Northview Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- vendor of properties to be acquired by the issuer pursuant to a proposed transaction will ultimately hold units in a subsidiary limited partnership of the issuer, which will be exchangeable into and in all material respects economically equivalent to a corresponding number of units of a class of the issuer's units, which are securities of a reporting issuer -- relief granted from the requirement to obtain a formal valuation for the non-cash assets in connection with a related party transaction (i.e. the exchangeable units) -- valuation not required for exchangeable units since units exchangeable for certain units of the issuer, which are securities of a reporting issuer; issuer also granted relief from the requirement that each class of units vote separately -- after taking into account different economic entitlements of each class based on the different proceeds received per unit from that class at the time of the issuer's initial public offering, all classes of units will be treated equally in the proposed transaction.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.4(1), 6.3(1)(d), 8.1(1) and 9.1(2).
Citation: Re Northview Fund, 2023 ABASC 100
June 21, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NORTHVIEW FUND (the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the following:
(a) the requirement pursuant to subsection 5.4(1) and paragraph 6.3(1)(d) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) to obtain a formal valuation of the DDAP Consideration Units (as defined below) (the DDAP Consideration Units Valuation Relief);
(b) in respect of each of the Galaxy Transaction and the DDAP Transaction (each as defined below), that part of subsection 8.1(1) of MI 61-101 that requires each class to vote separately (the Class Voting Exemption).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application)
(a) the Alberta Securities Commission is the principal regulator for this application,
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Saskatchewan, Manitoba, Québec, and New Brunswick, and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 or MI 61-101 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 Filer is a reporting issuer in each jurisdiction of Canada and is not in default of securities legislation in any jurisdiction.
2. The head office of the Filer is in Calgary, Alberta.
3. The Filer is a trust established on April 14, 2020 under the laws of the Province of Ontario and is governed by a second amended and restated declaration of trust dated February 15, 2022 (the DOT).
4. The Filer completed its initial public offering on November 2, 2020 in connection with its acquisition of a portion of the assets of Northview Apartment Real Estate Investment Trust (Northview Apartment REIT) pursuant a court approved plan of arrangement (the Northview Arrangement).
5. The Filer's portfolio consists of approximately 11,100 multi-residential suites, approximately 1,100,000 square feet of commercial real estate and 200 execusuites, all of which is located in Canada.
6. The beneficial interests in the Filer are divided into three classes of units (collectively, the Units): class A trust units (Class A Units); class C trust units (Class C Units); and class F trust units (Class F Units). The Class C Units were designed for unitholders of Northview Apartment REIT that elected to receive and retain Class C Units in connection with Northview Apartment REIT's privatization and spin-out, affiliates of KingSett Capital Inc. (KingSett), affiliates of Starlight Group Property Holdings Inc., AIMCo Realty Investors LP (AIMCo) and any investors subscribing pursuant to a concurrent private placement. The Class C units differed from the Class A Units in that they were not subject to any agency fee or selling concession, and they were not listed on any stock exchange. The Class F Units were designed for fee-based accounts and differed from the Class A Units in that they were not subject to any selling concession, and they were not listed on any stock exchange.
7. The Class A Units are listed on the Toronto Stock Exchange under the symbol "NHF.UN". The Class C Units and Class F Units remain unlisted.
8. As at June 8, 2023, there were 34,446,267 Units issued and outstanding, comprising 6,310,042 Class A Units, 24,408,552 Class C Units and 3,727,673 Class F Units.
9. The holders of the Class A Units, Class C Units and Class F Units have the same rights and obligations, and no holder of Units is entitled to any privilege, priority or preference as compared to any other holder, except that the proportionate entitlement of the holders of Class A Units, Class C Units and Class F Units to participate in distributions made by the Filer and to receive proceeds upon termination or dissolution of the Filer is determined based on the net dollar proceeds received or deemed to have been received by the Filer in respect of such class of units at the time of the Filer's initial public offering and completion of the Northview Arrangement.
10. The Filer's investment objectives are to: (a) own and operate a high-quality, geographically diversified real estate portfolio comprised of income producing multi-residential suites, commercial real estate, and execusuites; (b) generate stable income to support monthly cash distributions; and (c) effect a recapitalization event as recommended by Starlight Investments CDN AM Group LP, the Filer's external asset manager (the Manager) and approved by the board of trustees of the Filer (the Board), as further defined in the DOT (Recapitalization Event). The Proposed Transaction (as defined below) is intended to constitute the Filer's Recapitalization Event.
11. The Filer and Galaxy Value Add Properties LP (the Galaxy Vendor) have entered into a purchase and sale agreement pursuant to which the Filer intends to indirectly acquire 12 properties (the Galaxy Properties) beneficially owned by the Galaxy Vendor (the Galaxy Transaction). KingSett, through its affiliates, is a significant unitholder of the Filer holding more than 10% of the voting rights attributed to all of the Filer's outstanding Units. Affiliates of KingSett control the general partner of the Galaxy Vendor, and as such, the Galaxy Vendor is an affiliated entity of KingSett. As a result, the Galaxy Vendor is a related party of the Filer pursuant to paragraph (h) of the definition of "related party" in MI 61-101.
12. The Filer and D.D. Acquisitions Partnership (DDAP) have entered into a purchase and sale agreement pursuant to which the Filer intends to indirectly acquire four properties (the DDAP Properties) beneficially owned by DDAP (the DDAP Transaction). DDAP is an entity owned and controlled by Mr. Daniel Drimmer, a trustee of the Filer, and DDAP, through its affiliates, is a significant unitholder of the Filer holding more than 10% of the voting rights attributed to all of the Filer's outstanding Units. As a result, DDAP is a related party of the Filer pursuant to paragraph (h) of the definition of "related party" in MI 61-101.
13. The Filer has also entered into a purchase and sale agreement with affiliates of TD Asset Management and Hazelview Investments Inc. (together, the Winnipeg Vendors), pursuant to which the Filer intends to acquire a portfolio of properties located in Winnipeg beneficially owned by the Winnipeg Vendors (together with the Galaxy Transaction and the DDAP Transaction, the Proposed Acquisitions). The Winnipeg Vendors are not related parties of the Filer.
14. Pursuant to the terms of the DOT, the Filer is permitted to consolidate or subdivide its units, provided that the subdivision or consolidation does not affect the proportionate entitlement of any particular class of units. The Filer is proposing to effect the subdivision (the Subdivision) of the existing Class C Units and Class F Units in accordance with their exchange ratios, such that after the Subdivision each Class C Unit and Class F Unit be economically equivalent to one Class A Unit. The Board has determined that the Subdivision does not affect the proportionate entitlement of any particular class of units.
15. The Filer is also proposing to amend its DOT in order to align the Filer with typical "real estate investment trusts" (the DOT Amendments, together with the Proposed Acquisitions, the Proposed Transaction), which amendments include the following:
(a) changing the name of the Filer to "Northview Residential REIT";
(b) allowing for the issuance of additional units by the Filer;
(c) concurrently with the Subdivision, amending the exchange ratios to 1:1;
(d) creating the Special Voting Units (as defined below);
(e) providing for all future distributions to be made proportionately on the basis of the number of units held;
(f) internalizing the Filer's management;
(g) providing for certain other consequential amendments directly relating to the foregoing.
16. The DOT Amendments will not be prejudicial to the rights of unitholders of the Filer and will not impact their economic entitlements. Following the Subdivision, the proportionate entitlement of the holders of Class A Units, Class C Units and Class F Units to participate in distributions made by the Filer and to receive proceeds upon termination or dissolution of the Filer will be equal on a per unit basis.
17. The Proposed Transaction is intended to constitute the Filer's Recapitalization Event. A Recapitalization Event is, pursuant to the terms of the DOT, subject to approval by two-thirds of the votes cast by Unitholders, voting as a single class. In addition, pursuant to MI 61-101, the Proposed Transaction will also be subject to approval by a majority of the votes attached to the Units held by Disinterested Unitholders (as defined below). The Proposed Transaction will be presented to unitholders of the Filer on an aggregate basis for approval, with a single vote conducted in respect of the Proposed Transaction.
18. Subject to satisfaction of the conditions to closing, the Filer will satisfy the purchase price under the Galaxy Transaction through a combination of the indirect assumption of existing mortgage debt, a cash payout and/or assumption of some or all of an existing credit facility and the delivery of Class C Units (the Galaxy Consideration Units) of the Filer at a deemed issue price of $15.06 per Class C Unit (the Issue Price), which Issue Price was determined by reference to the Filer's net asset value per Unit at the time negotiations commenced for the Proposed Transaction.
19. Subject to satisfaction of the conditions to closing, the Filer will satisfy a portion of the purchase price under the DDAP Transaction through the indirect assumption of existing mortgage debt. After the contribution by DDAP of the DDAP Properties to a new limited partnership that will, upon completion of the Proposed Transaction, be a subsidiary of the Filer (the New Subsidiary LP), DDAP will hold limited partnership units in the New Subsidiary LP (the DDAP Consideration Units). The DDAP Consideration Units will be exchangeable for the number of Class C Units with an aggregate value, using the Issue Price, equal to the balance of the purchase price. Upon completion of the Proposed Transaction, the Filer will control the general partner of the New Subsidiary LP and a class of the New Subsidiary LP's units, while DDAP will hold only the DDAP Consideration Units. The DDAP Consideration Units will form part of the equity value of the Filer, on a consolidated basis.
20. The DDAP Consideration Units will not be listed and posted for trading on the Toronto Stock Exchange or any other stock exchange.
21. Although the DDAP Consideration Units will not be securities of a reporting issuer, the aggregate number of DDAP Consideration Units will be, in all material respects, economically equivalent to the aggregate number of Class C Units into which they are exchangeable.
22. Transfers of DDAP Consideration Units will not be permitted subject to limited exceptions in respect of transfers to an affiliate.
23. Any additional rights attached in the aggregate to the DDAP Consideration Units (as compared to the Class C Units into which the DDAP Consideration Units will be exchangeable) arise by virtue of the DDAP Consideration Units being limited partnership units, and will be no greater than customary rights associated with limited partnership units intended to achieve economic equivalence, in aggregate, with the Class C Units into which they will be exchangeable. Other than those rights, the DDAP Consideration Units, in the aggregate, will carry no rights that would impact their value, compared to the Class C Units into which they will be exchangeable.
24. Other than in respect of matters affecting the rights, benefits or entitlements of the holders of DDAP Consideration Units, a holder of DDAP Consideration Units will not have the right to exercise any votes in respect of matters to be decided by the partners of the New Subsidiary LP. Furthermore, the DDAP Consideration Units will not provide the holder thereof with an interest in any asset or property of the New Subsidiary LP, or a right to participate in the earnings of the New Subsidiary LP, except to the extent of receiving distributions that correspond with the distributions that would be payable on the Class C Units into which they will be exchangeable.
25. DDAP will also be issued one special voting unit of the Filer (each a Special Voting Unit) for each Class C Unit into which the DDAP Consideration Units are exchangeable. The Special Voting Units will have no economic entitlement or beneficial interest in the Filer. Upon the exchange or surrender of a DDAP Consideration Unit, the associated Special Voting Units will be automatically redeemed and cancelled for no consideration and the former holder will cease to have any rights with respect thereto.
26. As the Galaxy Transaction and the DDAP Transaction are each "related party transactions" within the meaning of MI 61-101, the Filer is required, under paragraph 6.3(1)(d) of MI 61-101, to obtain a formal valuation of the non-cash assets involved in each transaction (the Non-Cash Valuation Requirement). Consequently, the Filer is required to obtain formal valuations of each of the Galaxy Properties, the DDAP Properties, the Galaxy Consideration Units and the DDAP Consideration Units.
27. Subsection 6.3(2) of MI 61-101 provides an exemption (the Valuation Exemption) from the Non-Cash Valuation Requirement if, among other things
(a) the non-cash consideration or assets are securities of a reporting issuer or are securities of a class for which there is a published market,
(b) the person that would otherwise be required to obtain the formal valuation of those securities states in the disclosure document for the transaction that the person has no knowledge of any material information concerning the issuer of the securities, or concerning the securities, that has not been generally disclosed, and
(c) in the case of a related party transaction for the issuer of the securities, the conditions in subparagraphs (c)(i) and (ii) of section 5.5 of MI 61-101 are satisfied, regardless of the form of the consideration for the securities.
28. The Galaxy Consideration Units are securities of a reporting issuer as contemplated under paragraph 6.3(2)(a) of MI 61-101, and the circumstances of the Galaxy Transaction otherwise meet the Valuation Exemption, therefore the Filer intends to rely upon the Valuation Exemption in respect of the Non-Cash Valuation Requirement for the Galaxy Consideration Units.
29. Absent exemption therefrom, the Non-Cash Valuation Requirement as it relates to the DDAP Consideration Units would require the Filer to obtain a formal valuation in respect of the DDAP Consideration Units. Any such formal valuation would, in all material respects, mirror a formal valuation of the aggregate Class C Units into which such DDAP Consideration Units are exchangeable. As a result, this requirement would be inconsistent with the Valuation Exemption.
30. As related party transactions, each of the Galaxy Transaction and the DDAP Transaction are subject to the requirement of MI 61-101 relating to the approval by a majority of the votes cast by disinterested holders of Units entitled to vote, as specified in subsection 8.1(2) of MI 61-101 (a Minority Vote).
31. Conducting a Minority Vote in respect of the Proposed Transaction requires the exclusion of the votes attached to Units beneficially owned, or over which control or direction is exercised, by Mr. Daniel Drimmer, certain officers of the Manager, Mr. Todd Cook, Ms. Sarah Walker, Mr. Karl Bomhof, Ms. Linay Freda, KingSett, AIMCo and each of their respective affiliates. The balance of the unitholders of the Filer (the Disinterested Unitholders) are entitled to vote in the Minority Vote in respect of the Proposed Transaction.
32. As at June 8, 2023, to the knowledge of the Filer, the Disinterested Unitholders held approximately the following:
(a) 5,718,503 Class A Units (or approximately 90.63% of the Class A Units);
(b) 5,096,003 Class C Units (or approximately 20.88% of the Class C Units);
(c) 3,727,673 Class F Units (or approximately 100% of the Class F Units).
33. The Proposed Transaction is subject to a number of mechanisms to ensure that the collective interests of the Filer's unitholders are protected, including the following:
(a) negotiation of the Proposed Transaction was overseen by a committee of the Board which was comprised solely of trustees of the Board who are each independent of the Filer and the Manager (the Independent Committee);
(b) the Independent Committee retained its own counsel;
(c) the Independent Committee supervised the preparation of the formal valuations of the Galaxy Properties and the DDAP Properties;
(d) the Independent Committee supervised the preparation of a fairness opinion with respect to the Proposed Transaction;
(e) the Board exercised the requisite standard of care in accordance with the terms of the DOT with respect to the Proposed Transaction;
(f) Mr. Daniel Drimmer and Mr. Rob Kumer (as a nominee of KingSett and its affiliates) did not vote on any resolutions passed by the Board in respect of the Proposed Transaction;
(g) a special meeting of the unitholders of the Filer will be held in order for the Filer's unitholders to consider and, if deemed advisable, approve the Proposed Transaction, such approval to be obtained by (i) two-thirds of the votes cast by Unitholders, voting as a single class and (ii) a majority of the votes attached to the Units held by Disinterested Unitholders (the Proposed Transaction Vote);
(h) the Filer will prepare and deliver to its unitholders an information circular (the Circular), prepared in accordance with the applicable requirements including the enhanced disclosure requirements mandated by MI 61-101, and will disclose, in accordance with paragraph 6.3(2)(b) of MI 61-101, among other matters, that the Filer has no knowledge of any material non-public information concerning the Filer or its securities that has not been generally disclosed.
34. The DOT provides that unitholders of the Filer vote as a single class in respect of any matter to be voted upon, unless the nature of the business to be transacted at the meeting affects holders of one class of units in a manner materially different from its effect on holders of another class of units, in which case the units of the affected class will vote separately as a class. Each of the Manager, the Filer and the Independent Committee has determined that the Proposed Transaction does not affect holders of one class of Units in a manner materially different from its effect on holders of another class of Units. As a result, the interests of holders of each class of units are aligned.
35. Section 9.7 of the DOT contemplates that in the event the Filer enters into a transaction that is subject to review under MI 61-101, and as a result requires approval from each class voting separately as a class, the Filer will apply to applicable securities regulatory authorities for discretionary relief from such obligation.
36. Holders of one class of Units are not affected in a manner materially different from the effect on holders of any other class of Units. That is, after accounting for their entitlements to the economics of the Filer, which as noted are based on the net dollar proceeds received or deemed to have been received by the Filer in respect of such class of units at the time of the Filer's initial public offering and completion of the Northview Arrangement, holders of one class of Units are affected in the same manner as the holders of any other class of Units (the Equal Treatment). Separate class votes by the unitholders of the Filer would have the effect of granting a de facto veto right in respect of the Proposed Transaction to the Disinterested Unitholders in each class. Such an outcome would not be in accordance with the reasonable expectations of the unitholders of the Filer, including the Disinterested Unitholders, in view of the Equal Treatment.
37. To the best of the knowledge of the Filer and the Manager, there is no reason to believe that the Filer's unitholders of any particular class would not approve the Proposed Transaction where the unitholders of other classes are in favour.
Decision
Each of the Decision Makers is satisfied that the decision concerning the DDAP Consideration Units Valuation Relief and the Class Voting Exemption meets the test set out in the Legislation to make the decision.
The decision of the Decision Makers under the Legislation is that the DDAP Consideration Units Valuation Relief is granted, provided the following adapted provisions of the Valuation Exemption are satisfied:
(a) the Filer states in the Circular that neither it, nor to the knowledge of the Filer after reasonable inquiry, DDAP, has knowledge of any material information concerning the Filer or its securities, or the New Subsidiary LP or its units, that has not been generally disclosed;
(b) the Circular includes a description of the effect of the distribution of the DDAP Consideration Units on the direct or indirect voting interest of DDAP.
The decision of the Decision Makers under the Legislation is that the Class Voting Exemption is granted.