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Northview Canadian High Yield Residential Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from provisions in section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) permitting the issuer to include alternative financial disclosure in a business acquisition report (BAR) pursuant to section 13.1 of NI 51-102 -- the issuer acquired properties for which it cannot obtain certain historical financial information -- the financial statements that will be included in the BAR will be adequate to allow investors to understand the impact of the acquisitions on the issuer's financial condition and financial performance.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4 and 13.1.
January 15, 2021
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 NORTHVIEW CANADIAN HIGH YIELD RESIDENTIAL FUND (THE FILER)
DECISION
Background
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the Decision Maker (the Legislation) for a decision pursuant to Section 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) that the Filer be exempt from the requirement under section 8.4 of NI 51-102 and Item 3 of Form 51-102F4 Business Acquisition Report to include financial statement disclosure for significant acquisitions, provided that the Filer include or incorporate by reference the Alternative Acquisition Financial Disclosures (as defined herein) of the Filer relating to the Acquisition Transaction (as defined herein) in the business acquisition report (BAR) (the Exemption Sought).
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 each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut (collectively, together with Ontario, the Jurisdictions).
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 head and registered office of the Filer is located at 3280 Bloor Street West, Centre Tower, Suite 1400, Toronto, Ontario M8X 2X3.
2. The Filer is a "closed-end" unincorporated trust established under the laws of the Province of Ontario and established pursuant to a declaration of trust dated as of April 14, 2020, as amended and restated as of September 29, 2020, as may be further amended and/or amended and restated from time to time thereafter (the Declaration of Trust).
3. The Filer is a reporting issuer or the equivalent thereof in each Jurisdiction and is not in default of any requirement of Canadian securities legislation.
4. The Filer was established for the primary purpose of indirectly acquiring, owning and operating a geographically diversified portfolio comprising income-producing multi-residential suites, commercial real estate and execusuites located primarily in secondary markets within British Columbia, Alberta, Saskatchewan, Québec, New Brunswick, Newfoundland and Labrador, the Northwest Territories and Nunavut, or such other provinces and territories as the Filer may determine from time to time (collectively, the Acquisition Properties).
5. The Acquisition Properties consist of (i) 363 properties which Northview Apartment Real Estate Investment Trust (NV1) acquired or developed on or before January 1, 2019 (the Full Period Properties), (ii) 2 properties (the Recently Developed Properties) developed by NV1 on a date subsequent to January 1, 2019 (the Development Date), (iii) 10 properties consisting of vacant and excess land for development (the Excess Land), and (iv) 3 properties (the Recently Acquired Properties) which NV1 acquired on June 30, 2018, July 1, 2018 and September 30, 2019, respectively (each, an Acquisition Date).
6. With respect to the Excess Land, no operating financial information was or is available and no financial statements were included in the Prospectus (as defined below). As these properties have not completed development, the Excess Land does not constitute a business.
7. The Filer is asset managed by Starlight Investments CDN AM Group LP, an affiliate of Starlight Group Property Holdings Inc. (the Promoter), which has been engaged by the Filer to, among other things, maintain ongoing relations with the Filer's lenders, conduct continuous analysis of market conditions to monitor the Filer's investment in properties, advise the Filer with recapitalization events or any alternative liquidity events and provide investor communication and reporting services.
8. The ownership interests in the Filer are divided into three classes of trust units (Units): class A trust units (Class A Units), class C trust units (Class C Units) and class F trust units.
9. The Filer is authorized to issue an unlimited number of Units of each class and, as at the closing of the IPO (as defined below), there are 34,400,000 Units outstanding. However, as a "closed-end" issuer, subsequent to its IPO, the Filer is generally prohibited from issuing any new Units to the public (other than upon conversion of outstanding Units, in accordance with the Declaration of Trust).
10. The Class A Units are listed on the Toronto Stock Exchange under the symbol "NHF.UN".
11. On September 30, 2020, the principal regulator issued a receipt in respect of the final prospectus of the Filer (the Prospectus) relating to the initial public offering (the IPO) of the Units, qualifying for distribution up to $430,000,000 of Units.
12. On November 2, 2020 (the IPO Closing Date), the Filer completed the distribution of $430,000,000 of Units through a combination of the IPO, together with concurrent private placements of Class C Units, as well as Class C Units issued to former unitholders of NV1 pursuant to the Acquisition Transaction (as defined below).
13. On the IPO Closing Date, the Filer also completed its indirect acquisition of the Acquisition Properties from NV1 through the Filer's acquisition of certain subsidiaries of NV1 in accordance with the steps set forth in NV1's plan of arrangement as contemplated in the arrangement agreement dated February 19, 2020 among Galaxy Real Estate Core Fund LP, Galaxy Value Add Fund LP, D.D. Acquisitions Partnership, an affiliate of the Promoter and KingSett Real Estate Growth LP No. 7 and KingSett Canadian Real Estate Income Fund LP, as amended pursuant to amending agreements dated April 3, 2020, April 24, 2020, May 25, 2020, September 29, 2020 and October 30, 2020 (collectively, as potentially connected transactions, the Acquisition Transaction).
14. No exemption is required with respect to the financial information to be included in the BAR with respect to the Full Period Properties. The Exemption Sought is only required with respect to the Recently Acquired Properties.
15. The fiscal year end for each of the Acquisition Properties is December 31.
16. The Acquisition Transaction is a "significant acquisition" for purposes of NI 51-102 and the Filer must file a BAR in respect of the Acquisition Transaction on or before January 16, 2021.
17. Unless otherwise exempted pursuant to Section 13.1 of NI 51-102, the BAR must include or incorporate by reference the financial statements set out in Section 8.4 of NI 51-102 relating to the Filer and the Acquisition Properties, respectively, which are as follows:
(a) In respect of the Filer: (i) an audited statement of changes in unitholder's equity and cash flows for the period from April 14, 2020 (date of formation) to July 31, 2020; (ii) an audited statement of financial position as at July 31, 2020; (iii) an unaudited pro forma consolidated statement of financial position of the Filer as at June 30, 2020 (giving effect to the IPO including the acquisition of the Acquisition Properties by the Filer as if such events occurred on June 30, 2020); and (iv) unaudited pro forma consolidated statements of net income (loss) and comprehensive income (loss) for the six-months ended June 30, 2020 and the year ended December 31, 2019 (in each case giving effect to the IPO including the acquisition of the Acquisitions Properties by the Filer as if such events occurred on January 1, 2019); and
(b) In respect of the Acquisition Properties: (i) audited combined carve-out statements of net income and comprehensive income, changes in equity and statements of cash flows for the year ended December 31, 2019 and combined carve-out statements of net income and comprehensive income, changes in equity and statements of cash flows for the year ended December 31, 2018 (which may be unaudited); (ii) audited combined carve-out statements of financial position as at December 31, 2019 and combined carve-out statements of financial position as at December 31, 2018 (which may be unaudited); (iii) unaudited condensed combined carve-out statements of net income and comprehensive income for the three and six months ended June 30, 2020, together with comparative financial information for the three and six months ended June 30, 2019; (iv) unaudited condensed combined carve-out statements of changes in equity and cash flows for the six months ended June 30, 2020, together with comparative financial information for the six months ended June 30, 2019; and (v) an unaudited condensed combined carve-out statements of financial position as at June 30, 2020 and December 31, 2019.
18. The Recently Acquired Properties were indirectly acquired by the Filer via the acquisition of certain subsidiaries of NV1 pursuant to the Acquisition Transaction. NV1 acquired the Recently Acquired Properties from arm's length third parties, which were small unsophisticated family businesses, on their respective Acquisition Date, which were subsequent to January 1, 2018.
19. NV1 had access to, and provided the Fund with, the financial information and records necessary for the Fund to prepare combined carve-out audited financial statements for the Acquisition Properties that included financial information with respect to the Recently Acquired Properties for the period from the respective Acquisition Date through June 30, 2020.
20. NV1 did and does not possess, nor had or has access to, nor is entitled to obtain access to, financial information in respect of the Recently Acquired Properties for any period prior to their respective Acquisition Date. NV1 requested historical accounting records and supporting information at the time of acquisition of the Recently Acquired Properties as part of the due diligence review; however, the information received is insufficient to form the basis of audited financial statements.
21. The Filer submits that the financial statements for the Recently Acquired Properties that are missing from the BAR are not material. The missing financial information of the Recently Acquired Properties represents an insignificant amount of the overall (a) aggregate fair market value, (b) revenue and (c) net operating income, of the Acquisition Properties. The missing financial information of the Recently Acquired Properties will not be significant or otherwise material (individually or in the aggregate) to the Filer having regard to the overall size and value of the Filer's business and operations.
22. The required financial information for each of the Recently Acquired Properties for the period from January 1, 2018 to the first availability of financial statements following its respective Acquisition Date was not available for the Prospectus.
23. The Filer shall include (or incorporate by reference) the following financial information (collectively, the Alternative Acquisition Financial Disclosures) in the BAR:
(a) in respect of the Filer, the following financial statements, each prepared in accordance with International Financial Reporting Standards (IFRS) and each of which was included in the Prospectus:
(i) an audited statement of changes in unitholder's equity and cash flows for the period from April 14, 2020 (date of formation) to July 31, 2020;
(ii) an audited statement of financial position as at July 31, 2020;
(iii) an unaudited pro forma consolidated statement of financial position of the Filer as at June 30, 2020 (giving effect to the IPO including the acquisition of the Acquisition Properties by the Filer as if such events occurred on June 30, 2020);
(iv) unaudited pro forma consolidated statements of net income (loss) and comprehensive income (loss) for the six-months ended June 30, 2020 and the year ended December 31, 2019 (in each case giving effect to the IPO including the acquisition of the Acquisitions Properties by the Filer as if such events occurred on January 1, 2019)
together with accompanying notes, prepared using the same accounting policies of the statements described above;
(b) in respect of the Acquisition Properties, including the financial results of each of the Recently Acquired Properties for only the period from its respective Acquisition Date and of each of the Recently Developed Properties for only the period from its respective Development Date, each prepared in accordance with IFRS, the following from within the financial statements included in the Prospectus:
(i) audited combined carve-out statements of net income and comprehensive income, changes in equity and statements of cash flows for the years ended December 31, 2019 and December 31, 2018;
(ii) audited combined carve-out statements of financial position as at December 31, 2019 and December 31, 2018;
(iii) unaudited condensed combined carve-out statements of net income and comprehensive income for the three and six months ended June 30, 2020, together with comparative financial information for the three and six months ended June 30, 2019;
(iv) unaudited condensed combined carve-out statements of changes in equity and statements of cash flows for the six months ended June 30, 2020, together with comparative financial information for the six months ended June 30, 2019; and
(v) an unaudited condensed combined carve-out statements of financial position as at June 30, 2020 and December 31, 2019;
together with accompanying notes, prepared using the same accounting policies of the statements described above; and
(c) summary information of an independent estimate of the fair market value of the Acquisition Properties as a portfolio as at May 1, 2020, such appraisal having been filed on SEDAR.
Decision
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted with respect to the BAR provided that the Filer includes the Alternative Acquisition Financial Disclosures in the BAR in respect of the Acquisition Transaction.
"Marie-France Bourret"
Manager, Corporate Finance
Ontario Securities Commission