Securities Law & Instruments

Headnote

Subsection 74(1) -- Application for exemption from prospectus requirement in connection with first trade of shares of issuer, acquired by the applicant and certain employees (defined in decision document) on a prospectus exempt basis during the period between April 11, 2014 and November 1, 2017, 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 for non-reporting foreign issuer in section 2.15 of National Instrument 45-102 Resale of Securities(and Ontario Securities Commission Rule 72-503 Distributions Outside Canada) not satisfied as issuer did not meet the definition of foreign issuer as defined in the exemption for the relevant period -- relief granted subject to conditions, including the issuer is not a reporting issuer in any jurisdiction of Canada on the date of the trade and the trade is made through an exchange or market outside of Canada or to a person or company outside of Canada -- applicant can rely on exemption in section 2.15 of NI 45-102 (and s. 2.8 of OSC Rule 72-503) in connection with first trade of shares of issuer distribution on and after November 1, 2017 -- existing relief granted to applicants in 2015 revoked upon granting new relief.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53 and 74(1).

Ontario Securities Commission Rule 72-503 Distributions Outside Canada, s. 2.8.

National Instrument 45-102 Resale of Securities, s. 2.15.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, C. S.5 AS AMENDED (THE ACT) AND IN THE MATTER OF IRISH RESIDENTIAL PROPERTIES REIT PLC (IRES REIT) AND CANADIAN APARTMENT PROPERTIES REAL ESTATE INVESTMENT TRUST (CAPREIT, AND TOGETHER WITH IRES REIT, THE FILERS)

DECISION

Background

The Ontario Securities Commission (the Commission) has received an application from the Filers for a decision pursuant to section 74 of the Act for an exemption from the prospectus requirement in section 53 of the Act (the prospectus requirement) in connection with the first trades of (i) ordinary shares of IRES REIT (the Ordinary Shares) acquired in reliance upon exemptions from the prospectus requirement (prospectus exemptions); and (ii) ordinary shares of IRES REIT (the Incentive Ordinary Shares) issued by IRES REIT upon the exercise of stock options (or other similar awards) (Stock Options) acquired in reliance upon prospectus exemptions, directly or indirectly by:

(a) CAPREIT (directly or indirectly through its affiliates from time to time); and

(b) certain individuals who are or were employees, officers, and directors or trustees, as applicable, of IRES REIT, IRES Fund Management Limited (IRES Fund Management), CAPREIT, CAPREIT Limited Partnership or their respective affiliates from time to time (the Employees).

Specifically, the Filers request relief under the Act from the prospectus requirement for first trades of Ordinary Shares held directly or indirectly by CAPREIT or the Employees and first trades of Incentive Ordinary Shares issued upon the exercise of Stock Options held directly or indirectly by the Employees, where the relevant Ordinary Shares or Stock Options were distributed during the period beginning on April 16, 2014 and ending immediately prior to November 1, 2017 (the Transition Date, and such period referred to as the Pre-Foreign Issuer Period), being a period during which time IRES REIT, but for the fact that the chief executive officer was resident in Canada and employed by IRES REIT until the Transition Date, would satisfy the conditions to the Foreign Issuer Exemption (as defined below) under subsections 2.8(2) and (3) of OSC Rule 72-503 Distributions Outside Canada (OSC Rule 72-503) (the Requested Relief).

Interpretation

Terms defined in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined.

Representations

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

CAPREIT and IRES

1. CAPREIT was formed in 1997 and is an internally-managed, unincorporated, open-ended real estate investment trust governed under the laws of the Province of Ontario. CAPREIT is a reporting issuer in all provinces and territories of Canada and its units are listed for trading on the Toronto Stock Exchange under the symbol "CAR.UN".

2. IRES REIT was incorporated in Ireland on July 2, 2013 as a company under the Irish Companies Act and is domiciled in Ireland. During all relevant periods, its head office has been located in Ireland.

3. IRES REIT is a property investment company which acquires, holds, manages and develops investments primarily focused on residential accommodations and ancillary or strategically located commercial property on the island of Ireland.

4. IRES REIT is externally managed by IRES Fund Management, which is a limited liability corporation governed under the laws of Ireland and is an indirect wholly-owned subsidiary of CAPREIT.

5. IRES REIT is not a reporting issuer in the Province of Ontario 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.

6. The Ordinary Shares are listed on the Irish Stock Exchange Public Limited Company, trading as Euronext Dublin (the Irish Stock Exchange). IRES REIT is in compliance with all securities laws of Ireland. In addition, IRES REIT is in good standing with the rules of the Irish Stock Exchange.

7. In 2014, IRES REIT completed a €200 million initial offering of its Ordinary Shares (the Initial Offering) on the Irish Stock Exchange. In concurrent private placements in various jurisdictions, including in Canada solely in Ontario (the Ontario Private Placement), CAPREIT, indirectly through its subsidiary CAPREIT Limited Partnership, beneficially acquired approximately 20% and certain other Canadian investors (comprised primarily of institutional investors qualifying as "permitted clients" as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, and to a lesser extent as accredited investors pursuant to National Instrument 45-106 Prospectus Exemptions (NI 45-106)), acquired less than 3%, of the outstanding Ordinary Shares in connection with the Initial Offering.

8. In a decision in the matter of Irish Residential Properties REIT Limited (the predecessor to IRES REIT) dated April 11, 2014, the Commission provided relief from the 10% De Minimus Condition (as defined below) for certain trades in the Ordinary Shares that were acquired by CAPREIT and such other Canadian investors who qualified as "permitted clients" in connection with the Ontario Private Placement. Following the Ontario Private Placement, Ordinary Shares were also acquired, and may continue to be acquired, by CAPREIT (directly or indirectly through its affiliates) on a prospectus-exempt basis pursuant to exemptions available under NI 45-106 or under open market purchases.

9. Ordinary Shares were also acquired, and may continue to be acquired, by the Employees. The Ordinary Shares were acquired by the Employees on a prospectus-exempt basis pursuant to exemptions available under NI 45-106 (including as "accredited investors" or pursuant to section 2.24 of NI 45-106) or under open market purchases. In addition, certain Employees have been issued and may continue to be issued Stock Options.

10. During the Pre-Foreign Issuer Period, the principal executive officer of IRES REIT was ordinarily resident in Canada. However, there were at all times significant senior level functions carried out or supported by individuals resident and in Ireland, including at all times the Chair of the board of directors of IRES REIT (the IRES REIT Board), and subject to the ultimate decision-making authority of the IRES REIT Board. On the dates of the distributions on April 16, 2014 and March 26, 2015, in addition to the principal executive officer, who also served as a director, there were three Irish-domiciled directors, one of whom also served at all relevant times as the Chair, and one other Canadian-domiciled director.

11. While the principal executive officer during the Pre-Foreign Issuer Period would have been considered to be ordinarily resident in Canada, he was not carrying out his duties exclusively from Canada. For example, he attended board meetings in Ireland and carried out other functions while in Ireland. During such time, key functions or positions were held at various times by individuals based in Ireland and carried out from Ireland.

12. On and as of the Transition Date, a majority of the executive officers of IRES REIT have been ordinarily resident outside of Canada and the IRES REIT Board has been constituted of a majority of directors who are ordinarily resident outside of Canada. The position of Chair has also at all times been fulfilled by an individual who is not a Canadian resident.

13. With respect to the IRES REIT Board in particular:

(a) from November 1, 2017 to June 1, 2018 there were five directors who would be considered to be ordinarily resident outside of Canada and one director who would be considered to be ordinarily resident in Canada (being the former principal executive officer after his resignation as chief executive officer of IRES REIT); and

(b) from June 1, 2018 to the present there have been six directors who would be considered to be ordinarily resident outside of Canada and one director who would be considered to be ordinarily resident in Canada, being initially the former principal executive officer after his resignation as chief executive officer of IRES REIT and thereafter the individual who replaced him on the IRES REIT Board.

14. As a real estate investment trust, key functions relating to operations and investment management of IRES REIT are carried out by the investment manager, being IRES Fund Management. IRES Fund Management is and at all relevant times has been an entity organized and existing under the laws of Ireland, with its head office and principal place of business in Ireland.

15. Material aspects of the business of IRES REIT are first reviewed by the board of IRES Fund Management, and then recommended for approval by the IRES REIT Board. As such, ultimate decision-making authority rests with the IRES REIT Board over matters such as acquisitions and dispositions, lending, capital raising, investment and material leasing matters.

The 2015 Decision

16. Pursuant to a decision of the Commission dated October 16, 2015 (the 2015 Decision), the Commission granted relief pursuant to section 74 of the Act from the prospectus requirement under section 53 of the Act for first trades of Ordinary Shares acquired in reliance upon prospectus exemptions and first trades of Incentive Ordinary Shares acquired upon the exercise of Stock Options acquired in reliance upon prospectus exemptions.

17. Specifically, the 2015 Decision granted relief in respect of Ordinary Shares and Incentive Ordinary Shares acquired directly or indirectly by (a) CAPREIT (directly or indirectly through its affiliates) from time to time, (b) the Employees and (c) a specific Employee, being a Canadian-resident trustee (the Trustee) of CAPREIT (collectively, the Existing Relief).

18. The Existing Relief was granted with conditions based on subsections 2.14(1) and (2) of National Instrument 45-102 Resale of Securities (NI 45-102). 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, provided that certain conditions are met including that 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:

(a) did not own directly or indirectly more than 10 percent of the outstanding securities of the class or series; and

(b) 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 (collectively, the 10% De Minimus Condition).

19. Subsection 2.14(2) of NI 45-102 provides similar relief for the first trade in underlying securities of a non-reporting issuer where the convertible, exchangeable or multiple convertible security that directly or indirectly entitled or required the holder to acquire the underlying securities is distributed under a prospectus exemption. Paragraph 2.14(2)(c) of NI 45-102 requires that the 10% De Minimus condition would have been satisfied for the underlying security at the time of the initial distribution of the relevant convertible security, exchangeable security or multiple convertible security.

20. The 2015 Decision permitted the exclusion of the Ordinary Shares and Incentive Ordinary Shares beneficially owned by CAPREIT and the Employees (including the Trustee) for the purposes of calculating the 10% De Minimus Condition, thereby exempting the first trades of the Ordinary Shares and Incentive Ordinary Shares acquired by CAPREIT (directly or indirectly through its affiliates) and the Employees (including the Trustee) on a prospectus-exempt basis from time to time from the prospectus requirement, provided (among other things) that such trades were made through an exchange or market outside of Canada, or to a person or company outside of Canada, such that the 10% De Minimus Condition would be satisfied based on the holdings of Canadian investors other than the indirect holdings of CAPREIT and the Employees (including the Trustee).

21. As of June 30, 2020, CAPREIT (directly or indirectly through its affiliates) beneficially held 95,510,000 Ordinary Shares or 18.3% of the issued and outstanding Ordinary Shares as of such date.

22. CAPREIT (directly or indirectly through its affiliates) currently intends to maintain an ownership of between 10% and 25% of the issued and outstanding Ordinary Shares from time to time given its strategic position in, and relationship with, IRES REIT and will therefore subscribe, purchase or acquire additional Ordinary Shares of IRES REIT from time to time in order to do so.

23. At all relevant times, all Canadian resident Employees and the Canadian resident Trustee have been resident in Ontario.

24. The Existing Relief will expire October 16, 2020, except with respect to the first trades of any Incentive Ordinary Shares acquired, directly or indirectly, by the Employees (including the Trustee) provided the related Stock Option was granted or issued on or prior to the fifth anniversary date of the 2015 Decision. This exception was intended to allow for prospectus-exempt first trades of Incentive Ordinary Shares issuable upon the exercise of Stock Options acquired by Employees before October 16, 2020.

The June 2018 Amendments

25. Effective June 12, 2018, NI 45-102 was amended to include a new exemption from the prospectus requirement in subsection 2.15(2) of NI 45-102, for first trades of securities distributed under an exemption from the prospectus requirement if:

(a) the issuer of the security was a foreign issuer on the distribution date, where "foreign issuer" means an issuer that is not incorporated or organized under the laws of Canada, or a jurisdiction of Canada, unless the issuer has its head office in Canada or the majority of the executive officers or directors of the issuer ordinarily reside in Canada (the Foreign Issuer Requirement);

(b) the issuer of the security:

(i) was not a reporting issuer in any jurisdiction of Canada on the distribution date, or

(ii) is not a reporting issuer in any jurisdiction of Canada on the date of the trade; 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.

26. Subsection 2.15(3) of NI 45-102 provides a similar exemption for the first trade of a security underlying an exchangeable or convertible security such as a warrant or stock option distributed under a prospectus exemption. While these exemptions are not available in Ontario under NI 45-102, the same exemptions are available in Ontario under subsections 2.8(2) and (3) of OSC Rule 72-503 which also came into force on June 12, 2018. The exemptions in subsections 2.15(2) and (3) of NI 45-102 and the exemptions in subsections 2.8(2) and (3) of OSC Rule 72-503 (collectively, the Foreign Issuer Exemption) are available for first trades in securities that occur on or after June 12, 2018, even if the securities were acquired before June 12, 2018.

Reasons for the Requested Relief

27. Ordinary Shares and Incentive Ordinary Shares acquired during the Pre-Foreign Issuer Period, either pursuant to prospectus exemptions under NI 45-106 or under open market purchases, continue to be held by CAPREIT (indirectly through its affiliates) and may continue to be held by the Employees (including the Trustee). Stock Options acquired pursuant to prospectus exemptions during the Pre-Foreign Issuer Period continue to be held by Employees.

28. Where Ordinary Shares, Incentive Ordinary Shares, or Stock Options were issued during the Pre-Foreign Issuer Period, the first trade in Canada of Ordinary Shares or Incentive Ordinary Shares acquired by CAPREIT (directly or indirectly through its affiliates) or the Employees in reliance upon a prospectus exemption 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. Since IRES REIT is not a reporting issuer in any jurisdiction of Canada, the prospectus exemptions contained in sections 2.5 and 2.6 of NI 45-102 will not be available for any such first trade by CAPREIT (directly or indirectly through its affiliates) or the Employees.

29. As noted above, the Existing Relief will expire on October 16, 2020, except with respect to certain first trades of Incentive Ordinary Shares issued upon exercise of Stock Options granted to Employees prior to the fifth anniversary date of the 2015 Decision. Rather than obtain a renewal of the Existing Relief (with conditions based on subsections 2.14(1) and (2) of NI 45-102), the Filers would like to obtain the Requested Relief (with conditions based on the Foreign Issuer Exemption).

30. During the Pre-Foreign Issuer Period, IRES REIT did not satisfy the Foreign Issuer Requirement as its principal executive officer was an individual who was ordinarily resident in Canada. As of the Transition Date, IRES REIT has satisfied the Foreign Issuer Requirement.

31. Insofar as section 2.15 of NI 45-102 and section 2.8 of OSC Rule 72-503 require that the issuer be a foreign issuer "on the distribution date", IRES REIT meets this condition for any Ordinary Shares, Incentive Ordinary Shares or Stock Options distributed following the Transition Date. As such, CAPREIT (and its affiliates) and the Employees would be able to rely on section 2.15 of NI 45-102 and section 2.8 of OSC Rule 72-503 in respect of such distributions. In these circumstances, the first trades of Ordinary Shares acquired by CAPREIT (and its affiliates) since the Transition Date, and issued upon exercise of Stock Options acquired by the Employees since the Transition Date, are exempted from the prospectus requirement on the basis that the conditions to the Foreign Issuer Exemption are and continue to be satisfied.

Foreign Issuer Status

32. But for the chief executive officer who was resident in Canada and employed by IRES REIT until the Transition Date, IRES REIT would satisfy the Foreign Issuer Requirement during the Pre-Foreign Issuer Period in respect of any distributions of Ordinary Shares distributed in reliance upon prospectus exemptions, or Incentive Ordinary Shares issued upon exercise of Stock Options acquired by the Employees in reliance upon prospectus exemptions during such period.

33. Although the chief executive officer of IRES REIT was resident in Canada during the Pre-Foreign Issuer Period, the sole mind and management would not have been considered to be in Canada as there was at all times significant senior level functions carried out or supported by Irish-domiciled individuals, including at all times the Chair of the IRES REIT Board, and subject to the ultimate decision-making authority of the IRES REIT Board.

34. During the Pre-Foreign Issuer Period, IRES REIT had a minimal connection to Canada for the reasons set out in paragraphs 2, 3, 5, 6, 11, 14, 15, 32 and 33 of this decision.

35. IRES REIT does not intend to become a reporting issuer in any jurisdiction in Canada, nor will its securities be listed or quoted on any exchange or market in Canada. As such, no market for the Ordinary Shares or Incentive Ordinary Shares is expected to develop in Canada. It is intended that any first trades of the Ordinary Shares or Incentive Ordinary Shares will be effected through the facilities of the Irish Stock Exchange, or to a person or company outside of Canada, in accordance with the rules and regulations of such foreign jurisdiction, and, in either case, will therefore not have any connection to the investing Canadian public.

36. As IRES REIT is currently a "foreign issuer" as such term is defined in section 2.15 of NI 45-102 and section 2.8 of OSC Rule 72-503 (including that its head office is not in Canada and a majority of its executive officers or directors are not ordinarily resident in Canada) and satisfies each of the conditions set out in subsections 2.15(2) and (3) of NI 45-102 and section 2.8 of OSC Rule 72-503, granting the Requested Relief would allow for consistency with respect to distributions undertaken during all relevant periods (since April 16, 2014).

Decision

The Commission is satisfied that granting the Requested Relief would not be prejudicial to the public interest.

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

(a) with respect to the first trade of Ordinary Shares issued to CAPREIT (and its affiliates) and the Employees in reliance on prospectus exemptions during the Pre-Foreign Issuer Period,

(i) IRES REIT is not a reporting issuer in any jurisdiction of Canada on the date of the trade; and

(ii) the trade is made:

(A) through an exchange, or a market, outside of Canada, or

(B) to a person or company outside of Canada; and

(b) with respect to the first trade of Incentive Ordinary Shares issued upon the exercise of Stock Options issued to the Employees during the Pre-Foreign Issuer Period,

(i) IRES REIT is not a reporting issuer in any jurisdiction of Canada on the date of the trade; and

(ii) the trade is made:

(A) through an exchange, or a market, outside of Canada, or

(B) to a person or company outside of Canada.

The further decision of the Commission is that the Existing Relief is revoked.

DATED this 13th day of October, 2020.

"Tim Moseley"
"Heather Zordel"
Vice-Chair
Commissioner
Ontario Securities Commission
Ontario Securities Commission