Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- real estate investment trust granted relief to use a test based on net operating income rather than income from continuing operations for the purposes of the requirement to file business acquisition reports in respect of acquisitions.

Rules Cited

National Instrument 51-102 - Continuous Disclosure Obligations.

March 31, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO, QUEBEC

NEW BRUNSWICK, NOVA SCOTIA AND NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CHARTWELL SENIORS HOUSING

REAL ESTATE INVESTMENT TRUST

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia and Newfoundland and Labrador (collectively, the Jurisdictions) has received an application from Chartwell Seniors Housing Real Estate Investment Trust (the REIT) for a decision pursuant to the securities legislation in the Jurisdictions (the Legislation), and in Québec a revision of the general order that will provide the same result as an exemption order, granting relief to use the NOI test (as defined below) rather than the income test for the purposes of its continuous disclosure obligations under the Legislation in respect of acquisitions completed in 2005 (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) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions or in Québec Commission Notice 14-101 have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the REIT:

1. The REIT is an unincorporated, open-ended investment trust established under the laws of the Province of Ontario by a declaration of trust with its head office located in Mississauga, Ontario.

2. The REIT is a reporting issuer under the securities legislation of each of the provinces of Canada.

3. The units of the REIT are listed and posted for trading on the Toronto Stock Exchange under the trading symbol CSH.UN.

4. The REIT completed its initial public offering (the IPO) on November 14, 2003 pursuant to its final long form prospectus dated October 31, 2003.

5. The proceeds of the IPO were used by the REIT to indirectly acquire a portfolio of seniors housing facilities from various vendors.

6. The REIT is contemplating the acquisition of certain seniors housing facilities during the course of 2005.

7. The application of the income test using the income from continuing operations of the REIT for the 12 months ended December 31, 2004 leads to anomalous results in that the significance of businesses acquired or to be acquired is exaggerated out of proportion to their significance on an objective basis and in comparison to the results of the asset and investment tests.

8. The use of a test (the NOI test) based on net operating income of the business or related businesses and of the REIT (calculated as revenue less operating expenses and less allowance for bad debt, but before deducting principal and interest payments, depreciation allowances and costs of capital expenditures), rather than using income from continuing operations, provides a more realistic indication of the significance of the acquisitions and its results are generally consistent with the asset test and investment test.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.

"Cameron McInnis"
Manager, Corporate Finance
Ontario Securities Commission