Crombie Real Estate Investment Trust - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions -- Relief granted from the requirement under subsection 6.3(1) to obtain a formal valuation of exchangeable units to be used as non-cash consideration in connection with a related party transaction; but for the fact that there is no published market for the exchangeable units, an exemption to the formal valuation requirement would be available under subsection 6.3(2) of MI 61-101; the exchangeable units are, in all material respects, equivalent to units of a reporting issuer for which there is a published market.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions, ss. 6.3, 9.1.
March 18, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO AND QUEBEC
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CROMBIE REAL ESTATE INVESTMENT TRUST
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of Ontario and Québec (the Jurisdictions) has received an application from Crombie Real Estate Investment Trust (the REIT) for a decision under the securities legislation of the Jurisdictions (the Legislation) granting relief from the requirement in subsection 6.3(1)(d) Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (Multilateral Instrument 61-101) to obtain a formal valuation of the Exchangeable LP Units (as defined below) to be issued under the Proposed Transaction (as defined below) (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application, and;
(b) the MRRS Decision Document evidences the decision of each Decision Maker.
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 representations by the REIT:
1. The REIT, through its wholly owned subsidiary, Crombie Limited Partnership (Crombie LP), proposes to acquire a portfolio of real estate properties (the Acquisition Properties) from subsidiaries of Empire Company Limited (Empire), for consideration of approximately $441 million, including closing and transaction costs of approximately $13 million (the Proposed Transaction), to be comprised of a combination of approximately $386 million of cash and $55 million of class B limited partnership units of Crombie LP (the Exchangeable LP Units).
2. The REIT is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust dated January 1, 2006, as amended and restated (the Declaration of Trust) formed under, and governed by, the laws of the Province of Ontario.
3. The REIT is authorized to issue an unlimited number of units (the Units) and an unlimited number of special voting units (the Special Voting Units). As at December 31, 2007 there were 21,648,985 Units and 20,079,576 Special Voting Units issued and outstanding. The number of Special Voting Units outstanding at any point in time is equivalent to, and accompanies the number of Exchangeable LP Units outstanding.
4. Empire through its wholly owned subsidiary ECL Developments Limited (ECL) holds 20,079,576 Exchangeable LP Units representing an approximately 48.1% economic interest in the REIT.
5. The Units are currently listed and posted for trading on the Toronto Stock Exchange (the TSX) under the symbol "CRR.UN".
6. The REIT is a reporting issuer, or has equivalent status, under securities legislation in all provinces of Canada and is not in default of any of the requirements of such legislation.
7. The REIT invests in income-producing retail, office and mixed use properties in Canada, with a future growth strategy focused primarily on the acquisition of retail properties. As at December 31, 2007, the REIT owned a portfolio of 52 commercial properties in six provinces comprising approximately 8.0 million square feet of gross leaseable area.
8. Crombie LP is a limited partnership formed under the laws of the Province of Nova Scotia and governed by a second amended and restated limited partnership agreement dated March 23, 2006 (the Crombie LP Agreement) among Crombie General Partner Limited (Crombie GP), ECL and Crombie Subsidiary Trust (CS Trust).
9. Crombie GP, is a company incorporated under the laws of the Province of Nova Scotia, is the general partner of Crombie LP and is wholly owned by CS Trust.
10. Under the Crombie LP Agreement, Crombie LP is authorized to issue an unlimited number of class A limited partnership units (the Class A LP Units) and an unlimited number of Exchangeable LP Units (collectively, the LP Units), as well as an unlimited number of general partnership units.
11. All the outstanding Class A LP Units are held by CS Trust (a wholly-owned subsidiary of the REIT), all the Exchangeable LP Units are held by ECL, and all the outstanding general partnership units are held by Crombie GP.
12. The Exchangeable LP Units are in all material respects, equivalent to the Units on a per unit basis. Pursuant to the terms of an exchange agreement dated March 23, 2006 among the REIT, CS Trust, Crombie GP, Crombie LP and ECL (the Exchange Agreement), each Exchangeable LP Unit is exchangeable at the option of the holder for one Unit of the REIT. Each Exchangeable LP Unit also has the same economic rights and entitlements to distributions as a Unit of the REIT, and is accompanied by one Special Voting Unit, which provides for the same voting rights in the REIT as a Unit.
13. The Exchangeable LP Units are not listed and posted for trading on the TSX or any other stock exchange.
14. The Proposed Transaction involves the acquisition by the REIT, through Crombie LP, of certain real estate properties of Empire, consisting of 21 retail strip centres and 40 free standing grocery stores held by subsidiaries of Empire. The aggregate consideration for the Proposed Transaction is approximately $441 million to be satisfied by a cash payment of approximately $386 million and $55 million of Exchangeable LP Units.
15. A committee of independent trustees of the REIT (the Special Committee) has been established by the REIT for the purpose of supervising the preparation of a formal valuation of the Acquisition Properties (the Acquisition Properties Valuations). The Special Committee has retained Cushman & Wakefield Le Page, Inc. to prepare the Acquisition Properties Valuation, under the supervision of the Special Committee, which to the knowledge of the REIT and the Special Committee was prepared in accordance with Multilateral Instrument 61-101.
16. The Special Committee has also retained Blackmont Capital Inc. (Blackmont), to act as an independent financial advisor to the Special Committee in evaluating the Proposed Transaction.
17. Blackmont will prepare a formal 'fairness opinion' that will speak to the fairness from a financial point of view, of the consideration for the Proposed Transaction, to the Unitholders.
18. An annual and special meeting of Unitholders will be held to obtain the approval of the Proposed Transaction by a majority of the minority Unitholders (the Unitholder Meeting).
19. The information circular to be mailed to Unitholders in connection with the Unitholder Meeting (the Information Circular) will comply with the requirements of applicable securities law and will disclose, among other matters, that the REIT has no knowledge of any material non-public information concerning REIT or its securities that has not been generally disclosed, in accordance with subsection 6.3(2)(b) of Multilateral Instrument 61-101.
20. Although the Exchangeable LP Units are not securities of a reporting issuer or of a class for which there is a published market, they are, as a result of the rights, privileges, restrictions and conditions attaching to such Exchangeable LP Units and the various material agreements relating to and governing the Exchangeable LP Units, equivalent to the Units in all material respects, and their value is directly linked to the value of a Unit. The value of an Exchangeable LP Unit is entirely derived from the value of a Unit and from the REIT's perspective, issuing Exchangeable LP Units through Crombie LP is equivalent to issuing Units of the REIT.
21. The Exchangeable LP Units are equivalent to the Units in that they are:
(a) exchangeable into Units on a one for one basis;
(b) have the same economic rights as Units;
(c) carry the same voting rights as Units;
(d) any additional rights attached to the Exchangeable LP Units either: (i) pre-exist the issuance of the Exchangeable LP Units under the Proposed Transaction and treat the Exchangeable LP Units and Units on the same basis, or (ii) arise solely by virtue of the Exchangeable LP Units being limited partnership units and are customary rights associated with limited partnership units.
22. Under Section 2.1 of the Exchange Agreement, subject to certain conditions, the Exchangeable LP Units are indirectly exchangeable on a one for one basis for Units at any time at the option of the holder.
23. The Exchangeable LP Units entitle the holder to distributions from Crombie LP equal to any distributions paid to holders of Units by the REIT. Under the Exchange Agreement, the REIT may not distribute rights, options, securities, evidence of indebtedness or assets to its Unitholders, unless the economic equivalent of such rights, options, securities, evidence of indebtedness or assets to be issued or distributed are simultaneously issued or distributed by Crombie LP to holders of Exchangeable LP Units.
24. Each Exchangeable LP Unit is accompanied by one Special Voting Unit of the REIT, which provides for the same voting rights in the REIT as a Unit. Additionally, except as required by law and in certain specified circumstances in which the rights of a holder of Exchangeable LP Units are affected, holders of Exchangeable LP Units are not entitled to vote at meetings of the holders of LP Units.
25. Although ECL was granted additional rights at the time of the REIT's initial public offering including pre-emptive rights, registrations rights, board appointment rights and approval rights, these rights are independent of, and pre-exist the issuance of the Exchangeable LP Units under the Proposed Transaction and are based on ownership thresholds that treat Exchangeable LP Units and Units on a combined basis. As a result, by acquiring Exchangeable LP Units rather than Units, ECL does not gain any additional or unique rights or benefits that they would not otherwise have.
26. Other than the rights described above, the Exchangeable LP Units carry no other rights that would impact their value. The Crombie LP Agreement does contain typical rights for a limited partnership such as tag along and drag along rights, but these are customary limited partnership rights that do not confer any special benefit on the holders of Exchangeable LP Units.
27. Blackmont has confirmed that they agree with the facts set out in this application.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Makers with jurisdiction to make the decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided the REIT complies with subsection 6.3(2) of Multilateral Instrument 61-101 other than clause (a) thereof.