Starlight U.S. Multi-Family (No. 1) Value-Add Fund (Re), 2017 CanLII 47832

Date: July 25, 2017

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 U.S. MULTI-FAMILY (NO. 1) VALUE-ADD 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, Prince Edward Island, New Brunswick, Nova Scotia and Newfoundland and Labrador (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 limited partnership established under the laws of the Province of Ontario pursuant to a limited partnership agreement dated April 24, 2017, as amended and/or restated from time to time thereafter (the LPA).

3. The Filer is a reporting issuer or the equivalent thereof in each Jurisdiction and, to the best of its knowledge, information and belief, 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 portfolio primarily comprised of value-add, income-producing multi-family properties that can achieve significant increases in rental rates as a result of undertaking high return, light value-add capital expenditures and active asset management, and are located primarily in the States of Arizona, Colorado, Florida, Georgia, Nevada, North Carolina, Tennessee and Texas including an initial portfolio of two properties located in Arizona and Texas (collectively, the Acquisition Properties).

5. The Acquisition Properties consist of (i) a 100% interest in Trillium Deer Valley (Spectra South) and (ii) a 100% interest in The Landing at Round Rock (The Landing).

6. No exemption is required with respect to the financial information to be included in the BAR with respect to The Landing. The Exemption Sought is only required with respect to Spectra South.

7. The Filer is managed by Starlight Group Property Holdings Inc. (the Manager), which has been engaged by the Filer in the identification, acquisition, ownership, operation and disposition of income-producing multi-family real estate properties.

8. The interests in the Filer are divided into seven classes of limited partnership units (Units): class A limited partnership units (Class A Units), class U limited partnership units (Class U Units), class C limited partnership units, class D limited partnership units, class E limited partnership units, class F limited partnership units and class H limited partnership units.

9. The Filer is authorized to issue an unlimited number of Units of each class and, as at the date hereof, there are 8,179,918 Units outstanding. However, as a “closed-end” issuer, subsequent to its IPO (as defined below), the Filer is generally prohibited from issuing any new Units to the public (other than upon conversion of outstanding Units, in accordance with the LPA).

10. The Class A Units and Class U Units are listed on the TSX Venture Exchange under the symbols “SUVA.A” and “SUVA.U”, respectively.

11. On June 13, 2017, 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 US$112 million of Units.

12. On June 16, 2017 (the IPO Closing Date), the Filer completed its IPO of approximately C$86.1 million of Units.

13. On the IPO Closing Date, the Filer also completed its acquisition of Spectra South from an affiliate of the Manager and The Landing from an independent third-party vendor for an aggregate purchase price of approximately US$154.8 million, satisfied, in part, by cash from the net proceeds of the IPO (collectively, as potentially connected transactions, the Acquisition Transaction).

14. The fiscal year end for each of the Acquisition Properties is December 31.

15. 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.

16. 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 each of the Acquisition Properties (the BAR Financials), respectively, which are as follows:

(i) (A) audited carve-out statements of income and comprehensive income, changes in owners’ (partner’s) equity and cash flows for the twelve month period ended December 31, 2016, including comparatives for the twelve month period ended December 31, 2015 (which may be unaudited); and (B) audited carve-out statement of financial position as at December 31, 2016 including comparative statement of financial position as at December 31, 2015 (which may be unaudited);

(ii) (A) carve-out statements of income and comprehensive income, changes in owners’ (partner’s) equity and cash flows for the three month period ended March 31, 2017, including comparatives for the three month period ended March 31, 2016; and (B) carve-out statement of financial position as at March 31, 2017 including comparative statement of financial position as at December 31, 2016; and

17. The Filer and the Manager (on behalf of the Filer, including with the assistance of the affiliate of the Manager that owned Spectra South prior to the IPO Closing Date (the Prior Owner)) have, without success, made every reasonable effort, including the following efforts, to obtain access to, or copies of, historical accounting records in respect of Spectra South for the period prior to its acquisition by the Prior Owner, to form part of the BAR Financials: the Manager, on behalf of the Fund and the Prior Owner, made verbal requests to the vendor from which the Prior Owner acquired Spectra South (the Original Vendor) for the requisite financial information and records concerning Spectra South, but did not receive any cooperation; the Manager subsequently made a formal written request, delivered by e-mail to the Original Vendor, but did not receive a response to such request; the Fund then followed-up by e-mail a couple weeks later, and again did not receive a response from the Original Vendor. The Original Vendor has refused, despite repeated requests made by the Manager, to provide such historical accounting records to any of the Prior Owner, the Filer and the Manager and, accordingly, the Filer was unable to receive the financial records for Spectra South prior to its acquisition by the Prior Owner.

18. The required financial information for Spectra South for the period from January 1, 2015 to March 27, 2015 (date of acquisition) was not available for the Prospectus. The following financial information in respect of the Acquisition Properties (collectively, the Alternative Acquisition Financial Disclosures) were included in the Prospectus:

(a) in respect of Spectra South (prepared in accordance with IFRS):

(i) (A) audited carve-out statements of net income and comprehensive income, changes in owners’ equity and statements of cash flows for the year ended December 31, 2016 and the period from March 27, 2015 (date of acquisition) to December 31, 2015; (B) audited carve-out statements of financial position as at December 31, 2016 and December 31, 2015; and

(ii) (A) audited carve-out statements of net income and comprehensive income, changes in owners’ equity and statements of cash flows for the three month period ended March 31, 2017, together with comparative unaudited financial information for the three month period ended March 31, 2016; and (B) an audited audited carve-out statement of financial position as at March 31, 2017; and

(b) in respect of The Landing, the BAR Financials;

(c) an audited consolidated financial forecast of the Acquisition Properties, consisting of consolidated statements of forecasted net income (loss) and comprehensive income (loss) for each of the three-month periods ending June 30, 2017, September 30, 2017, December 31, 2017 and March 31, 2018 and the twelve-month period ending March 31, 2018, prepared in accordance with applicable requirements, with an audit report thereon from the Filer’s auditors; and

(d) summary information of independent appraisals of the fair market value of each of the Acquisition Properties, such Appraisals having been filed on SEDAR.

19. Consequently, in lieu of the BAR Financials, the Filer intends to include in the BAR the Alternative Acquisition Financial Disclosures described above.

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”

Marie-France Bourret

Acting Manager, Corporate Finance

Ontario Securities Commission