Daniel Drimmer

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 62-104 Take-Over Bids and Issuer Bids -- Relief from the take-over bid requirements in Part 2 of NI 62-104 in connection with proposed normal course purchase of the issuer's Class A Units -- Filer acquired a large block of securities convertible into the Class A Units in a recapitalization transaction that was approved by the issuer's minority security holders -- Filer is seeking flexibility to purchase additional Class A Units in the market and to provide liquidity -- Filer granted relief to acquire Class A Units in the normal course provided that such purchases satisfy the requirements of section 4.1 of NI 62-104, except that, for the purposes of calculating the 5% purchase limit, the number of Class A Units underlying the securities acquired by the Filer pursuant to the issuer's recapitalization transaction will be excluded, and the number of Class A Units underlying other securities of the issuer that are convertible into Class A Units will be included.

Applicable Legislative Provisions

National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

Citation: Re Daniel Drimmer, 2024 ABASC 64

April 19, 2024

IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DANIEL DRIMMER (the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption (the Requested Relief) pursuant to Section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) from the take-over bid requirements under the Legislation in connection with certain normal course purchases (including deemed purchases) in the market of the class A trust units (the Class A Units) of Northview Residential REIT (the REIT) by the Filer and his affiliates, including D.D. Acquisitions Partnership (DDAP), Starlight West LP (Starlight West) and D.D. Galaxy High Yield Debt LP (DD Galaxy).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application)

(a) the Alberta Securities Commission is the principal regulator for this application,

(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 province of Canada, other than Ontario, and

(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

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 Filer holds his interests in the REIT through DDAP, Starlight West and DD Galaxy. DDAP is an Ontario general partnership, the principal business of which is to make investments, with its head office in Toronto, Ontario. Starlight West is an Ontario limited partnership, the principal business of which is to invest in real estate investments, with its head office in Toronto, Ontario. DD Galaxy is an Ontario limited partnership, the principal business of which is to invest in real estate investments, with its head office in Toronto, Ontario. As each of DDAP, Starlight West and DD Galaxy are controlled by the Filer, they are affiliates and deemed joint actors of one another. DDAP, Starlight West, DD Galaxy, and the Filer are collectively referred to as the Significant Unitholders.

2. The REIT is an internally managed, traditional open-ended real estate investment trust focused on national multi-family properties and governed by the laws of Ontario. The REIT's head and registered office is located in Calgary, Alberta.

3. The REIT is currently a reporting issuer in each jurisdiction of Canada. The Class A Units are listed on the Toronto Stock Exchange (TSX) under the symbol "NRR.UN". The class C trust units (Class C Units) and class F trust units (Class F Units) of the REIT are not listed on any exchange, but are each convertible on a 1:1 basis into Class A Units. The Class C Units are also convertible into Class F Units on a 1:1 basis and the Class A Units are convertible into Class F Units on a 1:1 basis.

4. On November 2, 2020, the REIT, then known as "Northview Canadian High Yield Residential Fund" (the Fund), completed its initial public offering of the REIT's Class A Units, Class C Units and Class F Units (collectively, the Units), as well as the acquisition through a plan of arrangement of a portfolio of properties previously owned by Northview Apartment Real Estate Investment Trust (the Initial Transaction). Pursuant to the Initial Transaction, the Fund was formed as a limited-life, closed-end real estate fund. It had a term of three years, subject to two one-year extensions at the discretion of its external manager. The external manager was tasked with proposing a subsequent "recapitalization event" for the Fund. The external manager had significant control over the operations and affairs of the Fund and the CEO and CFO of the Fund were both provided by the external manager, at the external manager's discretion, and the Fund did not undertake, and was not permitted to undertake, any significant activities prior to any such "recapitalization event". In particular, the Fund was not permitted under the terms of its declaration of trust to issue further securities or Units or undertake any equity capital raising activities.

5. On August 21, 2023, the REIT completed a recapitalization transaction (the Recapitalization Transaction) whereby, among other things, the REIT: (i) changed its name from Northview Fund to Northview Residential REIT; (ii) amended its declaration of trust to align with a more traditional real estate investment trust structure and permit it to undertake typical activities of a perpetual real estate investment trust, including the ability to issue further Units and other securities and conduct itself as a typical public real estate investment trust, (iii) subdivided the Class C Units and Class F Units by their exchange ratios such that, among other things, the Class C Units and Class F Units became convertible on a 1:1 basis for Class A Units; and (iv) acquired three portfolios of properties comprising over 3,300 multi-family suites and 119,000 commercial square feet, for $742 million, certain of which properties were owned or partially owned by affiliates of the Significant Unitholders. Immediately following the closing of the Recapitalization Event, the Units were consolidated on a 1.75:1.00 basis. In addition, pursuant to the Recapitalization Transaction, the REIT gained the ability to appoint its own CEO and CFO and its external management arrangements were terminated.

6. Pursuant to the Recapitalization Transaction, an aggregate of: (i) 7,871,777 Class C Units; (ii) 1,973,364 exchangeable class B limited partnership units (Exchangeable Units) of a subsidiary of the REIT that are exchangeable into Class A Units on a 1:1 basis; and (iii) 4,085,202 class B redeemable partnership units (Redeemable Units) of a subsidiary of the REIT were issued as partial consideration for the acquisition of the properties pursuant to the Recapitalization Transaction. The Redeemable Units are redeemable on certain specified dates at a price per Redeemable Unit of $26.355, which redemption price may be satisfied, at the sole option of the REIT, in Class A Units. Each Exchangeable Unit and Redeemable Unit has attached to it an equivalent number of Special Voting Units, each carrying the right to one vote per Special Voting Unit at a meeting of unitholders and special voting unitholders of the REIT. The Significant Unitholders do not hold any Redeemable Units and are not permitted or able to acquire Redeemable Units, as the Redeemable Units are not transferrable except to affiliates of the initial holders thereof (who are arm's length parties to the Significant Unitholders).

7. In addition, pursuant to the Recapitalization Transaction, the then-prevailing "carried interest" represented by Exchangeable Units of a further subsidiary of the REIT and held by Starlight West was satisfied and extinguished through the issuance of 1,611,830 Exchangeable Units of a further subsidiary of the REIT that are exchangeable into Class A Units on a 1:1 basis, and which have attached to them an equivalent number of Special Voting Units, each carrying the right to one vote per Special Voting Unit at a meeting of unitholders and special voting unitholders of the REIT. Immediately following closing of the Recapitalization Transaction, Starlight West exchanged 187,857 Exchangeable Units into 187,857 Class C Units and transferred them to two of its institutional partners in satisfaction of their interest in the "carried interest", and an aggregate of 187,857 Special Voting Units were cancelled accordingly (the Starlight West Exchange).

8. The Recapitalization Transaction was approved by unitholders of the REIT at a special meeting held on August 4, 2023, including by a majority of the minority pursuant, excluding, among others, the votes of the Significant Unitholders pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions. The security holdings of the Significant Unitholders in the REIT, both immediately prior to, as well as following closing of, the Recapitalization Transaction, were disclosed in the management information circular dated June 30, 2023 relating to the special meeting.

9. Following completion of the Recapitalization Transaction and the Starlight West Exchange, an aggregate of 3,599,973 Class A Units, 22,765,497 Class C Units, 2,208,018 Class F Units, 3,397,337 Exchangeable Units, and 4,085,202 Redeemable Units were issued and outstanding.

10. Prior to the Recapitalization Transaction, the Significant Unitholders held an aggregate of 282,451 Class A Units and 5,804,029 Class C Units (each on a post-consolidation basis).

11. Pursuant to the Recapitalization Transaction, the Significant Unitholders acquired, as consideration for the Significant Unitholders' indirect interest in the properties vended to the REIT pursuant to the Recapitalization Transaction, and on crystallization of the then-prevailing carried interest, an aggregate of 771,580 Class C Units and 3,585,194 Exchangeable Units (the Recapitalization Blocks). Following completion of the Recapitalization Transaction and the Starlight West Exchange, the Significant Unitholders beneficially owned (including on a deemed basis) or had control or direction over, directly or indirectly, 3,397,337 Exchangeable Units, 282,451 Class A Units and 6,575,609 Class C Units, collectively representing a voting interest in the REIT of 28.44%. The 3,397,337 Exchangeable Units held by the Significant Unitholders represent all of the issued and outstanding Exchangeable Units.

12. Assuming the settlement of all Redeemable Units in cash, the exchange of all Exchangeable Units, and the conversion of all Class C Units and Class F Units into, in each case, Class A Units, there would be 31,970,825 Class A Units outstanding, with the Significant Unitholders holding 10,255,397 Class A Units (or 32.08% of the Class A Units).

13. The Significant Unitholders have not acquired (or been deemed to have acquired pursuant to NI 62-104) any Units or securities exchangeable for Units subsequent to the Recapitalization Transaction.

14. Pursuant to section 1.8 of NI 62-104, the Significant Unitholders have beneficial ownership of greater than 20% of the outstanding Class A Units. Accordingly, any additional acquisitions of Class A Units by the Significant Unitholders or persons acting jointly or in concert with them would constitute a take-over bid, unless an exemption is otherwise available.

15. Subject to applicable law, the Significant Unitholders intend to acquire additional Units from time to time through, among other things, the purchase or sale of Class A Units on the open market, on such terms and at such times as the Significant Unitholders may deem advisable depending upon an ongoing evaluation of the Units, the REIT, prevailing market conditions, the availability of Class A Units at prices that would make the purchase or sale of Class A Units desirable, other investment opportunities, liquidity requirements of the Significant Unitholders or other considerations. If the Significant Unitholders (or persons acting jointly or in concert with them) determine to acquire Class A Units on the open market, it is proposed that such purchases be made, from time to time as considered appropriate, pursuant to the normal course purchase exemption contained in section 4.1 of NI 62-104 (the Normal Course Purchase Exemption).

16. As a result of their acquisition of the Recapitalization Blocks, the Significant Unitholders (and persons acting jointly or in concert with them) are unable to acquire additional Class A Units pursuant to the Normal Course Purchase Exemption until August 21, 2024 (being 12 months after the date that the Significant Unitholders acquired the Recapitalization Blocks). The Significant Unitholders would like the flexibility to acquire (and for their affiliates and associates to acquire, as applicable) additional Class A Units on the TSX between the date of this decision and August 21, 2024. The interests of the Significant Unitholders in being able to acquire Class A Units are not to gain legal control of the REIT but instead to preserve their ability to take advantage of opportunities to purchase Class A Units at attractive prices and to provide liquidity to the market.

17. Pursuant to the Normal Course Purchase Exemption, the Significant Unitholders would be limited to acquiring 5% of the issued and outstanding Class A Units or 164,000 Class A Units, representing 0.45% of the votes attached to all Units and Special Voting Units of the REIT and increasing the Significant Unitholders' voting interest from 28.44% to a maximum of 28.89%. The Significant Unitholders would not be able to effect a legal or effective change of control of the REIT as a result of such purchases.

18. None of the Significant Unitholders have any current intention of making a take-over bid for the outstanding voting or equity securities of any class of the securities of the REIT or securities convertible into securities of the REIT, or otherwise acquiring the REIT by way of a plan of arrangement or other similar voting transaction.

19. None of the Significant Unitholders will purchase any Class A Units when they have knowledge of any material fact or material change about the REIT that has not been generally disclosed.

20. The Significant Unitholders have advised the REIT that they have made an application for the Requested Relief. Management of the REIT supports the Requested Relief on the basis that normal course purchases of Class A Units will provide additional liquidity in the market. The trustees of the REIT, including the independent trustees, are also supportive of the Requested Relief.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation to make the decision.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that the acquisitions of Class A Units by the Filer and persons acting jointly or in concert with him in the market comply with the Normal Course Purchase Exemption, except that for the purpose of determining the number of Class A Units acquired by the Filer and persons acting jointly or in concert with him within the 12-month period preceding the date of any such purchase of Class A Units in the market

(a) the number of Class A Units underlying the Recapitalization Blocks shall be excluded from the calculation of acquisitions of Class A Units otherwise made by the Filer and persons acting jointly or in concert with him within the previous 12-month period, and

(b) the number of Class A Units underlying any securities convertible, directly or indirectly, into Class A Units that are acquired by the Filer and persons acting jointly or in concert with him shall be included in the calculation of acquisitions of Class A Units otherwise made by the Filer and persons acting jointly or in concert with him within the previous 12-month period.

"Timothy Robson"
Manager, Legal
Corporate Finance
Alberta Securities Commission