Governance

The governance, investment guidelines and operating policies of the REIT are set out in the Declaration of Trust and overseen by the Board of Trustees, a majority of whom are Independent Trustees.

Mandate of the Board of Trustees

The role of the REIT’s Board is one of stewardship and oversight of the REIT and its business. The Board is responsible for overseeing management and approving major decisions. In fulfilling its mandate, the Board is responsible, among other things, for: (i) participating in the development of and approving a strategic plan for the REIT; (ii) identifying and managing risk exposure; (iii) ensuring the integrity and adequacy of the REIT’s internal controls and management information systems; (iv) defining the roles and responsibilities of management; (v) reviewing and approving the business and investment objectives to be met by management of the REIT; (vi) assessing the performance of the REIT and of its Property Managers; (vii) reviewing the REIT’s debt management strategy; (viii) succession planning; (ix) ensuring effective and adequate communication with the Unitholders and other stakeholders as well as the public at large; and (x) establishing committees of the Board of Trustees, where required, and defining their mandate.

Relationship of the Board of Trustees and Management

The REIT’s Board has in place appropriate structures to ensure that it can function independently of management, including the appointment of a Chairman of the Board who is an Independent Trustee. The responsibilities of the Chairman of the Board include overseeing the Board’s discharge of its responsibilities. The Chairman’s role and responsibilities include managing the affairs of the Board of Trustees and, together with the Governance and Compensation Committee, monitoring the effectiveness of the Board.

Management’s responsibilities are determined by the REIT’s Board. The day-to-day role and responsibilities of the Chief Executive Officer of the REIT are determined by the Board pursuant to a written mandate describing areas of responsibility for the Chief Executive Officer. All major policy decisions relating to the business of the REIT are made by the Board or a committee thereof.

INVESTMENT GUIDELINES AND OPERATING POLICIES

Investment Guidelines

The Declaration of Trust provides certain guidelines on investments that may be made by the REIT.

The assets of the REIT may be invested only with the approval of the Trustees and only in accordance with the following restrictions:

(a) notwithstanding anything in paragraphs (b) to (k) below, the REIT must not make any investment, take any action or omit to take any action that would result in Units not being units of a “mutual fund trust” within the meaning of the Tax Act, that would result in Units not being qualified investments for Plans, that would result in the REIT being liable under the Tax Act to pay a tax as a result of holdings by the REIT of “foreign property” as defined in the Tax Act, that would result in Units being foreign property for the purpose of the Tax Act for any such Plan or that would result in the REIT paying a tax under Part XI of the Tax Act;

(b) the REIT may only invest, directly or indirectly, in:

(i) interests (including fee ownership and leasehold interests) in income-producing real property located primarily in Canada;

(ii) corporations, trusts, partnerships or other persons which solely have, directly or indirectly, interests (including the ownership of leasehold interests) in income-producing property located primarily in Canada (or activities relating or ancillary thereto); and

(iii) such other activities as are consistent with the other investment guidelines of the REIT and are approved by a majority of the Trustees from time to time.

(c) the REIT will not invest in any interest in a single real property if, after giving effect to the proposed investment, the cost of investment to the REIT (net of the amount of debt incurred or assumed in connection with such investment) will exceed 20% of the Adjusted Unitholders’ Equity at the time the investment is made;

(d) the REIT may, directly or indirectly, invest in a joint venture arrangement for the purposes of owning interests or investments otherwise permitted to be held by the REIT; provided that such joint venture arrangement contains terms and conditions which, in the opinion of the Trustees, are commercially reasonable, including without limitation such terms and conditions relating to restrictions on transfer and the acquisition and sale of the REIT’s and any joint venturer’s interest in the joint venture arrangement, provisions to provide liquidity to the REIT (such as buy-sell mechanisms), provisions to limit the liability of the REIT to third parties, and provisions to provide for the participation of the REIT in the management of the joint venture arrangement. For purposes hereof, a joint venture arrangement is an arrangement between the REIT and one or more other persons (“joint venturers”) pursuant to which the REIT, directly or indirectly, conducts an undertaking for one or more of the purposes set out above and in respect of which the REIT may hold its interest jointly or in common or in another manner with others either directly or through the ownership of securities of a corporation or other entity (a “joint venture entity”), including, without limitation, a general partnership, limited partnership or limited liability company;

(e) except for temporary investments held in cash, deposits with a Canadian chartered bank or trust company registered under the laws of Canada or of a province of Canada, short-term government debt securities, or receivables under installment receipt agreements or money market instruments of, or guaranteed by, a Schedule I Canadian bank maturing prior to one year from the date of issue or except as permitted pursuant to subparagraphs (b), (d), (g), (i) and (j) of these guidelines, and pursuant to subparagraph (a) under the heading “Investment Guidelines and Operating Policies – Operating Policies”, the REIT may not hold securities other than (i) securities of any issuer referred to in subparagraph (b); (ii) securities of a joint venture entity; or (iii) securities of an entity wholly-owned, directly or indirectly, by the REIT formed and operated solely for the purpose of holding, directly or indirectly, a particular real property or real properties and provided further that, notwithstanding anything contained in the Declaration of Trust to the contrary, the REIT may acquire securities of other real estate investment trusts;

(f) the REIT must not invest in rights to or interests in mineral or other natural resources, including oil or gas, except as incidental to an investment in real property;

(g) the REIT must not invest, directly or indirectly:

(i) in operating businesses unless such investment is an indirect investment and is incidental to a transaction:

(A) where revenue will be derived, directly or indirectly, principally from real property; or

(B) which principally involves the ownership, maintenance, improvement, leasing or management, directly or indirectly, of real property (in each case as determined by the Trustees); or

(ii) in predominantly special purpose properties, such as hotels, nursing homes or resort properties;

(h) provided that the REIT will maintain its status as a mutual fund trust within the meaning of the Tax Act, the REIT may invest in raw land for development and ownership or for other development projects for the purpose of (i) renovating or expanding Properties or facilities on adjacent properties, or (ii) developing new properties which will, upon completion, be income producing provided that the aggregate value of the investments of the REIT in raw land, after giving effect to the proposed investment, will not exceed 5% of the Gross Book Value;

(i) the REIT may invest in mortgages and mortgage bonds (including participating or convertible mortgages) and similar instruments where:

(i) the mortgage or mortgage bond is issued by a subsidiary;

(ii)

(A) the real property which is security therefor is income-producing real property which otherwise meets the other investment guidelines of the REIT;

(B) the amount of the mortgage loan is not in excess of 75% of the market value of the property securing the mortgage and the mortgage has at least 1.2X debt service coverage;

(C) the mortgage is a first ranking mortgage registered on title to the real property which is security therefor; and

(D) the aggregate book value of the investments of the REIT in mortgages, after giving effect to the proposed investment, will not exceed 20% of Adjusted Unitholders’ Equity;

(j) notwithstanding any of the provisions hereof, the REIT may invest in any mortgage which is not a first ranking mortgage for purposes of providing, directly or indirectly, financing in connection with a transaction in which the REIT is the vendor or with the intention of using such mortgage as part of a method for subsequently acquiring an interest in or control of a property or a portfolio of properties; provided that the aggregate value of the investments of the REIT in mortgages, after giving effect to the proposed investment, will not exceed 20% of the Adjusted Unitholders’ Equity; and

(k) the REIT may invest an amount (which, in the case of an amount invested to acquire real property, is the purchase price less the amount of any indebtedness assumed or incurred by the REIT) up to 15% of the Adjusted Unitholders’ Equity of the REIT in investments which do not comply with one or more of subparagraphs (b), (d), (e), (i) and (j) under the heading “Investment Guidelines” or subparagraphs (c) and (e) under the heading “Operating Policies”.

For the purpose of the foregoing restrictions, the assets, liabilities and transactions of a corporation or other entity wholly or partially owned by the REIT will be deemed to be those of the REIT on a proportionate consolidation basis. In addition, any references in the foregoing to investment in real property will be deemed to include an investment in a joint venture arrangement that invests in real property.

Operating Policies

The Declaration of Trust provides that the operations and affairs of the REIT are to be conducted in accordance with the following policies:

(a)	the REIT must not purchase, sell, market or trade in currency or interest rate futures contracts otherwise than for hedging purposes where, for the purposes hereof, the term “hedging” has the meaning ascribed thereto by National Instrument 81-102 adopted by the Canadian Securities Administrators, as amended from time to time;
(b)	(i) any written instrument creating an obligation which is or includes the granting by the REIT of a mortgage; and (ii) to the extent management determines to be practicable, any written instrument which is, in the judgment of management, a material obligation must contain a provision or be subject to an acknowledgement to the effect that the obligation being created is not personally binding upon, and that resort must not be had to, nor will recourse or satisfaction be sought from, the private property of any of the Trustees, Unitholders, annuitants under a plan of which a Unitholder acts as a trustee or carrier, or officers, employees or agents of the REIT, but that only property of the REIT or a specific portion thereof is bound; the REIT, however, is not required, but must use all reasonable efforts, to comply with this requirement in respect of obligations assumed by the REIT upon the acquisition of real property;
(c)	the REIT will not lease or sublease to any person any real property, premises or space where that person and its affiliates would, after the contemplated lease or sublease, be leasing or subleasing real property, premises or space having a fair market value net of encumbrances in excess of 20% of Adjusted Unitholders’ Equity;
(d)	the limitation contained in paragraph (c) will not apply to the renewal of a lease or sublease and will not apply where the lessee or sub lessee is, or where the lease or sublease is guaranteed by: (i) the Government of Canada, the Government of the United States, any province or territory of Canada, any state of the United States, any municipality or city in Canada, or any agency or crown corporation thereof; (ii) any entity, of which any of the bonds, debentures or other evidences of indebtedness of, or guaranteed by, such entity, or any of the other securities of such entity, have received and continue to hold, an investment grade rating from a recognized credit rating agency, in each case at the time the lease or sublease is entered into, or at the time other satisfactory leasing or pre-leasing arrangements (as determined by the Trustees in their discretion) were entered into; or (iii) a Canadian chartered bank or a trust company or insurance company registered or licensed federally or under the laws of a province of Canada;
(e)	in addition to the provisions of paragraph (h) under the heading “Investment Guidelines”, the REIT may engage in activities in order to maintain its real properties in good repair or to improve the income-producing potential of properties in which the REIT has an interest;
(f)	title to each real property shall be held by and registered in the name of the REIT, the Trustees or a corporation or other entity owned, directly or indirectly, by the REIT or jointly-owned, directly or indirectly, by the REIT, with joint venturers or a corporation which is a nominee, directly or indirectly, of the REIT which holds registered title to such real property pursuant to a nominee agreement with the REIT;
(g)	the REIT will not incur any new indebtedness (otherwise than by the assumption of existing indebtedness) or renew or refinance any indebtedness under a mortgage on any of the real property of the REIT where (i) in the case of an individual property, the total amount of indebtedness secured by mortgages on such property exceeds 75% of the market value of such individual property, other than the three Properties located in 100 Mile House, British Columbia, Kindersley, Saskatchewan and Smithers, British Columbia; or (ii) in the case of more than one property or a pool or portfolio of properties, the total amount of indebtedness secured by mortgages on such properties exceeds 75% of the market value of such properties on an aggregate basis;
(h)	the REIT will not incur or assume any indebtedness if, after giving effect to such indebtedness, the total indebtedness of the REIT would be more than 60% of the Gross Book Value (which may increase by up to 5% of Gross Book Value to the extent of convertible debentures of Retrocom REIT from time to time outstanding). For the purposes of this paragraph, the term “indebtedness” means any obligation of the REIT for borrowed money provided that (A) an obligation will constitute indebtedness only to the extent that it would appear as a liability on the consolidated balance sheet of the REIT in accordance with GAAP; and (B) indebtedness excludes trade accounts payable, distributions payable to Unitholders and accrued liabilities arising in the ordinary course of business;
(i)	at no time will the REIT incur indebtedness aggregating more than 15% of its Gross Book Value (excluding trade account payables, accrued liabilities arising in the ordinary course of business, debt with an original maturity of one year or more falling due in the next 12 months or variable rate debt for which the REIT has entered into interest rate swap agreements to fix the interest rate for a one year period or more and distributions payable to Unitholders) at floating interest rates or having maturities of less than one year;
(j)	the REIT will not directly or indirectly guarantee any indebtedness or liabilities of any kind of a third party, except indebtedness or liabilities assumed or incurred by an entity in which the REIT holds an interest, directly or indirectly, or by an entity jointly-owned by the REIT with joint venturers and operated solely for the purpose of holding a particular property or properties where such indebtedness, if granted by the REIT directly, would not cause the REIT to otherwise contravene the guidelines set out under the heading “Investment Guidelines” or these operating policies. The REIT is not required but must use its reasonable best efforts to comply with this requirement (i) in respect of obligations assumed by the REIT pursuant to the acquisition of real property or (ii) if doing so is necessary or desirable in order to further the initiatives of the REIT permitted under the Declaration of Trust;
(k)	no acquisition may be made nor any development undertaken unless and until the officers of the REIT have prepared and presented to the Investment Committee or the Trustees a written report containing their recommendation that the REIT make the investment together with a financial analysis of the estimated cost and projected return from the investment and such supplementary information and data (including, without limitation, underlying assumptions, proposed financial arrangements, leasing and economic and market data) as is reasonably necessary to the investment decision;
(l)	the REIT must obtain and maintain at all times property insurance coverage in respect of potential liabilities of the REIT from risks, in amounts, with such insurers, and on such terms as the Trustees consider appropriate, taking into account all relevant factors including the practices of owners of comparable properties; and
(m)	the REIT must obtain a building condition report and a Phase I environmental assessment (“ESA”) of each real property to be acquired by it and, if the Phase I ESA report recommends a Phase II ESA be conducted, the REIT must conduct a Phase II ESA, in each case by an independent and experienced environmental consultant; as a condition to any acquisition, any such ESA to be satisfactory to the Trustees within discretion.

For the purpose of the foregoing policies, the assets, liabilities and transactions of a corporation or other entity wholly or partially owned by the REIT will be deemed to be those of the REIT on a proportionate consolidated basis.

In addition, any references in the foregoing investment guidelines and operating policies to investment in real property will be deemed to include an investment in a joint venture that invests in real property.

Amendments to Investment Guidelines and Operating Policies

Pursuant to the Declaration of Trust, all of the investment guidelines set out under the heading “Investment Guidelines” and the operating policies contained in subparagraphs (b), (e), (g), (h), (i), (l) and (m) set out under the heading “Operating Policies” may be amended only with the approval of two-thirds of the votes cast by Unitholders of the REIT at a meeting of Unitholders called for such purpose. The remaining operating policies may be amended with the approval of a majority of the votes cast by Unitholders at a meeting called for such purpose.