Sunrise Senior Living Real Estate Investment Trust - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted from the requirement to file certain financial statements with a business acquisition report provided that the business acquisition report will include the financial statements pertaining to the acquired business that were included in the final prospectus, and provided that certain financial statements are filed separately with the securities regulatory authorities.

Rules

National Instrument 51-102 -- Continuous Disclosure Obligations.

March 8, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO, QUEBEC, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR

AND NEW BRUNSWICK

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SUNRISE SENIOR LIVING REAL ESTATE INVESTMENT TRUST (the Filer)

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of Alberta, Saskatchewan, Manitoba, Ontario, Québec, Nova Scotia, Newfoundland and Labrador, and New Brunswick (the Jurisdictions) has received an application from the Filer for:

(i) a decision pursuant to the securities legislation (the Legislation) of Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, Newfoundland and Labrador, and New Brunswick granting an exemption from the requirement contained in section 8.4 of National Instrument 51-102 (NI 51-102), to file the BAR Financial Statements (as defined in paragraph 16), in connection with the Filer's acquisition of senior living facilities located in Canada and the United States (the Requested Relief), and

(ii) in Québec, for a revision of the general order dated March 26, 2004, which revision will provide the Requested Relief.

Under the Mutual Reliance Review System for Exemptive Relief Applications (the MRRS):

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

(b) the MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions or in Québec Commission Notice 14-101.

Representations

The decision is based on the following facts represented by the Filer:

1. 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 August 13, 2004, as amended and restated by a declaration of trust made as of November 11, 2004.

2. The Filer is a reporting issuer, or the equivalent, in each of the Jurisdictions and, to the best of its knowledge, is currently not in default of any applicable requirements under the Legislation.

3. The Filer is also a reporting issuer, or the equivalent, in Prince Edward Island, the Yukon, the Northwest Territories, Nunavut, and British Columbia, but an application has not been made in those jurisdictions for the Requested Relief. This is because British Columbia Securities Commission Implementing Rule 51-801 exempts issuers from Part 8 of NI 51-102 in British Columbia, and NI 51-102 has not been adopted in the other jurisdictions.

4. On December 13, 2004, the Filer filed a final prospectus (the Prospectus) in each of the provinces and territories of Canada in connection with an offering of units (the Offering), qualifying 24,624,290 units for total gross proceeds of $246,242,900. The proceeds of the Offering were used to finance, in part, the Acquisition (as defined in paragraph 9).

5. On December 23, 2004, the Filer closed the Offering.

6. On January 10, 2005, the underwriters exercised their over-allotment option, and the Filer issued an additional 2,462,429 units for additional gross proceeds of $24,624,290 (for total gross proceeds from the Offering of $270,867,190).

7. The Filer's units are listed on the Toronto Stock Exchange.

8. The financial year-end of the Filer is December 31.

9. Concurrently with the closing of the Offering on December 23, 2004, the Filer indirectly acquired interests in 23 income-producing senior living facilities (or the entities that own such senior living facilities) located in Canada and the United States (each, a Property), three of which were acquired from Sunrise Senior Living, Inc. (Sunrise), a Delaware Corporation and the promoter of the Filer, and 20 of which were acquired from joint ventures comprised of various unrelated third-party vendors and Sunrise. Collectively, the indirect acquisition by the Filer of these 23 Properties and the Sunrise Aurora Property (as defined below) is referred to herein as the Acquisition.

10. Fifteen of the Properties are located in the United States, in which the Filer indirectly acquired an approximate 85% interest. Sunrise retained an approximate 15% interest in these 15 U.S. Properties. The acquisition of these 15 properties is described below:

(a) The Filer indirectly acquired five of these U.S. Properties (the U.S. Pool 1) by way of the acquisition of all of the issued and outstanding membership interests in AL III Investment, L.L.C. from a certain joint venture comprised of unrelated third parties and Sunrise,

(b) The Filer indirectly acquired eight of these U.S. Properties (the U.S. Pool 2) by way of the acquisition of all of the issued and outstanding ownership interests in Property-related limited liability companies owned by Sunrise-SHP Pool Partnership from a certain joint venture comprised of unrelated third parties and Sunrise, and

(c) The Filer indirectly acquired the remaining 2 United States Properties (the Sunrise U.S. Properties) by way of the purchase of these Properties themselves from Sunrise.

11. Eight of the Properties are located in Canada, in which the Filer indirectly acquired a 100% interest. The acquisition of these 8 properties is described below:

(a) The Filer indirectly acquired seven of these Canadian Properties (the Sunrise Canadian Pool) by way of the purchase of these Properties themselves from a certain joint venture comprised of unrelated third parties and Sunrise, and

(b) The Filer indirectly acquired the remaining Canadian Property (the Sunrise Burlington Property) by way of the purchase of this Property itself from Sunrise.

12. The Filer also indirectly acquired an 80% interest in a Property located in Aurora, Ontario (the Sunrise Aurora Property) by way of the purchase of this Property itself from Sunrise. Sunrise retained an approximate 20% interest in the Sunrise Aurora Property.

13. The Sunrise U.S. Properties, the Sunrise Burlington Property and the Sunrise Aurora Property are collectively referred to as the Sunrise Senior Living Pool.

14. The Filer also has an option to acquire from Sunrise an 80% interest in two properties located in Erin Mills, Ontario and Staten Island, New York, which Properties are currently under development (each, a Development Property). On closing of the Offering, the Filer provided mezzanine loan financing to Sunrise to finance the development of the Development Properties. The Filer did not acquire an ownership interest in any of these Development Properties.

15. The Acquisition constitutes a "significant acquisition" of the Filer for the purposes of NI 5I-102, which means that the Filer must file a business acquisition report on or before March 8, 2005, in accordance with sections 8.2 and 8.5(1)2 of NI 51-102.

16. Under section 8.4 of NI 51-102, the Filer's business acquisition report must be accompanied by certain financial statements relating to the Acquisition, including interim financial statements for the Acquisition for the nine-month periods ended September 30, 2004 and 2003 (the Acquisition Financial Statements) and pro forma financial statements for the Filer for the nine-month period ended September 30, 2004 (the Pro Forma Acquisition Financial Statements and, together with the Acquisition Financial Statements, the BAR Financial Statements).

17. OSC Rule 41-501 (Rule 41-501) and Form 41-501F1 set out the financial statements required to be included in a long form prospectus, including financial statements relating to "significant acquisitions."

18. The Prospectus includes the following financial information for the Filer:

(a) an audited balance sheet of the Filer as at August 13, 2004 with the auditors' report (the Filer Balance Sheet),

(b) pro forma consolidated financial statements of the Filer as at August 31, 2004 and for the eight-month period ended August 31, 2004 and for the year ended December 31, 2003 with a compilation report, and

(c) a consolidated statement of forecasted net income for the Filer for the three-month periods ending March 31, 2005, June 30, 2005, September 30, 2005 and December 31, 2005 and for the year ending December 31, 2005 with the auditors' report (the Forecast).

19. With respect to U.S. Pool 1, the Prospectus includes audited financial statements of AL III Investments, L.L.C. as at December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, with the auditors' report, and unaudited financial statements for the eight-month periods ended August 31, 2004 and 2003.

20. With respect to U.S. Pool 2, the Prospectus includes audited combined financial statements of Sunrise-SHP Pool Partnership as at December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, with the auditors' report, and unaudited combined financial statements for the eight-month periods ended August 31, 2004 and 2003.

21. With respect to the Sunrise Canadian Pool, the Prospectus includes audited combined financial statements of the Sunrise Canadian Pool as at December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, with the auditors' report, and unaudited combined financial statements for the eight-month periods ended August 31, 2004 and 2003.

22. With respect to the Sunrise Senior Living Pool and the Development Properties, the Prospectus includes audited combined financial statements of the Sunrise Senior Living Pool and the Development Properties as at December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, with the auditors' report, and unaudited combined financial statements for the eight-month periods ended August 31, 2004 and 2003.

23. The financial statements of the Filer (other than the Filer Balance Sheet and Forecast), the financial statements of U.S. Pool 1, the financial statements of U.S. Pool 2, the financial statements of the Sunrise Canadian Pool, and the financial statements of the Sunrise Senior Living Pool are contained in the Prospectus, and are collectively referred to as the Prospectus Financial Statements.

24. The Filer included interim financial statements of the Acquisition in the prospectus for the eight-month periods ended August 31, 2004 and 2003 rather than interim financial statements for the six-month periods ended June 30, 2004 and 2003.

25. The Prospectus was filed 10 days prior to the closing of the Acquisition.

26. Except for the closing of the Offering on December 23, 2004, and as otherwise disclosed in the Prospectus, there were no material facts or material events relating to the Properties that arose from August 31, 2004 (the date of the most recent Acquisition-related financial statements included in the Prospectus), to December 23, 2004 (the closing date of the Acquisition).

27. The Filer will include, in both its interim and annual MD&A for the fiscal year ended December 31, 2005 (Fiscal Year 2005) a comparison between actual financial results for Fiscal Year 2005 and the Forecast. The Filer will also, where applicable under the Legislation, provide quantitative disclosure relating to the Properties (i.e., actual 2004 financial results) in its discussion of trends, risks and uncertainties in both the interim and annual MD&A for Fiscal Year 2005.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) the Filer's business acquisition report includes the Prospectus Financial Statements; and

(b) the Filer files the Acquisition Financial Statements as soon as practicable.