Memorandum
TO:
European Commission – Director and General Financial Stability, Financial
Services and Capital Markets Union
From:
Irish Residential Properties REIT plc
Re:
Overview of Canadian Short Form Prospectus System
1.
Introduction
The ability to cost-effectively and efficiently access the European equity capital
markets is of critical importance to REITs, such as Irish Residential Properties REIT plc
(“IRES”) which, as a result of the rules applicable to REITs which impose leverage
restrictions and income distribution requirements, are limited in their ability to raise debt
financing or rely on retain earnings to grow their businesses. As part of the European
Commission’s review of the Prospectus Directive, we would encourage the European
Commission to consider whether as a result of the rules applicable to REITs consideration
should be given to implementing an alternative prospectus regime for REITs.
Further to our response on the Consultation Document-Review of the Prospectus
Directive issued on 18 February 2015, this memorandum summarizes the short form
prospectus process in Canada (as referred to in our response), which we regard as a costeffective and efficient means for issuers, including REITs, to accessing the capital markets
in Canada. Given that IRES was founded by a Canadian REIT and most of the
management team have Canadian capital market experience, we are most familiar with the
Canadian prospectus regime. The purpose of this memorandum and our comments on the
Consultation Documentation are not meant to imply that the Canadian short form
prospectus process is appropriate in all respects for European secondary offerings, but are
simply intended to provide the European Commission with a possible alternative
prospectus regime for its consideration.
2.
The Short Form Prospectus System
In Canada, there are two principal types of prospectus that may be utilized in
connection with a non-exempt distribution of securities in Canada:
•
A “long form” prospectus under National Instrument 41-101 – General Prospectus
Requirements; and
•
A “short form” prospectus under National Instrument 44-101 – Short Form
Prospectus Distributions (”NI 44-101”).
A short form prospectus contains all the information that a long form prospectus
contains but in a much more compact form. It achieves this by incorporating by reference
other documents that an issuer would have filed on the System for Electronic Document
Analysis and Retrieval (“SEDAR”) into the short form prospectus, and supplementing the
information incorporated by reference with any more recent information that is necessary
to ensure that the short form prospectus, together with all documents incorporated by
reference, constitutes full, true and plain disclosure of all material facts relating to the issuer
and the securities being offered.
SEDAR is a filing system developed for the Canadian Securities Administrators to:
•
facilitate the electronic filing of securities information as required by Canadian
Securities Administrator;
•
allow for the public dissemination of Canadian securities information collected in
the securities filing process; and
•
provide electronic communication between electronic filers, agents and the
Canadian Securities Administrator.
A short form prospectus is only available to eligible companies. The eligibility
factors are discussed further below.
Generally speaking, the short form prospectus process is used for secondary
offerings while the long form prospectus process is used for initial public offerings.
3.
Short Form Prospectus Eligibility
The basic eligibility criteria for an issuer to be able to use a short form prospectus
are the following:
1.
Issuer must be an electronic filer under SEDAR.
2. Issuer must be a reporting issuer in at least one province or territory of Canada.
3. Issuer must have filed all periodic and timely disclosure documents required to be
filed where it is a reporting issuer.
4. Issuer’s equity securities must be listed on a “short form eligible” exchange (such as
the Toronto Stock Exchange), and is not an issuer who has ceased operations or
whose principal assets are cash or cash equivalents.
5. Issuer has current annual financial statements.
6. Issuer has a current annual information form (“AIF”).
An issuer is not immediately short form eligible. If it meets the eligibility criteria it
must first file on SEDAR a notice declaring its intention to be qualified to file a short form
prospectus. This must be filed at least 10 business days before the date that the issuer
would file a preliminary short form prospectus. The notice is a one time filing, and the
issuer will be noted as being in the short form system once the notice of intention filing is
made. During this period the securities commission may review and comment on the
eligibility status of the issuer filing the notice of intention and may also review and
comment on the issuer’s public disclosure filings.
4.
Documents Incorporated By Reference
A short form prospectus is required to incorporate by reference certain continuous
and timely disclosure documents of the filing issuer. The main documents that are required
to be incorporated by reference in a short form prospectus are:
(a)
a current AIF;
(b)
annual financial statements and management discussion & analysis
(“MD&A”);
(c)
interim financial statements and MD&A filed subsequent to the annual
statements;
(d)
material change reports, if any, since the end of the financial year in respect
of which the issuer’s current AIF is filed;
(e)
any information circular filed since the beginning of the financial year in
respect of which the issuer’s current AIF is filed (except if a subsequent
AGM circular is filed, in which case only the subsequent AGM circular is
required to be incorporated by reference); and
(f)
any business acquisition report (“BAR”) filed by the issuer for acquisitions
completed since the beginning of the financial year in respect of which the
issuer’s current AIF is filed (unless the BAR is already incorporated into the
current AIF or the current annual financial statements incorporates 9 months
of operations from the acquired business).
In addition, any documents required to be incorporated by reference, if filed by the
issuer after the date of the short form prospectus and before the termination of the
distribution, are deemed to be incorporated by reference in the short form prospectus.
The short form prospectus process is possible in Canada given the robust
continuous disclosure regime that exists in Canada, which ensures that investors and
potential investors always have access to current information about the issuer which can be
incorporated by reference into the short form prospectus. If the European Commission
were to consider adopting a short form prospectus process similar to that in Canada, then it
may be necessary to impose additional continuous disclosure obligations. For example,
one key document that is incorporated by reference into a short form prospectus is the
issuer’s AIF. An AIF is required to be filed annually by certain companies. An AIF is a
disclosure document intended to provide material information about a company and its
business at a point in time in the context of its historical and possible future development.
An AIF describes the company, its operations and prospects, risks and other external
factors that impact that company specifically. The disclosure is supplemented throughout
the year by subsequent continuous disclosure filings including news releases, material
change reports, BARs, financial statements and MD&A. Attached as Appendix “A” is a
sample AIF. To our knowledge, no similar document is required to be filed by issuers in
the European Union.
5.
Indicative Short Form Prospectus Timetable
A short form prospectus offering can proceed relatively quickly. The short form
prospectus itself is not a lengthy document (typically 25 pages or less), and its drafting is
not often a critical time delay in proceeding with an offering.
Typically, the one item that that can often delay a short form prospectus offering is
ensuring that any interim statements that are required to be incorporated by reference in
the prospectus have been reviewed by the issuer’s auditors. NI 44-101 prohibits an issuer
from filing a short form prospectus (even if it is eligible) unless any unaudited financial
statements included or incorporated by reference in it have been the subject of an auditors’
or public accountant’s review.
Assuming all eligibility criteria are satisfied, and the issuer can proceed with a
filing, a typical short form prospectus timetable (from Canadian regulatory perspective)
proceeds as follows:
Day
Event
Prior to launch date
Prepare preliminary short form prospectus.
Due diligence activities.
Launch date (LD)
File preliminary short form prospectus and
related supporting documents with securities
commissions where the securities are to be
distributed.
Obtain receipt from securities regulators.
LD + 3 working days
Initial comments on the preliminary short
form prospectus from principal regulator.
LD + 7 working days
Work to resolve comments, if any, with the
principal regulator.
LD + 8 working days
File final short form prospectus and related
supporting documents with securities
commission where the securities are to be
distributed.
Obtain receipt from securities regulators.
LD + 9 working days
Deliver copy of final prospectus to investors.
LD + 11 working days
Statutory rights of recession expire.
LD + 13 working days
Allotment/issuance of securities.
Note that this timetable addresses only principal regulatory events in the use of a
short form prospectus. The timetable may expand due to marketing needs, timing for due
diligence completion, requirements for corporate approvals, or unforeseen regulatory or
commercial events.
Marketing can take place once a preliminary short form prospectus has been filed
and receipted, but not before such time. 1
No securities can be sold until a final short form prospectus has been filed and
receipted.
6.
Conclusion
The foregoing is a summary overview of the requirements needed for an issuer to
become eligible and prepare to file a short form prospectus. It does not purport to cover all
the steps, documents, filings, matters and procedures necessary to successfully conduct and
complete a short form prospectus offering of securities. For more information on the short
form prospectus process, including the information required to be included in a short form
prospectus please refer to the following documents:
•
National Instrument 44 – 101 – Short Form Prospectus Distributions:
http://www.albertasecurities.com/Regulatory%20Instruments/4562222-v1-NI_44101_Short_Form_Prospectus_Deistributions_-_Consolidated_Version_13_Aug_2013.pdf
•
Form 44-101F1 – Short Form Prospectus:
http://www.albertasecurities.com/Regulatory%20Instruments/4562372-v1-NI_44101F1_Short_Form_Prospectus_-_Consolidated_Version_13_Aug_2013.pdf
•
Companion Policy 44-101CP to National Instrument 44-101 – Short Form Prospectus
Distributions:
http://www.albertasecurities.com/Regulatory%20Instruments/4562416-v1Companion_Policy_to_NI_44-101_Short_Form_Prospectus_Distributions__Consolidated_Version_13_Aug_2013.pdf
There is one significant exception to this rule and that is where the transaction proceeds as a “bought deal.”
The “bought deal” is a term of art that describes a situation where the issuer has entered into an enforceable
underwriting agreement before any marketing is done and before a preliminary prospectus is filed. Subject to a
few matters of technical compliance, where a “bought deal” is executed, marketing can take place before the
preliminary short form prospectus is filed but only following the entering into of an enforceable underwriting
agreement, and provided that a receipt is obtained for the preliminary prospectus within 4 business days of
entering the underwriting agreement.
1
Attached as Appendix “B” is a sample short form prospectus that was recently filed by
Canadian Apartment Properties Real Estate Investment Trust on SEDAR.
If you have any questions or comments on any of the foregoing, or would like us to
elaborate or clarify any matter raised in this memorandum please contact David Ehrlich,
Chief Executive Officer, at 416-861-2467 or Elise Lenser, Company Secretary, at 416-3063479.
APPENDIX “A”
Sample Annual Information Form
See separately attached.
APPENDIX “B”
Sample Short Form Prospectus
See separately attached.