No.1 HEATHLEY AGED CARE PROPERTY FUND PRODUCT DISCLOSURE STATEMENT ARSN

Transcription

1 HEATHLEY AGED CARE PROPERTY FUND No.1 PRODUCT DISCLOSURE STATEMENT ARSN

2 X CONTENTS HEADER PAGE HOW TO INVEST 1 DIRECTORY 2 LETTER FROM THE MANAGING DIRECTOR 3 1. INVESTMENT OVERVIEW 4 2. BENCHMARKS AND DISCLOSURE PRINCIPLES INFORMATION 8 3. FUND OFFER AND STRUCTURE INVESTMENT RATIONALE PORTFOLIO PROPERTIES THE MANAGER HEATHLEY ASSET MANAGEMENT LIMITED FORECAST FINANCIAL INFORMATION FEES AND OTHER COSTS TAXATION RISKS OTHER INFORMATION GLOSSARY APPLICATION FORMS 65 APPLICATION FORM INDIVIDUAL 67 APPLICATION FORM COMPANY 69 APPLICATION FORM TRUST OR SUPERANNUATION FUND 73 APPLICATION FORM EXISTING HACPF1 INVESTOR 77 Capitalised terms used in this PDS have been defined in the Glossary on pages 61 to 64 of this PDS. PAGE 2 HEATHLEY ASSET MANAGEMENT LIMITED

3 HOW TO INVEST STEP 1 READ THIS PDS You should read this PDS in full before deciding whether to invest in the Fund and if you are in any doubt, you should consider consulting your professional advisers. The information contained in this PDS is of a general nature only. It has been prepared without taking into account your particular investment objectives, personal circumstances, financial situation or needs. Heathley does not guarantee any income or capital return from the Fund. There can be no assurance that the Fund will achieve results that are consistent with the Forecast Financial Information in this PDS or the investment performance of previous investments or that the investment objectives for the Fund will be achieved. STEP 2 CONSULT YOUR ADVISER When making decisions in relation to your own personal circumstances and objectives, you may wish to seek independent professional financial advice. This PDS is also not intended to be, and should not be construed in any way as, investment, legal or financial advice. You should consider consulting your financial adviser, stockbroker or other professional advisers before deciding whether to invest. STEP 3 COMPLETE THE APPLICATION FORM AND RETURN IT TO HEATHLEY Investors may apply for Units in the Fund by completing and returning the relevant Application Form on Pages 65 to 84 of this PDS. There are four different Application Forms 1. Individual/Joint Application Form 2. Company Application Form 3. Trust or Superannuation Fund Application Form 4. Existing HACPF1 Investor Investors must sign the Foreign Account Tax Compliance Act (FATCA) and Signatories Form on pages 82 to 84 and include details of their nominated bank account into which Distributions will be paid. Completed Application Forms and Signatory Form should be sent to the following address Heathley Asset Management Limited c/o Link Market Services Limited PO Box 3721 Rhodes NSW 2138 For further information please contact invest@heathley.com.au PAGE 1

4 DIRECTORY HEATHLEY AGED CARE PROPERTY FUND NO.1 ARSN APIR Code HTH0020AU MANAGER AND RESPONSIBLE ENTITY Heathley Asset Management Limited ABN AFSL APIR Code HTHX100AU REGISTERED OFFICE OF THE MANAGER Heathley Asset Management Limited Level 7, 56 Clarence Street Sydney NSW 2000 Telephone: Facsimile: heathley@heathley.com.au Web site: REGISTRY Link Market Services Limited PO Box 3721 Rhodes NSW 2138 Telephone: Facsimile: (02) heathley@linkmarketservices.com.au AUDITOR KPMG TAXATION ADVISOR Greenwoods & Herbert Smith Freehills CUSTODIAN OF THE FUND The Trust Company (Australia) Limited ACN AFSL LAWYERS FOR THE MANAGER Clayton Utz About this Product Disclosure Statement This Product Disclosure Statement (PDS) relates to the Heathley Aged Care Property Fund No.1 ARSN (Fund) and the offer of Units in the Fund (Offer). The responsible entity of the Fund, and the issuer of Units in the Fund, is Heathley Asset Management Limited ABN , AFSL (the Responsible Entity or Manager or HAML or Heathley). This PDS was prepared by the Manager and is dated 8 March Information is provided as at the date of the PDS except where otherwise indicated. PDS Updates The information in this PDS is up to date at the time of preparation. However, some information which is not materially adverse may change from time to time, and where this occurs, the Manager will make the updated information available on the Manager s web site at A paper copy is also available on request, free of charge. In certain circumstances, the Manager may also issue a supplementary product disclosure statement, which would need to be read together with this PDS. Any person receiving this PDS electronically should note that applications can only be accepted if the Manager receives a completed Application Form which was included in or accompanied the electronic or paper copy of this PDS. This PDS contains general advice only and does not therefore take into account your particular investment needs, objectives and financial and taxation circumstances. Accordingly, before you make an investment, you should read this PDS (and any supplementary product disclosure statement) carefully and in its entirety and you should obtain independent financial and taxation advice about whether an investment in the Fund is suitable for you. Past performance is not indicative of future returns. The Fund will comply with its continuous disclosure obligations by making certain material information available on its website at in accordance with ASIC Regulatory Guide 198 Unlisted disclosing entities: Continuous disclosure obligations. No cooling off rights No cooling-off rights apply to a subscription for Units in the Fund. This means that an Investor cannot withdraw an application for Units once it has been accepted. Offer only in Australia This PDS may only be used by Investors receiving it (electronically or otherwise) in Australia. No representation other than in this PDS You should only rely on the information in this PDS when deciding whether to invest in the Fund. No person is authorised to give any information or make any representation in connection with the Fund that is not contained in this PDS. Any information or representation not contained in this PDS may not be relied upon as having been authorised by the Manager in connection with the Fund. Pictures of properties in this PDS Unless stated otherwise, all pictures of properties in this PDS are either actual pictures or artists impression of properties which are held by, or are contracted to be acquired by the Fund. Defined terms and financial information Certain terms used in this PDS have been defined in the Glossary of this PDS in Section 12. Unless otherwise stated or implied, references to dates or years are financial year references. Currency amounts are in Australian dollars unless otherwise stated. Any discrepancies between the totals and sums and components in tables contained in this PDS are due to rounding. PAGE 2 HEATHLEY ASSET MANAGEMENT LIMITED

5 LETTER FROM THE MANAGING DIRECTOR 8 March 2017 Dear Investors On behalf of Heathley Asset Management Limited, I am pleased to invite you to consider the Heathley Aged Care Property Fund No.1 (Fund), a Fund which the Manager believes has long term, robust investment metrics coupled with exposure to the growth of Australia s ageing population. The residential aged care sector is a growing part of the provision of health care services in Australia, with a number of attractive drivers, including: ~ ~ an increasing number of elderly citizens, driven by increased life expectancy and the ageing of the baby boomer generation; ~ ~ high barriers to entry and the low threat of substitutes; ~ ~ attractive and sustainable government funding, with approximately 69% of revenue currently being provided by the Federal government; and ~ ~ strong operator occupancy rates, with industry wide rates of >92% for the past 15+ years. The Fund will acquire residential aged care properties located throughout Australia, targeting a portfolio to a value of up to $200 million (excluding costs) which will be diversified by operator and location. The Fund will be well positioned to benefit from the trend to securitise Australian residential aged care properties. The Fund initially acquired five (5) residential aged care properties in South Australia, on a sale and leaseback arrangement from Infinite Care, a specialist high care, residential aged care operator. The Fund settled the Properties on 15 October Infinite Care leased the Properties for an initial 20-year term which will support long term income growth for the Fund. The Fund acquired the following properties in January/ February 2017 on a sale and leaseback arrangement from Group Homes Australia: The Portfolio is largely comprised of existing facilities, however the Fund will pay for all the development works carried out at 81 Fairlawn Avenue, Turramurra. In addition, the Manager will fund refurbishment works completed by Infinite Care at the five aged care properties located in Adelaide. The Fund has a Target Investment Term of eight (8) years, which will comprise a three (3) year Investment Period and a five (5) year Portfolio Management Period. At the end of the Portfolio Management Period, Investors will be asked to vote on the windup of the Fund and to pursue one of the multiple exit strategies or to extend the Fund. There will be no redemption facility during the Fund s Target Investment Term. The Fund is forecast to deliver a pre-tax Income Distribution Yield of 7.70 cents per unit for the financial year ending 30 June 2017 and 7.60 cents per unit for the financial year ending 30 June For the quarters ending March 2017 and June 2017, the distribution is anticipated to be 7.40 cents per unit (annualised). Please refer to Section 7 for more detail. It is important that you read this PDS carefully, including Section 10 (which sets out some of the key risks relating to investing in the Fund) before making your decision to invest. You should seek your own advice from financial, taxation or other professional advisers if necessary. We look forward to welcoming you as an Investor in the Fund. Yours sincerely ~ ~ 46 Carrington Road, Waverley, NSW; ~ ~ 81 Fairlawn Avenue, Turramurra, NSW; and ~ ~ 98 Alameda Way, Warriewood, NSW. Group Homes Australia is a leading high quality dementia care residential accommodation provider in Australia. Andrew Hemming Managing Director Heathley Asset Management Limited PAGE 3

6 1 INVESTMENT OVERVIEW FEATURE DESCRIPTION SECTION HEATHLEY AGED CARE PROPERTY FUND NO.1 The Heathley Aged Care Property Fund No.1 (Fund) is an unlisted direct property fund which will invest in residential aged care properties located throughout Australia (Property or Properties). The Fund will invest in Properties which are situated in locations that have demographics supportive of demand for residential aged care. 5 RESPONSIBLE ENTITY Heathley Asset Management Limited (HAML) is the Responsible Entity, the Manager and the issuer of the Units in the Fund. 6 PORTFOLIO PROPERTIES The Fund currently has an interest in eight (8) residential aged care properties: ~ ~ 50 Gulfview Road, Christies Beach SA ~ ~ 1a Main Street, Hahndorf SA ~ ~ Fox Avenue, Klemzig SA ~ ~ 3-5 Grant Avenue, Gilles Plains SA ~ ~ 470 Churchill Road, Kilburn SA ~ ~ 81 Fairlawn Avenue, Turramurra NSW ~ ~ 98 Alameda Way, Warriewood NSW ~ ~ 46 Carrington Road, Waverley NSW 5 INVESTMENT STRATEGY The Manager intends to build a Portfolio up to the value of $200 million, and manage the Properties with the aim of providing Investors with a stable income return and the potential for capital growth. All Properties will be assessed by the Manager in accordance with the Fund s investment criteria prior to inclusion in the Portfolio. To achieve the Investment Strategy, the Manager will aim to acquire Properties which are diversified by operator and location, with long term leases in place, and multiple exit strategies. 3.5 PAGE 4 HEATHLEY ASSET MANAGEMENT LIMITED

7 FEATURE DESCRIPTION SECTION TARGET INVESTMENT TERM The Fund has a Target Investment Term of eight (8) years, which comprises: ~ ~ an Investment Period of three (3) years, during which the Manager will aim to acquire Properties up to the value of $200 million. The Fund intends to continue to raise equity for the duration of the Investment Period, until the target Portfolio value of up to $200 million is achieved; and ~ ~ a Portfolio Management Period of five (5) years, during which the Properties will be actively managed by the Manager in conjunction with the operators. Prior to the completion of the Target Investment Term, the Manager will either recommend to Investors that the Fund dispose of the Properties as soon as practicable following the Target Investment Term, or that the term of the Fund be extended for a further period of up to two (2) years. Any extension will require approval by a Special Resolution of Investors. In the alternative, the Manager may also recommend that the Fund be listed to facilitate liquidity for Investors. The Manager may also recommend to Investors that the Fund dispose Properties prior to the conclusion of the Target Investment Term. Other than in respect of the Buyback, this would require approval by Special Resolution of Investors. 3.6 LIQUIDITY There will be no redemption opportunities during the Target Investment Term. As there is no assured secondary market for Units in the Fund, Investors should consider their investment as medium to long term and illiquid. 3.7 FORECAST INCOME DISTRIBUTION AND YIELD The Manager forecasts pre-tax income Distributions and yields of: FY17 FY18 Income Distribution (cents per Unit) Income Distribution Yield (%) 7.70% % The Forecast Financial Information in this PDS has been prepared in respect of the Fund s current Portfolio only. If additional Properties are acquired, the Forecast Financial Information will change. Please refer to the Fund s website for updated information. The Fund will pay Distributions quarterly in arrears, with the record date for such Distributions being 31 March, 30 June, 30 September and 31 December. Investors should carefully consider the key risks as set out in this PDS. Changes in the Portfolio, interest rates, the level of Fund gearing, portfolio occupancy and other risk factors may influence the actual Income Distribution Yield. Neither the Manager, the Custodian nor their respective associates and directors guarantee forecast returns from the Fund. 7 1 For the quarters ending March 2017 and June 2017, the distribution is anticipated to be 7.40 cents per unit (annualised). PAGE 5

8 1 INVESTMENT OVERVIEW CONTINUED FEATURE DESCRIPTION SECTION FORECAST TAX DEFERRED INCOME 2 The Manager anticipates that Distribution payments to Investors will include some tax deferred amounts. 3.12, 7.4, 9.8, 9.9 RISKS There are various risks associated with an investment in the Fund including: ~ ~ Fund specific risks; ~ ~ general investment risks; and ~ ~ Manager risk. In particular, if the tenant defaults and the lease is terminated, depending on the circumstances, there is a risk that the Fund may not be able to secure an alternative tenant on terms comparable with the existing lease. This may have an adverse impact on the financial position of the Fund and investors (refer Section ). Prospective Investors should carefully consider all risks before investing in the Fund and should also read and consider Section 10 of this PDS. 10 TARGET GEARING RATIO The Fund has a target gearing ratio (Target Gearing Ratio) of 45%. The gearing as at 31 December 2016 was 38.9%. 2.1, 2.2, 3.9 MINIMUM APPLICATION AMOUNT The Minimum Application Amount is $25,000 and thereafter in multiples of $5,000. The Manager reserves the right to accept applications for lower amounts (or to vary the Minimum Application Amount) from time to time. 3.4 THE OFFER During the balance of the Investment Period, the Manager will seek to raise additional equity (Offer). Existing Investors may participate in additional equity raisings. The equity from additional equity raisings, together with additional borrowings, will be used to fund the acquisition of additional Properties, the Manager intends to build the Fund s Portfolio up to $200 million. 3.1 OFFER OPEN DATE 8 March OFFER CLOSE DATE 24 September 2018 or such earlier or later date determined by the Manager Under current taxation law, income distributions to Investors may comprise a combination of any available tax free, tax deferred and tax assessable components. Tax free distributions include the capital gains tax (CGT) discount, if applicable, depending on the type of Investor. Tax deferred income will comprise that income which is sheltered by plant and equipment depreciation and by building allowances. PAGE 6 HEATHLEY ASSET MANAGEMENT LIMITED

9 FEATURE DESCRIPTION SECTION ISSUE PRICE Units will be issued at the NAV Per Unit of the Fund plus the Transaction Costs (which includes stamp duty and other property acquisition and Fund costs). For the calculation of the issue price, only independent valuations will be taken into account. The Net Asset Value may increase or decrease based on the change in valuation of the Properties. The Net Asset Value per Unit was $ as at 31 December The Properties will be valued at regular intervals in accordance with the Manager s Direct Property Valuation Policy. 3.3, 7.3 FEES AND OTHER COSTS 3 There are certain one-off and ongoing fees and other costs payable to the Manager in relation to an investment in the Fund. 8 HOW TO APPLY All applications for an investment in the Fund must be made on the relevant Application Form included in or accompanying this PDS. The completed Application Form and required certified AML/CTF Law documents together with the Application Amount must be lodged with the Manager. The Application Amount will be placed in an interest bearing account until Units are issued. The interest accrued in the trust account will revert to the Fund. The Manager reserves the right to accept or reject, in whole or in part, any application for Units The fees and other costs are shown inclusive of GST less all input tax credits (including reduced input tax credits). PAGE 7

10 2 BENCHMARKS AND DISCLOSURE PRINCIPLES INFORMATION The Australian Securities and Investments Commission (ASIC) has developed six (6) benchmarks and eight (8) disclosure principles for unlisted property schemes to assist investors in understanding the risks and deciding whether the investment is suitable for them. These benchmarks and disclosure principles are set out in Regulatory Guide 46 Unlisted Property Schemes improving disclosure for retail investors, which is available on ASIC s website at The table below summarises the required disclosure information and indicates where you can find further information in this PDS relating to the benchmarks and disclosure principles BENCHMARKS BENCHMARK BENCHMARK 1 ~ GEARING POLICY SECTION N/A Benchmark 1 requires that the responsible entity maintains and complies with a written policy that governs the level of gearing at an individual credit facility level. The Manager meets this benchmark. The Manager has adopted and maintains and complies with a written Financial Risk Management Policy for the Fund that governs the level of gearing for an individual debt facility. BENCHMARK 2 ~ INTEREST COVERAGE POLICY N/A Benchmark 2 requires that the responsible entity maintains and complies with a written policy that governs the level of interest cover at an individual credit facility level. The Manager meets this benchmark. The Manager has adopted and maintains and complies with a Financial Risk Management Policy for the Fund that governs the minimum interest cover. BENCHMARK 3 ~ INTEREST CAPITALISATION N/A Benchmark 3 requires that the interest expense of the scheme is not capitalised. The Manager will meet this benchmark. The interest expenses of the Fund will not be capitalised. PAGE 8 HEATHLEY ASSET MANAGEMENT LIMITED

11 BENCHMARK BENCHMARK 4 ~ VALUATION POLICY Benchmark 4 requires that the Manager maintains and complies with a written valuation policy that requires: (a) a valuer to: (i) be registered or licensed in the relevant state, territory or overseas jurisdiction in which the property is located (where a registration or licensing regime exists), or otherwise be a member of an appropriate professional body in that jurisdiction; and (ii) be independent; (b) procedures to be followed for dealing with any conflicts of interest; (c) rotation and diversity of valuers; (d) valuations to be obtained in accordance with a set timetable; and (e) for each property, an independent valuation to be obtained: (i) before the property is purchased: (A) for a development property, on an as is and as if complete basis; and (B) for all other property, on an as is basis; and (ii) within two months after the directors form a view that there is a likelihood that there has been a material change in the value of the property. SECTION 3.11, 5.5 The Manager meets this benchmark. The Manager has adopted and maintains and complies with a written Direct Property Valuation Policy for the Fund. Please refer to Section 3.11 for a summary of the Direct Property Valuation Policy. BENCHMARK 5 ~ RELATED PARTY TRANSACTIONS Benchmark 5 requires that the Manager maintains and complies with a written policy on related party transactions, including the assessment and approval processes for such transactions and arrangements to manage conflicts of interest The Manager meets this benchmark. The Manager has adopted and maintains and complies with a Conflicts of Interest and Related Party Transactions Policy to ensure that any related party transaction entered into by the Manager or a related party, is on arm s length terms and is monitored on a regular basis. Please refer to Section 3.13 for a summary of the Conflicts of Interest and Related Party Transactions Policy. BENCHMARK 6 ~ DISTRIBUTION PRACTICES Benchmark 6 requires that the scheme will only pay distributions from its cash from operations (excluding borrowings) available for distribution The Manager meets this benchmark. The Fund only pays Distributions from its cash from operations (excluding borrowings). PAGE 9

12 2 BENCHMARKS AND DISCLOSURE PRINCIPLES INFORMATION CONTINUED 2.2 DISCLOSURE PRINCIPLES DISCLOSURE PRINCIPLE SECTION DISCLOSURE PRINCIPLE 1 ~ GEARING RATIO 7 The gearing ratio indicates the extent to which a fund s assets are funded by borrowings. The gearing ratio gives an indication of the potential risks faced by a fund as a result of its borrowings due to, for example, an increase in interest rates or a decrease in values. A higher gearing ratio means a higher reliance on external liabilities to fund assets and exposes a fund to increased funding costs if interest rates rise, or a potential breach of banking covenants if asset values fall. The Manager will calculate the Fund s gearing ratio in accordance with the following formula: Gearing ratio = Total interest-bearing liabilities Total assets The Manager intends to maintain a Target Gearing Ratio of 45%. The Fund s gearing was 38.9% as at 31 December DISCLOSURE PRINCIPLE 2 ~ INTEREST COVERAGE RATIO 7 The interest cover ratio measures the ability of a fund to meet its interest payments on borrowings from its earnings. The level of interest cover gives an indication of a fund s financial health in paying both, interest to the debt finance provider and distributions to investors. A higher interest cover ratio indicates greater available funds with which to pay interest costs and distributions. The lower the interest cover ratio, the higher the risk that a fund will not be able to meet its interest payments. It is a key measure of the risks associated with a fund s borrowings and the sustainability of borrowings. The Manager will calculate the Fund s interest cover ratio in accordance with the following formula: Interest Cover Ratio = EBITDA unrealised gains + unrealised losses Interest expense EBITDA means earnings before interest, tax, depreciation and amortisation. The interest cover ratio calculated in accordance with ASIC disclosure principles was 3.48 times as at 31 December 2016 and is forecast to be 4.19 times and 4.72 times for FY17 and FY18 respectively. This ratio is calculated based on the forecast financial information in Section 7. The bank interest coverage ratio was 3.48 times as at 31 December 2016 and is forecast to be 4.19 times and 4.72 times for FY17 and FY18 respectively. The bank interest coverage ratio is based on the ratio of EBITDA to gross interest expense for the actual 12 month period. The ratio will be calculated from time to time based on the most recent financial statements of the Fund as at the date of the PDS. DISCLOSURE PRINCIPLE 3 ~ SCHEME BORROWING 3.9, 7 This Disclosure Principle requires the responsible entity to disclose information regarding the schemes borrowings. The Fund has a facility agreement with Westpac Banking Corporation for a three (3) year Term Debt Facility for $30 million. Of the $30 million Term Debt Facility limit, $25.4 million was drawn as at 31 December Borrowings will be secured by a registered first mortgage over all the Properties. These securities rank ahead of Investors equity in the Fund. Please refer to Section 3.9 for a summary of the Fund s Term Debt Facility. PAGE 10 HEATHLEY ASSET MANAGEMENT LIMITED

13 DISCLOSURE PRINCIPLE SECTION DISCLOSURE PRINCIPLE 4 ~ PORTFOLIO DIVERSIFICATION 4 This Disclosure Principle requires that the responsible entity disclose the current composition of the property scheme s direct investment portfolio including in relation to geographic location and major tenants. The Fund has an interest in eight (8) residential aged care and dementia care properties, located in Adelaide and New South Wales. The Fund currently has two tenants, Infinite Care and Group Homes Australia contributing 90% 4 and 10% of the portfolio gross passing income respectively. DISCLOSURE PRINCIPLE 5 ~ RELATED PARTY TRANSACTIONS 11 This Disclosure Principle requires that responsible entities disclose information about existing related party transactions. The Manager has adopted and complies with a Conflicts of Interest and Related Party Transactions Policy to ensure that any related party transaction entered into by the Manager or a related party, is on arm s length terms and is monitored on a regular basis by the Compliance Officer in accordance with the Fund s Compliance Plan. DISCLOSURE PRINCIPLE 6 ~ DISTRIBUTION PRACTICES 3, 7 This Disclosure Principle requires that if a fund is making or forecasts making distributions to members, the responsible entity should disclose information regarding distributions including the sources and sustainability. It is the Manager s practice to make Distributions from realised income only. The Manager intends to make Distributions on a quarterly basis, in arrears. With reference to the financial assumptions (refer Section 7), the Manager considers that the forecast Income Distributions Yields are met for FY17 and FY18. DISCLOSURE PRINCIPLE 7 ~ WITHDRAWAL ARRANGEMENTS 3 This Disclosure Principle requires that if a scheme gives investors withdrawal rights, these rights should be clearly explained. The Fund is an illiquid investment with a Target Investment Term of eight (8) years, unless Investors agree to an extension (by Special Resolution) of the Target Investment Term. Investors will have no withdrawal rights during the Target Investment Term except where the Manager makes a withdrawal offer. The Manager does not currently intend to make a withdrawal offer during the Target Investment Term. DISCLOSURE PRINCIPLE 8 ~ NET TANGIBLE ASSETS 7 The NTA calculation helps Investors understand the value of the assets upon which the value of their units are determined. The NTA calculation is based on the Fund s latest financial statements and will be calculated using the following formula: NTA = Net assets intangible assets +/ any other adjustments Number of Units in the Fund on issue The NTA of the Fund as at 31 December 2016 was $ Includes Brownfield works expected to be completed in April PAGE 11

14 3 FUND OFFER AND STRUCTURE 50 GULFVIEW ROAD, CHRISTIES BEACH SOUTH AUSTRALIA 3.1. THE OFFER The Manager is seeking to raise additional money (The Offer) to acquire additional Properties up to a value of $200 million over the remainder of the three (3) year period (Investment Period). The Manager will close the Fund to further investment at the end of the Investment Period. The key dates relating to the Offer are set out in Section 3.2. The Manager reserves the right to close the Investment Period early if the total portfolio value reaches or exceeds $200 million prior to the completion of the Investment Period. Prior to the allotment and issue of Units, an Investor s Application Amount will be held in an interest bearing applications account. Once Units are issued (Issue Date), the Investor is entitled to quarterly Distributions from the Fund on a pro-rata basis from the Issue Date. To facilitate the acquisition of the Properties, the Manager may arrange for amounts during the Investment Period, to be underwritten. The Underwrite Units will be issued at the prevailing issue price. Underwrite Units will rank equally in all respects with Ordinary Units except that the proceeds from the allotment of Ordinary Units may be used to redeem any Underwrite Units on a preferential basis as set out above. The redemption price of Underwrite Units will be equal to the prevailing issue price of Ordinary Units. Distributions will be paid to the holders of Underwrite Units on a pro rata basis according to the number of days on which the Underwrite Unit is on issue within the relevant Distribution period. 3.2 KEY DATES Offer Open Date 8 March 2017 Offer Close Date 24 September 2018 Completion of Investment Period 30 September 2018 The Manager may vary these dates, or withdraw or suspend all or part of the Offer, in its discretion without notice. PAGE 12 HEATHLEY ASSET MANAGEMENT LIMITED

15 THE MANAGER INTENDS TO INVEST IN AND MANAGE THE PROPERTIES WITH THE AIM OF PROVIDING INVESTORS WITH INCOME RETURN AND THE POTENTIAL FOR CAPITAL GROWTH 3.3. ISSUE PRICE Units will be issued at the prevailing NAV Per Unit of the Fund plus the Transaction Costs (which includes stamp duty and other property acquisition and Fund costs) MINIMUM APPLICATION AMOUNT The Minimum Application Amount is $25,000, and then increments of $5,000 thereafter. The Manager at its discretion reserves the right to accept applications for lower amounts INVESTMENT STRATEGY The Manager intends to invest in a Portfolio up to the value of $200 million in accordance with the Fund s investment criteria (refer Section 4 for more detail), and to manage the Properties with the aim of providing Investors with a stable income return and the potential for capital growth. The Manager will seek to achieve the Investment Strategy through investing in a portfolio of Properties which are diverse by operator and location, with long term leases in place, and multiple exit strategies TARGET INVESTMENT TERM The Fund has a Target Investment Term of eight (8) years. The Target Investment Term comprises: ~ ~ an Investment Period of three (3) years, during which the Fund will target to acquire Properties up to the value of $200 million. The Fund will continue to raise equity for the duration of the Investment Period, until the target value of $200 million is achieved; and ~ ~ a Portfolio Management Period of five (5) years, during which the Properties will be actively managed. Prior to the completion of the Target Investment Term, the Manager will either recommend to Investors that the Fund dispose of the Properties as soon as practicable following the Target Investment Term or, subject to Investor approval by Special Resolution, extend the Fund for a further period of up to two (2) years. Any extension will require approval by a Special Resolution of Investors. In the alternative, the Manager may also recommend that the Fund be listed to facilitate liquidity for Investors. The Manager may also recommend to Investors the disposal of the Properties prior to the Target Investment Term, which will, other than in respect of the Buyback, require the approval of Investors by Special Resolution ILLIQUID INVESTMENT As this is an illiquid investment, Investors will not have the right to withdraw their money from the Fund. The Manager does not expect to make any withdrawal offers during the Target Investment Term. Once your application has been accepted, you should expect your investment will remain in the Fund until the Properties are sold and the Fund is wound up. There will not be any established secondary market for the sale of Units. If you wish to sell your Units, then under the law there are certain restrictions placed on the Manager in relation to the level of assistance that can be given. Subject to those restrictions, the Manager will endeavour to assist you should you wish to sell your Units. Under the Constitution, the Manager, in its discretion, may refuse to register any transfer of Units RISKS Please refer to Section 10 for important information regarding some of the key risks and sensitivities associated with an investment in the Fund. A THREE YEAR INVESTMENT PERIOD FOLLOWED BY A FIVE YEAR PORTFOLIO MANAGEMENT PERIOD ACQUISITION OF SEED PROPERTIES INVESTMENT PERIOD COMPLETE PORTFOLIO MANAGEMENT PERIOD COMPLETE INVESTMENT PERIOD The Fund will continue to acquire Properties up to a value of $200 million PORTFOLIO MANAGEMENT PERIOD Consistent income derived from long-term leases and capital growth through active management YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 PAGE 13

16 3 FUND OFFER AND STRUCTURE CONTINUED 3.9. DEBT FINANCE The Fund has a facility agreement with an Australian bank for a three (3) year facility (Term Debt Facility) which was used to fund the acquisition of the Seed Properties. A summary of the Fund s Term Debt Facility is set out below: Rate Type Facility Limit Drawn Amount Market Base Interest Rate Margin Rate on Market Base Interest Rate Facility Expiry Date Interest Cover Ratio Covenant Loan to Value Ratio Covenant Floating Rate $30 million $25.40 million 1.70% 1.60% 15 October times 55% Under the Term Debt Facility, the interest rate payable comprises two components, the market base rate and the margin rate (acceptance fee and line fee). The market base rate is determined periodically with reference to market data, and can be fixed for a period of time with approval of the bank (refer current hedging arrangements). The margin rate applicable to the Term Debt Facility is 1.60 per cent per annum. The effective interest rate is forecast to be 3.97 per cent per annum for FY17. The Term Debt Facility includes an undrawn facility fee of 0.80 per cent per annum, payable on the undrawn amount of the Term Debt Facility ($4.60 million). The Manager has entered into hedging arrangements for the Term Debt Facility as detailed below: Rate Type Amount Market Base Rate Margin Rate Hedging Arrangement Expiry Date 1. Fixed Rate $8.47 million 2.19% 1.60% 13 October Fixed Rate $8.47 million 2.48% 1.60% 13 October 2020 The LVR 5 and the ICR 6 was 50% and 3.48 times respectively as at 31 December 2016 and for FY17 it is forecast to be 50% and 4.19 times respectively. The below table shows the sensitivities for the Fund to reach the bank covenant levels agreed under the Term Debt Facility. Facility % decrease in the Fund s operating cash flow for ICR to reach 2.50 times % decrease in valuation of Properties for LVR to reach 55% LVR N/A 9% ICR 22% N/A The Term Debt Facility will be secured by a registered first mortgage over all the Properties as well as a first ranking and registered general security agreement over the Fund and its assets. These securities rank ahead of Investors equity in the Fund. The Term Debt Facility will be on a limited recourse basis with recourse only to the Properties of the Fund. The Manager will be active in the management of the Fund s debt obligations, including: ~ ~ reducing debt when possible which will decrease the Fund s loan to value ratio percentage; ~ ~ actively reviewing and/or re-negotiating the Term Debt Facility to manage the exposure to refinance risk; and ~ ~ reviewing the ongoing interest rate risk management strategies, including a mix of fixed and variable rates and the purchase of hedging instruments. There is a risk that the bank may change the terms of, or may not renew, the Term Debt Facility on its expiry. In any such event, the Fund would seek to enter into a loan facility with another bank. The margin rate after expiry of the Term Debt Facility will depend on a number of factors at the time the loan is refinanced or extended including prevailing market conditions, availability of funding and the gearing ratio. 5 The LVR calculation excludes the valuation of 98 Alameda Way, Warriewood, 46 Carrington Road, Waverley and 81 Fairlawn Avenue, Turramurra. 6 Calculated in accordance with ASIC Regulatory Guide 46. PAGE 14 HEATHLEY ASSET MANAGEMENT LIMITED

17 1A MAIN STREET, HAHNDORF SOUTH AUSTRALIA DISTRIBUTIONS It is the intention of the Manager to make income Distributions from the Fund every quarter with the relevant dates for such Distributions being 31 March, 30 June, 30 September and 31 December each year. In respect of an Investor s initial Distribution period, Distributions will be calculated having regard to the number of days during that period on which the Investor held those Units. Distributions will be paid to that Investor quarterly in arrears, approximately 21 days after the relevant record date. All Distributions must be paid directly into an Australian bank account or an account with a financial institution (where there is a branch in Australia). Distributions will not be paid by cheque. The Fund does not have a Distribution reinvestment plan. The Fund will only pay Distributions from cash flows from operations (excluding borrowings). The Manager may retain a portion of the cash from operations available for Distribution in one period to provide working capital for future periods. The Responsible Entity will provide an annual tax statement to Investors which will summarise the Distributions paid/payable in respect of that income year and the tax components, including any tax deferred component of that Distribution. Changes in interest rates, the level of gearing and other risk factors may influence the actual Distribution or the tax deferred component of a Distribution. Neither the Manager, the Custodian, nor their respective associates and directors, guarantee returns from the Fund. See Section 7 for further details on forecast Distributions and Section 10 on the key risks associated with Distributions VALUATION The Manager maintains and complies with a written Direct Property Valuation Policy which is summarised below: ~ ~ before a Property is acquired, it is independently valued on an as is basis (or on an as if complete and as is basis for development properties); ~ ~ an independent valuation is required: at a minimum every two (2) years and (if the Board of the Manager determines that the most recent valuation is not current) before the Properties are sold; and within two months if the Manager believes a Property it is likely to be subject to a material increase or decrease in value (i.e. greater than 10%); ~ ~ a Directors valuation of a direct property is carried out on a 6 monthly basis to determine the appropriate carrying value of the interest when the relevant Fund s financial reports are prepared; PAGE 15

18 3 FUND OFFER AND STRUCTURE CONTINUED ~ ~ independent property valuations are undertaken by a Certified Practicing Valuer registered with the Australian Property Institute and who is independent; ~ ~ if there is a conflict of interest, the Manager will comply with its Conflicts of Interests and Related Party Transaction Policy; ~ ~ The Manager will rotate independent valuers, with a valuer or valuation company only able to value the property for the relevant Fund on two (2) consecutive occasions. Please contact the Manager to obtain a full copy of the Direct Property Valuation Policy. A summary of the most recent valuations is set out in Section TAXATION The Fund is a unit trust, and therefore the Fund should not generally be liable for income tax as it is intended that Investors will be presently entitled to all of the distributable income of the Fund (as determined in accordance with the Constitution) each year. Australian resident investors should be liable to tax on their share of the net income of the Fund in the year in which their present entitlement to the income of the Fund arises. Distributions to Investors are expected to include a tax deferred component. These tax deferred amounts generally arise through the availability of allowances for costs relating to the construction cost of buildings, fixtures, fittings, plant and equipment. As the Fund is a unit trust, it is possible to pass these benefits on to Investors who hold Units at the relevant record date for Distributions. The Manager will provide regular updates on the proportion of Distributions that are tax deferred in an annual taxation statement. Tax deferred Distributions are generally not assessable but should reduce the cost base of the Units for the Investors, and therefore affect the Investor s capital gain or loss on disposal of their Units. Where the total tax deferred amounts received by the Investors exceed the cost base of the Units, generally the excess should be treated as a taxable capital gain. For further information on taxation implications of investing in the Fund see Section RELATED PARTY TRANSACTIONS The Manager recognises its responsibilities in relation to related party transactions and conflicts of interest, particularly in relation to the requirement to: ~ ~ act in the best interest of its Investors; and ~ ~ conduct transactions having regard to: its fiduciary obligations; legislative requirements; and acting on a commercial arm s length basis at all time, particularly if the counterparty to a transaction is a related party. The Manager maintains and complies with a written policy regarding related party transactions. Its key elements include that: ~ ~ Investors who are officers or employees of the Manager or any related corporation must be treated in all respects like other Investors; ~ ~ the Board will consider and approve each related party transaction before the Manager enters into the transaction. Any transaction with an external service provider that is a related party must have a written contract and be on arm s length terms; ~ ~ a register of related party transactions must be maintained; and ~ ~ the Managing Director of the Manager and the Manager s Compliance Officer are responsible for monitoring compliance with Conflicts of Interest and Related Party Transaction Policy. As at the date of this PDS, all transactions in respect of the Fund are in compliance with its related party policies and procedures. A related entity of the Manager is appointed to act as asset manager in respect of one or more of the Properties and receives property management fees as set out in Section Related entities of the Manager may also be appointed in respect of future Fund Properties and may receive property management fees, leasing commissions and/or professional services fees. The fees will be charged to the Fund on arm s length terms and the arrangement will be entered into in compliance with the Conflicts of Interest and Related Party Transactions Policy. Please refer to Section which details the Property Management fee charged by the related entity. PAGE 16 HEATHLEY ASSET MANAGEMENT LIMITED

19 IT IS THE INTENTION OF THE MANAGER TO MAKE INCOME DISTRIBUTIONS FROM THE FUND EVERY QUARTER To obtain more details of the Manager s policy and procedures for related party transactions or to be obtain a copy of the Manager s Conflicts of Interest and Related Party Transactions Policy please contact heathley@heathley.com.au HOW TO INVEST Applications to invest must be made by completing the Application Form which accompanies this PDS. The Application Form should be completed in accordance with the Guide to Completing the Application Form (refer to Pages 61 to 62) MASTER TRUSTS AND WRAP ACCOUNTS The Manager authorises the use of this PDS as disclosure to investors who access the Fund through an Investor Directed Portfolio Service (IDPS) or IDPS-like scheme (often referred to as master trusts, wrap accounts, nominee or custody services). Such investors do not complete the Application Form in this PDS and do not become Investors in the Fund. As such, they do not acquire the rights of an Investor in the Fund. The operator of the IDPS scheme acquires such rights and can exercise, or may decline to exercise, them on behalf of indirect investors. Indirect investors do not receive income or reports directly from the Manager nor are they entitled to attend Investor meetings or participate in the winding up of the Fund. Application Amounts as well as processing times will depend on the internal administrative procedures of the IDPS or IDPS-like scheme. The amount and timing of Distributions an indirect investor may receive may also differ from those received by direct Investors and from those referred to in this PDS. You should refer to the documentation relating to your IDPS or IDPS-like scheme for further information including details of any additional fees and charges that may apply INVESTOR REPORTING If you invest directly into the Fund, the following documents are available before and after you invest. TIME On investment Quarterly Every six (6) months Annually If there is a material change, or a significant event that affects the Fund DOCUMENT Confirmation of Investment letter. Quarterly Distribution Statement, Quarterly Investor Update and Investor Conference Calls. Benchmark and Disclosure Principles Information Update Available on the Manager s website. Annual Report including audited Financial Statements and Tax Statement for the financial year. A notification will be sent to Investors. This may be included in another document (such as an Annual Report) which is sent to Investors or made available on the Fund s website (depending on the change). PAGE 17

20 4 INVESTMENT RATIONALE 4.1. AGED CARE INDUSTRY Overview Australian residential aged care is a $14 billion industry, catering for people who can no longer live independently due to health reasons, or who require care. People typically move into residential aged care at the point when they require a level of clinical care that can no longer be provided in their own home. The residential aged care industry fits between home and community care and acute hospital care in the broader aged care accommodation spectrum. AGED CARE ACCOMMODATION SPECTRUM Acute hospital care Residential aged care Fund Target Properties Whilst some larger residential aged care facilities have, or are moving into, the provision of subacute care, older people requiring acute care are typically admitted to hospital facilities Residential aged care provides accommodation to people who can no longer live independently due to health reasons but who do not require acute hospital care Extra Services may apply to both high and low care. These include additional hotel type services (premium dining, laundry, etc.). Aged care facilities may charge additional daily fee (max. portion of Extra Services places limited by law to 15% of places in each State) High Care 24 hour nursing care. Additional services include allied health (e.g. physio, podiatry, occupational therapy) Low Care occasional nursing care. Residents provided with accommodation support services (e.g. cleaning, laundry, meals) and personal care services (e.g. dressing, eating) Retirement village living Home and community care Caters for younger residents who are able to reside in a house or apartment with little or no care services. Program funded by Federal Government utilising person s home Resident family home The Fund will target residential aged care properties, which operate predominantly in the high care and extra services segments. The residential aged care industry is highly regulated and dependent on government funding for approximately 69% of operating revenue. The average annual industry growth of 5.8% over the past five years has been fuelled by increasing demand, principally as a result of an ageing population. Australia currently has approximately 2,700 residential aged care facilities operating approximately 190,000 places largely delivered by non-private operators, such as religious, charitable or community based groups, who represent approximately 58% of the market (based on the total number of places). 7 Residential aged care (rather than acute hospital care or home and community care) provides individuals with services based on their health and care needs. At one end of the aged care accommodation spectrum, there are those individuals with lower care needs who can receive supported services in their own home through home and community care. At the other end there are those individuals requiring greater levels of clinical care who are typically are no longer able to be supported in their own home and therefore may enter residential aged care or acute hospital care. Residential aged care is distinct from the retirement village living, where operators typically offer little to no care services, and accommodation is offered on a user pays basis Report on the Operation of the Aged Care Act 1997, Australian Government Department of Health PAGE 18 HEATHLEY ASSET MANAGEMENT LIMITED

21 THE FUND WILL TARGET RESIDENTIAL AGED CARE PROPERTIES, WHICH OPERATE PREDOMINANTLY IN THE HIGH CARE AND EXTRA SERVICES SEGMENTS Key Features CATEGORY DESCRIPTION Favourable industry dynamic ~ ~ Future demand is underpinned by the demographic shift towards an older population. ~ ~ The greatest demand for services is from people aged 85 years or over, with approximately 58% of permanent residents in this age category. 8 ~ ~ The population aged 85 years and over is projected to experience the highest growth rate of all age groups, with the number of Australians in this category expected to double by 2032 and double again by Higher acuity ~ ~ Well placed to benefit from the trend towards high care. ~ ~ Higher life expectancy and an increase in chronic and debilitating diseases affecting the ageing population will continue to significantly increase the proportion of the elderly requiring 24-hour residential care and services. High barriers to entry ~ ~ Initial licence requirement and high levels of ongoing regulatory compliance increases barriers to entry for operators. ~ ~ In order to operate residential aged care facilities and be entitled to receive Australian Government subsidies, a provider must be approved, hold allocated places and have their facilities accredited and certified pursuant to the Aged Care Act 1997 (Cth) (Aged Care Act). In addition, the recipient of care must (in most cases) be approved in respect of the type of aged care provided and be classified in respect of the level of care that is required. Government funding Aside from traditional capital structuring (equity and debt), funding for aged care operators primarily comprises a mixture of: ~ ~ Operating revenues derived from Government and resident contributions (which are made in respect of both the resident s required level of care and accommodation and accounted for as revenue); and ~ ~ Capital derived from Refundable Accommodation Deposits (RADs) paid by residents (which are paid in respect of accommodation and accounted for as capital). Fragmented market 10 ~ ~ Residential care in Australia is largely delivered by non-private operators, such as religious, charitable or community based groups, who represent approximately 52% of the market (based on the total number of places). ~ ~ State and regional governments represent 11% of the market and private operators represent approximately 37% of the market. 8 Residential aged care in Australia : A statistical overview, Australian Institute of Health and Welfare, Supplementary Table S Series Population Projections (Series A), Australian Bureau of Statistics, accessed 19 June Report on the Funding and Financing of the Aged Care Sector, Aged Care Financing Authority PAGE 19

22 4 INVESTMENT RATIONALE CONTINUED Key Growth Drivers Growth in population aged 85 years or over The population aged 85 years and over is forecast to double by 2032 and again by s Jan 2014 Jan 2024 Jan 2034 Jan 2044 Source: Australian Bureau of Statistics Series Population Projections (Series A), accessed 25 May Increasing prevalence of chronic and debilitating diseases Older Australians suffering from chronic and debilitating diseases typically require care in a residential aged care facility as they need higher levels of care. The number of people suffering chronic and debilitating diseases is projected to increase as people live longer and societal/lifestyle factors promote more health-detrimental behaviours. For example, the prevalence of dementia is projected to grow by 3.2% per annum between 2014 and 2050, with the number of people aged 85 and over with dementia expected to increase from approximately 144,000 in 2014 to approximately 569,000 in Increasing wealth The average wealth of older Australians has steadily increased. Wealth per capita in Australia has increased in the last 10 years as more wealth is accumulated in superannuation (driven by mandatory contributions and tax concessions), and has been accompanied by real growth in residential house prices, with Australian residential property prices increasing by 5.1% CAGR between 2004 and Increased wealth amongst older Australians may lead to greater capacity for residents to pay for residential aged care services. The ageing of the population has resulted in, and is expected to continue to result in, greater proportions of wealth held by older Australians. Increased Supply Government allocation of residential aged care places has been increasing steadily for more than a decade but still provides a natural barrier to entry. Residential aged care places have grown at a CAGR of 4.5% from 2000 to Over the next 10 years, Australians aged 85 and over are expected to grow by 3.8% per annum indicating a need for additional bed licences. The Aged Care Financing Authority (2013) estimated an additional 75,000 places by 2022 will be required to meet the expected demand (CAGR 3.5%). 12 Prevalence in Australia ( 000) CAGR 943 CAGR 3.2% CAGR 3.9% CAGR 2.8% CAGR 1.8% CAGR 1.0% 000 Places 3.5% CAGR FY FY FY2009 FY2013 FY2017 FY Historical Projection Source: Dementia Across Australia: , Deloitte Access Economics, 9 September Source: Report on Government Services Volume F Chapter 13 Productivity Commission, Table 13A.23 (Historical places for FY2009 FY2013); Inaugural Report on the Funding and Financing of the Aged Care Sector, Aged Care Financing Authority, June 2013 (Projected places for FY2014 to FY2022) 11 Australian Bureau of Statistics Series Table 1, accessed 25 May Source: Report on Government Services 2012 Steering Committee Report (Australian Government Productivity Commission, January 2012). PAGE 20 HEATHLEY ASSET MANAGEMENT LIMITED

23 OF THE $14 BILLION OF REVENUE RECEIVED BY THE AGED CARE INDUSTRY IN FY13, APPROXIMATELY $9.6 BILLION WAS PROVIDED THROUGH GOVERNMENT FUNDING Funding of Residential Aged Care Of the $14.8 billion of revenue received by the aged care industry in FY14, approximately 65% ($9.6 billion) was provided through government funding with the balance received from core recipients ( user pays ). Residential care funding from the government includes: a) Basic residential care subsidy - based on the residents assessed care needs and is set on a per day basis in accordance with the Aged Care Funding Instrument (ACFI). 13 b) Primary and other supplements - payable to operators who provide care to residents that require supply of oxygen or administration of tube feeding etc. Other supplements from the government largely arise from payments to operators who provide more than 40% of their services to supported (lower means) residents. c) Accommodation funding - Government funding over the past six years has grown as a result of an increase in average care costs and growth in the number people requiring residential aged care services. The ACFI appraisal process involves a detailed assessment of a resident s care needs based on data collected through twelve questions. Daily funding is then determined based on the score from this assessment with higher rates paid for residents who require greater care. Effectively ACFI for each category ranges from nil to high and hence the ACFI rate ranges from $0 to approximately $209 per day. CARE FUNDING ACCOMMODATION FUNDING CURRENT REGIME ACFI (GOVERNMENT) DAILY CONTRIBUTION FIXED FEE PERIODIC PAYMENT RAD Low Care ü ü (< $115/day) - ü ü High Care ü ü (< $115/day) ü (< $33/day) High Care (Extra Services) ü ü - ü ü REVISED FRAMEWORK ACFI (GOVERNMENT) DAILY CONTRIBUTION FIXED FEE PERIODIC PAYMENT RAD Low Care (all) ü ü - ü ü High Care ü ü - ü ü High Care (Extra Services) ü ü - ü ü Refundable Accommodation Deposits Operators also receive capital funding from certain residents in the form of refundable accommodation deposits (RADs), which represent an interest free source of capital funding. A RAD represents a capital payment made by an incoming resident which is refunded (without interest) when the resident leaves the facility or passes away, which is typically replaced by another RAD from the incoming resident. Daily Accommodation Payments Alternatively, a resident may elect to pay a daily accommodation payment (DAP) instead of a RAD. DAPs are daily ongoing accommodation payments made by a resident in lieu of a lump sum and are payable monthly, one month in advance. ~ ~ Historically ~90% of non-supported residents whom were eligible to pay a RAD (i.e. low care or extra care residents) have paid RADs over the last five years. ~ ~ This is encouraging as a higher proportion of RADs provides access to additional operator cash flow. While it is uncertain whether this trend will continue under the new funding rules which came into effect in July 2014, early evidence suggests the majority of residents are still choosing to pay some or all of their accommodation costs via RADs rather than DAPs. 13 The Aged Care Funding Instrument (ACFI) was introduced in March 2008 and is designed to match funding to the care needs of residents. PAGE 21

24 4 INVESTMENT RATIONALE CONTINUED FOX AVENUE, KLEMZIG SOUTH AUSTRALIA The amount of a DAP is calculated as the maximum permissible interest rate (MPIR) (currently 6.63%), multiplied by the advertised RAD amount, divided by 365 days in a year. The payment of a DAP is recognised by an operator on its income statement whereas a RAD is recognised by the operator as a liability on its balance sheet GOVERNMENT POLICY The Living Longer Living Better (LLLB) reforms became effective from 1 July These reforms are viewed positively for new investment into the residential aged care sector. The key changes which impact residents and operators include: ~ ~ Removing the distinction between high care and low care : Operators can now charge RADs to all residents (regardless of whether classified as high care or low care ) who entered/enter after July Previously, operators could only charge RADs on low care places and high care places with extra services status. ~ ~ Greater choice for residents in how to pay: Residents who entered a facility after July 2014 can now choose whether they pay for accommodation and care using a RAD or DAP or combination of both. Residents have 28 days to make this election. ~ ~ Retention amounts out of residents RAD no longer permitted: Operators can no longer withhold a monthly amount of money out of RAD for residents who entered/ enter a facility post July ~ ~ Additional accommodation funding available for low means residents: Additional funding (an accommodation supplement) is available for low means residents who entered after July 2014 whom meet certain criteria, primarily related to minimum capital expenditure thresholds. ~ ~ Removal of the extra services claw back: The Government extra services claw back imposed on operators (equal to 25% of fees for extra services ) which was charged to residents occupying places with extra services no longer applies EXIT STRATEGY At the end of the Target Investment Term, the Manager will assess the market for the properties and may recommend to Investors that the Fund dispose of the Properties. A disposal of the Fund Properties could be by single Property sales or by a Portfolio sale. Alternatively, should it be in the best interests of Investors, the Manager may recommend to Investors that the Fund be listed on the ASX. The Properties will have an average Weighted Average Lease Expiry (WALE) of 11.8 years at the end of the Target Investment Term. This attractive lease term, coupled with the increasing demand for residential aged care facility places, is expected to facilitate an expeditious disposal of Fund Properties under all scenarios. PAGE 22 HEATHLEY ASSET MANAGEMENT LIMITED

25 5 PORTFOLIO PROPERTIES 98 ALAMEDA WAY, WARRIEWOOD NEW SOUTH WALES 5.1. PORTFOLIO SUMMARY A summary of the Fund s current portfolio of Properties is provided in the table below. PROPERTY PROPERTY VALUE ($) CURRENT NET PROPERTY INCOME NUMBER OF BEDS SITE AREA (SQM) WALE BY INCOME Gulfview Road, Christies Beach SA 16,900,400 1,330, , Churchill Road, Kilburn SA 5,850, , , A Main Street, Hahndorf SA 12,000, , , Fox Avenue, Klemzig SA 13,499,600 1,062, , Grant Avenue, Gilles Plains SA 6,150, , , Fairlawn Avenue, Turramurra NSW 1,950, , , Alameda Way, Warriewood NSW 2,265, , Carrington Road, Waverley NSW 5,160, , Current Portfolio 63,775,000 4,989, , PROPERTY VALUE (% OF PORTFOLIO) LEASE EXPIRY PROFILE (BY INCOME) 100% Christies Beach 27% Klemzig 21% Hahndorf 19% Gilles Plains 10% Kilburn 9% Waverley 8% Warriewood 4% Turramurra 3% 80% 60% 40% 20% 0% VACANT JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 JUN As at 31 December Until the construction is completed, the Fund will earn 50% of the 6.25% yield of the Acquisition Price + Construction Cost paid to date. 16 The property will have 10 bedrooms once the construction works are completed. PAGE 23

26 5 PORTFOLIO PROPERTIES CONTINUED The occupancy of the Portfolio Properties is 89% for the financial year ending June 2016 as detailed below. PROPERTY FY14 FY15 FY16 AVERAGE 50 Gulfview Road, Christies Beach SA 91% 94% 93% 93% 1a Main Street, Hahndorf SA 96% 91% 94% 94% Fox Avenue, Klemzig SA 92% 92% 92% 92% 3-5 Grant Avenue, Gilles Plains SA 96% 96% 93% 95% 470 Churchill Road, Kilburn SA 97% 100% 99% 99% 98 Alameda Way, Warriewood NSW 17-24% 60% 42% 46 Carrington Road, Waverley NSW Fairlawn Avenue, Turramurra NSW WEIGHTED AVERAGE 94% 83% 89% 86% 50 GULFVIEW ROAD, CHRISTIES BEACH SOUTH AUSTRALIA 17 The Facility was setup in Feb Historical occupancy rates are not available as these are new facilities. PAGE 24 HEATHLEY ASSET MANAGEMENT LIMITED

27 5.2. THE PROPERTIES 50 GULFVIEW ROAD, CHRISTIES BEACH SA LOCATION The property is located in Christies Beach, approximately 32km south west of the Adelaide CBD in the City of Onkaparinga. Christies Beach is an established beach side suburb with local shopping including the Christies Beach Hotel all located on Gulfview Road. The main entrance of the property is centrally positioned to the Gulfview Road elevation. The Gulfview Road strip shopping centre is located opposite the property with another smaller IGA and additional strip shopping centre located 100 metres further to the east. The facility is 400 metres east of the beach. The closest hospital is Noarlunga Private Hospital, located approximately 3 kilometres south east of the property. PROPERTY SUMMARY Ownership Interest Building Area Land Area Zoning Building Construction Levels Number of Beds / Places Freehold 3,128 sqm 7,731 sqm Residential. Medium Density Policy Area 40. Purpose built in c.1980 and extended in 1997 and 2005 Single storey 98 IMPROVEMENTS The property was originally constructed in 1980 and subsequently extended in 1997, and 2005 with the addition of the western wing. The building is contains 4 main sections each of a racecourse configuration internally, albeit spread over two wings, being the Lavender Wing and Rose Wing. The exterior has an attractive design which is of a colonial style with a feature full length verandah to its southwest elevation overlooking the Gulf of St Vincent. The Lavender Wing includes a secure and modern dementia specific unit with 18 resident rooms. This part of the wing has its own dining area and activity day room. Number of Rooms 72 Single Rooms Double Rooms 27 Current occupancy 19 92% Average Historical Occupancy palliative care room 94% (FY15) and 98% (FY16) Accredited Period 20 For a 3yr period ending 22 Jul As of 31 July Each aged care property undergoes an accreditation process in order to receive subsidies from the Federal Government. PAGE 25

28 5 PORTFOLIO PROPERTIES CONTINUED 1A MAIN STREET, HAHNDORF SA LOCATION The property is located in the Adelaide Hills tourist town of Hahndorf, approximately 26 km south east of the Adelaide CBD in the District Council of Mount Barker. The property is located to the southern end of the Main High Street, surrounded by rural living property to its south and adjacent strip shopping to its north, with residential land uses to side street locations. Hahndorf Main Street strip shopping includes a wide variety of souvenir and gift shops, bakeries, restaurants, cafes and hotels. The strip shopping commences directly to the north of the property and extends all the way along Main Street northward for a further kilometre. The closest hospital is located in Mount Barker, approximately 7 kilometres north west of the property. IMPROVEMENTS The property was originally constructed in 1985 and subsequently extended in The building is of L shaped configuration and comprises 2 main wings with the Appleton Wing comprising the majority of the southern and east portion of the facility including the 2 main day rooms, two lounge areas and laundry and kitchen areas to the rear west elevation. The Banksia Wing was extensively renovated and extended in 2007/2008 and is situated to the north western elevation of the property and comprises 26 resident rooms together with courtyard 4, director of nursing and administration areas as well as the conservatory and hair salon and main reception area. The exterior has an attractive contemporary design featuring bay windows and a large entry portico as well as a feature conservatory with elevated views across the nearby creek. The main entry to the facility is located adjacent the Main Street carpark area and features a double entry automatic door with secure access code for afterhours access noting this part of the facility comprises reception desk, central nurses station administration and director of nursing area. PROPERTY SUMMARY Ownership Interest Building Area Land Area Zoning Building Construction Levels Number of Beds / Places Freehold 3,603 sqm 12,800 sqm Township Zone. Residential Policy Area 21. Purpose built in c.1985 and extended /refurbished in 2002 and 2007/2008 Single storey 101 Number of Rooms 69 Single Rooms 37 Double Rooms 32 Current occupancy 21 90% Average Historical Occupancy 91% (FY15) and 94% (FY16) Accredited Period 22 For a 3yr period ending 26 Feb As of 31 July Each aged care property undergoes an accreditation process in order to receive subsidies from the Federal Government. PAGE 26 HEATHLEY ASSET MANAGEMENT LIMITED

29 KLEMZIG IS AN ESTABLISHED RESIDENTIAL SUBURB APPROXIMATELY 7 KILOMETRES NORTH EAST OF THE ADELAIDE CBD FOX AVENUE, KLEMZIG SA LOCATION The property is located in Klemzig, an established residential suburb approximately 7 kilometres north east of the Adelaide CBD in the City of Port Adelaide Enfield. Klemzig typically has detached and semi-detached residential dwellings to minor side street locations. Entrance into the property is generally via the entrance drive from Leighton Avenue, however rear access is gained from Fox Avenue. The property has 1,336sqm of land available for expansion of the existing property. The Greenacres Shopping centre is located 500 metres north of the subject property. The closest hospital is North Eastern Community Hospital, approximately 6 kilometres east of the property. IMPROVEMENTS The property was originally constructed in 1982 and subsequently extended in 1999/2000 as well as The building is essentially of irregular proportions albeit comprises two wings being the Alice Wings to the north east elevation and the David Wing to the south west elevation of the property which are both connected by an interconnecting passageway. The Alice Wing has a traditional racecourse configuration and the David Wing has an H shape configuration. The exterior has a conventional 1980 s style with bay windows and a large drive through portico entry off the Leighton Avenue driveway entrance. PROPERTY SUMMARY Ownership Interest Building Area Land Area Freehold 3,799 sqm 8,185 sqm Zoning Residential. East Policy Area 64. Building Construction Levels Number of Beds / Places Purpose built in c.1982 and extended in 1999/2000 and 2003 Predominantly single storey with first-floor offices Number of Rooms 60 Single Rooms 34 Double Rooms 26 Current occupancy 24 91% Average Historical Occupancy 92% (FY15) and 92% (FY16) Accredited Period 25 For a 3yr period ending 8 Oct Consisting of 86 funded beds, and 4 unfunded beds. 24 As of 31 July Each aged care property undergoes an accreditation process in order to receive subsidies from the Federal Government. PAGE 27

30 5 PORTFOLIO PROPERTIES CONTINUED 3-5 GRANT AVENUE, GILLES PLAINS SA LOCATION The property is located within the north eastern suburb of Gilles Plains, approximately 10.5 kilometres northeast of the Adelaide CBD in the City of Port Adelaide Enfield. The property is situated on the south western corner of Grant and Burnham Avenues approximately 500 metres east of the Gilles Plains town centre. Grant Avenue is a local road connecting to North East Road, which is a major arterial road providing direct access to the Adelaide CBD. Bus services operate regularly on North East Road, providing access to local town centres and Adelaide CBD. Gilles Plains Shopping Centre is located 900 metres southwest of the property. The closest hospital is Modbury Hospital, approximately 4 kilometres north east of the property. The surrounding development includes a mixture of retail showrooms, car yards, office premises, low density residential and the Blind Welfare Association directly to the west. IMPROVEMENTS The property comprises two buildings, linked at the rear via an enclosed ramp walkway one is a single storey l shaped building with a central amenities wing accommodating 37 residents (11 singles and 26 in doubles), and the other is a freestanding two storey rectangular shaped building with a central corridor accommodating 14 residents (13 with ensuite and 1 with external private bathroom). PROPERTY SUMMARY Ownership Interest Building Area Land Area Freehold 2,025 sqm 3,835 sqm Zoning Residential. East Policy Area 64. Building Construction Main building purpose built in c.1987 Levels Number of Beds / Places Predominantly single storey with one wing of two-storey construction 51 Number of Rooms 38 Single Rooms 25 Double Rooms 13 Current occupancy 26 90% Average Historical Occupancy 96% (FY15) and 93% (FY16) Accredited Period 27 For a 3yr period ending 26 Apr As of 31 July Each aged care property undergoes an accreditation process in order to receive subsidies from the Federal Government. PAGE 28 HEATHLEY ASSET MANAGEMENT LIMITED

31 THE PROPERTY COMPRISES A PURPOSE BUILT SINGLE STOREY AGED CARE PROPERTY COMPLETED IN CHURCHILL ROAD, KILBURN SA LOCATION The property is located within the northern suburb of Kilburn, approximately 10 kilometres north of the Adelaide CBD in the City of Port Adelaide Enfield. The property is situated on the western side of the intersection of Churchill Road and Goodman Avenue, approximately 2 kilometres north west of the Kilburn town centre. Churchill Road is a major arterial road providing direct access to the Adelaide CBD. Bus services operate regularly on Churchill Road, providing access to local town centres and Adelaide CBD. Kilburn is generally regarded as a lower socio-economic area with a predominance of public housing accommodating aged pensioners and migrants, as well as traditional owner occupiers. Local shopping, community and recreation facilities are all available to Sefton Park and North Park Shopping Centre approximately 3 kilometres south of the property with local strip shops located on Prospect Road, approximately 1 kilometre east of the property. The closest hospital is the Queen Elizabeth Hospital, approximately 5 kilometres south west of the property. The surrounding development is predominantly low density residential. IMPROVEMENTS The property comprises a purpose built single storey aged care property completed in The property has four wings containing 46 single bed wards with ensuites connected to a central courtyard area. PROPERTY SUMMARY Ownership Interest Building Area Land Area Zoning Freehold 2,380 sqm 5,892 sqm Residential. Comprehensive Development Policy Area 55. Building Construction Purpose built in c.1995 Levels Number of Beds / Places Single storey 46 Number of Rooms 45 Single Rooms Double Rooms 1 Current occupancy 28 96% Average Historical Occupancy 44 (all with ensuites) 100% (FY15) and 99% (FY16) Accredited Period 29 For a 3yr period ending 2 Apr As of 31 July Each aged care property undergoes an accreditation process in order to receive subsidies from the Federal Government. PAGE 29

32 5 PORTFOLIO PROPERTIES CONTINUED 46 CARRINGTON ROAD, WAVERLEY NSW LOCATION The property is located in the suburb of Waverley in the Eastern Suburbs of Sydney, within the Waverley LGA. Waverley is approximately 9 kilometres south east of the Sydney Central Business DIstrict. The suburb is mainly residential with some commercial developments, a number of schools and churches. The property is zoned medium density residential and has a site area of 500 sqm. Waverley is located between St Vincent s Public and Private Hospitals in Darlinghurst, and Prince of Wales Public and Private Hospitals in Randwick. In addition there are a number of private hospitals including Wolper Jewish Hospital, Eastern suburbs Private Hospital, East Sydney Private Hospital, St Luke s Hospital, The Sydney Clinic and War Memorial Hospital. IMPROVEMENTS The property was built in circa 1920s and was recently renovated. It is as new internally. PROPERTY SUMMARY Ownership Interest 100% Building Area Land Area Zoning Building Construction Levels Number of Beds / Places 335sqm 500sqm Medium density residential Built in circa 1920s Double Storey 10 Number of Rooms 10 Single Rooms 10 Double Rooms - Current occupancy N/A Average Historical Occupancy Accredited Period N/A N/A PAGE 30 HEATHLEY ASSET MANAGEMENT LIMITED

33 98 ALAMEDA WAY, WARRIEWOOD NSW LOCATION 98 Alameda Way is located on the eastern side of Alameda Way, in the suburb of Warriewood. Warriewood is approximately 35 kilometres north of the Sydney Central Business District. Warriewood is a suburb of the Northern Beaches Council. The suburb features Warriewood Square, a medium sized shopping centre which includes Kmart, Coles, Woolworths and Aldi. The suburb also includes a cinema complex, mini putt-putt golf and a main beach. The suburb is serviced by Sydney Buses with services to the City and Mona Vale. Northern Beaches Hospital is under construction at present and will be operated by Healthscope once it is completed in PROPERTY SUMMARY Ownership Interest 100% Building Area Land Area Zoning Building Construction Levels Number of Beds / Places 295sqm 700sqm Low density residential Built in circa 1990s Double Storey 8 Number of Rooms 8 Single Rooms 8 Double Rooms - Current occupancy 65% Average Historical Occupancy Accredited Period 24% (FY15) and 60% (FY16) N/A PAGE 31

34 5 PORTFOLIO PROPERTIES CONTINUED (=AMG) MGA TN APPROX ' ' HYD WM ' ' ' FAIRLAWN AVENUE, TURRAMURRA NSW LOCATION 81 Fairlawn Avenue is located on the north-eastern corner of Fairlawn Avenue, in the suburb of Turramurra. Turramurra is approximately 22 kilometres north-west of the Sydney Central Business District. Turramurra is a suburb of the Ku-ring-gai Council. The largest commercial area in Turramurra is positioned on the main arterial road (Pacific Highway) of the Upper North Shore. The precinct includes banks, fruit markets and a broad selection of food amenity. The property is also 3 kilometres from St Ives shopping village which includes Woolworths, St Ives Library and the St Ives community centre. The subject property is approximately 2 kilometres from Turramurra Train Station and 750 metres from the closest bus station located on Tennyson Avenue. The site is also notably close to major freeways including the M1 (3 kilometres) and the M2 (8 kilometres). IMPROVEMENTS Group Homes Australia will construct a new 10 bedroom Dementia Care home and this is expected to be completed within the next 12 months. PROPERTY SUMMARY 27 Ownership Interest 100% Building Area Land Area Zoning Building Construction Levels Number of Beds / Places 270sqm 1353sqm Low density residential Built in circa 1950s Double Storey 10 Number of Rooms Single Rooms 10 Double Rooms - Current occupancy Average Historical Occupancy N/A N/A Accredited Period N/A 30 The property currently has 5 bedrooms and post the construction, it will be a 10 bedroom house. PAGE 32 HEATHLEY ASSET MANAGEMENT LIMITED

35 PAGE 33

36 5 PORTFOLIO PROPERTIES CONTINUED 5.3. THE TENANT INFINITE CARE Infinite Care is a residential aged care operator owned by key management personnel, in partnership with Next Capital, a leading independent Australian private equity firm that specialises in providing funding for small to medium sized businesses. Infinite Care s operational and growth strategy is focused on: ~ ~ acquisition of well-established facilities from other operators; ~ ~ refurbishment of existing facilities; and ~ ~ greenfield development where bed licences have been obtained. Similar to the Seed Properties, Infinite Care will focus on strategic expansion by clustering, to leverage existing management platforms and operations to drive managerial and operational efficiencies, brand awareness and revenue maximisation. Regions for clustering will be predominantly targeted on the basis of supply / demand dynamics that underpin high occupancy levels and 1st quartile EBITDAR margins. The key management personnel of Infinite Care have a track record with both listed and privately owned companies including aged care providers such as Domain Aged Care, IBIS Care, RSL Care and Ark Health Care, as well as delivering brownfield and greenfield developments on which Infinite Care s strategy is focused. GROUP HOMES AUSTRALIA Group Homes Australia is an operator of high quality dementia and high care residential accommodation in Australia. GHA was established in 2010 and currently operates 7 homes in Eastern Suburbs (Vaucluse, Rose Bay and Waverley), Upper North Shore (St Ives) and Northern Beaches (Warriewood). The key management personnel of Group Homes Australia have a track record in running a range of aged care facilities including retirement villages, residential aged care facilities, dementia facilities as well as broader corporate expertise KEY LEASE TERMS A summary of the lease terms for the eight properties currently owned by the Fund is provided in the table below. PROPERTY LEASE START INITIAL TERM LEASE EXPIRY OPTION STARTING RENT BASIS ANNUAL REVIEWS MARKET REVIEWS 50 Gulfview Road, Christies Beach SA 1a Main Street, Hahndorf SA Fox Avenue, Klemzig SA 3-5 Grant Avenue, Gilles Plains SA 470 Churchill Road, Kilburn SA 16 Oct 15 20yrs 15 Oct 35 10yrs $1,295,280 Net CPI, min of 2.75% 16 Oct 15 20yrs 15 Oct 35 10yrs $917,589 Net CPI, min of 2.75% 16 Oct 15 20yrs 15 Oct 35 10yrs $1,034,131 Net CPI, min of 2.75% 16 Oct 15 20yrs 15 Oct 35 10yrs $471,750 Net CPI, min of 2.75% 16 Oct 15 20yrs 15 Oct 35 10yrs $446,250 Net CPI, min of 2.75% At option exercise, subject to ratchet. At option exercise, subject to ratchet. At option exercise, subject to ratchet. At option exercise, subject to ratchet. At option exercise, subject to ratchet. 98 Alameda Way, Warriewood NSW 46 Carrington Road, Waverley NSW 1 Feb 17 15yrs 31 Jan 32 2 x 5yrs $132,773 Net CPI At option exercise, subject to ratchet. 1 Feb 17 15yrs 31 Jan 32 2 x 5yrs $333,487 Net CPI At option exercise, subject to ratchet. 81 Fairlawn Avenue, 10 Feb 17 15yrs 9 Feb 32 2 x 5yrs $249,907 Net CPI At option exercise, Turramurra NSW 31 subject to ratchet. 31 Until the construction is completed, the Fund will earn 50% of the 6.25% yield of the Acquisition Price + Construction Cost paid to date. This is currently $60,844 per annum. PAGE 34 HEATHLEY ASSET MANAGEMENT LIMITED

37 SECURITY In addition to the above, the Manager and Lessee have agreed a number of security provisions, including: INFINITE CARE ~ ~ Bank guarantee to be supplied by Infinite Care on commencement of each lease for an amount equal to 6 months rent respectively. ~ ~ Guarantor each Property will be subject to an individual lease, however Infinite Care will guarantee the obligations of each lease. ~ ~ Fixed and floating charge the Lessor will have a registered fixed and floating charge over each Infinite Care lease through an all assets General Security Agreement (GSA). The GSA may be subordinated to the Lessee s principal debt financier, with suitable intercreditor arrangements. ~ ~ RADs Tested monthly, the Infinite Care must maintain a liquidity reserve in a cash reserve account to the greater of: (i) 20% of the value of the outstanding RADs; and (ii) any amount prescribed by legislation or regulation applying to the Lessee. ~ ~ Covenant obligations (i) Rent/EBITDAR covenant at consolidated facility level of 55% - if breached, the bank guarantee must increase to nine (9) months of rent. (ii) Secondary rent/ebitdar covenant at consolidated facility level of 60% - if breached, the bank guarantee must increase to 12 months of rent. ~ ~ Approved places licences The Lessee will grant security (second ranking) over the licences to the Lessor. At termination of the Lease for breach by the Lessee and subject to any inter-creditor deed between the bank and Infinite Care s bank, the Lessor may: (i) install an alternative operator; and/or (ii) may enforce security over the licences; and/or (iii) appoint a receiver to undertake a sale process. The licences may be transferred to the Lessor (or its nominee) at market value. If transferred, the Fund will be obligated to take reasonable steps to sell the licences to a third party (such as the new operator of the relevant facility) for market value. If the net proceeds from the sale of the licences exceeds the damages payable from the breach of the Lease (including but not limited to loss of rent and value of the properties), then the difference will be payable to the Lessee upon finalisation of the claim for damages. Otherwise at termination of the Lease, the Lessor will have the option to acquire the licences for market value. GROUP HOMES AUSTRALIA ~ ~ Bank guarantee to be supplied by Group Homes Australia on commencement of each lease for an amount equal to 3 months rent. ~ ~ Guarantor each Property will be subject to an individual lease, however Group Homes Australia will guarantee the obligations of each lease CAPITAL EXPENDITURE INFINITE CARE While the Seed Properties are well maintained, each has redevelopment and/or refurbishment potential which provides an opportunity to increase operational utilisation and revenues. Such works include constructing new wings including additional new rooms, converting a number of double rooms to single ensuited rooms, improving air conditioning and providing sprinkler systems, constructing improved services including kitchens, laundry, gardens, special services (e.g. behavioural unit/dementia ward) and utilising 20 off-line bed licences held by Infinite Care (collectively Capital Expenditure). PAGE 35

38 5 PORTFOLIO PROPERTIES CONTINUED A summary of proposed Capital Expenditure is detailed in the table below: PROPERTY 50 Gulfview Road, Christies Beach SA 1a Main Street, Hahndorf SA Fox Avenue, Klemzig SA 3-5 Grant Avenue, Gilles Plains SA 470 Churchill Road, Kilburn SA REFURBISHMENT DESCRIPTION ~ ~ Build 25 new rooms (all large, single bed ensuited) ~ ~ Convert 25 existing double bed rooms to singles ~ ~ Improve air conditioning and provide sprinkler systems throughout facility ~ ~ Carry out extensive external soft and hard landscaping works to introduce covered family al fresco dining and meeting areas, secure children s playground area, sensory garden and resident s hobby area ~ ~ Build 20 new rooms (all large, single bed ensuited) ~ ~ Convert 20 existing double bed rooms to singles ~ ~ Improve air conditioning and provide sprinkler systems throughout facility ~ ~ Carry out extensive external soft and hard landscaping works to introduce covered family al fresco dining and meeting areas, secure children s playground area, sensory garden and resident s hobby area ~ ~ Build 40 new rooms (all large, single bed ensuited) ~ ~ Convert 40 existing double bed rooms to singles ~ ~ Improve air conditioning and provide sprinkler systems throughout facility ~ ~ Carry out extensive external soft and hard landscaping works to introduce covered family al fresco dining and meeting areas, secure children s playground area, sensory garden and resident s hobby area ~ ~ Build 6 new rooms (all large, single bed ensuited) ~ ~ Renovate 15 bathrooms ~ ~ Refurbish 27 rooms ~ ~ Provide sprinkler systems throughout the facility ~ ~ Carry out extensive external soft and hard landscaping works to introduce covered family al fresco dining and meeting areas, secure children s playground area, sensory garden, resident s hobby area ~ ~ Build 14 new rooms (all large, single bed ensuited) ~ ~ Refurbish 25 ensuites ~ ~ Build full service kitchen to replace current reheating kitchen ~ ~ Carry out extensive external soft and hard landscaping works to introduce covered family al fresco dining and meeting areas, secure children s playground area, sensory garden, resident s hobby area The final Capital Expenditure program at each Property is subject to scope, council approval, final design and costing. Refurbishment Capital Expenditure that is required for the Infinite Care properties, to be funded by the Lessor is capped at $20 million across the Properties and is required to be spent within 36 months from the Seed Properties Settlement Date. Refurbishment Capital Expenditure will be funded through a combination of equity raised through the Investment Period and headroom in the Fund s debt facility. For any proposed Capital Expenditure greater than $50,000, Infinite Care will provide the Lessor with no less than 6 months notice of it being required. All Capital Expenditure paid for by the Lessor will be rentalised at a rate of 8.20% per annum, via an amendment to the lease at the Seed Property where the Capital Expenditure occurred. GROUP HOMES AUSTRALIA The Fund will pay for the costs of developing/refurbishing the property, however this will be limited to base building works and does not include the cost of the operator fitting out the PAGE 36 HEATHLEY ASSET MANAGEMENT LIMITED

39 premises. The Fund will pay on a monthly basis for the costs associated with these works subject to the parties agreeing the development/refurbishment budget and timeframe to which Group Homes Australia will work. Group Homes Australia will pay the Fund half of the total annual rent, on a monthly basis, during the development/refurbishment period BUYBACK Infinite Care, subject to six (6) months notice to the Lessor, will have the option to buyback one or more of the Seed Properties, at the end of the 5th, 8th, 12th and 15th years after the Seed Properties Settlement Date by the Fund (Buyback). The option under the Buyback may only be exercised at these specified dates. The sale price under the Buyback will be determined as follows: ~ ~ at the end of 5th year - a sale price yield of 7.70%, or the average of two independent valuations, at Infinite Care s election; and ~ ~ at the end of 8th, 12th or 15th year - the price will be the average of two independent valuations. ~ ~ In addition, if Infinite Care exercises its right under the Buyback, a proportion of the stamp duty paid by the Fund on the acquisition of the relevant Seed Property will be refunded, as follows: ~ ~ 5th year - 75% ~ ~ 8th year - 50% ~ ~ 12th year - 25% ~ ~ 15th year - 10% The Buyback may also be exercised by Infinite Care outside of the above specified dates, where the Lessor is unable to fund Capital Expenditure that meets certain requirements (including independent valuation support, quantity surveyor sign-off and does not result in the Lessee breaching any covenant obligations in their lease). Under this circumstance, the sale price yield will be determined as 7.70%, or the sale price will be the average of two independently valuations, at Infinite Care s election. In addition, 75% of the stamp duty paid by the Fund on the acquisition of the relevant Seed Property will be refunded VALUATIONS The Manager has had each of the Properties independently valued prior to their acquisition. In addition, Directors valuations are carried out every 6 months or more frequently as determined by the Manager. A summary of the most recent valuations is shown in the table below. 50 GULFVIEW ROAD, CHRISTIES BEACH SA 1A MAIN STREET, HAHNDORF SA FOX AVENUE, KLEMZIG SA 3-5 GRANT AVENUE, GILLES PLAINS SA 470 CHURCHILL ROAD, KILBURN SA Valuation Date 31 Dec Dec Dec Dec Dec 16 Type of Valuation Directors' Valuation Directors' Valuation Directors' Valuation Directors' Valuation Directors' Valuation Valuation $16,900,000 $12,000,000 $13,500,000 $6,150,000 $5,850,000 Cap Rate 7.87% 7.87% 7.87% 7.87% 7.87% 81 FAIRLAWN AVENUE, TURRAMURRA NSW 98 ALAMEDA WAY, WARRIEWOOD 46 CARRINGTON ROAD, WAVERLEY Valuation Date 28 Feb Feb Feb 17 Type of Valuation Directors Valuation Directors Valuation Directors Valuation Valuation $1,950,000 $2,265,000 $5,160,000 Cap Rate % 5.75% Some of the key risks associated with the valuations are outlined in Section A copy of the full independent valuation for each Property is available upon request from the Manager. PAGE 37

40 6 THE MANAGER HEATHLEY ASSET MANAGEMENT LIMITED 6.1. THE MANAGER The Manager of the Fund is Heathley Asset Management Limited (HAML). The sole shareholder of the HAML is Heathley Limited ACN , established in The principal area of operations of Heathley Limited is funds management. HAML was incorporated in New South Wales as a public company on 26 April 1990 and holds AFSL No issued by ASIC. As at 30 June 2016, HAML was managing nine (9) property funds including the Heathley Direct Medical Fund No.1 and the Heathley Diversified Property Fund, with total funds under management of approximately $427 million. Since 1991, HAML has successfully established 37 property funds, the majority of which have now been wound up and the properties sold. The Manager is responsible for the management of the Fund and must perform its role in accordance with its duties under the Corporations Act, and the Constitution and Compliance Plan of the Fund. In exercising its powers and duties, the Manager must act honestly, with care and diligence and in the best interests of Investors. Where there is a conflict between the Manager s own interest and that of Investors, it must prefer the interests of Investors over its own interest. The Directors and senior management of the Manager have been involved in the areas of funds management, property and banking for many years. Their experience includes the assessment of property investment transactions, establishing investment trusts, property trusts and property syndications, the funding of property trusts and investments and the development and management of investment properties DIRECTORS OF THE MANAGER Appointed 1 July 2013 JOHN STUCKEY Chairman and Non- Executive Director Bachelor of Agricultural Economics (Hons 1) (University of New England) Master of Economics (University of New England) PhD in Business Economics (Harvard University) John Stuckey was with management consultants McKinsey & Company for over 25 years, where he advised senior executives of major Australian companies on strategy and organisation issues. He was the Managing Partner of the Australasian practice, Chairman of McKinsey & Company Asia, as well as a Board Member of McKinsey Global. He is a former Chairman of the External Advisory Panel of ASIC. He was a Member of the Heathley Advisory Board for six years prior to his appointment to Chairman of Heathley. Appointed 3 May 1990 PETER HEMMING Founding Chairman and Non-Executive Director Bachelor of Commerce (University of Queensland) Peter Hemming established Heathley Limited in 1977 and is its Founding Chairman. He is involved with Heathley in a consulting role on strategic matters, property acquisition and special projects, as well as have a continuing interest in private client relationships. He is the Founding Chairman of Heathley Asset Management Limited. He is a former Member of the External Advisory Panel of ASIC. He is the Chairman of Epic Private Journeys and a Member of the Advisory Board of Renoir Consulting. PAGE 38 HEATHLEY ASSET MANAGEMENT LIMITED

41 HEATHLEY CURRENTLY MANAGES SEVEN FIXED TERM PROPERTY FUNDS WITH TOTAL FUNDS UNDER MANAGEMENT OF APPROXIMATELY $328 MILLION DAVID SMITHSON Non-Executive Director ANDREW HEMMING Managing Director Appointed 26 November 2009 Bachelor of Economics (University of Queensland) David Smithson has been involved in the development and implementation of large-scale retail financial services IT systems principally banking, funds management and general and life insurance in Australia, Asia and Europe for 35 years. His experience has included management of a large R & D project using leading-edge technologies and application standards, the development of complex implementation programmes utilising industry-standard methodologies, through to hands-on product marketing and sales strategies. Most recently, he provided strategic consulting to financial services multi-nationals headquartered in Europe on the deployment of new, integrated systems. He is the Chairman of Heathley s IT Committee. Appointed 1 August 2013 Bachelor of Arts (Commerce) (Macquarie University) Master of Business Administration (Macquarie University) Andrew Hemming was appointed Managing Director in August 2013 and is responsible for the day-to-day leadership and management of Heathley. Prior to his appointment he was Investment Specialist Real Estate Funds with Folkestone Limited. He has previously worked at Heathley from 2007 to He has had 11 years experience in investment markets with leading international financial institutions and stock broking houses in both Sydney and London. PETER BARNES Non-Executive Director GEORGE WEBSDALE Executive Director Property Appointed 1 January 2014 Bachelor of Commerce (University of New South Wales) Fellow, Australian Property Institute Fellow, Royal Institution of Chartered Surveyors Peter Barnes has a long career in the property industry most recently having been Executive Vice President, Head of Property Lending for the Commonwealth Bank of Australia, Institutional Bank. He has previously held roles at Lend Lease, and CRI Australia where he was Managing Director for 21 years. He is currently, a Non-Executive Director of the Valad V+ Fund, Non-Executive Director of Capstone Recruitment, Chairman of Charter Hall Investment Management Limited, Chairman of PPB Advisory, Real Estate Practice, and Advisory Board Member of Taylor Construction Group. He has previously held Board positions with Goodman Australia, FKP Funds Management, Australian Property Institute and Property Council of Australia. Appointed 31 July 2011 Bachelor of Applied Science (Land Economics) - UTS George Websdale is primarily responsible for the acquisition, management and sale of all properties of the Heathley property funds. He has over 20 years experience in all aspects of the management and investment management of commercial and industrial property across Australia. Prior to joining Heathley, he was General Manager, Office and Industrial at Stockland Property Group. He is a Member of the Australian Property Institute. PAGE 39

42 6 THE MANAGER HEATHLEY ASSET MANAGEMENT LIMITED CONTINUED Senior Management TOBY KREIS Head of Funds Management MARK HOWARD Investment Director Property Funds Bachelor of Commerce & Bachelor of Business (Management) (University of Queensland) Toby is responsible for the management and strategy execution across all Heathley property funds. Toby has been involved in the funds management and advisory industry for over ten years. He joined Heathley in March 2014, having previously worked at Folkestone Limited as Investment Manager for their direct property and fund investments. Prior to joining Folkestone, Toby worked at Mirvac as Analyst for the Mirvac Industrial Trust, and at Deloitte in both their Assurance & Advisory and Corporate Finance Divisions. Bachelor of Business Management (University of Queensland) Master of Planning (University of Technology, Sydney) Associate of the Australian Property Institute (AAPI) Mark Howard is responsible for maintaining and developing new relationships with the Private Clients of Heathley and investment advisers. His role includes assessing clients investment objectives and ensuring these are achieved within the acquisition parameters of the Heathley Investment Funds. He has 10 years of experience in the property industry. He has held roles involving property analytics and valuations, property investment, development management and planning. VIJITHA YOGAVARAN Assistant Fund Manager CHRIS GERAHTY Investment Director Chartered Management Accountant (ACMA, CGMA) Chartered Certified Accountant (FCCA) Vijitha is responsible for the analysis and financial modelling for the funds. Vijitha has over 10 years of experience in the areas of property funds management, corporate finance and Management Accounting. Before joining Heathley, Vijitha worked for Investa Property Group as the Fund Analyst for Investa s Investment Portfolio, Listed and Mandate Funds. She also worked in the Corporate Transaction division at Investa. Bachelor of Commerce (Finance and Accounting) (Bond University) Chris joined Heathley in July 2016 and assists the team in structuring investment opportunities, and with capital raising strategies. Prior to joining Heathley, Chris spent 10 years in corporate finance at Morgans Financial (and its predecessor firms RBS Morgans and ABN AMRO Morgans). Chris has significant experience in capital raisings, and mergers and acquisitions across a diverse range of industries. PAGE 40 HEATHLEY ASSET MANAGEMENT LIMITED

43 ANGELITA ZAMMIT Asset Manager Angelita Zammit was appointed as the Asset Manager for all Heathley properties in January She is responsible for the asset management and property management across the Heathley property portfolio. She has spent the previous 10 years working in healthcare property with Colliers International and prior to that she worked at IPN Medical Centres and CB Richard Ellis. 50 GULFVIEW ROAD, CHRISTIES BEACH SOUTH AUSTRALIA PAGE 41

44 7 FORECAST FINANCIAL INFORMATION This Section provides details of the: ~ ~ forecast income and Distribution statements for the financial years ending 30 June 2017 and 30 June 2018; and ~ ~ proforma balance sheet as at 31 December The Forecast Financial Information in this PDS is prepared in respect of the current Properties, brownfield capital expenditure for the Infinite Care properties and development expenditure for 81 Fairlawn Avenue, Turramurra and assumes that no additional Properties are acquired in the Forecast Period. If additional Properties are acquired the Forecast Financial Information will change. Please refer to the Fund s website for updated information. The Forecast Financial Information should be read in conjunction with the statement of significant accounting policies, the key assumptions, the sensitivity analysis and the key risk factors set out in Section 10. Future returns from an investment in the Fund are not guaranteed. The Manager s forecasts have been prepared on best estimate assumptions. The key assumptions are set out below. While the Directors of the Manager believe the assumptions used are appropriate and reasonable at the date of this document, some factors that may affect the actual results cannot be foreseen or accurately predicted and many of these factors are beyond the control of the Directors of the Manager. As such, actual results may differ from these forecasts. Consequently, the Manager and its Directors cannot guarantee that the results in the Forecast Financial Information will be achieved. The Forecast Financial Information has been prepared in accordance with Australian Accounting Standards. The Forecast Financial Information has been presented in an abbreviated form and does not contain all of the disclosures that are usually provided in an annual report prepared in accordance with the Corporations Act. FORECAST INCOME AND DISTRIBUTION STATEMENTS Set out below is the Forecast Income and Distribution Statements of the Fund for the Forecast Period for the Properties. The Forecast Income and Distribution Statement shows the profit available for Distribution to Investors by adjusting the forecast net profit for certain non-cash and significant items. 46 CARRINGTON ROAD, WAVERLEY NEW SOUTH WALES PAGE 42 HEATHLEY ASSET MANAGEMENT LIMITED

45 The Forecast Income and Distribution Statements should be read in conjunction with the best estimate assumptions and key accounting policies set out within the relevant sections of the Forecast Financial Information, and the investment risks set out in Section 10. NOTE YEAR ENDING 30 JUNE 2017 $000 YEAR ENDING 30 JUNE 2018 $000 Net Property Income 4,573 5,515 Straight-lining of Rent Interest Income Derivatives Fair Value Adjustment Total Income 5,502 5,533 Management Fee (468) (564) Fund Expenses 2 (198) (207) Write-off of Acquisition Costs (816) (29) Net Gain/(loss) on fair value adjustment of investment properties (217) - Interest Expense (1,008) (1,008) Amortisation of Borrowing Costs 3 (1,131) (1,130) Total Expenses (3,838) (2,937) Net Profit 1,665 2,596 Forecast Cash Distribution Statement Net Profit 1,665 2,596 Adjustments for non-cash items Straight-lining of Rent 1 (617) - Write-off of Acquisition Costs Net Gain/(loss) on fair value adjustment of investment properties Amortisation of Borrowing Costs 3 1,131 1,130 Distributable Income 3,211 3,754 Distribution per unit(cents) Notes 1 Straight-lining of rent represents the impact of bringing fixed rent review increases to account evenly over the life of the leases. This is a non-cash item included in the net profit amount, not available for distribution and therefore not taken into consideration when calculating the forecast amount available for distribution. 2 Fund Expenses include accounting, valuation, custodian fees, audit and administration costs. 3 Borrowing costs relating to the Term Facility are amortised over the Term Facility term. 4 Acquisition Costs (excluding stamp duty and registration fees) were written off as at the date of acquisition. Acquisition costs were funded by the equity raising and therefore are excluded from the calculation of the forecast amount available for distribution. 32 The distribution per unit for March 2017 and June 2017 is anticipated to be 7.4 cents per unit (annualised). PAGE 43

46 7 FORECAST FINANCIAL INFORMATION CONTINUED 7.3. PROFORMA BALANCE SHEET The Balance Sheet has been prepared to present the Fund s net asset position as at 31 December The Balance Sheet should be read in conjunction with the best estimate assumptions set out within the relevant sections of the Forecast Financial Information and the investment risks set out in Section 10. Assets NOTE $,000 Cash 10,417 Other Current Assets 415 Investment Properties 1 54,400 Total Assets 65,232 Liabilities Current Liabilities 1,941 Borrowings 25,400 Loan Establishment Cost Total Liabilities 27,118 Net Tangible Assets 38,113 Equity Issued Equity 39,854 Retained Earnings -1,740 Total Equity 38,114 Number of Units Issued ( 000) 39,854 NTA per Unit $ Gearing % Notes 1 Comprises the most recent valuation of the Portfolio Properties. 2 Comprises capitalised debt establishment costs. 3 Calculated in accordance with ASIC Regulatory Guide 46. PAGE 44 HEATHLEY ASSET MANAGEMENT LIMITED

47 7.4. ASSUMPTIONS FOR THE FORECAST FINANCIAL INFORMATION The following are the best estimate assumptions used by the Manager for the purpose of deriving the Forecast Financial Information. ASSUMPTION DESCRIPTION TERM DEBT FACILITY The terms of Term Debt Facility are outlined in 3.9. There will be no further debt drawdown under the Forecast Period. INTEREST COSTS REAL ESTATE INCOME Interest costs are incurred in relation to the Term Debt Facility. The total interest cost forecast which includes the market base rate, margin rate and swap cost is 3.97 and 3.97 per cent per annum respectively for FY17 and FY18. An undrawn facility fee of 0.80 per cent per annum, payable on the undrawn amount of the Term Debt Facility ($4.60 million). Rental income from the tenant leases increases in accordance with the lease provisions. Property outgoings are recovered from the Lessee, in accordance with the terms of the lease. There are no tenant defaults during the Forecast Period. PROPERTY ACQUISITION FEE A property acquisition fee will be payable to the Manager, in accordance with Section MANAGEMENT FEE A Management Fee will be payable to the Manager, in accordance with Section DISPOSAL FEE PERFORMANCE FEE FUND EXPENSES DISTRIBUTIONS TAX DEFERRED AMOUNTS ADDITIONAL INVESTMENTS CAPITAL EXPENDITURE A Disposal fee will be payable to the Manager in accordance with Section No Disposal fee has been assumed as being payable within the Forecast Period. A Performance Fee will be payable to the Manager in accordance with Section No Performance Fee has been assumed as being payable within the Forecast Period. Normal administrative and operational costs such as audit, custodian, valuation, accounting, compliance and registry are paid by the Fund. These amounts have been forecast relative to the size of the Fund. Distributions are forecast to be made quarterly in arrears. The Manager will an amount of forecast net profit adjusted for non-cash items for working capital requirements. The Manager anticipates that Distribution payments to Investors will include some tax deferred amounts. The Forecast Financial Information in this PDS is prepared in respect of the Infinite Care and Group Homes Australia and the redevelopment/refurbishment in relation to those properties and assumes that no additional Properties are acquired in the Forecast Period. If additional Properties are acquired the Forecast Financial Information will change. Please refer to the Fund s website for updated information. It is assumed that the Brownfield Expenditure amounting to $6.7m is completed at the Infinite Care Properties and also development works at the Group Homes Australia property are funded by the Fund during the Forecast Period. PAGE 45

48 7 FORECAST FINANCIAL INFORMATION CONTINUED 7.5. SENSITIVITY ANALYSIS The forecasts have been based on certain economic and business assumptions about future events. The forecast profit available for distribution and Distributions payable during the Forecast Period is sensitive to a number of factors. A summary of the possible impact of different outcomes in the key assumptions underlying the forecasts is set out in the table below. However, the disclosed movements in these key assumptions are not intended to be indicative of the complete range of variations that may occur. CHANGE IN INTEREST RATES CHANGE IN LVR CAPITAL EXPENDITURE The Manager has entered into hedging arrangements for the Term Debt Facility as outlined in Section 3.9. The remaining 33.3% of the Term Debt Facility will be unhedged over the same period. If the interest rate increased or decreased by 0.5 per cent per annum, the impact of the change in interest payable for FY17 would be $20,976 (for 6 months) which represents +/-0.04 cents per Unit per annum. The LVR under the Term Debt Facility for the Properties was 50% as at 31 December If, for unforeseen circumstances, the Term Debt Facility is increased after Investor approval, the following impact would occur given the equity component remains fixed. For a 10% increase in the facility, i.e. 55% LVR, the impact of the change in interest payable for FY17 would be $31,489 (for 6 months), which represents +/-0.07 cents per Unit per annum. It is assumed that $6.7m of Brownfield works is completed at the Infinite Care Properties and funded by the Fund during the Forecast Period. Under the terms of the lease, the Fund is obligated at the discretion of the Lessee, to pay for Capital Expenditure. All Capital Expenditure paid for by the Lessor will be rentalised at a rate of 8.20% per annum. Refer to Section for further information. In addition, the Forecast assume $1.9m of development work will be carried out at 81 Fairlawn Avenue, Turramurra. During the development period, the Fund will earn an income equivalent to 50% of the total annual rent of 6.25% based on the total acquisition and development costs paid to date. PAGE 46 HEATHLEY ASSET MANAGEMENT LIMITED

49 8 FEES AND OTHER COSTS CONSUMER ADVISORY WARNING DID YOU KNOW? Small differences in both investment performance and fees and costs can have a substantial impact on your long term returns. For example, total annual fees and costs of 2% of your Fund balance rather than 1% could reduce your final return by up to 20% over a 30 year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs. You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the Fund or your financial advisor. TO FIND OUT MORE If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website ( has a managed investment fee calculator to help you check out different fee options. 98 ALAMEDA WAY, WARRIEWOOD NEW SOUTH WALES PAGE 47

50 8 FEES AND OTHER COSTS CONTINUED 8.1. FEES AND OTHER COSTS The table below shows the fees and costs that may be charged. These fees and costs may be deducted from your money, from the returns on your investment or from the assets of the Fund as a whole. The fees below are inclusive of GST less any reduced input tax credits. The Manager will invoice the Fund including GST, which can then be recovered by the Fund from the ATO. Investors are not charged GST on their Application Amount. For information on taxation, refer to Taxation in Section 9. You should read all the information on fees and costs, as it is important to understand their impact on your investment. Refer to Section 8.2 for additional information relating to the fees and costs applicable to the Fund. TYPE OF FEE OR COST AMOUNT HOW AND WHEN PAID Fees when your money moves in or out of the Fund ESTABLISHMENT FEE The fee to open your investment Nil Not applicable CONTRIBUTION FEE The fee on each amount contributed to your investment Nil Not applicable WITHDRAWAL FEE The fee on each amount you take out of your investment Nil Not applicable EXIT FEE The TYPE fee OF to FEE close OR your COSTinvestment AMOUNT Nil HOW Not applicable AND WHEN PAID Management Costs ~ The fees and costs for managing your investment MANAGEMENT FEE Estimated at 1.71% per annum of the NAV of the Fund comprising: ~ ~ A management fee of 1.20% of the NAV per annum; ~ ~ Expenses relating to the proper performance of the Manager s duties in connection with the Fund estimated to be 0.50% of NAV per annum; and ~ ~ Indirect costs of 0.01% of NAV per annum. The Management Fee is based on the Net Asset Value of the Fund as at the last day of each quarter and payable to the Manager at that time. Expenses and other indirect costs are paid as and when incurred by the Fund. Services fees ~ The fee for changing investment options. SWITCHING FEE Nil Not applicable. Note: There is also a buy spread. Refer to Additional explanation of fees and costs below for more details. PAGE 48 HEATHLEY ASSET MANAGEMENT LIMITED

51 EXAMPLE OF ANNUAL FEES AND COSTS The following table gives an example of how the fees and costs of the Fund can affect your investment over a one year period. You should use this table to compare an investment in the Fund with other managed investment products. EXAMPLE BALANCE OF $50,000 Contribution Fees 0% Not applicable PLUS Management Costs EQUALS Cost of the Fund 1.71% of the NAV of the Fund And, for every $50,000 you have in the Fund, you will be charged $855 each year. If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 during that year, you would be charged fees of between $855 and $941 each year. What it costs you will depend on the fees you negotiate with your fund or financial adviser. Additional fees may apply and are not shown in this example, including: ~ property acquisition fees of $530,597 are estimated to be payable out of the Fund in the first year following the date of this PDS (corresponding with approximately $669 per $50,000 in value of interest in the Fund); ~ performance fees (performance fee cannot be reasonably estimated by the Manager at the date of this PDS. Examples and/or explanations of these fees are provided under Additional Explanation of Fees and Costs ) ADDITIONAL EXPLANATION OF FEES AND COSTS Management Costs Management Fee The Manager is entitled to an annual management fee of 1.20% of the Net Asset Value of the Fund. Administration Costs and Expenses The Fund will incur costs such as printing and postage, registry costs, audit, legal, valuation, accounting and tax consultant fees. To the extent the Manager pays these costs, the Manager is entitled to be reimbursed on presentation of invoices. The Manager estimates these costs to average 0.50% of Net Asset Value of the Fund per annum. Indirect Costs of your investment The Manager estimates the indirect costs of your investment to be 0.01% p.a. of the NAV of the Fund. This approximate amount will be deducted from your investment and covers amounts that have reduced the return on your investment but are not charged to you directly as a fee. The Indirect Costs comprise property management fees, leasing fees and administrative service fees payable to specialist service providers engaged by the Manager. The Indirect Costs are calculated on the basis of the Manager s reasonable estimate of such costs and paid out of the Fund s assets when incurred. The actual indirect costs in any subsequent period may differ from this amount Property Acquisition Fee The Manager is entitled to an acquisition fee of up to 3.0% of the total consideration paid for any Property including amounts paid in respect of the acquisition, improvement or development of the Property. For example, if the total consideration is $10,000,000 the fee is $300, Disposal Fee The Manager is entitled to a disposal fee of up to 1.5% of the gross sale price of any Property. The Manager will pay any selling fees payable to real estate agents engaged by the Manager in connection with the sale out of the Manager s disposal fee. For example, if a Property is sold for $10 million where the Manager has engaged a real estate agent in connection with the sale, then the Manager is entitled to a disposal fee of $0.15 million out of which any selling costs payable to real estate agents must be paid. The Manager is also entitled to a disposal fee if it is removed as the responsible entity of the Fund or if the Fund is listed on the ASX and the Manager does not become the manager of the ASX listed entity. PAGE 49

52 8 FEES AND OTHER COSTS CONTINUED Performance Fee The performance fee is paid to align the interests of the Manager with Investors. The Manager will be entitled to receive a performance fee of 25% of the outperformance of the Fund over an IRR of 10.5% (after costs). The first performance fee calculation period is expected to be from the date of acquisition of the Seed Properties to the earlier of the conclusion of the Fund s Target Investment Term (eight years) and the wind up of the Fund. If the Fund is continued beyond the Fund s Target Investment Term (eight years), the performance fee will be payable based on the Unit Price at the conclusion of the Fund s Target Investment Term (eight years) and will be calculated based on the assumption that an amount equal to the NAV (reflecting anticipated future disposal costs for all remaining Properties) was paid to Investors. The IRR calculation will reset so that the next calculation period will be from the end of the previous calculation period. The performance fee will also be calculated, payable and reset in certain circumstances including: if HAML is removed as Responsible Entity of the Fund; the Fund disposes of any Property; the Fund is listed on the ASX; a scheme or other arrangement affects the Fund whereby Investors holding greater than 80% of the Units on issue dispose of those Units; or the performance fee provisions in the Constitution are amended without the consent of the Responsible Entity. In these circumstances, the performance fee will be payable based on the Unit Price prevailing at the relevant time. Example of performance fee: This example is provided for information purposes only to illustrate the operation of this formula and is not a forecast of performance. PF = EP x 25% PF = performance fee EP = Excess performance of the Fund assuming a 10.50% IRR on equity to each investor, after costs. For example, if the Fund: ~ ~ raised $31.19 million at $1.00 per Unit; ~ ~ paid a Distribution per annum of $0.08 per Unit for five (5) years (representing total Distributions to Investors of $2.495 million per annum); and ~ ~ returned $1.14 per Unit at its wind up (based on capital growth of 3.0 per cent per annum and a one-off cost of 1.5 per cent for transaction costs relating to the sale of the Properties), then the Fund equity IRR based on these series of cash flows is calculated to be 10.6 per cent. The outperformance amount above the hurdle IRR of per cent would be $215,329 being the amount that, if included in the Fund IRR cash flows as an outflow at wind up of the Fund, reduces the Fund IRR to per cent. Therefore, the Performance Fee payable will be $53,832 (being 25 per cent of $215,329 for the Fund, or $0.002 per Unit). Applying this example to the Investor with an initial $50,000 investment, this would equate to a performance fee of $ Transfer Fee The Manager is entitled to be paid by any Investor who transfers any of its Units a transfer fee equal to 4% of the gross transfer price of such Units which are transferred. For example, if an Investor transfers Units for a gross transfer price of $100,000, the Investor would be required to pay to the Manager a transfer fee of $4,000 within 5 business days of the transfer being registered Property Management Fee The Manager has appointed a related entity to manage the Properties. The related entity of the Manager is paid property management fees at commercial market rates for the property management role it performs. In circumstances where property management fees form part of the outgoings of the Properties, they may be recoverable, in full or in part, from tenants under the terms of their leases and to the extent this occurs there will be no net cost to the Fund. The related entity of the Manager currently charges the following Property Management fees annually in respect of the current Portfolio Properties: 50 Gulfview Road, Christies Beach SA $8, Grant Avenue, Gilles Plains SA $1,957 1a Main Street, Hahndorf SA $5, Churchill Road, Kilburn SA $1, Fox Avenue, Klemzig SA $6, Fairlawn Avenue, Turramurra NSW $2, Alameda Way, Warriewood NSW $2, Carrington Road, Waverley NSW $2,000 The above fees have been included in the Fund s indirect costs Development Management Fee The Fund expects to complete the Capital Expenditure at the Portfolio Properties, as detailed in Section To the extent that the Manager has a role in managing, overseeing PAGE 50 HEATHLEY ASSET MANAGEMENT LIMITED

53 or completing these works at each of the Portfolio Properties, the Manager will be entitled to a fee at commercial market rates. This will include, but is not limited to, attendance at project control group meetings during the program, oversight of the works program, and ensuring the works are completed in accordance with the plans and specifications. An estimate of this fee has been included in the Fund s indirect costs Leasing Fee A related entity of the Manager may receive leasing commissions if it secures new tenants or renews or extends leases with existing tenants for the Properties. These fees will be charged at commercial market rates, depending on the size of the area leased, the term of the lease and the conditions of the lease. Where an external agent is retained to introduce new tenants, the external agent will be paid by the Fund at commercial market rates. In such cases, the related entity of the Manager will limit its fees to the commercial rate for a coordinating agent. An estimate of this fee has been included in the Fund s indirect costs Professional Services Fee The Manager or any of its associates may also provide other services to the Fund in the future such as accounting or other management services. Should this occur these fees will be charged on an arms length basis for those services at commercial market rates GST Unless otherwise stated, all fees in this section of the PDS show the net effect of GST (i.e. inclusive of GST less any input tax credits including reduced input tax credits). Where the Fund is entitled to an input tax credit or reduced input tax credit under GST legislation for GST paid in respect of the services provided to it, the cost to the Fund of paying GST will be reduced proportionally. For additional information in relation to the taxation implications of an investment in the Fund please see Section Administration services Persons investing through an administration service or IDPS service such as a master fund or wrap account, or a nominee or custody service should be aware that in addition to the fees and charges described above, they will also be liable to pay fees to the operator of the service as described in the offer document or guide for the relevant service. The Manager may pay fees to an operator of an administration service where they provide marketing and product support in relation to the Fund, or the Manager may draw on its own resources to provide marketing and product support to an administration service Adviser remuneration No upfront or trail commission is paid to advisers by the Fund or the Manager in respect of offers for Units. Direct Investors may direct the Responsible Entity to pay their adviser a professional fee for service of up to 3% (including GST) of their Application Amount for Units issued under the Offer or an agreed dollar amount. This will be deducted from their Application Amount and then paid on their behalf to their adviser following Allotment Transactional and operational costs ( Transaction Costs ) and buy spread Transaction Costs include the costs associated with buying and selling Properties such as settlement costs and stamp duties and the transactional and operational costs associated with derivatives used for hedging purposes. The Transaction Costs of the Fund (based on the financial year ended 30 June 2016) are estimated to be 14.6 percent per annum of the Net Asset Value of the Fund. For example, the means that Transaction Costs of $5.84 million per annum would be incurred if the Fund s Net Asset Value was $40 million. The buy spread is an additional cost to Investors when investing into the Fund and is retained by the Fund and not paid to the Manager. The units issued under the Offer will be issued at the per unit Net Asset Value of the Fund uplifted by a Transaction Cost amount taking into account stamp duty and other transaction costs. The Fund s current buy spread is 4.4%. There is currently no sell spread. The estimate the Fund s Transaction Costs was calculated using the Fund s expected, estimated transactions during the most relevant period in the last financial year. The estimate of the part of such costs related to derivatives was based on the sum of the difference between the price paid for acquiring hedging derivatives and the price that would be payable if they were disposed of at that time and an estimate of the difference between the price received for disposing the derivatives and the price that would be payable if they were acquired at that time Differential Fees The Manager may negotiate management or other fees on a differential basis with certain applicants who are wholesale clients within the meaning of the Corporations Act 2001 on an individual basis, but only in accordance with applicable law Form and Payment of Fees Fees may be paid to the Manager as cash and/or in the form of Units. PAGE 51

54 9 TAXATION 9.1. IMPORTANT NOTE The following is a general summary of the income tax implications of investing in the Fund. The information is general in nature and based on the taxation law in force at the time of issue of this PDS. The summary is a brief guide only and applies only to Australian resident Investors who will hold their Units on capital account. The guide does not address the consequences that arise if an Investor is a non-resident or holds Units on revenue account, as trading stock, or if the taxation of financial arrangements (TOFA) provisions apply to the Investor. The taxation treatment of an investment in a unit trust like the Fund can be complex and may change over time. The Manager is not an expert in taxation and Investors are advised to consult their own professional advisors as to the tax consequences of investing in the Fund and in relation to any changes in taxation law and practice which may occur subsequent to the date of this PDS. It should be noted that Australia is currently undergoing significant tax reform. On 9 April 2015, the Government released exposure draft legislation for the new Managed Investment Trust (MIT) regime for public consultation. Broadly, the new MIT regime is a new tax system for certain MITs that provides formal mechanisms to attribute taxable income to unitholders and allows MITs to recognise prior year taxable income adjustments. These aspects of the new MIT regime aim to effectively codify previous MIT industry practice and it is not expected that they will result in significant practical changes for MIT unitholders. The exposure draft legislation provides that the new MIT regime will apply from 1 July However, it was announced in the May 2015 Federal Budget that the start date will be deferred until 1 July 2016 with the ability to opt in early from 1 July Based on the draft legislation, it is not expected that the Investors would be adversely impacted if the Fund is a MIT and did elect into the new MIT regime. However, it is important to note that the new MIT regime legislation is in draft form and subject to change prior to its enactment. Further, as with all new legislation, it is difficult to fully understand the legislation s impact until it has been put into practice. As such, even though we consider it unlikely, it may be the case that the new MIT regime does have some unforeseen implications for Investors TAXATION OF THE FUND It is intended that the Fund will be administered such that Investors will be presently entitled to all of the Fund s net income in each year and that the Fund is not a public trading trust (refer below). On this basis, the Fund should generally not be subject to Australian income tax on the profits and gains compromising the net income of the Fund TAXABLE INCOME OF THE FUND Based on the investment objectives stated in the PDS, the taxable income of the Fund will include Australian sourced rental income and potentially capital gains on disposal of underlying properties. Other income may be derived by the Fund in the form of interest. As stated in the PDS, the Fund will incur interest expense in relation to the purchase of its investments, which should be deductible against the income derived from these investments. Other deductions of the Fund will be treated in a similar manner TAX LOSSES Where the Fund is in a tax loss position or has a net capital loss in a particular year, the relevant loss is retained in the Fund and is not distributable to the Investors. Tax losses can be carried forward by the Fund and used to offset taxable income in a future year. The utilisation of tax losses in a future income year is subject to the Fund satisfying a loss integrity test (i.e. where, broadly, there is more than 50% continuity of beneficial ownership). There are no restrictions in carrying forward net capital losses, which can only be offset against capital gains derived by the Fund in future years PUBLIC TRADING TRUST RULES Generally, the public trading trust rules apply to public unit trusts that carry on a trading business. If the public trading trust rules apply then the Fund will lose flow-through status and be treated as a company for income tax purposes, with the trustee taxed at the corporate tax rate (currently 30%) and Distributions to beneficiaries taxed as dividends. The Fund should constitute a public unit trust as the Units are offered to the public. The Fund would only be carrying on a trading business where it carries on a business that does not consist wholly of an eligible investment business. An eligible investment business includes investing in land for the purpose, or primarily for the purpose, of deriving rent. Thus, the Fund should not fail the trading business test and therefore should not be a public trading trust. PAGE 52 HEATHLEY ASSET MANAGEMENT LIMITED

55 9.6. TAX IMPLICATIONS FOR AUSTRALIAN RESIDENT INVESTORS Australian resident Investors will be taxed, at the tax rates applicable to the relevant investor, on their share of the taxable income of the Fund. Income derived by the Fund should retain its character in the hands of the Investors when distributed. The taxable income should be included in the Investor s tax return for the year in which present entitlement to the Distribution arises (i.e. the year in which the Fund derives the income). Investors will be provided with an Annual Tax Statement setting out the details of their taxable income Distribution arising from their investment in the Fund. This statement will provide Investors with details of the Distribution components to be included in their income tax return. The taxable sum of these components may differ to the amount of cash Distribution the Investor receives. Distributions of income may also include tax sheltered income. Tax sheltered income is generally not included in the assessable income of the Investors. The tax implications of deriving certain types of income (including tax sheltered income) are discussed in further detail below CAPITAL GAINS Where the Investors receive a Distribution that includes a discount capital gain (i.e. where the Fund has held the Properties for at least 12 months and therefore has applied a CGT discount of 50% to the capital gain), the Investors will be required to gross up the discount capital gain received and then add or subtract any current or prior year capital losses. Depending on their circumstances, the Investor may then be entitled to reduce any remaining discount capital gains by the relevant CGT discount percentage. Individuals and trusts will be entitled to a 50% discount, whereas Australian complying superannuation fund investors will be entitled to a 33 1 /3% discount. Corporations are not eligible for the discount TAX SHELTERED DISTRIBUTIONS Tax sheltered income will generally arise as a consequence of the Distribution of: ~ ~ tax deferred amounts that arise where the Fund s taxable income is lower than its Distribution for the year (for example due to tax depreciation and building allowances); or ~ ~ CGT concession amounts arising where the Fund disposes of the Properties after a period of at least 12 months. The tax deferred Distribution from the Fund will reduce the CGT cost base of the Units held by Investors in the Fund. If the CGT cost base in the Fund Units is reduced to nil by tax deferred Distributions, further tax deferred Distributions received by the Investors on Units in that trust will be assessable as capital gains. CGT concession amounts paid by the Fund will not reduce the CGT cost base of the Units held by Investors DISPOSAL OF UNITS Investors will be subject to CGT on the disposal of their Units. Generally, provided the Units have been held for at least 12 months, any capital gain realised on the disposal of Units may be eligible for a 50% discount for Australian resident individuals and trusts, and a 33 1 /3% discount for Australian complying superannuation funds. No discount is available for corporations. If a capital loss arises on disposal of the Units, the capital loss may only be offset against any current or future capital gains arising for the Investor. In determining whether a capital gain or loss arises on the Investors disposal of Units in the Fund, the calculation of the Investors capital gain or loss may be affected by any tax deferred Distributions made by the Fund (refer above) BORROWING TO ACQUIRE UNITS IN THE FUND Each investor s individual circumstances will determine the taxation treatment of any borrowing costs incurred to fund the acquisition of Units in the Fund. Investors should seek their own independent professional tax advice in relation to the taxation treatment of interest incurred on borrowings used to acquire Units in the Fund TAX FILE NUMBER If an Investor is an Australian resident, the Investor may choose whether or not to provide a Tax File Number or an Australian Business Number (if the Investor is investing in the Fund in the course of an enterprise). If neither is quoted and no relevant exemption information is provided, we are required to withhold tax from income Distributions at the highest marginal tax rate plus the Medicare levy and the temporary budget repair levy (currently 49%) GOODS AND SERVICES TAX (GST) The acquisition, redemption and transfer of Units in the Fund should not be subject to GST. Distributions made by the Fund should also not give rise to any GST consequences. PAGE 53

56 10 RISKS RISKS OF INVESTING IN THE FUND This section describes what the Manager believes to be some of the keys risks associated with an investment in the Fund. It does not purport to be an exhaustive list. As with most investments, the performance of the Fund and the value of the Units may be influenced by a number of risk factors, many of which are outside of the control of the Manager. The value of an investment in the Fund, and income received by Investors, may rise or fall and consequently, Investors may suffer losses. Before investing, Investors should consider whether the Fund is a suitable investment, having regard to their personal investment objectives, financial position and particular needs and circumstances. Investors should also consider and take into account the level of risk with which they are comfortable, the level of returns they require, as well as their frequency and nature, and their investment time horizon. Investors should seek professional advice in setting their investment objectives and strategies. Some of the significant investment risks for the Fund are set out in the following categories: ~ ~ fund specific risks; ~ ~ general investment risks; ~ ~ manager risk; ~ ~ Investor risk; and ~ ~ other risks FUND SPECIFIC RISKS Tenancy Risk The Fund s forecast income from the Properties is dependent upon Infinite Care and Group Homes Australia paying rent in accordance with its lease terms. There is a risk that the tenants may default on its lease terms which could result in a reduction in rental income for the Fund and additional expenses being incurred. This may involve a delay in the commencement of a new lease or leases with a period when no rent will be received or new leases are entered into on less favourable terms. Further, commissions may be payable to real estate agents who introduce tenants and incentives or capital works may be required to attract tenants. These expenses and capital payments will be paid by the Fund. Given the specialist nature of the Lessees operating business, the value inherent in any alternate use of the Seed Properties is likely to be materially lower than the current value. In the event of default of the tenant, the Manager would seek to install an alternative operator to take over the leases. There is a risk that the Manager may not be able to secure an alternate operator or that any alternative operator may require terms which are less favourable to the Fund than those agreed with Infinite Care or Group Homes Australia. Circumstances which may result in an alternative operator requiring less favourable terms include where the Manager fails to properly maintain and operate the aged care business, leaves the existing business with liabilities which need to be assumed by the new operator (for example, where the Manager appropriates RADs without adequately providing for the associated liabilities which must be assumed by the new operator), where there is increased competition, where there are adverse changes to government regulation, where there is a fall in occupancy rates, where residents default in their obligation to pay fees and other circumstances which may generally adversely affect the value of the aged care business operated on the premises. The above circumstances may have a materially adverse impact on the Fund s forecast income and Distributions, a Property s capital value and potentially the NTA of the Fund. Key factors to mitigate the above risks are tenant diversification through additional Property acquisitions, and regular monitoring and enforcement of lease obligations. Additionally, the Manager has a bank guarantee, fixed and floating charge and security over the Property licences Buyback of Seed Properties Infinite Care will have the option to Buyback the Seed Property or Seed Properties, at the end of the 5th, 8th, 12th and 15th year (Buyback). The option may only be exercised at these specified dates at the sale price specified under the Buyback. Refer section for more details. There is a risk that, if Infinite Care exercises this buyback right at the end of the 5th year, the Seed Properties will be sold back to Infinite Care at a value which is less than the prevailing market value of the Seed Properties. This may have an adverse impact on the Fund s forecast income and Distributions and the NTA of the Fund Capital Expenditure Risk There may be a need for the Fund to pay for Capital Expenditure on any of the Properties during the time they are owned by the Fund in excess of that for which the Fund has budgeted. While it is the intention of the Manager to fund Capital Expenditure through a combination of equity and debt, the Manager may be unable to fund the Capital Expenditure from these sources. Under certain circumstances, Infinite Care PAGE 54 HEATHLEY ASSET MANAGEMENT LIMITED

57 has the right to buyback a Property if the Manager is unable to fund the Capital Expenditure proposed by the Lessee at that Property. A buyback of the Property may have an adverse impact on the Fund returns Changes in Law or Government Policy The residential aged care industry is highly regulated and dependent on Federal Government funding for approximately 69% of operating revenue. Changes in residential aged care funding provided by the Federal Government as well as income tax, indirect tax or stamp duty legislation or policy changes may affect the Fund s returns. Such changes can result in the Distribution policy of the Fund having to change. As changes in law, policy and regulation often cannot be foreseen, the Manager will attempt to respond to any such changes in whatever manner seems practical and in the best interest of Investors Diversification The Fund has an interest in eight (8) residential aged care properties, located in two states (South Australia and New South Wales), with Infinite Care and Group Homes Australia as tenants. The Fund is not currently diversified by real estate sector. The Manager will seek to increase diversification in the Fund by investing in Properties that vary by location and operator Risk Associated with Financial Forecasts There is a risk that actual performance of the Fund will fall below the Forecast Financial Information forecasts set out in this PDS. The achievement of forecasts is neither promised nor guaranteed. This may occur if the assumptions relating to the Forecast Financial Information are inaccurate. Further, the acquisition of additional Properties will affect the Forecast Financial Information set out in the PDS. The Manager will regularly monitor the Forecast Financial Information and update the Forecast Financial Information by way of a supplementary PDS as and when required by law Property Risk Various factors affect the property market generally or individual properties in a Fund. These factors may result in negative valuations during the cycle and income produced from individual properties which may materially impact net assets and Distributions of the Fund. There may be external influences from time-to-time, including unforeseen items of expenditure which have not been budgeted for, and which adversely affect the income of the Fund. These may result in a reduction of the Fund Distributions. There are a number of key factors to mitigate this risk. The Manager carries out due diligence investigations on all Properties. In addition, following any purchase, an experienced property manager will be appointed to maintain the Properties. Finally, the Manager takes an active role in the management of each of the Properties including regular site visits, discussions with the tenants and with the property managers Borrowing and Refinancing Risk These risks relate to the ability of the Manager to borrow on terms and conditions, including duration and interest rates, which are acceptable to it. This includes the rollover of existing debt facilities or their renegotiation. The availability of debt financing may be adversely impacted by changes in official interest rates, the general state of the property market and limits on gearing ratios that financiers may impose on borrowers generally at any time. Changes in the value of the Properties or their income that secure the repayment and servicing of the borrowing may also affect the gearing ratio which a financier may require to be maintained during the term of the financing arrangement. This may result in the Manager being required to reduce the level of the Fund s debt and even be required to sell the Properties for a capital loss. While borrowing may enhance Investors returns, there is a risk that such gearing may impact negatively on their investment. The Term Debt Facility will mature in three (3) years. There is a risk that the Fund is unable to refinance the loan, or that the refinance may not be obtained on the same terms (for example, upon the refinance of the loan, interest rates may be higher) Capital Gains Tax Risk The CGT discount will only be available in respect of the disposal of a Property where: ~ ~ the Property is held by the Fund on capital account or, if the Fund is a MIT, the Property is covered by a capital account election; and ~ ~ the Property has been held for at least 12 months before the date of an agreement to dispose of the Property. If the Fund were held to have invested in a Property on revenue account, a gain on disposal of the Property would be ordinary income and the CGT discount would not be available to the Fund or the Investors. If the Fund were to enter into an agreement to dispose of a Property within 12 months of the date of acquisition of the Property, the gain may still be a capital gain but the CGT discount would not be available to the Fund or the Investors. PAGE 55

58 10 RISKS CONTINUED Development and Construction Risk Development and construction risks arise if the Fund purchases further Properties on a fund-through structure. A fund-though structure means, the Fund initially will acquire the land and then fund the construction. The completion of construction could be delayed due to the fault of the developer, builder or any unforeseen events. If practical completion is not achieved on time, the tenant will not begin paying rent when expected. This is mitigated by the developer continuing to pay additional income to the Fund until practical completion is reached. If practical completion is delayed, compensation payments may need to be paid. These payments are funded by the developer but could become the responsibility of the Fund if the Manager decides to exercise step-in rights to control the delivery of the property. Should the builder not be able to complete a Property due to certain circumstances such as financial insolvency, the Manager may have step in rights for the Fund under a development agreement such that it can take control of the property. The Fund has acquired 81 Fairlawn Avenue, Turramurra on a Fund through basis on 9 February During the period of construction, the Fund will be paid 50% of the annual rent calculated as 6.25% on the total costs paid by the Fund Derivatives risk A derivative is a financial transaction which derives its value from another source, such as a share or bond. The main types of derivatives are futures, options and swaps. Derivatives can expose the Fund to other risks which are particular to derivatives, such as counterparty, credit and pricing risk. Derivatives are also subject to market risk where there is movement in the underlying security, index or financial obligation. It is not the current policy for the Fund to use derivatives for gearing purposes or for speculative activities. However, the Fund is permitted to use derivatives for the purpose of managing the Fund s interest rate exposures. Interest rate risk strategies aim to minimise the impact of rising interest rates. For example, if the Fund fully hedges its borrowings (i.e. fixes the interest rate on its borrowings) and the prevailing interest rates fall, then the Fund is will pay the higher interest rate cost Valuation Risk The ongoing value of the underlying Properties of the Fund is influenced by changes in property market conditions. There is no guarantee that the Properties will not fall in value as a result of adverse property market conditions Insurance Risk Various factors can influence both the cost of maintaining insurance over the Properties in the Fund and the extent of cover available. Increased insurance costs, or limits on cover, may have a negative impact on the performance of the Fund Performance Risk These risks relate to the performance of the Fund and its property assets and may include: ~ ~ tenancy risks such as bankruptcy of a tenant and inability to re-let a vacancy at current market rentals and on normal commercial terms; ~ ~ vacancy can have a direct impact on the value of the Properties at any point in time, most notably at the time that the Properties may be sold; ~ ~ inability to sell the Properties due to a depressed property market or that at the time of disposal, the sale price is less than the original purchase price; ~ ~ damage to a building as a result of fire, tempest, malicious damage or, earthquake - however, these risks will be insured against to extent possible; ~ ~ financial forecasts are not achieved, resulting in lower Distributions and/or lower capital values of property assets; ~ ~ risk that the Fund will be involved in disputes or litigation; and ~ ~ inability to acquire additional Properties during the Investment Period due to lack of availability or limited funds raised Additional Properties The Manager intends to invest the Fund in additional Properties which, as at the date of this PDS, have not been identified. The returns of the Fund and the returns to Investors will be dependent not only on the performance of the Portfolio Properties but also on the performance of any additional Properties acquired. In addition to the risks set out in this section, the performance of the additional Properties may be affected by additional specific risks which pertain to those Properties. The Forecast Financial Information in this PDS is prepared in respect of the Portfolio Properties only and assumes that no additional Properties are acquired in the Forecast Period. If additional Properties are acquired the Forecast Financial Information will change. Please refer to the Fund s website for updated information. PAGE 56 HEATHLEY ASSET MANAGEMENT LIMITED

59 10.3. GENERAL INVESTMENT RISKS The returns from investments in listed and unlisted property trusts are affected by a range of economic factors, including changes in interest rates, exchange rates, inflation, general share market conditions, government policy (including monetary and taxation policy and other laws), fluctuations in general market prices for property, shares, bonds and other tradeable investments, and the general state of the domestic and world economies. The value of Units can fall as well as rise due to circumstances affecting the economy generally, or due to other factors which may affect the value of the Properties in the Fund. There may be increases in supply or falls in demand in any property market sector or geographic region. Therefore, there is no guarantee that the Fund will experience capital gains on the disposal of the Properties or that fluctuations in Distributions will not occur. Concentration of investment in a single fund or asset class has significant risk. All investments have a risk of underperformance in various stages of the investment cycle or throughout the term of the investment which may result in a capital loss Manager Risk The Manager may elect to retire or may be replaced as the responsible entity of the Fund, or the services of key personnel of the Manager may become unavailable for any reason. There is always a risk that the Manager may fail to identify and adequately manage the investment and property management risks in the Fund s portfolio and thus affect the ability to pay Distributions or reduce the value of the Units. Operational risks of the Manager include the possibility of systems failure, regulatory requirements, documentation risk, fraud, legal risk and other unforeseen circumstances. The Manager aims to ensure it has adequately qualified and experienced personnel and robust systems to mitigate these risks Investor Risk There are a variety of risks that an Investor may face by indirectly investing in property through a fund, as distinct from directly investing in property on their own account. These risks include, but are not limited to, the following: Liquidity Risk Direct property assets are by their very nature illiquid assets. Investors should be aware that: ~ ~ there is no assured secondary market for Investors to sell their Units; ~ ~ the Manager is under no obligation to redeem or buyback any Unit should an Investor wish to withdraw from the Fund; and ~ ~ there may be no access to funds invested until the Manager sells the Properties. Taxation Risk There are risks that the tax consequences for an individual investor, or for the Fund with regard to income tax (including capital gains tax), stamp duty and other taxes may differ from the tax consequences described in Section 9 of this PDS. Changes to tax law and policy (including any changes in relation to how income of the Fund is taxed or in relation to the deductibility of expenses) might adversely impact the Fund and investors returns. It is not possible to predict future changes to tax law or policy. Other Investor Risks Other limitations of an investment in the Fund may also include: ~ ~ that an investment in the Fund is a medium to longer term investment and is not suitable for Investors wanting to sell their investment in the Fund or wanting capital gains in the short term; ~ ~ Investors are entitled to participate in Distributions from time-to-time, but the amount of future Distributions or whether a Distribution will be made in any given period is not guaranteed by the Manager; and ~ ~ an investment in the Fund may cease to meet an Investor s own objectives, financial situation or needs Other Risks It is important to note that not all risks can be foreseen. It is therefore not possible for the Manager to protect the value of the Fund s investment from all risks. Investors should ensure they obtain appropriate professional advice regarding the suitability of an investment in the Fund having regard to their individual circumstances, including investment objectives, their level of borrowings, their financial situation and individual needs. The Manager does not guarantee the repayment of capital or the performance of the Fund. PAGE 57

60 11 OTHER INFORMATION CONSTITUTION OF THE FUND The Fund is governed by the Constitution. The Constitution binds the Manager and all Investors. The Constitution is available for inspection at the registered office of the Manager during normal business hours. The Manager will provide a copy of the Constitution to Investors upon written request. Some of the key provisions of the Constitution are summarised below: ~ ~ the Manager has the power to issue Units in the Fund in accordance with the Constitution including on terms more favourable than those applying to Ordinary Units; ~ ~ Distributions will be made by the Manager to Investors in accordance with the Distribution provisions of the Constitution. Subject to the terms of issue, distributions will be made on a pro rata basis; ~ ~ the Manager has absolute discretion to accept or refuse a withdrawal request from an Investor, however the Manager does not intend to provide an opportunity to withdraw (redeem) Units; ~ ~ the Manager may at any time convene a meeting of Investors and must do so if required by the Corporations Act Investors are entitled to receive notice of, and to attend and vote at, a general meeting of the Fund; ~ ~ the Manager must convene a meeting of Investors in certain circumstances including where it receives a written requisition to do so by one or more Investors holding at least 5% of the votes that may be cast on a proposed resolution; ~ ~ the quorum necessary for a meeting is 2 Investors or more present in person or by proxy; ~ ~ Investors may remove the Manager as Responsible Entity where Investors call a meeting (see above) and pass an extraordinary resolution (being at least 50% of the total votes that may be cast by Investors entitled to vote on the resolution, including Investors who are not present in person or by proxy) to remove the Manager and appoint a new entity as the Responsible Entity of the Fund. The Fund may be terminated on: ~ ~ the date specified by the Manager as the date that the Fund is to terminate in a notice given to Investors; or ~ ~ the occurrence of an event requiring the winding up of the Fund under a provision of the Corporations Act or of any other applicable law. The Constitution may be modified, repealed or replaced in accordance with the Corporations Act COMPLIANCE PLAN The Manager, as Responsible Entity of the Fund, has adopted a Compliance Plan to ensure compliance with the Corporations Act in so far as it relates to registered managed investment schemes. The Compliance Plan documents compliance risks and their monitoring process, provides a basis on which compliance adherence is able to be audited and allocates responsibility for compliance monitoring within the Manager COMPLIANCE COMMITTEE As less than half of the directors of the Manager s board are independent the Manager has, in accordance with the requirements of the Corporations Act, established a Compliance Committee. The Compliance Committee is responsible for monitoring critical compliance and risk management issues and reporting on these issues to the Manager s board PARTICIPATION IN THE FUND A person may participate in the Fund only by applying for and acquiring Units in the Fund. Each person who is allotted Units, or who acquires Units by transfer from another Investor, is bound by the terms of the Constitution. Persons may be jointly registered as the holder of Units and will hold those interests as joint tenants and not as tenants in common unless the Manager otherwise agrees PRIVACY By applying to invest in the Fund, the applicant consents to personal information about them being used for the purposes for which it was provided, the provision of financial services to them. Without this information the Manager cannot provide a potential Investor with Units in the Fund. Some personal information must be collected for the purpose of compliance with the AML/CTF Law. The Manager may provide personal information to its related entities and associates and its service providers and professional advisors, such as for PAGE 58 HEATHLEY ASSET MANAGEMENT LIMITED

61 account administration and the production and mailing of communications to Investors. The Investor may have access to their personal information by contacting the Manager using the contact details set out in the Directory of this PDS. By applying to invest in the Fund, the applicant agrees to the Manager using their personal information to offer products or services that may be of interest to the applicant unless the applicant requests the Manager not to do so (including for the purposes of the Spam Act 2003 (Cth) via commercial s). The Manager is committed to respecting the privacy of your personal information. It complies with the provisions of the Privacy Act 1988 (Cth). That law regulates, among other matters, the way in which organisations collect, use, disclose, keep secure and give people access to their personal information. The Manager s Privacy Policy outlines what information is collected, how it is stored, used, and disclosed and how it manages personal information. Potential Investors and Investors may obtain a copy of the Privacy Policy from the Manager or review it on the website ( COOLING OFF No cooling-off period applies to an investment in the Fund COMPLAINTS Investors should contact the Manager first if they have a complaint. The Manager has an internal dispute resolution procedure which the Investor can access by contacting the Manager using the details set out in the Directory of this PDS. We will attempt to resolve your complaint within 21 days of receipt. If the complaint is not resolved to the Investor s satisfaction, Investors can contact the Financial Ombudsman Service Limited (FOS), on or Please note that a complaint must have gone through the Manager s complaints handling process before it can be referred to FOS. This is an independent and impartial body that provides a free external dispute resolution procedure ENVIRONMENTAL, SOCIAL AND ETHICAL CONSIDERATIONS The Manager does not take into account labour standards or environmental, social or ethical considerations when selecting, retaining or realising investments REPORTING AND DISCLOSURE OBLIGATIONS As a disclosing entity, the Fund is subject to regular reporting and disclosure obligations. Copies of documents lodged with ASIC in relation to the Fund may be obtained from, or inspected at, an ASIC office. You have a right to obtain a copy of the following documents: ~ ~ the annual financial report most recently lodged with ASIC by the Fund; ~ ~ any half year financial report most recently lodged with ASIC by the Fund; and ~ ~ any continuous disclosure notices given by the Fund after lodgment of that annual report and before the date of this PDS CUSTODIAN The Trust Company (Australia) Limited (Custodian) has been appointed as the independent Custodian of the Fund s assets pursuant to the Custody Agreement. The Custodian acts in accordance with a Custody Agreement which sets out service standards and requires the Custodian to comply with all instructions from the Manager, subject to certain agreed criteria. The Custodian s role is limited to holding assets of the Fund (including bank accounts, the Properties, and other investments) as the agent of the Manager. The Custodian has no supervisory role in relation to the operation of the Fund and is not responsible for protecting the interests of the Investors. The Custodian has no liability or responsibility to any Investor for any act done or omission made in accordance with the terms of the Custody Agreement ANTI-MONEY LAUNDERING AND COUNTER-TERRORISM FINANCING The AML/CTF Law, requires due diligence to be conducted on any prospective Investor before Units in the Fund may be issued to that Investor. The due diligence includes verifying a prospective Investor s identity. Verification must be based on reliable and independent documentation, reliable or independent electronic data, or both. AML/CTF Law also requires due diligence to be conducted for the period in which an Investor holds Units in the Fund. PAGE 59

62 11 OTHER INFORMATION CONTINUED It may also be necessary for a prospective Investor to provide information so as to comply with anti-money laundering and counter-terrorism financing requirements, which although imposed by other jurisdictions, are applicable to the Fund. You must provide any information requested by the Manager for these purposes. This may affect processing times for some transactions. The Manager will not be liable if it delays or refuses any transaction or request by an Investor due to any AML/CTF Law requirement which is applicable to the Fund FATCA The Fund may be required to comply with the US Foreign Account Tax Compliance Act (FATCA). To comply with these requirements, the Fund may collect certain additional information from you and will disclose such information to the ATO or the US Internal Revenue Service, where required. If you are a US person under securities law or tax law in the United States of America, and have lodged or are intending to lodge an application for Units in the Fund, please indicate this on the FATCA form on pages of the PDS. 1A MAIN STREET, HAHNDORF SOUTH AUSTRALIA PAGE 60 HEATHLEY ASSET MANAGEMENT LIMITED