be externally managed by CR Fund Management Limited ("CR"), which is a limited liability corporation governed under the laws of Ireland and is an indirect wholly-owned subsidiary of CAPREIT, subject to CR being granted the requisite authorization under the Alternative Investment Fund Management Directive.

5. IRES REIT's initial portfolio will consist of a portfolio of Irish properties currently owned by CAPREIT, which will be sold by CAPREIT to IRES REIT at the closing of the initial public offering of IRES REIT in Ireland (the "IPO") at their appraised value.

6. 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.

7. While the exact number of shares to be issued has not yet been determined, IRES REIT proposes to conduct an IPO of the Ordinary Shares on the Irish Stock Exchange Limited (the "Irish Stock Exchange"). The total offering size (including the Ontario Private Placements) is expected to be in the range of 200-250 million Euros.

8. In connection with the IPO, IRES REIT also intends to distribute Ordinary Shares on a prospectus exempt basis (the "Private Placements") in various jurisdictions including in Canada (solely in the Jurisdiction under the Ontario Private Placements) and the United States in accordance with all applicable laws.

9. Assuming completion of the IPO, CAPREIT intends to subscribe for Ordinary Shares under the Ontario Private Placements, representing between 20 and 40 million Euros of the total offering, or between 10% and 25% of the issued and outstanding Ordinary Shares of IRES REIT (depending on the size of the offering) following completion of the IPO and the Private Placements. CAPREIT will also agree with the underwriters of the IPO that, subject to certain exceptions, any Ordinary Shares issued to CAPREIT on the closing of the IPO under the Ontario Private Placements will be subject to a lock-up period that is expected to be two years (the "Lock-up").

10. In addition to CAPREIT, it is anticipated that under the Ontario Private Placements, the opportunity to invest in the Ordinary Shares will be extended to a very limited number of institutional accredited investors (each an "accredited investor") as defined in National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"), who will all also constitute institutional permitted clients as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103").

11. All of the proposed investors (with the exception of CAPREIT) in respect of whom the Requested Relief is being sought, up to 16, will be permitted clients under NI 31-103 comprised of entities such as Canadian financial institutions, Canadian regulated pension funds and investment funds managed by registered investment fund managers and advised by registered advisors. The permitted clients will not comprise any person or entity who qualifies solely under paragraphs (k), (o), (p) or (r) of the definition of the term "permitted client" under NI 31-103 (the investors pursuant to the Ontario Private Placements described in this paragraph and CAPREIT are referred to collectively as the "Permitted Clients").

12. It is expected that CAPREIT, together with other Permitted Clients, will own more than 10% of the outstanding Ordinary Shares immediately following the Ontario Private Placements.

13. Immediately following the Private Placements, including the Ontario Private Placements, and the IPO, CAPREIT will own, directly or indirectly, between 20 and 40 million Euros of the total offering, or between 10% and 25% of the total issued and outstanding Ordinary Shares (depending on the size of the offering), and the Permitted Clients together will represent up to 25% of the total number of owners directly or indirectly of Ordinary Shares. The foregoing is based solely on the underwriters' estimates of demand. The IPO will be marketed almost entirely to institutional investors, with a small portion only being marketed to accredited investors (or the equivalent) in Ireland.

14. Securityholders of IRES REIT in the Jurisdiction will be entitled to all relevant disclosure that is required to be provided to securityholders generally under various provisions of European Union and Irish legislation. The main disclosure requirements will be pursuant to the Irish Listing Rules and the Irish Transparency Regulations, and consist of regular continuous disclosure filings under transparency regulations (such as annual and semi-annual financial reports, interim management statements, 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 it will be through the announcement service provided by the Irish Stock Exchange. Certain disclosures such as annual reports and accounts and notices of annual general meeting will generally be sent to securityholders, regardless of where they are resident and are required to be published on IRES REIT's website.

15. A resale by a Permitted Client of securities pursuant to the Requested Resale Relief will be made through any exchange or market outside of Canada or to a person or company outside Canada. Such resales will involve acts in furtherance of such trades in the Jurisdiction and will therefore constitute trades in the Jurisdiction. Accordingly, in the absence of an order granting the Requested Resale Relief, the first trade in the Ordinary Shares would be deemed a distribution pursuant to 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.

16. Since IRES REIT is not a reporting issuer or its equivalent in the Jurisdiction, the prospectus exemptions contained in sections 2.5 and 2.6 of NI 45-102 will not be available.

17. 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. The Ordinary Shares to be distributed in the Ontario Private Placements will be distributed to Permitted Clients pursuant to the accredited investor exemption under section 2.3 of NI 45-106.

18. 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 (subsection 18 (b)(i) and (ii) are collectively referred to as the "10% De Minimis Condition"); 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.

19. Except for meeting the 10% De Minimis Condition, the Ordinary Shares distributed in the Ontario Private Placements would satisfy all of the criteria such that holders of Ordinary Shares in the Jurisdiction could rely on the prospectus exemption contained in subsection 2.14(1) of NI 45-102 to trade such securities through an exchange or market outside Canada or to a person or company outside of Canada.

Decision

This Decision evidences the decision of the Decision Maker (the "Decision").

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

The Decision of the Decision Maker under the legislation is that the Requested Resale Relief is granted, provided that:

(a) any resale by Permitted Clients qualifies under subsection 2.14(1) of NI 45-106 other than the 10% De Minimis Condition; and

(b) immediately following the Private Placements, including the Ontario Private Placements, and the IPO, (i) the Permitted Clients will own, directly or indirectly, no more than 25% of the total issued and outstanding Ordinary Shares, and (ii) the Permitted Clients together will represent no more than 25% of the total number of owners directly or indirectly of Ordinary Shares.

DATED at Toronto this 11th day of April, 2014.

"Mary Condon"
Commissioner
Ontario Securities Commission
 
"James Turner"
Commissioner
Ontario Securities Commission