Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- issuer is a real estate investment trust which holds all of its properties through limited partnerships -- entity holds units in limited partnerships which are exchangeable into and in all material respects the economic equivalent to the issuer's publicly traded units -- relief granted from the valuation requirement for certain non-cash assets in connection with a specific related party transaction -- valuation not required of exchangeable limited partnership units since public units can be a proxy for such exchangeable units -- no imbalance of material information between the related party and minority shareholders since the reporting issuer has continuous disclosure obligations.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions, ss. 5.4, 6.3, 9.1.

June 24, 2014

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 TRUE NORTH APARTMENT REAL ESTATE INVESTMENT TRUST (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision pursuant to Section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) for discretionary relief to exempt the Filer from the requirement under Subsections 5.4 and 6.3(1)(d) of MI 61-101 to obtain a formal valuation of the Class B limited partnership units of its proposed wholly-owned subsidiaries, True North 4 Limited Partnership, True North 5 Limited Partnership and True North 6 Limited Partnership (the New Partnerships), to be issued and sold to related parties of the Filer, pursuant to the Proposed Transaction (as defined below) (theRequested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission (theDecision Maker) is the principal regulator for this application; and

(ii) 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 Quebec.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 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 an unincorporated open-end real estate investment trust established under the laws of the Province of Ontario and governed by an amended and restated declaration of trust dated September 28, 2012, as amended, supplemented or restated from time to time. The Filer's registered and head office is located at 401 The West Mall, Suite 1100, Toronto, Ontario M9C 5J5.

2. On June 5, 2012, Wand Capital Corporation completed its capital pool company qualifying transaction by way of a plan of arrangement with the Filer under the Business Corporations Act (Ontario). As a result, the Filer became a reporting issuer in each of British Columbia, Alberta and Ontario. On July 11, 2012, upon the issuance of a receipt for a (final) short form prospectus, the Filer became a reporting issuer in every province and territory in Canada. The Filer is currently not in default of any applicable requirements under the securities legislation of any jurisdiction in Canada.

3. The Filer is authorized to issue an unlimited number of trust units (the Units) and an unlimited number of special voting units (the Special Voting Units). As at May 28, 2014, there were 18,692,116 Units and 4,671,132 Special Voting Units issued and outstanding. The number of Special Voting Units outstanding at any point in time is equal to the aggregate number of outstanding Class B limited partnership units (the Class B LP Units) of limited partnerships managed and controlled by the Filer (the Existing Partnerships). Each Special Voting Unit accompanies one Class B LP Unit. The Class B LP Units are exchangeable into Units and the accompanying Special Voting Units provide to the holders of the Class B LP Units voting rights with respect to the Filer that are equivalent to the voting rights such holders would have if they held the Units into which the Class B LP Units are exchangeable.

4. The Units are listed and posted on the Toronto Stock Exchange (the TSX) under the symbol "TN.UN". The Class B LP Units are not listed and posted for trading on the TSX or any other stock exchange.

5. The Filer was established to own multi-suite residential rental properties across Canada, the United States and in such other jurisdictions where opportunities may arise, subject to the terms set out in its declaration of trust. The Filer currently owns an aggregate of 6,002 residential suites located in Alberta, Ontario, Québec, New Brunswick and Nova Scotia.

6. The Filer holds all of its residential rental properties through three Existing Partnerships. Each such Existing Partnership is authorized to issue an unlimited number of general partnership units (theGP Units), Class A limited partnership units (the Class A LP Units) and Class B LP Units.

7. All of the outstanding GP Units of the Existing Partnerships are held by True North General Partner Corp., which is a wholly-owned subsidiary of the Filer and the general partner of such limited partnerships. All the outstanding Class A LP Units are held by the Filer and all the outstanding Class B LP Units are held by persons other than the Filer.

8. The Filer has entered into an agreement with various entities (collectively, the Vendors) whereby the Filer proposes to acquire a portfolio of 29 real estate properties (the Acquisition Properties) and instalment notes (the Notes) for consideration of approximately $286.0 million payable to the Vendors to be comprised of:

(a) approximately $12.9 million in cash;

(b) the issue of 8,890,466 Class B limited partnership units of the New Partnerships (the Exchangeable LP Units), together with an equivalent number of Special Voting Units, at a deemed price of $9.00 per unit;

(c) the assumption of approximately $65.6 million aggregate principal amount of existing mortgages; and

(d) approximately $127.5 million aggregate principal amount of new mortgages, including $0.75 million aggregate principal amount of vendor take-back mortgages issued by certain of the Vendors (the foregoing transactions collectively described herein as the Proposed Transaction).

The Filer will acquire the Acquisition Properties indirectly, through the acquisition of the New Partnerships.

9. Each Vendor entity is formed under the laws of the Province of Ontario and is owned or controlled by Mr. Daniel Drimmer, a trustee and Chairman of the Filer. As a result, each Vendor is a "related party" of the Filer and the Proposed Transaction constitutes a "related party transaction", each within the meaning of MI 61-101.

10. In addition to controlling each Vendor entity, Mr. Drimmer is also the sole shareholder of Starlight Investments Ltd., the asset manager of the Filer.

11. As at May 28, 2014, Mr. Drimmer (together with his affiliates) held 3,497,800 Class B LP Units and Special Voting Units and 899,898 Units, together representing an approximate 18.85% economic and voting interest in the Filer.

12. The New Partnerships will, in all material respects, have terms and conditions, including capital structure, consistent with the Existing Partnerships and as otherwise described herein after giving effect to the Proposed Transaction. The Exchangeable LP Units to be issued in connection with the Proposed Transaction will have the same attributes, in all material respects, as the Class B LP Units and as otherwise described herein.

13. The Proposed Transaction is subject to the applicable requirements of MI 61-101 including, among other things, pursuant to Section 5.4, the preparation of a formal valuation of the non-cash assets involved in the Proposed Transaction and, pursuant to Section 5.6, the approval by a majority of the votes cast by disinterested holders of Units and Special Voting Units entitled to vote on the Proposed Transaction at a duly constituted meeting (the Unitholder Meeting) of holders of Units and holders of Special Voting Units (collectively, the Unitholders).

14. A committee of independent trustees of the Filer (theSpecial Committee) has been established by the Filer for the purpose of evaluating the Proposed Transaction and supervising the preparation of a formal valuation of each of the Acquisition Properties (the Properties Valuations) and the Notes (the Notes Valuation).

15. The Special Committee has retained CBRE Limited to prepare the Properties Valuations, which to the knowledge of the Filer and the Special Committee will be prepared in accordance with MI 61-101. The Special Committee has also retained Origin Merchant Partners (Origin) to prepare the Notes Valuation, under the supervision of the Special Committee, which to the knowledge of the Filer and the Special Committee will be prepared in accordance with MI 61-101.

16. The Special Committee has also retained Origin to act as an independent financial advisor to the Special Committee in evaluating the Proposed Transaction and Origin has prepared a formal 'fairness opinion' that speaks to the fairness of the Proposed Transaction, from a financial point of view, to the Unitholders other than Mr. Drimmer and his affiliated entities.

17. Subsection 6.3(1)(d) of MI 61-101 states that an issuer required to obtain a formal valuation shall provide the valuation in respect of the non-cash assets involved in a related party transaction, which would include the Exchangeable LP Units to be issued to the Vendors.

18. Subsection 6.3(2) of MI 61-101 states that a formal valuation of non-cash assets is not required for a related party transaction if:

(a) the non-cash consideration or assets are securities of a reporting issuer or are securities of a class for which there is a published market;

(b) the person that would otherwise be required to obtain the formal valuation of those securities states in the disclosure document for the transaction that the person has no knowledge of any material information concerning the issuer of the securities, or concerning the securities, that has not been generally disclosed;

(c) in the case of an insider bid, issuer bid or business combination

(i) a liquid market in the class of securities exists;

(ii) the securities constitute 25 per cent or less of the number of securities of the class that are outstanding immediately before the transaction;

(iii) the securities are freely tradeable at the time the transaction is completed; and

(iv) the valuator is of the opinion that a valuation of the securities is not required; and

(d) in the case of a related party transaction for the issuer of the securities, the conditions in subparagraphs (c)(i) and (ii) of section 5.5 are satisfied, regardless of the form of the consideration for the securities.

19. Subsection 6.3(2)(a) of MI 61-101 would provide the Requested Relief if the Vendors were to subscribe for Units instead of Exchangeable LP Units.

20. Although the Exchangeable LP Units will not be securities of the Filer, of a reporting issuer or of a class for which there is a published market, the Exchangeable LP Units will be, in all material respects, economically equivalent to the Units on a per Unit basis, in that:

(a) they will be exchangeable into Units on a one for one basis (subject to customary anti-dilution adjustments) at any time at the option of the holder thereof;

(b) the distributions to be made on the Exchangeable LP Units will be equal to the distributions that the holder of the Exchangeable LP Units would have received if it was holding the Units that may be obtained upon the exchange of such Exchangeable LP Units;

(c) each Exchangeable LP Unit will be accompanied by a Special Voting Unit so that the holder of the Exchangeable LP Units is provided with voting rights on matters respecting the Filer equal to the voting rights that the holder would have if it were holding the Units into which such Exchangeable LP Units are exchangeable; and

(d) any additional rights attached to the Exchangeable LP Units will arise solely by virtue of the Exchangeable LP Units being limited partnership units and will be no greater than the customary rights associated with limited partnership units.

21. The Exchangeable LP Units will represent part of the equity value of the Filer and, moreover, the economic interests that underlie the Exchangeable LP Units shall be based solely upon the assets and operations held directly or indirectly by the operating entities of the Filer.

22. The Exchangeable LP Units and accompanying Special Voting Units will not be listed and posted for trading on the TSX or any other stock exchange. The Exchangeable LP Units and accompanying Special Voting Units may not be transferred unless: (a) the transfer is to an affiliate of the holder; (b) such transfer would require the transferee to make an offer to holders of Units to acquire Units on the same terms and conditions under applicable securities laws if such Class B LP Units, and all other outstanding Class B LP Units, were converted into Units at the then current exchange ratio in effect immediately prior to such transfer; or (c) the offeror acquiring such Class B LP Units makes a contemporaneous identical offer for the Units (in terms of price, timing, proportion of securities sought to be acquired and conditions) and does not acquire such Class B LP Units unless the offeror also acquires a proportionate number of Units actually tendered to such identical offer. Other than the rights described above, the Exchangeable LP Units carry no other rights that would impact their value.

23. Origin has confirmed that it agrees with the representations of the Filer set out in paragraphs 20, 21 and 22 herein.

Decision

The Decision Maker is satisfied that the decision meets the test set out in MI 61-101 for the Requested Relief.

The decision of the Decision Maker is that the Requested Relief is granted, provided that:

(a) none of the Filer, or to the knowledge of the Filer after reasonable inquiry, Mr. Drimmer, his affiliates or the Vendors has knowledge of any material information concerning the Filer, the New Partnerships or the securities of the Filer or the New Partnerships that has not been generally disclosed; and

(b) the information circular for the Unitholder Meeting includes the required disclosure under MI 61-101 with respect to the Proposed Transaction and otherwise complies with the requirements of applicable securities law, and includes:

(i) a statement that none of the Filer, or to the knowledge of the Filer after reasonable inquiry, Mr. Drimmer or the Vendors has knowledge of any material information concerning the Filer, the New Partnerships or the securities of the Filer or the New Partnerships that has not been generally disclosed; and

(ii) a description of the effect of the Proposed Transaction on the direct or indirect voting interest in the Filer of Mr. Drimmer and his affiliates.

"Naizam Kanji"
Deputy Director, Corporate Finance
Ontario Securities Commission