Securities Law & Instruments


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 – Filer is the manager of limited partnerships that own interests in real property in the U.S. – application for relief from requirement to obtain separate minority approval for each class of units, but rather to obtain minority approval on a Fund-by-Fund basis – no difference of interest between holders of each class of units within a particular Fund in connection with the proposed business combination transaction – safeguards include independent committee, fairness opinions, appraisals – declaration of trust of Filer provides that unitholders will vote as a single class unless the nature of the business affects holders of one class of units in a manner materially different from another class – requiring a class-by-class vote could give a de facto veto right to a very small group of unitholders.

Applicable Legislative Provisions

National Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 8.1(1), 9.1(2).

September 12, 2016

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
STARLIGHT INVESTMENT LTD. (THE “FILER”),
STARLIGHT U.S. MULTI-FAMILY CORE FUND (“FUND 1”),
STARLIGHT U.S. MULTI-FAMILY (NO. 2) CORE FUND (“FUND 2”),
STARLIGHT U.S. MULTI-FAMILY (NO. 3) CORE FUND (“FUND 3”) AND
STARLIGHT U.S. MULTI-FAMILY (NO. 4) CORE FUND (“FUND 4” AND,
TOGETHER WITH FUND 1, FUND 2 AND FUND 3, THE “FUNDS” AND EACH A “FUND”)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, the manager of each of the Funds, under the securities legislation of the jurisdiction of the principal regulator (the “Legislation”) for an exemption for each Fund, pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”), from the requirements in subsection 8.1(1) of MI 61-101 that minority approval for the Proposed Transaction (as defined below) be obtained from the unitholders of every class of affected securities of each Fund voting separately as a class, to allow minority approval to be obtained separately, on a Fund-by-Fund basis, with the minority unitholders of the various classes of securities of each Fund voting together as single class of limited partners of such Fund (the “Requested Relief”). The application is being made in connection with a proposed plan of arrangement involving each of the Funds and a new limited partnership entity that the Filer has established named Starlight U.S. Multi-Family (No. 5) Core Fund (“New Fund”), among others, pursuant to which New Fund will indirectly acquire all of the multi-family real estate properties currently owned by each Fund.

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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in Quebec.

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 and by each Fund:

Overview of the Funds

1.             Each of the Funds is a reporting issuer under the Legislation and the securities legislation of each of the provinces of Canada. No Fund is in default of any requirement of the securities legislation in any jurisdiction in which such Fund is a reporting issuer.

2.             Fund 1 is a limited partnership established on February 12, 2013 under the laws of the Province of Ontario and governed by a fourth amended and restated limited partnership agreement dated August 20, 2014 (the “Fund 1 LPA”).

3.             Fund 1’s investment objectives are to: (a) indirectly acquire, own, and operate a portfolio comprised primarily of recently constructed, Class “A” stabilized, income producing multi-family real estate properties in Texas and the southeastern United States (“U.S.”); (b) make stable monthly cash distributions; and (c) enhance the value of its assets through active management, with the goal of ultimately disposing of the assets at a gain by the end of Fund 1’s pre-determined term of existence, being in April 2017 (as extended from April 2016), unless further extended in accordance with the terms of the Fund 1 LPA.

4.             Fund 1 owns interests in a portfolio of 2,606 suites in nine properties located in the U.S.

5.             The limited partnership interests in Fund 1 are divided into five classes of limited partnership units (collectively, the “Fund 1 Units”): Class A units (“Class A1 Units”), Class U units (“Class U1 Units”), Class I units (“Class I1 Units”), Class F units (“Class F1 Units”) and Class C units (“Class C1 Units”).

6.             As at August 15, 2016, there were 4,810,126 Fund 1 Units outstanding and the Class A1 Units represented 61.6% of the issued and outstanding Fund 1 Units, the Class U1 Units represented 7.1% of the issued and outstanding Fund 1 Units, the Class I1 Units represented 2.3% of the issued and outstanding Fund 1 Units, the Class F1 Units represented 4.0% of the issued and outstanding Fund 1 Units and the Class C1 Units represented 25.0% of the issued and outstanding Fund 1 Units.

7.             The holders of the Class A1 Units, Class U1 Units, Class I1 Units, Class F1 Units and Class C1 Units have identical rights and obligations and no holder of Fund 1 Units is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:

(a)           The Class A1 Units, Class C1 Units, Class F1 Units and Class I1 Units are denominated in Canadian dollars, while the Class U1 Units are denominated in U.S. dollars. The difference in currency denominations was intended to allow holders of Fund 1 Units the flexibility to invest in Fund 1 and receive distributions in either U.S. or Canadian dollars.

(b)           The Class I1 Units and Class F1 Units differ from the Class A1 Units in that the Class I1 Units and Class F1 Units are not required to account for an annual service fee to registered dealers by the Filer (the “Service Fee”). The Class F1 Units also paid an agents’ fee to the selling agents in connection with Fund 1’s initial public offering that was lower than the fee payable on Class A1 Units and Class I1 Units.

(c)           The Class C1 Units differ from Class A1 Units in that Class C1 Units were not required to pay an agents’ fee to the selling agents in connection with Fund 1’s initial public offering and not required to account for the Service Fee.

(d)           The proportionate entitlement of the holders of Class A1 Units, Class U1 Units, Class I1 Units, Class F1 Units and Class C1 Units to participate in distributions made by Fund 1 and to receive proceeds upon termination or dissolution of Fund 1 is determined based on the net U.S. dollar proceeds received by Fund 1 in respect of such class of Fund 1 Units at the time of Fund 1’s initial public offering.

(e)           The Class A1 Units and Class U1 Units are listed on the TSX Venture Exchange (the “TSXV”) under the symbols “UMF.A” and “UMF.U” respectively. The Class I1 Units, Class F1 Units and Class C1 Units are not listed on any stock exchange, but may be converted into Class A1 Units at the option of the holders thereof at a rate determined by the relative net U.S. dollar proceeds received by Fund 1 for each Fund 1 Unit, by class, at the time of its initial public offering.

(f)            If a formal take-over bid is made for a class of Fund 1 Units other than the Class A1 Units and the Class U1 Units, then the Class A1 Units and the Class U1 Units have coattail rights to convert into the class of Fund 1 Units that are the subject of the formal take-over bid at a rate determined by the relative net U.S. dollar proceeds received by Fund 1 for each Fund 1 Unit, by class, at the time of its initial public offering.

8.             The Fund 1 LPA provides that unitholders vote together 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 Fund 1 Units in a manner materially different from its effect on holders of another class of Fund 1 Units, in which case the Fund 1 Units of the affected class will vote separately as a class.

9.             Fund 2 is a limited partnership established on September 23, 2013 under the laws of the Province of Ontario and governed by a second amended and restated limited partnership agreement dated August 20, 2014 (the “Fund 2 LPA”).

10.          Fund 2’s investment objectives are to: (a) indirectly acquire, own, and operate a portfolio comprised of recently constructed, Class “A” stabilized, income producing multi-family real estate properties primarily in Texas as well as the southeastern U.S.; (b) make stable monthly cash distributions; and (c) enhance operating income and property values of Fund 2’s assets through active management, with the goal of ultimately disposing of the assets at a gain by the end of Fund 2’s pre-determined term of existence, being November 2016, unless extended in accordance with the terms of the Fund 2 LPA.

11.          Fund 2 owns interests in a portfolio of 1,527 suites in four properties located in the U.S.

12.          The limited partnership interests in Fund 2 are divided into five classes of limited partnership units (collectively, the “Fund 2 Units”): Class A units (“Class A2 Units”), Class U units (“Class U2 Units”), Class D units (“Class D2 Units”), Class F units (“Class F2 Units”) and Class C units (“Class C2 Units”).

13.          As at August 15, 2016, there were 3,386,305 Fund 2 Units outstanding and the Class A2 Units represented 50.9% of the issued and outstanding Fund 2 Units, the Class U2 Units represented 13.8% of the issued and outstanding Fund 2 Units, the Class D2 Units represented 13.0% of the issued and outstanding Fund 2 Units, the Class F2 Units represented 2.4% of the issued and outstanding Fund 2 Units and the Class C2 Units represented 20.0% of the issued and outstanding Fund 2 Units.

14.          The holders of the Class A2 Units, Class U2 Units, Class D2 Units, Class F2 Units and Class C2 Units have the same rights and obligations and no holder of Fund 2 Units is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:

(a)           The Class A2 Units, Class C2 Units, Class F2 Units and Class D2 Units are denominated in Canadian dollars, while the Class U2 Units are denominated in U.S. dollars. The difference in currency denominations was intended to allow holders of Fund 2 Units the flexibility to invest in Fund 2 and receive distributions in either U.S. or Canadian dollars.

(b)           The Class D2 Units and Class F2 Units differ from the Class A2 Units in that the Class D2 Units and Class F2 Units are not required to account for the Service Fee. The Class F2 Units also paid an agents’ fee to the selling agents in connection with Fund 2’s initial public offering that was lower than the fee payable on Class A2 Units and Class D2 Units.

(c)           The Class C2 Units differ from Class A2 Units in that Class C2 Units were not required to pay an agents’ fee to the selling agents in connection with Fund 2’s initial public offering and not required to account for the Service Fee.

(d)           The proportionate entitlement of the holders of Class A2 Units, Class U2 Units, Class D2 Units, Class F2 Units and Class C2 Units to participate in distributions made by Fund 2 and to receive proceeds upon termination or dissolution of Fund 2 is determined based on the net U.S. dollar proceeds received by Fund 2 in respect of such class of Fund 2 Units at the time of Fund 2’s initial public offering.

(e)           The Class A2 Units and Class U2 Units are listed on the TSXV under the symbols “SUD.A” and “SUD.U” respectively. The Class D2 Units, Class F2 Units and Class C2 Units are not listed on any stock exchange, but may be converted into Class A2 Units at the option of the holders thereof at a rate determined by the relative net U.S. dollar proceeds received by Fund 2 for each Fund 2 Unit, by class, at the time of its initial public offering.

(f)            If a formal take-over bid is made for a class of Fund 2 Units other than the Class A2 Units and the Class U2 Units, then the Class A2 Units and the Class U2 Units have coattail rights to convert into the class of Fund 2 Units that are the subject of the formal take-over bid at a rate determined by the relative net U.S. dollar proceeds received by Fund 2 for each Fund 2 Unit, by class, at the time of its initial public offering.

15.          The Fund 2 LPA provides that unitholders vote together 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 Fund 2 Units in a manner materially different from its effect on holders of another class of Fund 2 Units, in which case the Fund 2 Units of the affected class will vote separately as a class.

16.          Fund 3 is a limited partnership established on May 1, 2014 under the laws of the Province of Ontario and governed by an amended and restated limited partnership agreement dated July 4, 2014 (the “Fund 3 LPA”).

17.          Fund 3’s investment objectives are to: (a) indirectly acquire, own, and operate a portfolio comprised of recently constructed, Class “A” stabilized, income producing multi-family real estate properties primarily in Texas, Arizona and the southeastern U.S.; (b) make stable monthly cash distributions; and (c) enhance operating income and property values of Fund 3’s assets through active management, with the goal of ultimately disposing of the assets at a gain by the end of Fund 3’s pre-determined term of existence, being in July 2017, unless extended in accordance with the terms of the Fund 3 LPA.

18.          Fund 3 owns interests in a portfolio of 1,894 suites in seven properties located in the U.S.

19.          The limited partnership interests in Fund 3 are divided into five classes of limited partnership units (collectively, the “Fund 3 Units”): Class A units (“Class A3 Units”), Class U units (“Class U3 Units”), Class D units (“Class D3 Units”), Class F units (“Class F3 Units”) and Class C units (“Class C3 Units”).

20.          As at August 15, 2016, there were 5,255,121 Fund 3 Units outstanding and the Class A3 Units represented 42.6% of the issued and outstanding Fund 3 Units, the Class U3 Units represented 6.4% of the issued and outstanding Fund 3 Units, the Class D3 Units represented 30.8% of the issued and outstanding Fund 3 Units, the Class F3 Units represented 6.0% of the issued and outstanding Fund 3 Units and the Class C3 Units represented 14.2% of the issued and outstanding Fund 3 Units.

21.          The holders of the Class A3 Units, Class U3 Units, Class D3 Units, Class F3 Units and Class C3 Units have the same rights and obligations and no holder of Fund 3 Units is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:

(a)           The Class A3 Units, Class C3 Units, Class F3 Units and Class D3 Units are denominated in Canadian dollars, while the Class U3 Units are denominated in U.S. dollars. The difference in currency denominations was intended to allow holders of Fund 3 Units the flexibility to invest in Fund 3 and receive distributions in either U.S. or Canadian dollars.

(b)           The Class D3 Units and Class F3 Units differ from the Class A3 Units in that the Class D3 Units and Class F3 Units are not required to account for the Service Fee. The Class F3 Units also paid an agents’ fee to the selling agents in connection with Fund 3’s initial public offering that was lower than the fee payable on Class A3 Units and Class D3 Units.

(c)           The Class C3 Units differ from Class A3 Units in that Class C3 Units were not required to pay an agents’ fee to the selling agents in connection with Fund 3’s initial public offering and not required to account for the Service Fee.

(d)           The proportionate entitlement of the holders of Class A3 Units, Class U3 Units, Class D3 Units, Class F3 Units and Class C3 Units to participate in distributions made by Fund 3 and to receive proceeds upon termination or dissolution of Fund 3 is determined based on the net U.S. dollar proceeds received by Fund 3 in respect of such class of Fund 3 Units at the time of Fund 3’s initial public offering.

(e)           The Class A3 Units and Class U3 Units are listed on the TSXV under the symbols “SUS.A” and “SUS.U” respectively. The Class D3 Units, Class F3 Units and Class C3 Units are not listed on any stock exchange, but may be converted into Class A3 Units at the option of the holders thereof at a rate determined by the relative net U.S. dollar proceeds received by Fund 3 for each Fund 3 Unit, by class, at the time of its initial public offering.

(f)            If a formal take-over bid is made for a class of Fund 3 Units other than the Class A3 Units and the Class U3 Units, then the Class A3 Units and the Class U3 Units have coattail rights to convert into the class of Fund 3 Units that are the subject of the formal take-over bid at a rate determined by the relative net U.S. dollar proceeds received by Fund 3 for each Fund 3 Unit, by class, at the time of its initial public offering.

22.          The Fund 3 LPA provides that unitholders vote together 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 Fund 3 Units in a manner materially different from its effect on holders of another class of Fund 3 Units, in which case the Fund 3 Units of the affected class will vote separately as a class.

23.          Fund 4 is a limited partnership established on December 1, 2014 under the laws of the Province of Ontario and governed by an amended and restated limited partnership agreement dated March 27, 2015 (the “Fund 4 LPA”).

24.          Fund 4’s investment objectives are to: (a) indirectly acquire, own, and operate a portfolio comprised of recently constructed, Class “A” stabilized, income producing multi-family real estate properties primarily in Florida, Arizona, Texas, Tennessee, North Carolina, Georgia and Colorado; (b) make stable monthly cash distributions; and (c) enhance the operating income and property values of Fund 4’s assets through active management, with the goal of ultimately directly or indirectly disposing of its interests in the assets at a gain by the end of Fund 4’s pre-determined term of existence, being in April 2017, unless extended in accordance with the terms of the Fund 4 LPA.

25.          Fund 4 owns interests in a portfolio of 1,204 suites in four properties located in the U.S.

26.          The limited partnership interests in Fund 4 are divided into seven classes of limited partnership units (collectively, the “Fund 4 Units”): Class A units (“Class A4 Units”), Class U units (“Class U4 Units”), Class D units (“Class D4 Units”), Class E units (“Class E4 Units”), Class F units (“Class F4 Units”), Class H units (“Class H4 Units”) and Class C units (“Class C4 Units”).

27.          As at August 15, 2016, there were 6,117,303 Fund 4 Units outstanding and the Class A4 Units represented 34.3% of the issued and outstanding Fund 4 Units, the Class U4 Units represented 7.6% of the issued and outstanding Fund 4 Units, the Class D4 Units represented 22.6% of the issued and outstanding Fund 4 Units, the Class E4 Units represented 13.3% of the issued and outstanding Fund 4 Units, the Class F4 Units represented 9.8% of the issued and outstanding Fund 4 Units, the Class H4 Units represented 4.2% of the issued and outstanding Fund 4 Units and the Class C4 Units represented 8.2% of the issued and outstanding Fund 4 Units.

28.          The holders of the Class A4 Units, Class U4 Units, Class D4 Units, Class E4 Units, Class F4 Units, Class H4 Units and Class C4 Units have the same rights and obligations and no holder of Fund 4 Units is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:

(a)           The Class A4 Units, Class C4 Units, Class F4 Units, Class H4 Units and Class D4 Units are denominated in Canadian dollars, while the Class U4 Units and Class E4 Units are denominated in U.S. dollars. The difference in currency denominations was intended to allow holders of Fund 4 Units the flexibility to invest in Fund 4 and receive distributions in either U.S. or Canadian dollars.

(b)           The Class D4 Units and Class H4 Units differ from the Class A4 Units in that the Class D4 Units and Class H4 Units are not required to account for the Service Fee. Additionally, Fund 4 has acquired derivative instruments which are intended to provide the holders of Class H4 Units with some protection against any weakening of the U.S. dollar as compared to the Canadian dollar between the closing date of Fund 4’s initial public offering and the target date for termination and liquidation of Fund 4. The Class H4 Units are required to account for the costs of such hedging instruments.

(c)           The Class E4 Units differ from the Class U4 Units in that the Class E4 Units are not required to account for the Service Fee.

(d)           The Class F4 Units differ from the Class A4 Units in that the Class F4 Units are not required to account for the Service Fee and paid an agents’ fee to the selling agents in connection with Fund 4’s initial public offering that was lower than the fee payable on Class A4 Units and Class D4 Units.

(e)           The Class C4 Units differ from Class A4 Units in that Class C4 Units were not required to pay an agents’ fee to the selling agents in connection with Fund 4’s initial public offering and not required to account for the Service Fee.

(f)            The proportionate entitlement of the holders of Class A4 Units, Class U4 Units, Class D4 Units, Class E4 Units, Class F4 Units, Class H4 Units and Class C4 Units to participate in distributions made by Fund 4 and to receive proceeds upon termination or dissolution of Fund 4 is determined based on the net U.S. dollar proceeds received by Fund 4 in respect of such class of Fund 4 Units at the time of Fund 4’s initial public offering.

(g)           The Class A4 Units and Class U4 Units are listed on the TSXV under the symbols “SUF.A” and “SUF.U” respectively. The Class D4 Units, Class F4 Units, Class H4 Units and Class C4 Units are not listed on any stock exchange, but may be converted into Class A4 Units at the option of the holders thereof at a rate determined by the relative net U.S. dollar proceeds received by Fund 4 for each Fund 4 Unit, by class, at the time of its initial public offering. The Class E4 Units are not listed on any stock exchange, but may be converted into Class U4 Units at the option of the holders thereof at a rate determined by the relative net U.S. dollar proceeds received by Fund 4 for each Fund 4 Unit, by class, at the time of its initial public offering.

(h)           If a formal take-over bid is made for a class of Fund 4 Units other than the Class A4 Units and the Class U4 Units, then the Class A4 Units and the Class U4 Units have coattail rights to convert into the class of Fund 4 Units that are the subject of the formal take-over bid at a rate determined by the relative net U.S. dollar proceeds received by Fund 4 for each Fund 4 Unit, by class, at the time of its initial public offering.

29.          The Fund 4 LPA provides that unitholders 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.

Overview of New Fund

30.          New Fund is a limited partnership established on August 26, 2016 under the laws of the Province of Ontario and governed by a limited partnership agreement dated August 26, 2016 (the “New Fund LPA”). The head office of New Fund is located in Toronto, Ontario.

31.          On September 6, 2016, the Filer filed a preliminary prospectus on behalf of New Fund with the securities regulatory authorities in each of the provinces of Canada. Upon obtaining a receipt for its final prospectus, New Fund will be a reporting issuer in each of the provinces of Canada.

32.          D.D. Acquisitions Partnership, an affiliate of the Filer, is currently the sole limited partner of New Fund, while Starlight U.S. Multi-Family (No. 5) Core GP, Inc., a subsidiary of the Filer, is the sole general partner of New Fund.

33.          Upon completion of the Proposed Transaction, there will be seven classes of limited partnership interests in New Fund with terms the same as those of the corresponding Fund 4 Units: Class A units, Class U units, Class D units, Class E units, Class F units, Class H units and Class C units (collectively, the “New Fund Units”).

34.          On September 2, 2016, the Filer applied to the TSXV to list the Class A units and Class U units of New Fund on the TSXV under the symbols “STUS.A” and “STUS.U”, respectively.

35.          The New Fund LPA is substantially similar, although not identical, to the limited partnership agreements (including identical governance and unitholder protections) that established and currently govern the Funds. Any material differences between the limited partnership agreement of New Fund and the limited partnership agreements of the Funds will be disclosed in the Information Circular (as defined below).

Overview of Campar

36.          Campar Capital Corporation (“Campar”) is a capital pool company governed by the Business Corporations Act (Ontario).

37.          Campar is a reporting issuer in the provinces of Ontario, British Columbia and Alberta and its common shares are listed on the TSXV under the symbol “CHK”.

38.          The authorized share capital of Campar consists of an unlimited number of common shares, of which 55,000,000 are issued and outstanding as at August 15, 2016.

39.          Prior to the effective date of the Proposed Transaction, Campar will effect its “Qualifying Transaction” as required under TSXV Policy 2.4 – Capital Pool Companies by indirectly acquiring an 80% interest in Boardwalk Med Center, a multi-family real estate property in San Antonio, Texas through its U.S. subsidiary corporation. The remaining 20% interest in Boardwalk Med Center will be owned by Boardwalk Acquisition LP (“Boardwalk”), an Ontario limited partnership established under, and governed by, the laws of the Province of Ontario, and beneficially owned and controlled by Daniel Drimmer, a related party of the Filer, each Fund and Campar.

Proposed Transaction

40.          On September 6, 2016, each Fund and Campar entered into an arrangement agreement with New Fund pursuant to which New Fund will acquire all of the issued and outstanding limited partnership units of each Fund, as well as the general partner of each Fund, and all of the issued and outstanding common shares of Campar, thereby indirectly acquiring ownership of the interests in the multi-family real estate properties currently owned by each Fund and Campar (the “Proposed Transaction”).

41.          New Fund will satisfy the purchase price for the outstanding limited partnership units of each Fund and outstanding common shares of Campar through the issuance of New Fund Units to the current unitholders of each Fund and the current shareholders of Campar, in proportion to their respective entitlements and the relative appraised value of the interests in the multi-family real estate properties to be transferred to New Fund by each of the Funds and Campar. Unitholders of a given class of each Fund will migrate to the corresponding class of New Fund and holders of common shares of Campar will migrate to Class A units or Class C units of New Fund (at their election).

42.          Upon completion of the Proposed Transaction, and assuming an exchange rate of CAD$1.30 to U.S.$1.00: (a) unitholders of Fund 1 will collectively own approximately 26.6% of the New Fund Units; (b) unitholders of Fund 2 will collectively own approximately 18.8% of the New Fund Units; (c) unitholders of Fund 3 will collectively own approximately 21.5% of the New Fund Units; (d) unitholders of Fund 4 will collectively own approximately 19.0% of the New Fund Units; and (e) shareholders of Campar will collectively own approximately 1.8% of the New Fund Units.

43.          In addition, pursuant to the Proposed Transaction, the “carried interest” in each Fund will be transferred to New Fund in exchange for Class C units of New Fund having a deemed value of U.S.$39,283,083 being issued to the Filer and Evan Kirsh which, assuming an exchange rate of CAD$1.30 to U.S.$1.00, will represent approximately 11.9% of the New Fund Units, thereby monetizing the value of the Filer’s and Evan Kirsh’s accumulated “carried interest” in each of the Funds as at the date of Proposed Transaction.

44.          Boardwalk will also transfer its 20% indirect interest in Boardwalk Med Center to New Fund in exchange for Class C units of New Fund which, assuming an exchange rate of CAD$1.30 to U.S.$1.00, will represent approximately 0.4% of the New Fund Units.

Minority Approval

45.          The Proposed Transaction will be a “business combination” in respect of each Fund as such term is defined in MI 61-101 and is therefore subject to the applicable requirements of MI 61-101. Such requirements include, among other things, obtaining approval for the Proposed Transaction by a majority of votes cast by the holders of each class of units of each Fund, excluding the votes attached to units beneficially owned, or over which control or direction is exercised, by any party specified in subsection 8.1(2) of MI 61-101 (the “Disinterested Unitholders”) at unitholder meetings held by each Fund. The Disinterested Unitholders in respect of the Proposed Transaction include all of the unitholders of each Fund with the exceptions of Daniel Drimmer and Evan Kirsh.

46.          As at August 15, 2016, Daniel Drimmer beneficially owns, or exercises control or direction over: (a) 854,999 Fund 1 Units, representing a voting interest in Fund 1 of approximately 17.78%; (b) 614,974 Fund 2 Units, representing a voting interest in Fund 2 of approximately 18.16%; (c) 544,730 Fund 3 Units, representing a voting interest in Fund 3 of approximately 10.37%; and (d) 401,200 Fund 4 Units, representing a voting interest in Fund 4 of approximately 6.56%.

47.          As at August 15, 2016, Evan Kirsh beneficially owns, or exercises control or direction over: (a) 6,700 Fund 1 Units, representing a voting interest in Fund 1 of approximately 0.14%; (b) 10,000 Fund 2 Units, representing a voting interest in Fund 2 of approximately 0.30%; (c) 23,600 Fund 3 Units, representing a voting interest in Fund 3 of approximately 0.45%; and (d) 10,000 Fund 4 Units, representing a voting interest in Fund 4 of approximately 0.16%.

48.          As at August 15, 2016, the Disinterested Unitholders held:

(a)           In respect of Fund 1:

i.              2,850,302 Class A1 Units;

ii.             340,370 Class U1 Units;

iii.            109,400 Class I1 Units;

iv.            193,800 Class F1 Units; and

v.             454,545 Class C1 Units;

(b)           In respect of Fund 2:

i.              1,677,641 Class A2 Units;

ii.             466,450 Class U2 Units;

iii.            439,900 Class D2 Units;

iv.            78,240 Class F2 Units; and

v.             100,000 Class C2 Units;

(c)           In respect of Fund 3:

i.              2,227,841 Class A3 Units;

ii.             333,450 Class U3 Units;

iii.            1,619,300 Class D3 Units;

iv.            306,200 Class F3 Units; and

v.             200,000 Class C3 Units;

(d)           In respect of Fund 4:

i.              2,092,892 Class A4 Units;

ii.             459,300 Class U4 Units;

iii.            1,380,090 Class D4 Units;

iv.            813,700 Class E4 Units;

v.             601,725 Class F4 Units;

vi.            258,396 Class H4 Unit; and

vii.           100,000 Class C4 Units.

49.          MI 61-101 was adopted to ensure the fair treatment of all security holders and the perception of such in the context of insider bids, issuer bids, business combinations and related party transactions.

50.          The Proposed Transaction is subject to a number of mechanisms to ensure that the collective interests of each Fund’s unitholders are protected, including the following:

(a)           The Proposed Transaction was negotiated and settled by the Filer in accordance with its contractual duties and standard of care with respect to each Fund.

(b)           The Proposed Transaction was negotiated and settled by an independent committee of the board of directors of the general partner of each Fund, which was comprised solely of directors that are independent of each Fund, the Filer and New Fund.

(c)           The general partner of each Fund exercised the requisite standard of care in accordance with the terms of the applicable Fund’s limited partnership agreement with respect to the Proposed Transaction, with Daniel Drimmer recusing himself from any resolutions passed by the directors of each such general partner.

(d)           The contractual requirement set out in each Fund’s limited partnership agreement that, in the event of any proposed transaction with a related party of a Fund, each Fund shall comply with the provisions of MI 61-101, has been satisfied in respect of the Proposed Transaction.

(e)           Each Fund will prepare and deliver to its unitholders an information circular (the “Information Circular”) in accordance with applicable securities law requirements in order to provide unitholders with sufficient information to enable them to make an informed decision in respect of the Proposed Transaction.

(f)            The Filer retained independent financial advisors on behalf of the Funds in respect of the Proposed Transaction. The independent financial advisors have prepared and delivered fairness opinions concluding that the Proposed Transaction is fair from a financial point of view to the unitholders of each Fund (other than Daniel Drimmer and Evan Kirsh), which will be included in the Information Circular.

(g)           An independent appraiser has prepared appraisals concerning each of the multi-family real estate properties currently owned by each Fund. Such appraisals have been filed on the System for Electronic Document Analysis and Retrieval and will be summarized in the Information Circular.

(h)           Each Fund will hold a special meeting of all unitholders of each Fund in order for each Fund’s unitholders to consider and, if deemed advisable, approve the Proposed Transaction by the majority of votes cast by the Disinterested Unitholders (which, for greater clarity, excludes the votes attached to all of the units of the Funds beneficially owned, or over which control or direction is exercised, by Daniel Drimmer and Evan Kirsh), voting together as a single class at each Fund.

51.          The Filer is of the view that these are the optimal mechanisms to ensure that the public interest is well protected and that the unitholders of each Fund are treated fairly and in accordance with their voting and economic entitlements under the limited partnership agreement of each Fund.

52.          Each Fund’s governing limited partnership agreement provides that unitholders 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. The Filer and the general partner of each Fund have 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 of that Fund.

53.          The division of each Fund’s limited partnership units into various classes was related to the use of different currencies, to accommodate a number investment account differences, and the establishment of differing economic entitlements to participate in distributions made by the Fund and to receive proceeds upon termination or dissolution of the Fund, in each case, strictly pursuant to formulas determined at the time of the initial issuance of the units and provided for in the governing limited partnership agreements.

54.          Each limited partnership unit of each Fund entitles the holder to the same rights and obligations and no unitholder of the Fund is entitled to any privilege, priority or preference in relation to any other holder of limited partnership units, subject to: (a) the proportionate entitlement of each holder to participate in distributions made by the Fund and to receive proceeds upon termination of the Fund, which is based on such holder’s share of the “Proportionate Class Interest”; and (b) a proportionate allocation of income or loss of the Fund in accordance with the terms of the Fund’s limited partnership agreement. The Proportionate Class Interest is essentially the proportion of the aggregate net proceeds of the initial public offering and any concurrent private placement (being the gross proceeds less the underwriting fee) for all classes that is attributable to a specific class of units. The proportionate interest of a specific class would be greater than that of another class if units of the first class had a lower applicable underwriting fee in the initial public offering.

55.          The relative returns as between classes within a Fund are fixed pursuant to a formula for each Fund that was determined at the time of each Fund’s initial public offering when investors selected their preferred class and purchased their units. Therefore, the interests of the holders of each class of units of each Fund are aligned in respect of the Proposed Transaction, since the economic impact of the Proposed Transaction will be determined pursuant to formulas established in the governing limited partnership agreement of each Fund and the Proposed Transaction will not alter such relative entitlements as between classes or otherwise provide for the payment of cash or assets to unitholders in a manner that differs from the pre-established relative entitlements in the governing limited partnership agreement of each Fund.

56.          Each of the unlisted classes for each Fund may be converted into a listed class, as follows:

(a)           the Class I1 Units, Class F1 Units and Class C1 Units can be converted at any time into Class A1 Units at the option of the holders thereof;

(b)           the Class D2 Units, Class F2 Units and Class C2 Units can be converted at any time into Class A2 Units at the option of the holders thereof;

(c)           the Class D3 Units, Class F3 Units and Class C3 Units can be converted at any time into Class A3 Units at the option of the holders thereof; and

(d)           the Class D4 Units, Class F4 Units, Class H4 Units and Class C4 Units can be converted at any time into Class A4 Units at the option of the holders thereof, while the Class E4 Units can be converted at any time into Class U4 Units at the option of the holders thereof.

57.          Separate class votes by the unitholders of the Funds would have the effect of granting disproportionate importance to small groups of the Disinterested Unitholders:

(a)           Separate class votes by the unitholders of Fund 1 would have the effect of granting disproportionate importance to a small group of Disinterested Unitholders of each of the Class U1 Units (8.6%), Class I1 Units (2.8%), Class F1 Units (4.9%) and Class C1 Units (11.5%). Despite their relatively small holdings, voting unitholders in each of these groups could be afforded a de facto veto right in respect of the Proposed Transaction that could be exercised against all other unitholders of Fund 1.

(b)           Separate class votes by the unitholders of Fund 2 would have the effect of granting disproportionate importance to a small group of Disinterested Unitholders of each of the Class U2 Units (16.9%), Class D2 Units (15.9%), Class F2 Units (2.8%) and Class C2 Units (3.6%). Despite their relatively small holdings, voting unitholders in each of these groups could be afforded a de facto veto right in respect of the Proposed Transaction that could be exercised against all other unitholders of Fund 2.

(c)           Separate class votes by the unitholders of Fund 3 would have the effect of granting disproportionate importance to a small group of Disinterested Unitholders of each of the Class U3 Units (7.1%), Class F3 Units (6.5%) and Class C3 Units (4.3%). Despite their relatively small holdings, voting unitholders in each of these groups could be afforded a de facto veto right in respect of the Proposed Transaction that could be exercised against all other unitholders of Fund 3.

(d)           Separate class votes by the unitholders of Fund 4 would have the effect of granting disproportionate importance to a small group of Disinterested Unitholders of each of the Class U4 Units (8.1%), Class E4 Units (14.3%), Class F4 Units (10.6%), Class H4 Units (4.5%) and Class C4 Units (1.8%). Despite their relatively small holdings, voting unitholders in each of these groups could be afforded a de facto veto right in respect of the Proposed Transaction that could be exercised against all other unitholders of Fund 4.

58.          A class-by-class vote could provide disproportionate power to a potentially small number of unitholders of each Fund. As quorum for a meeting of a class of unitholders is only 10% for each class, it is possible that a holder of less than 1% of the limited partnership units of a Fund could “veto” the Proposed Transaction. Such an outcome would not be in accordance with the reasonable expectations of the unitholders of each Fund.

59.          To the best of the knowledge of the Filer and the general partner of each Fund, there is no reason to believe that any Fund’s unitholders of any particular class would not approve the Proposed Transaction.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided that the following mechanisms are implemented and remain in place:

1.             special meetings of the unitholders of each Fund are held in order for the Disinterested Unitholders of each Fund to consider and, if deemed advisable, approve the Proposed Transaction, such approval to be obtained on a Fund-by-Fund basis with the Disinterested Unitholders of each Fund voting together as a single class of such Fund;

2.             the Information Circular is prepared and delivered by each Fund to its unitholders in accordance with applicable securities law requirements; and

3.             a fairness opinion concluding that the consideration to be received by each Fund is fair from a financial point of view to the Disinterested Unitholders is prepared by an independent financial advisor and included as part of the Information Circular for each Fund.

“Naizam Kanji”
Director, Office of Mergers & Acquisitions
Ontario Securities Commission