February 17, 2021
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
FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief (a) pursuant to Section 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) exempting the Filer from the requirement in Part 8 of NI 51-102 to file a business acquisition report (a BAR) in respect of the acquisition of three manufactured housing communities and related assets in Evansville, Indiana for a purchase price (subject to closing adjustments) of approximately US$9.0 million (the “Evansville Acquisition”) on December 16, 2020 and the acquisition of two manufactured housing communities and related assets in Dry Ridge, Kentucky for a purchase price (subject to closing adjustments) of approximately US$2.5 million (the “Dry Ridge Acquisition” and, together with the Evansville Acquisition, the “Acquisitions”) on December 18, 2020 and (b) pursuant to Section 8.1 of National Instrument 44-101 – Short Form Prospectus exempting the Filer from any requirement under Item 10 of Form 44-101F1 Short Form Prospectus (44-101F1) to disclose each Acquisition as a “significant” acquisition in a short form prospectus (collectively, 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 the Application; and
(b) the Filer has provided notice that it intends to rely upon Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) for each equivalent provision in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut.
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 in this decision.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is an unincorporated, open-ended real estate investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated as of August 12, 2020, as may be amended and/or amended and restated from time to time.
The Filer’s head office is located at 467 Erlanger Road, Erlanger, Kentucky, U.S.A., 41018.
The Filer’s registered office is located at 199 Bay Street, Suite 4000, Toronto, Ontario, M5L 1A9.
The Filer is a reporting issuer or the equivalent thereof in each Jurisdiction and is not in default of any requirement of Canadian securities legislation.
On September 28, 2020, the Ontario Securities Commission issued a receipt for a final long form prospectus (the Final Prospectus) qualifying the initial public offering (IPO) of 6,250,000 trust units of the Filer (Units) in the Jurisdictions, upon which the Filer became a reporting issuer under the securities legislation in each of the Jurisdictions.
The closing of the IPO occurred on or about October 7, 2020 and, between such date and November 2, 2020, the Filer acquired 45 manufactured housing communities, comprising 8,255 lots, a fleet of approximately 600 manufactured homes available for lease, together with certain ancillary and head office assets (the Initial Portfolio).
On October 22, 2020, pursuant to the exercise of the over-allotment option granted to the underwriters in connection with the IPO, the Filer issued an additional 937,500 Units.
The Units are listed and posted for trading on the Toronto Stock Exchange under the symbol “MHC.U”.
On December 16, 2020, the Filer completed the Evansville Acquisition, being an acquisition of three manufactured housing communities and related assets in Evansville, Indiana for a purchase price (subject to closing adjustments) of approximately US$9.0 million.
On December 18, 2020, the Filer completed the Dry Ridge Acquisition, being an acquisition two manufactured housing communities and related assets in Dry Ridge, Kentucky for a purchase price (subject to closing adjustments) of approximately US$2.5 million.
The Acquisitions were unconnected transactions involving unrelated businesses and separate vendors, the completion of each of which was not cross conditional upon the other.
Financial Statements
The Filer was formed on August 12, 2020 and, accordingly, will not have completed a full fiscal year until December 31, 2021. The applicable audited historical financial statements of the Filer in the Final Prospectus, as well as the Filer’s interim financial statements for the period from the date of its formation to September 30, 2020 (as filed under the Filer’s profile on SEDAR on November 12, 2020, the Q3 Financial Statements), only reflect assets of US$10.00, unitholders’ capital of US$10.00 and financing activities of US$10.00 as a result of the issuance of the initial Unit upon its formation and prior to the completion of the IPO (the Nominal Financials).
The Final Prospectus includes certain audited annual financial statements of the Initial Portfolio, including an unaudited pro forma consolidated statement of income and comprehensive income for the year ended December 31, 2019 and the six month period ended June 30, 2020 giving effect to the acquisition of the Initial Portfolio as if it occurred on January 1, 2019 and January 1, 2020, respectively.
As of November 2, 2020, upon completion of the acquisition of the Initial Portfolio, the Filer had consolidated assets of (the Filer’s Actual Assets) approximately US$438.9 million (i.e., the total assets set out in the Final Prospectus in the unaudited pro forma consolidated statement of financial position as at June 30, 2020 giving effect to the Initial Portfolio’s acquisition as if it occurred on January 1, 2020).
Significance
Under Part 8 of NI 51-102, the Filer is required to file a BAR for any completed business acquisition that is determined to be significant based on the tests set out therein.
Under Item 10 of 44-101F1, in certain circumstances, an issuer must provide certain disclosure in a short form prospectus (including a shelf prospectus) concerning a completed or probable business acquisition that is considered significant for the purposes of Part 8 of NI 51-102.
The purchase price for the Evansville Acquisition represents only 2.1% of the Filer’s Actual Assets, while approximately US$9.0 million of “consolidated assets” (as understood for purposes of Part 8 of NI 51-102) were acquired pursuant to the Evansville Acquisition, also representing only 2.1% of the Filer’s Actual Assets.
The purchase price for the Dry Ridge Acquisition represents only 0.6% of the Filer’s Actual Assets, while approximately US$2.5 million of “consolidated assets” (as understood for purposes of Part 8 of NI 51-102) were acquired pursuant to the Dry Ridge Acquisition, also representing only 0.6% of the Filer’s Actual Assets.
Further, the Evansville Acquisition comprises 197 lots, representing only 2.4% of the 8,255 lots comprising the Initial Portfolio, while the Dry Ridge Acquisition comprises 101 lots, representing only 1.2% of the 8,255 lots comprising the Initial Portfolio.
The most recent set of financial statements for the Filer filed pursuant to NI 51-102 are the Q3 Financial Statements, which reflect the operation of the Filer for the period from its formation on August 12, 2020 to September 30, 2020, but for which the IPO and acquisition of the Initial Portfolio are a subsequent event. Therefore, the Q3 Financial Statements are similar to the Nominal Financials.
As the Filer has not yet filed financial statements reflecting the closing of the IPO and the Initial Portfolio’s acquisition (rather than just the US$10 contribution to acquire the initial Unit), each of the Acquisitions will constitute a “significant acquisition” of the Filer for the purposes of Part 8 of NI 51-102, requiring the Filer to file a BAR pursuant to Part 8 of NI 51-102.
The Filer does not believe that either of the Acquisitions is significant to it from a practical, commercial, business or financial perspective.
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 Exemption Sought is granted.
“Winnie Sanjoto”
_______________________________________ Winnie Sanjoto Manager, Corporate Finance Ontario Securities Commission