Summit Industrial Income REIT
Headnote
Application for a decision, pursuant to section 5.1 of OSC Rule 48-501, exempting the Filer from trading restrictions imposed by section 2.2(a) of OSC Rule 48-501. Decision granted. Decision and application also held in confidence by the decision makers until the earliest of (i) the date on which the Filer publicly announces an ATM Distribution, (ii) the date on which the Filer first enters into an Equity Distribution Agreement as described below, (iii) the date on which the Filer advises the Decision Maker that there is no longer any need for the Confidential Material to remain confidential, and (iv) the date that is 90 days after the date of this decision.
Rule Cited
Ontario Securities Commission Rule 48-501 -- Trading During Distributions, Formal Bids and Share Exchange Transactions.
August 7, 2020
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED (the Act) AND IN THE MATTER OF ONTARIO SECURITIES COMMISSION RULE 48-501 TRADING DURING DISTRIBUTIONS, FORMAL BIDS AND SHARE EXCHANGE TRANSACTIONS (the Rule) AND IN THE MATTER OF SUMMIT INDUSTRIAL INCOME REIT (the Filer)
DECISION (Section 5.1 of the Rule)
Background
The securities regulator in the Jurisdiction (the Decision Maker) has received an application (the Application) from the Filer pursuant to the procedures set forth in OSC Policy 2.1 Applications to the Ontario Securities Commission for a decision under the securities legislation of the Jurisdiction (the Legislation) that the requirement in section 2.2(a) of the Rule do not apply to insiders of the Filer (the Insiders) in connection with any ATM Distributions (as defined below) made by the Filer under an Equity Distribution Agreement (as defined below) (the Exemptive Relief Sought).
The Decision Maker has also received a request from the Filer for a decision that the Application and this decision (together, the Confidential Material) be kept confidential and not be made public until the earliest of: (i) the date on which the Filer publicly announces an ATM Distribution, (ii) the date on which the Filer first enters into an Equity Distribution Agreement as described below, (iii) the date on which the Filer advises the Decision Maker that there is no longer any need for the Confidential Material to remain confidential, and (iv) the date that is 90 days after the date of this decision (together, the Confidentiality Relief).
Interpretation
Terms defined in National Instrument 14-101 Definitions, National Instrument 21-101 -Marketplace Operation and National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR) or the Rule have the same meaning if used in this decision, unless otherwise defined herein. All dollar figures in this decision refer to Canadian dollars.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is an unincorporated open-ended limited purpose real estate investment trust established under and governed by the laws of the Province of Ontario. The head office of the Filer is located in Brampton, Ontario.
2. The Filer is a reporting issuer in each province and territory of Canada and is not in default of securities legislation in any jurisdiction of Canada.
3. The Filer's trust units (the Units) are listed on the Toronto Stock Exchange (the TSX) under the trading symbol "SMU.UN".
4. The Units meet the requirements in the Rule to be considered a "highly-liquid security".
Proposed ATM Distributions
5. The Filer filed a short form base shelf prospectus in each of the provinces and territories of Canada on May 28, 2019 providing for the distribution from time to time of Units and such other securities as the Filer deems appropriate (the Shelf Prospectus).
6. The Filer intends to conduct one or more "at-the-market distributions" of Units in Canada (ATM Distributions) within the meaning of, and pursuant to the shelf prospectus procedures prescribed in, Part 9 of National Instrument 44-102 Shelf Distributions (NI 44-102), to be made pursuant to the terms and conditions of one or more substantially identical equity distribution agreements (each, an Equity Distribution Agreement) to be entered into between the Filer and certain agents (the Agents).
7. Subject to mutual agreement on terms and conditions, the Filer is proposing to enter into one or more Equity Distribution Agreements with the Agents, providing for the sale of Units from time to time by the Filer through the Agents pursuant to an ATM Distribution under the shelf prospectus procedures prescribed by Part 9 of NI 44-102.
8. Prior to making an ATM Distribution, the Filer will have filed in each of the provinces and territories of Canada a prospectus supplement describing the terms of an ATM Distribution, including the terms of the applicable Equity Distribution Agreement and otherwise supplementing the disclosure in the Shelf Prospectus (the Prospectus Supplement, and together with the Shelf Prospectus as supplemented or amended and including any documents incorporated by reference therein, the Prospectus).
9. Each Equity Distribution Agreement will provide that, at the time of each sale of Units pursuant to an ATM Distribution, the Filer will represent to the Agents that the Prospectus contains full, true and plain disclosure of all material facts relating to the Filer and the Units being distributed. It is therefore likely that a significant portion of the sales activity under ATM Distributions will occur during periods that coincide with the Filer's typical Trading Window (as defined below) under its Trading Policy (as defined below).
Unit Ownership Policy
10. Under the Filer's current minimum Unit ownership policy (the Ownership Policy), the Chief Executive Officer (the CEO) of the Filer must, within three years of becoming CEO, hold at least three times the value of his or her base salary averaged over the three most recent years in Units and/or deferred trust units, and each trustee of the Filer (each a Trustee) must, within five years of becoming a Trustee, hold at least three times the value of his or her base retainer averaged over the three most recent years.
11. The Filer believes that the Ownership Policy is in-line with best corporate governance practices and that it is in the Filer's best interest to avoid imposing any unnecessary restrictions on the ability of Insiders to increase their equity stake in the Filer.
12. Under the terms of the Filer's trading policy for employees and Insiders (the Trading Policy), Trustees and officers of the Filer, as well as certain other individuals, may only trade Units while the Filer is not in a "blackout" period (a Trading Window). Regularly scheduled blackout periods commence on the last day at the end of each fiscal quarter of the Filer and end at the conclusion of the second business day following the issuance of a news release in respect of the Filer's quarterly or annual financial results. If the Filer puts in place an ATM Distribution, distributions by the Filer may occur during a Trading Window.
13. Pursuant to section 2.2(a) of the Rule, an insider of a reporting issuer is prohibited from bidding on or purchasing securities of that reporting issuer during the period commencing on the date that is two trading days prior to the day the offering price is determined for a prospectus offering of that reporting issuer, and ending on the date the selling process ends and all stabilization arrangements relating to the offered security are terminated (the Insider Purchasing Restriction).
14. These restrictions in the Rule were not designed in contemplation of ATM Distributions. Subsection 1.2(5)(a)(i) of the Rule provides the following interpretative guidance:
the selling process shall be considered to end, in the case of a prospectus distribution, if a receipt has been issued for the final prospectus, the dealer has allocated all of its portion of the securities to be distributed under the prospectus and all selling efforts have ceased
however such guidance does not apply in the context of an ATM Distribution, where the receipt is obtained before the distribution begins, the dealers do not allocate a position (but rather simply trade on a "marketplace", within the meaning of National Instrument 21-101 Marketplace Operation) and no selling efforts are made (only ordinary trading activity).
15. Similarly, the exemption in section 3.2(e) of the Rule, in respect of "a subscription for or purchase of an offered security pursuant to a prospectus distribution", is not possible to apply in the context of an ATM Distribution, given that insiders purchasing on a marketplace during an ATM Distribution would have no knowledge as to whether they are purchasing under an ATM Distribution or otherwise from a counterparty unrelated to the Filer.
16. The stated policy rationale for the Rule is to prohibit "purchases of or bids for restricted securities in circumstances where there is heightened concern over the possibility of manipulation by those with an interest in the outcome of the distribution or transaction".{1}
17. In the case of the Filer, given that:
(a) the Units constitute a "highly liquid security" and are liquid to such a degree that it would be virtually impossible for an Insider to manipulate the trading price of the Units through purchases;
(b) most Insiders will, in any event, be unaware of when each ATM Distribution begins and ends and discrete sales of Units thereunder occur; and
(c) any Insider that is purchasing Units on the market during an ATM Distribution will not know whether it is purchasing under an ATM Distribution or from another counterparty unrelated to the Filer;
there is no policy rationale for applying the Insider Purchasing Restriction to Insiders in the context of an ATM Distribution.
18. In the absence of an exemption from the Insider Purchasing Restriction, Insiders would be restricted from bidding on and purchasing Units during a period of time prior to and during each ATM Distribution by the Filer, which could overlap with the Trading Windows and unduly and unnecessarily impede Trustees and officers of the Filer from making purchases of Units, including for the purposes of complying with the Ownership Policy.
Confidentiality
19. The Filer submits that the Confidentiality Relief is warranted in the circumstances as there is otherwise a risk of the public being misled into believing, on the basis of the Confidential Material being available to the public before the earliest of the proposed expiration dates, that implementation of the contemplated ATM Distribution arrangement by the Filer is imminent when in fact the parties have not yet come to a definitive agreement and the Filer may decide not to proceed with an ATM Distribution in the near term, or at all, depending on market conditions and other factors outside of the Filer's control. Such premature disclosure could cause confusion and uncertainty in the market and would be contrary to the public interest.
20. In recognition of the general principles of access under the Act, however, the Filer proposes that the Confidentiality Relief be limited to a maximum duration of 90 days from the date of this decision. This period is believed to provide the Filer with sufficient time within which to negotiate a definitive Equity Distribution Agreement or otherwise make a final determination on the matter, and strikes an appropriate balance between the Filer's legitimate concerns about premature disclosure and principles of public access to filed materials.
21. Upon a definitive Equity Distribution Agreement being settled between the Filer and the Agents, the Filer's ordinary disclosure obligations will apply and news of the proposed ATM Distribution arrangement would be disseminated in the ordinary course.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation.
The decision of the Decision Maker under the Legislation is that the Exemptive Relief Sought is granted.
DATED this 7th day of August, 2020.
"Tracey Stern"
Manager, Market Regulation Branch
Ontario Securities Commission
{1} OSC Request for Comment on Changes to Proposed OSC Rule 48-501 -- Trading During Distributions, Formal Bids and Share Exchange Transactions (2nd Publication) and Proposed Companion Policy 48-501CP to OSC Rule 48-501 and Proposed Rescission of OSC Policy 5.1, Paragraph 26 and OSC Policy 62-601 -- Securities Exchange Take-Over Bids -- Trades in the Offeror's Securities (September 10, 2004).