Ontario Commission des 22nd Floor 22e étage
Securities valeurs mobilières 20 Queen Street West 20, rue queen ouest
Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8
June 22, 2022
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
DREAM RESIDENTIAL REAL ESTATE INVESTMENT TRUST
(the Filer)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief pursuant to Part 13 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) exempting the Filer from the requirements to include in a business acquisition report (BAR) certain financial statements required pursuant to Item 3 of Form 51-102F4 Business Acquisition Report and Part 8 of NI 51-102 relating to an indirect acquisition (Acquisition) of a portfolio of 16 multi-residential properties by the Filer constituting a “significant acquisition” for the purpose of NI 51-102, provided that the Filer include the Alternative BAR Financial Statements (as defined herein) in the 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 (the Principal Regulator); 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, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.
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:
The Filer is an unincorporated open-ended real estate investment trust governed by the laws of the Province of Ontario.
The Filer’s head office is located at 30 Adelaide Street East, Suite 301, Toronto, Ontario, M5C 3H1.
The Filer is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador and is not in default of securities legislation in any jurisdiction of Canada.
The units of the Filer (Units) are listed and posted for trading on the Toronto Stock Exchange under the symbol “DRR.U”.
The financial year end of the Filer is December 31.
On May 6, 2022, the Filer completed its initial public offering (Offering) of 9,620,000 Units pursuant to a long form prospectus (the Prospectus) dated April 29, 2022. The Principal Regulator issued a receipt in respect of the Prospectus on April 29, 2022.
In connection with the closing of the Offering, the Filer indirectly acquired an initial portfolio of 16 garden-style multi-residential properties (the Initial Properties or the Initial Portfolio) in the United States. The Initial Portfolio is comprised of: (a) 13 multi-residential properties (the AWH Properties or the AWH Portfolio) indirectly acquired by the Filer from AWH Holdings, LLC (AWH Owner); and (b) three multi-residential properties (the Legacy Properties) indirectly acquired by the Filer from DRR Keystone LLC.
The Filer was formed on February 24, 2022 and, accordingly, will not have completed a full fiscal year until December 31, 2022. The applicable audited historical financial statements of the Filer in the Prospectus only reflect assets of US$5.00, unitholders’ equity of US$5.00 and cash flow generated from financing activities of US$5.00 as a result of the issuance of the initial Units upon its formation and prior to the completion of the Offering.
As such, the Acquisition of the Initial Properties is a “significant acquisition” as contemplated by Part 8 of NI 51-102. Accordingly, the Filer is also required to file a BAR in respect of the Acquisition.
On May 6, 2022, upon completion of the Acquisition of the Initial Properties, the Filer had consolidated assets of approximately US$394.9 million (i.e., the total assets set out in the Prospectus in the unaudited pro forma consolidated statement of financial position as at December 31, 2021 giving effect to the Acquisition of the Initial Properties as if it occurred on January 1, 2021).
The Filer does not have the necessary financial information for the years ended December 31, 2021 and 2020 in respect of two properties in the AWH Portfolio (the Exempt Properties).
It is impracticable for the Filer to produce audited financial statements for the Exempt Properties in respect of certain periods prior to the acquisition by AWH Owner for the following reasons:
(a) The Exempt Properties were acquired by AWH Owner in 2020 and 2021.
(b) Audited financial statements of the Exempt Properties for periods prior to their acquisition by AWH Owner do not exist and the Filer is unable to produce such excluded financial statements. Prior to the acquisition by AWH Owner, the Exempt Properties were owned and managed by two different arm’s length vendors. The Filer does not possess, does not have access to and is not entitled to or able to obtain access to, sufficient financial information for the Exempt Properties for any period prior to acquisition by AWH Owner.
(c) The Filer has, without success, made every reasonable effort to obtain access to, or copies of, historical accounting records in respect of the Exempt Properties for the period from January 1, 2020 to the respective acquisition date by AWH Owner for each Exempt Property.
- The Filer proposes to include (by incorporating by reference) the following financial statements and information in the BAR (collectively, the Alternative BAR Financial Statements):
(a) audited combined carve-out financial statements of the Legacy Properties as at December 31, 2021 and December 31, 2020 and for each of the years ended December 31, 2021 and 2020, including the related notes thereto;
(b) audited combined carve-out financial statements of the AWH Properties as at December 31, 2021 and December 31, 2020 and for each of the years ended December 31, 2021 and 2020, including the related notes thereto, excluding certain financial information for the Exempt Properties;
(c) unaudited combined carve-out financial statements of the Legacy Properties as at March 31, 2022 and for the three months ended March 31, 2022 and 2021, including the related notes thereto;
(d) unaudited combined carve-out financial statements of the AWH Properties as at March 31, 2022 and for the three months ended March 31, 2022 and 2021, including the related notes thereto, excluding certain financial information for the Exempt Properties;
(e) unaudited pro forma financial statements of the Filer as at and for the three months ended March 31, 2022 and for the year ended December 31, 2021;
(f) the financial forecast included in the Prospectus for the 12 months ended June 30, 2023. The forecast includes information with respect to all of the Initial Properties and is accompanied by a signed auditor’s report with respect to the examination of the forecast made by the Filer’s auditors; and
(g) summary information of appraisals including an estimate of the sum of the individual market values of the Initial Properties as at February 15, 2022, such appraisals having been filed on SEDAR.
The Alternative BAR Financial Statements have been prepared in accordance with International Financial Reporting Standards and audited (where applicable) in accordance with Canadian Generally Accepted Auditing Standards.
The Filer submits that the excluded financial information that is missing from the BAR is not material. The historical financial information in respect of the Exempt Properties represent an insignificant amount of the overall Initial Portfolio based on and weighted by (a) total assets as at December 31, 2021; (b) revenues for the period from January 1, 2021 to December 31, 2021; (c) number of units; (d) net operating income for the period from January 1, 2021 to December 31, 2021; and (e) gross leasable area as at December 31, 2021. The Exempt Properties will not be significant or otherwise material (individually or in the aggregate) to the Filer having regard to the overall size and value of the Filer’s business and operations.
The audited historical financial statements for the applicable periods in respect of the Exempt Properties were not relevant to AWH Owner’s decision to acquire the Exempt Properties. Given that such audited financial statements were not considered relevant to the investment decision made to acquire the Exempt Properties, the Filer believes that the Alternative BAR Financial Statements will provide sufficient historical information for an investor to make an informed decision regarding the Initial Properties as a portfolio.
The financial information the Filer intends to provide in the BAR in respect of the Exempt Properties is substantially the same as that provided in the Prospectus, for which the Filer obtained similar relief from Item 32.2(1) of Form 41-101F1 Information Required in a Prospectus.
The Filer believes that the Alternative BAR Financial Statements will provide sufficient historical information for an investor to make an informed decision regarding the Initial Properties as a portfolio.
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 provided that the Filer includes the Alternative BAR Financial Statements in the BAR in respect of the Acquisition.
“Erin O’Donovan”
Erin O’Donovan
Manager (Acting), Corporate Finance
Ontario Securities Commission
OSC File #: 2022/0254