August 26, 2020
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 SUBVERSIVE real estate acquisition reit lp (the “Filer”)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, a special purpose acquisition company, in connection with a potential future qualifying transaction (the “Qualifying Transaction”), pursuant to which each restricted voting unit of the Filer (“Restricted Voting Unit”) will, unless previously redeemed, be automatically renamed as a “Limited Partnership Unit” (“Limited Partnership Unit”) (the “Unit Renaming”).
In connection with the Qualifying Transaction and the Unit Renaming, the Filer has applied for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) that the requirements under:
(i) section 12.2 of National Instrument 41-101 – General Prospectus Requirements (“NI 41-101”) relating to the use of restricted security terms, and sections 1.13 and 10.6 of Form 41-101F1 – Information Required in a Prospectus (“Form 41-101F1”) and sections 1.12 and 7.7 of Form 44-101F1 – Short Form Prospectus (“Form 44-101F1”) relating to restricted security disclosure (the “Prospectus Disclosure Exemption”), in connection with the Filer’s future prospectuses that may be filed by the Filer under NI 41-101, National Instrument 44-101 – Short Form Prospectus Distributions (“NI 44-101”), including a prospectus filed under National Instrument 44-102 – Shelf Distributions;
(ii) part 10 of National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) relating to the use of restricted security terms and restricted security disclosure (the “CD Disclosure Exemption”) in connection with continuous disclosure documents (the “CD Documents”) that may be filed by the Filer under NI 51-102; and
(iii) part 2 of OSC Rule 56-501 relating to the use of restricted share terms and restricted share disclosure (the “OSC Rule 56-501 Disclosure Exemption”) in connection with dealer and adviser documentation, rights offering circulars and offering memoranda of the Filer;
shall not apply to the Filer in connection with the Qualifying Transaction and any future distributions of Limited Partnership Units, proportionate voting units of the Filer (“PV Units”), or distributions of securities that are, directly or indirectly, convertible into, or exercisable or exchangeable for, Limited Partnership Units or PV Units.
The Prospectus Disclosure Exemption, together with the OSC Rule 56-501 Disclosure Exemption and the CD Disclosure Exemption will be referred to herein as the “Disclosure Exemptions”.
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 (the “Principal Regulator”); 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 British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (together with Ontario, the “Jurisdictions”) in respect of the Prospectus Disclosure Exemption and the CD Disclosure Exemption.
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
The decision is based on the following facts represented by the Filer:
The Filer
The Filer is a limited partnership formed under the Limited Partnerships Act (Ontario) on November 12, 2019. Its head office is located at 135 Grand Street, 2nd Floor, New York, New York 10013 and its registered office is located at 333 Bay Street, Suite 3400, Toronto, Ontario, M5H 2S7. The head office of the Filer’s general partner, Subversive Real Estate Acquisition REIT (GP) Inc. (the “General Partner”), is located at 135 Grand Street, 2nd Floor, New York, New York 10013 and the General Partner’s registered office is located at 700 West Georgia Street, Suite 2500, Vancouver, British Columbia V7Y 1B3.
The Filer is a reporting issuer in the Jurisdictions and is not in default under the securities legislation in force in any of the Jurisdictions.
The “Class A Restricted Voting Units” were offered to the public pursuant to an initial public offering (the “IPO”) under the Prospectus. On January 8, 2020, the Filer announced that it raised US$200,000,000 from the sale of Class A Restricted Voting Units under the IPO. On January 23, 2020, the Filer announced that it raised an additional US$25,000,000 from the sale of Class A Restricted Voting Units under the partial exercise of its over-allotment option. Each Class A Restricted Voting Unit consisted of one Restricted Voting Unit and one Right (“Right”), with each Right entitling the holder, upon closing of the Qualifying Transaction, to receive one-eighth (1/8) of a Restricted Voting Unit (which at such time will represent one-eighth (1/8) of a Limited Partnership Unit), subject to adjustment under the terms of the Qualifying Transaction.
As at the date hereof, the Filer had outstanding 22,500,000 Restricted Voting Units, 23,024,500 Rights and 62,806 PV Units. The Filer has no other units or rights outstanding.
The Class A Restricted Voting Units were listed and posted for trading in Canada on the Neo Exchange Inc. (the “NEO”) under the symbol “SVX.UN”. The Restricted Voting Units and the Rights comprising the Class A Restricted Voting Units were initially trading as a unit but the Restricted Voting Units and the Rights began trading separately on February 18, 2020, under the symbols “SVX.U” and “SVX.RT.U”, respectively. The Class B Units also split into the Rights and PV Units that were underlying the Class B Units on February 18, 2020. The Class B Units are not listed or posted for trading on any stock exchange, nor is it anticipated that the Class B Units will be listed or posted for trading on any exchange in the future.
As disclosed in the Prospectus, 100% of the gross proceeds from the sale of the Class A Restricted Voting Units are held in escrow by Olympia Trust Company, pending the completion of a Qualifying Transaction (the “Escrow Amount”).
The authorized capital of the Filer consists of an unlimited number of Restricted Voting Units and an unlimited number of PV Units.
The Filer’s Capital Structure – Pre Qualifying Transaction
As disclosed in the Prospectus, the Restricted Voting Units are entitled to one vote per unit, other than on matters relating to the election and/or removal of the directors of the General Partner and auditors of the Filer prior to the closing of the Qualifying Transaction. It is not currently expected that any meetings involving the holders of Restricted Voting Units will take place.
The PV Units are entitled to 100 votes per unit and will receive notice of all unitholder meetings. The holders of PV Units are not entitled to access, or benefit from, the Escrow Amount. The holders of PV Units are the “Founders” (as such term is defined in the Prospectus) of the Filer, and as such, are involved in the Filer’s management.
The pre-Qualifying Transaction dual unit structure (i.e. the Restricted Voting Units and the PV Units) has been adopted to provide appropriate treatment for the holders of Class A Restricted Voting Units in the event that (1) a Qualifying Transaction is not completed within the required time frame; or (2) the Redemption Right (as defined below) is exercised by holders of Restricted Voting Units.
Prior to the closing of the Qualifying Transaction, the Filer will not issue any additional securities other than as permitted by the rules of the NEO.
The Qualifying Transaction
The Filer was created for the purposes of effecting, directly or indirectly, an acquisition of one or more cannabis related real estate businesses or assets. The Filer is specifically focusing its search of the noted acquisition on real estate assets in the cannabis industry and/or those closely associated with the cannabis industry; however, the Filer is not limited to the acquisition of cannabis related real estate businesses and/or assets or to a particular geographic region and may acquire other classes of real estate assets and/or non-real estate assets or businesses for the purposes of the Qualifying Transaction.
As the Filer has deposited 100% of the proceeds from the sale of the Class A Restricted Voting Units into escrow, pursuant to the rules of the NEO, the Filer is not required to hold a unitholder meeting to consider the approval of the Qualifying Transaction. However, notwithstanding that no unitholder meeting will be held, holders of Restricted Voting Units will be able to redeem their securities (except for holders of more than 15% of the number of Restricted Voting Units issued and outstanding, who will be subject to a 15% limit of the number of Restricted Voting Units issued and outstanding) and effectively receive back their original purchase price for the Restricted Voting Units plus any interest earned on the amount, minus all applicable taxes and expenses directly related to the redemption (the “Redemption Right”). The PV Units do not have any redemption rights.
In connection with the Qualifying Transaction, the Filer will:
(a) prepare and file a long form prospectus containing disclosure about the Qualifying Transaction (the “Qualifying Transaction Prospectus”);
(b) mail a notice of redemption to the holders of the Restricted Voting Units at least 21 days prior to the redemption deadline; and
(c) send by prepaid mail or otherwise deliver the Qualifying Transaction Prospectus to the holders of the Restricted Voting Units no later than midnight (Toronto time) on the second business day prior to the deadline for redemption, which delivery may be effected electronically.
- Pursuant to the Redemption Right, holders of Class A Restricted Voting Units will be able to choose whether to remain invested in the Filer or redeem all or a portion of their Restricted Voting Units. Should a holder of Restricted Voting Units choose to redeem, the amount payable per Restricted Voting Unit redeemed will equal their pro-rata portion of the Escrow Amount (including any interest earned on the amount), minus all applicable taxes and expenses directly related to the exercise of the Redemption Right, as further discussed in the Prospectus.
The Filer’s Capital Structure – Post Qualifying Transaction
As disclosed in the Prospectus (and as will be disclosed in the Qualifying Transaction Prospectus), upon closing of the Qualifying Transaction, the Unit Renaming will occur.
Each PV Unit entitles the holder thereof to 100 votes at subsequent unitholder meetings. Each PV Unit is convertible, at the option of the holder and with the consent of the Filer, at a ratio of one PV Unit for 100 Limited Partnership Units.
The ability for holders of PV Units to convert their units to Limited Partnership Units is subject to certain conditions in order to maintain the Filer’s status as a “foreign private issuer” under U.S. securities laws. The PV Units were established for the purpose of maintaining the Filer’s status as a “foreign private issuer” under U.S. securities laws.
Further, pursuant to the Unit Renaming, the Filer will rename each Restricted Voting Unit not otherwise redeemed pursuant to the Redemption Right as a Limited Partnership Unit. Each Limited Partnership Unit entitles the holder thereof to one (1) vote at subsequent unitholder meetings.
Following the closing of the Qualifying Transaction, each Right will entitle the holder to receive one-eighth (1/8) of a Restricted Voting Unit (which at such time will represent one-eighth (1/8) of a Limited Partnership Unit), subject to adjustment under the terms of the Qualifying Transaction.
The Prospectus provides detailed disclosure on the terms of the Class A Restricted Voting Units, the Limited Partnership Units and the PV Units and the renaming of the Restricted Voting Units to Limited Partnership Units in connection with the Qualifying Transaction. The Prospectus also discloses the possibility of future issuance of PV Units upon the approval of the board of directors of the General Partner.
The PV Units are not expected to be listed or posted for trading on any exchange.
Takeover Bid Protection
If an offer is being made for PV Units (a “PVU Offer”) where: (i) by reason of applicable securities legislation or stock exchange requirements, the offer must be made to all holders of the class of PV Units; and (ii) no equivalent offer is made for the Limited Partnership Units, the holders of Limited Partnership Units have the right, pursuant to the Amended and Restated Limited Partnership Agreement of the Issuer, at their option, to convert their Limited Partnership Units into PV Units for the purpose of allowing the holders of the Limited Partnership Units to tender to such PVU Offer, provided that such conversion into PV Units will be solely for the purpose of tendering the PV Units to the PVU Offer in question and that any PV Units that are tendered to the PVU Offer but that are not, for any reason, taken up and paid for by the offeror will automatically be reconverted into the Limited Partnership Units that existed prior to such conversion.
In the event that holders of Limited Partnership Units are entitled to convert their Limited Partnership Units into PV Units in connection with a PVU Offer pursuant to (ii) above, holders of an aggregate of Limited Partnership Units of less than 100 (an “Odd Lot”) will be entitled to convert all but not less than all of such Odd Lot of Limited Partnership Units into an applicable fraction of one PV Unit, provided that such conversion into a fractional PV Unit will be solely for the purpose of tendering the fractional PV Unit to the PVU Offer in question and that any fraction of a PV Unit that is tendered to the PVU Offer but that is not, for any reason, taken up and paid for by the offeror will automatically be reconverted into the Limited Partnership Units that existed prior to such conversion.
Prospectus Disclosure Exemption
The Limited Partnership Units will be “restricted securities” within the meaning of NI 41-101 and the PV Units will be “subject securities” within the meaning of NI 41-101.
Section 12.2 of NI 41-101 requires a class of securities that is or may become restricted securities to be referred to in a prospectus using a term or a defined term that includes the appropriate restricted security term.
Sections 1.13 and 10.6 of Form 41-101F1 and sections 1.12 and 7.7 of Form 44-101F1 require that an issuer provide certain restricted security disclosure.
OSC Rule 56-501 Disclosure Exemption
The Limited Partnership Units will be “restricted shares” and the PV Units will be “subject securities”, each within the meaning of OSC Rule 56-501.
Section 2.2 of OSC Rule 56-501 requires dealer and adviser documentation to include the appropriate restricted share term if restricted shares and the appropriate restricted share term or a code reference to restricted shares or the appropriate restricted share term are included in a trading record published by the NEO or other exchange listed in OSC Rule 56-501.
Section 2.3 of OSC Rule 56-501 requires that a rights offering circular or offering memorandum for a stock distribution prepared for a reporting issuer comply with certain requirements including, among others, that each class of securities that is or may become restricted shares shall be referred to using a term or a defined term that includes the appropriate restricted share term.
The CD Disclosure Exemption
The Limited Partnership Units will be “restricted securities” within the meaning of NI 51-102.
Section 10.2 of NI 51-102 sets out the procedure to be followed with respect to the dissemination of disclosure documents to holders of restricted securities and includes prohibitions on the language that can be used to describe the restricted securities.
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 Disclosure Exemptions are granted provided that:
(a) the representations in paragraphs 7-24, above, continue to apply;
(b) prior to the closing of the Qualifying Transaction:
i. the Filer has no restricted securities or restricted shares issued and outstanding, other than Restricted Voting Units (which, following the Qualifying Transaction, will be automatically renamed “Limited Partnership Units”); and
ii. the Filer has no subject securities issued and outstanding, other than PV Units; and
(c) following the closing of the Qualifying Transaction, the Filer will have no restricted shares (as defined in section 1.1 of OSC Rule 56-501) issued and outstanding other than the Limited Partnership Units.
“Winnie Sanjoto”
Winnie Sanjoto Manager, Corporate Finance Ontario Securities Commission