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.

December 1, 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 FAM REAL ESTATE INVESTMENT TRUST (the "Filer")

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, pursuant to Section 9.1 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions ("MI 61-101"), that the Filer be granted an exemption from the requirement in Section 6.3(1)(d) of MI 61-101 to obtain a formal valuation of the Consideration Exchangeable LP Units (as defined below) to be issued in connection with the Proposed Transaction (as defined below) (the "Relief"):

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 Québec.

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.

Representations

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

1. The Filer is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario. The Filer is governed pursuant to a declaration of trust dated August 27, 2012, as amended and restated on December 27, 2012.

2. The Filer's head office is located at 200 Front Street West, Suite 2400 Toronto, Ontario M5V 3K2.

3. The Filer is a reporting issuer (or the equivalent thereof) in each province and territory of Canada and is currently not in default of any applicable requirements under the securities legislation thereunder.

4. The Filer is authorized to issue an unlimited number of trust units ("Trust Units") and an unlimited number of special voting units ("Special Voting Units"). As of November 10, 2014, the Filer has 12,094,396 Trust Units and 2,977,132 Special Voting Units issued and outstanding.

5. The number of Special Voting Units outstanding at any point in time is equal to the number of outstanding class B limited partnerships units (the "Class B LP Units") of FAM Management Limited Partnership ("FAM LP"). The Class B LP Units are exchangeable at the option of the holder into Trust Units and the accompanying Special Voting Units provide to the holder of the Class B LP Units voting rights with respect to the Filer.

6. FAM LP is a limited partnership formed under the laws of the Province of Ontario and is governed by an agreement of limited partnership dated December 28, 2012 (the "Partnership Agreement"). The general partner of FAM LP is FAM GPCo Inc. ("FAM GP"), a company established under the laws of Ontario. FAM GP is a wholly-owned subsidiary of the Filer.

7. FAM LP is authorized to issue an unlimited amount of general partnership units, an unlimited amount of Class A limited partnership units ("Class A LP Units") and an unlimited amount of Class B LP Units. As of November 10, 2014, FAM LP has (i) 100 issued and outstanding general partnership units, all of which are held by FAM GP, (ii) 5,882,662 Class A LP Units issued and outstanding, all of which are held by the Filer, and (iii) 2,977,132 Class B LP Units issued and outstanding, all of which are held by Slate Capital Corp. ("Slate Capital") (together with its affiliates) as set out below.

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

9. The Class B LP Units are, in all material respects, economically equivalent to Trust Units on a per unit basis, and holders are entitled to receive distributions from FAM LP equal to those paid to the holders of the Trust Units by the Filer. Pursuant to the Partnership Agreement and the exchange agreement dated December 28, 2012, as amended, among the Filer, FAM LP and Huntingdon (the "Exchange Agreement"), each Class B LP Unit is exchangeable at the option of the holder for one Trust Unit of the Filer (subject to customary anti-dilution adjustments) and is accompanied by a Special Voting Unit that entitles the holder to receive notice of, attend and vote together with the holders of Units at all meetings of voting unitholders of the Filer. The Class B LP Units are not transferable and the Partnership Agreement requires the holder thereof to not take any action that would result in the Class B LP Units being held by a non-resident.

10. The Filer is a diversified commercial real estate portfolio of office, industrial and retail properties throughout Canada. As at the date hereof, the Filer owns a portfolio of 28 properties containing approximately 1.8 million square feet of existing leasable space. The Filer also owns a 50% interest in a fully pre?leased 64,000 square foot data centre development currently under construction in Winnipeg, Manitoba.

11. As of November 10, 2014, Slate Capital, the manager of the Filer, held an approximate 30.7% voting and effective economic interest (on a non-diluted basis) in the Filer through the ownership of 1,648,278 Trust Units and 2,977,132 Class B LP Units (and the accompanying 2,977,132 Special Voting Units).

12. On August 12, 2014, Slate Capital entered into an arrangement agreement (the "Arrangement Agreement") to acquire all of the issued and outstanding shares of Huntingdon Capital Corp. ("Huntingdon") by plan of arrangement transaction (the "Huntingdon Transaction"). Upon the closing of the Huntingdon Transaction, which occurred on November 4, 2014, Slate Capital, among other things, assumed Huntingdon's obligations as the Filer's manager and indirectly owns, or controls or directs, all of the Trust Units, Special Voting Units and accompanying Class B LP Units previously held by Huntingdon.

13. On October 29, 2014, the Filer and FAM LP entered into a purchase and sale agreement with Slate GTA Suburban Office Inc. ("Slate GTA") and Slate Capital (the "Acquisition Agreement") pursuant to which, in one or more transaction steps, the Filer, through either FAM LP or a newly created limited partnership managed and controlled by the Filer (the "New Partnership" and together with FAM LP, the "Partnerships"), will acquire a portfolio of seven office properties (the "Portfolio Properties") located in the greater Toronto area from Slate GTA for consideration of approximately $190.0 million (the "Purchase Price") to be comprised of: (i) approximately $144.0 million cash and (ii) the issuance of approximately $46.0 million in securities which shall consist of a combination of Trust Units and either the Class B LP Units or class B limited partnership units of the New Partnership (the "New Partnership Class B LP Units" and, collectively with the Class B LP Units, the "Consideration Exchangeable LP Units"), in each case, at a price of $9.00 per unit (the acquisition and sale transactions are hereinafter referred to as the "Proposed Transaction"). The Purchase Price is subject to adjustment in accordance with the terms of the Acquisition Agreement.

14. As a result of the Arrangement Agreement, Slate Capital was, at the time the Acquisition Agreement and the Proposed Transaction were agreed to, considered a "related party" of the Filer pursuant to clause (d) of the definition of "related party" and subsection 1.6(2) in MI 61-101.

15. Slate GTA is an "affiliated entity" of Slate Capital pursuant to such definition in MI 61-101, and accordingly, Slate GTA was also considered a "related party" of the Filer at the time the Acquisition Agreement and the Proposed Transaction were agreed to pursuant to clause (h) of the definition of "related party" in MI 61-101.

16. Accordingly, the Proposed Transaction is a "related party transaction" pursuant to clause (a) of the definition of "related party transaction" in MI 61-101 and subject to the applicable requirements of MI 61-101 relating to, among other things, preparation of a formal valuation of the non-cash assets involved in the Proposed Transaction (the "Non-Cash Valuation Requirement") and the approval by a majority of the votes cast by disinterested holders of Trust Units and Special Voting Units (collectively, the "Unitholders") entitled to vote on the Proposed Transaction at a special meeting of Unitholders (the "Unitholder Meeting") to seek the approval in accordance with MI 61-101 of the Proposed Transaction by a majority of the votes cast by disinterested holders of Trust Units and Special Voting Units voting as a single class.

17. If a New Partnership is established in connection with the Proposed Transaction, it will have terms and conditions, including capital structure, a partnership agreement (the "New Partnership Agreement") and exchange rights under an amendment to the Exchange Agreement (the "Amended Exchange Agreement"), identical to FAM LP and as otherwise described herein (other than differences relating to the name, formation and capitalization amounts, or which are administrative or clerical in nature). The Consideration Exchangeable LP Units will have the same attributes as the Class B LP Units and as otherwise described herein (other than differences that are administrative or clerical in nature).

18. A committee of independent trustees of the Filer (the "Special Committee") was responsible for supervising the preparation of formal valuations of the Portfolio Properties (the "Valuations") and retained Altus Group Limited to prepare the Valuations in accordance with MI 61-101.

19. The Filer has also retained TD Securities Inc. to act as financial advisor to the Special Committee in evaluating the Proposed Transaction and TD Securities Inc. has delivered, in written form, a formal fairness opinion that, based upon and subject to the assumptions, limitations and other considerations set forth therein and such other matters considered relevant by TD Securities Inc., the Purchase Price to be paid to Slate GTA (or one of its affiliates) pursuant to the Proposed Transaction is fair, from a financial point of view, to the Filer.

20. 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 Consideration Exchangeable LP Units.

21. Section 6.3(2)(a) of MI 61-101 provides an exemption (the "Valuation Exemption") from the Non-Cash Valuation Requirement where, among others:

(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; and

(c) 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 of MI 61-101 are satisfied, regardless of the form of the consideration for the securities.

22. The Trust Units and Special Voting Units to be issued to Slate GTA (or its affiliates) as part of the Purchase Price in connection with the Proposed Transaction (collectively, the "Consideration Filer Units") are securities of a reporting issuer as required under subsection 6.3(2)(a) of MI 61-101.

23. Although the Consideration Exchangeable LP Units will not be securities of a reporting issuer or securities of a class for which there is a published market, the Consideration Exchangeable LP Units are, and shall be, in all material respects, economically equivalent to Trust Units on a per unit basis as:

(a) each Consideration Exchangeable LP Unit is, and shall be, exchangeable on a one-for-one basis for a Trust Unit of the Filer (subject to customary anti-dilution adjustments) at any time at the option of the holder thereof as well as automatically exchanged into Trust Units (subject to customary anti-dilution adjustments) on a one-for-one basis in certain circumstances in connection with a take-over bid for the Trust Units, the transfer of all of substantially all of the Filer's assets and other similar transactions;

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

(c) each Consideration Exchangeable LP Unit is, and shall be, accompanied by a Special Voting Unit, that entitles the holder thereof to receive notice of, attend and to vote together with the holders of Trust Units at all meetings of Unitholders.

24. The Class B LP Units are not transferable except pursuant to an exchange of Class B Units for Trust Units in accordance with the terms of the Exchange Agreement and the limited partnership agreement of FAM LP requires Huntingdon to not take any action that would result in the Class B LP Units being held by a non-resident. The Class B Units are neither exchangeable for securities other than Trust Units nor redeemable for cash. Any Consideration Exchangeable LP Units will contain identical restrictions to those on the Class B LP Units (other than differences that are administrative or clerical in nature).

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

26. The Consideration Exchangeable LP Units are not, and shall not be, listed and posted for trading on the Toronto Stock Exchange or any other stock exchange.

27. Any additional rights (as compared to the Trust Units) attached to the Consideration Exchangeable LP Units arise by virtue of the Consideration Exchangeable LP Units being limited partnership units and would be no greater than customary rights associated with limited partnership units. Other than the rights described above, the Consideration Exchangeable LP Units would carry no other rights that would impact their value and Slate GTA does not, as a result of acquiring the Consideration LP Units rather than Trust Units in connection with the Proposed Transaction gain any additional or unique rights that it would not otherwise have.

28. Other than in respect of matters affecting the rights, benefits or entitlements of the holders of Consideration Exchangeable LP Units or as required by law, a holder of Consideration Exchangeable LP Units does not, and shall not, have the right to exercise any votes in respect of matters to be decided by the partners of the applicable Partnership and Consideration Exchangeable LP Units do not provide the holder thereof with an interest in any specific asset or property of the applicable Partnership.

29. Absent the Relief, the Non-Cash Valuation Requirement would require the Filer to have a formal valuation prepared in respect of the Consideration Exchangeable LP Units. Any such formal valuation would, in all material respects, mirror a formal valuation of the Trust Units, including Trust Units to be issued to Slate GTA pursuant to the Proposed Transaction (in respect of which the Filer is entitled to rely upon the Valuation Exemption). As a result, the Filer would be subject to a requirement that would be not be consistent with the logic underlying the exemption of securities of a reporting issuer or for which there is a published market from the requirement to obtain a formal valuation (i.e. the Valuation Exemption).

Decision

The principal regulator is satisfied that the decision meets the test set out in MI 61-101 for the principal regulator to make the decision.

The decision of the principal regulator is that the Relief is granted, provided that:

(a) pursuant to subsection 6.3(2) of MI 61-101, a formal valuation of the Consideration Filer Units is not required;

(b) the terms of the Consideration Exchangeable LP Units, including the terms of the New Partnership Agreement and the Amended Exchange Agreement, are identical to those of the Class B LP Units and the Partnership Agreement (other than differences relating to the name, formation and capitalization amounts of the New Partnership, or which are administrative or clerical in nature);

(c) neither the Filer nor, to the knowledge of the Filer after reasonable inquiry, Slate GTA (or any of its affiliates) has knowledge of any material information concerning the Filer, the New Partnership (if applicable) or their respective securities that has not been generally disclosed, and

(d) the information circular for the Unitholder Meeting includes the disclosure required 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 neither the Filer nor, to the knowledge of the Filer after reasonable inquiry, Slate GTA (or any of its affiliates) has knowledge of any material information concerning the Filer, New Partnership (if applicable) or their securities 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 Slate GTA and its affiliates.

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