Introducing Secura Funds

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1 Introducing Secura Funds TARGETING RETURNS BETWEEN 8% AND 14% P.A. (paid monthly)

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3 1 2 What is the Secura Income Fund? The Secura Income Fund is your opportunity to invest in a mortgage-style loan to a property developer or property investor. All investments in the Fund are secured by mortgages over real property held by Secura Funds on behalf of investors. In return, you receive an interest rate on your invested funds. Typically, you will receive interest on a monthly basis and are likely to be invested for between 12 to 18 months. Your loan investment in our contributory fund option is secured by a mortgage over real property. Depending upon your selected option, the loan will be secured by either a 1 st mortgage (known as senior debt ) or a 2 nd mortgage (often called mezzanine debt ). Alternatively in our portfolio option you invest in a portfolio of loans on a longer term basis, (also secured by a mortgage), but without you having to consider each individual mortgage. Investing in Secura Funds income fund is open to just about anyone in Australia, including Self-Managed Superannuation Funds (SMSFs), trustees and companies, as long as you are a wholesale investor. Who we are Secura Funds Ltd is a funds management business and non-bank financier, established to raise money direct from investors and to provide construction and financing loans to property developers and other property-based Borrowers through the Secura Income Fund. Secura Funds has three directors - Peter Rawling, Pas Franzese and Chris Drummond. It holds an Australian Financial Services Licence (No ) and is the manager of the Secura Income Fund. Peter Rawling is the managing director of Secura Funds and has a legal background specialising in financing and corporate areas, with experience relevant to the mortgage and securities industry going back more than 30 years. He is a Responsible Manager for the purposes of Secura Funds AFSL. Both Pasquale Franzese and Chris Drummond have over 30 years experience in banking, property finance, investments and management. Pas was previously a senior manager at National Australia Bank where he was involved in a variety of large scale property acquisition and financing projects. Pas is also one of our Responsible Managers and is the Compliance Officer for Secura Income Fund. Chris is a former senior executive of the Commonwealth Bank of Australia and is a non-executive director of Secura Funds.

4 3 What else you need to know Mortgage A mortgage is a legal charge over real estate. The mortgage grants legal rights to the lender (you, through Secura Funds) over the property and provides security for payment of interest and the principal of the loan amount. Loan to Value Ratio (LVR) LVR is an acronym that is used a great deal when discussing property developments. Simply put, it is the ratio (R - ratio) of the amount of a loan (L loan) to the value of the property (V value). It is an important ratio because it provides some insight into the level of debt taken on by the property developer in order to complete the project. Most importantly, the LVR indicates to senior and mezzanine debt investors how much residual value remains in the property. In the example below, for senior debt holders the residual value remaining in the property is $1.2M ($2.8M less $1.6M) and for mezzanine debt holders, the residual value is $800K ($2.8M less $2.0M). Therefore, because of the residual value in the property, both senior and mezzanine debt holders are more likely to receive their funds back in the event of a default by the Borrower. Collateral Property In some loans, we may decide that additional security is needed for our investors. We require the Borrower to provide additional security by way of a mortgage over other property not related to the development, including perhaps the Borrower s home or other investment property. This is called Collateral Property. For Collateral Property, we would generally take a second mortgage behind a first mortgage to a Bank. By taking a mortgage over Collateral Property, we are effectively improving the LVR because there is more security coverage for our loan. Senior debt (1 st mortage) Mezzanine debt (2 nd mortage) The senior debt must be added to the ratio Senior Debt Property Value $1,600,000 $2,800,000 = 57.1% LVR Senior Debt + Mezzanine Debt Property Value $1,600,000 + $ 400,000 $2,800,000 = 71.4% LVR

5 Who LVR Typical Return* Payment Priority Equity Borrower (Property Developer or a syndicate) At least 20% Upwards of 18% p.a. Last to be paid Mezzanine Secura 2 nd Mortgage Additional 15% (LVR = 80%) 12% to 14% p.a. 1 Paid after senior debt Senior Debt Secura 1 st Mortgage Up to 65% 8% to 9% p.a. 1 Paid first The Real Estate Capital Stack 1 For Secura contributory option *Past returns are not an indication of future returns Capital Structure Typically a property development will have various forms of capital, or, in other words funds available to it in order to complete the project. This is sometimes called a capital stack and each level of capital has an expected rate of return. This return is based on where each form of capital stands in the pecking order, should the project be liquidated before completion. Finally, there is the Borrower. This may be an individual developer or a syndicate of equity investors organised by a third party investment promoter unrelated to Secura. These investors are the last to be paid. Returns are higher but so are the risks. Even when the project is completed, the returns may not be as high as expected if there are cost overruns or if sales revenue targets are not met. This is generally not the case of senior or mezzanine debt holders because they are paid first and have an agreed upon rate of return. As you can see from the diagram above, investors in senior debt can expect a rate of return (in a Secura contributory mortgage of between 8% to 9%). This rate of return is lower than equity and mezzanine debt because their loan to the property developer is secured against a 1 st mortgage. In other words, if the property is to be sold before completion, 1 st mortgage holders will be paid first so their risk is less. Subsequently, once 1 st mortgage holders are paid out, mezzanine debt holders (with their second mortgage) will be paid out. For the additional risk they receive a higher interest rate of between 12% to 14%. After that, the Borrower or syndicate takes the balance, at a rate reflecting the risks taken by them. 4 You re in control In our contributory fund option, you are in control of each individual investment choice. Simply put, this means you choose which investment opportunity you wish to invest in. Once you qualify with Secura Funds, we will provide you with investment opportunities on a regular basis through our Mortgage Summaries.

6 5 Why invest with us The benefits of an investment in a Secura Income Fund include: Monthly income Our investments typically provide for payment of monthly interest, targeting at least 8% p.a. for 1 st mortgage loans and 12% for 2 nd mortgage loans in our contributory scheme. Our Portfolio Fund targets a slightly lower return, with a variable rate for longer term investment Due Diligence Investing in mortgage income funds through Secura Funds gives you the benefit of our experience and adherence to a rigorous due diligence process when determining what opportunities to present to our investors. Independent Investment Committee Secura Funds has an experienced independent investment committee who approve all loans before we allow investors to participate. Experience Our directors have over 100 years of combined experience in the banking, finance and property market. This experience has been fostered in Secura Funds now for 6 years. We are proud to say that in that time our investors have participated in funding over $75 million in property development loans, related to project values in excess of $250 millon. Network of trusted advisors Throughout their years in the investment business, Secura Fund s directors have built a strong network of trusted advisors including valuers, real estate agents, quantity surveyors, project managers and builders who can be called upon to advise on the merits of a particular property development. Relationships have also been built with property developers themselves who can deliver property developments on time and on budget. Investor Reporting Throughout the life of the property development we will endeavour to keep investors up to date on the status and activities relevant to their investment. Layers of Protection If necessary in the event of a loan default, Secura Funds can take appropriate steps to maximise the prospect that our investors are protected and funds are repaid. This includes selling the property and/or acting to secure other real property assets held by the loan guarantors. No Start-up or Management Fees You will not pay fees to make an investment in the Secura Income Fund. Secura Funds charges its establishment and monthly management fees to our Borrowers. Risk comes from not knowing what you re doing Warren Buffett

7 6 7 How we make loans How to invest When you select an investment in a contributory investment option of the Secura Income Fund, you are investing in a specific loan taken out by a Borrower, known as a Sub Scheme. Your return will be reflected in the interest paid on that loan. Borrowers approach Secura Funds to secure loans for property construction or to finance the purchase of a property. Typically, they are small to midsized commercial property developers. Secura Funds carefully assesses each Borrower and each loan against strict lending criteria, ensuring the loan is suitable for investment purposes. Our loans are at fixed interest rates. Rates are not standard, they are negotiated individually for each loan. To help protect you as an investor, the loan is secured by a registered 1 st or 2 nd mortgage over Australian property. In most cases, interest payments from the Borrower are passed directly to the investor on a monthly basis and paid into the investor s nominated bank account. Once the Borrower has repaid the loan, an investor s funds are promptly repaid into a trust account managed by Secura Funds. You can then withdraw the funds, or can reinvest your funds in another Sub Scheme (contributory option) or in the Portfolio option. To invest in the Secura Income Fund, you must obtain a copy of our Information Memorandum, read it in full, and then complete the Application Form attached to the Information Memorandum to become a member of the Fund. Investment is open to all types of investors; individuals, companies, trusts, self managed superannuation funds (SMSFs), and any other form of legal entity operating in Australia can invest. To invest in the Fund, you need to be a wholesale investor (as defined in s761g of the Corporations Act). The minimum investment in a Sub Scheme is $50,000. Secura Income Fund Contributory Options For the Contributory investment option, you must choose a particular Sub Scheme (or multiple Sub Schemes) for your investment, based upon the Mortgage Summary that contains detailed information about that Sub Scheme offered. Whether you choose to invest in any particular Sub Scheme, is completely up to you. Secura Income Fund Portfolio Option Secura Funds has recently launched a Portfolio option. You can choose to leave your investment funds in a general portfolio offering a variable rate of return for a specified period, and roll that investment over at the end of the investment term, so that your funds are always invested at a rate of interest.

8 How secure is an investment in the Secura Income Fund? Your investment in a Sub Scheme is secured by a registered mortgage over real property that has been independently valued. The Loan to Valuation Ratio (LVR) is disclosed in the Mortgage Summary. If a loan goes into default, Secura Funds takes formal steps to have the Borrower rectify the default. If the default is not rectified, Secura Funds can take control of the Sub Scheme property and may sell it, with net proceeds of the sale being returned to you. Prior to deciding to invest, you should read our Information Memorandum (particularly Section 7 Risks of investing ) and each Mortgage Summary in their entirety and consider the risk factors that could affect the performance of each Sub Scheme. You should note that the Information Memorandum and Mortgage Summaries have not been prepared with the objectives, financial situation or particular needs of any particular person or class of persons in mind. Secura Funds recommends that you obtain independent advice from an appropriately qualified person(s) in relation to any proposed investment to be made with us. Secura Funds is not licensed to provide personal financial product advice to investors. Return of capital and payment of interest on funds invested in Sub Schemes are not guaranteed by Secura Funds. For more information If you have any questions about the Secura Income Fund or would like a copy of our Information Memorandum, please contact Secura Funds Secura Funds Ltd AFSL No Level 3, 171 La Trobe Street, Melbourne VIC 3000 Ph: Fax: invest@securafunds.com.au