Centuria Property Funds Limited Unit Pricing Policy

Transcription

1 Centuria Property Funds Limited Unit Pricing Policy Version 1.0 This document contains 20 pages 1

2 Contents 1 Overview Definitions Introduction Policy ownership and change management Policy Scope Relevant Documentation Valuation of Investments Valuation of Receivables Accruals Fees and Expenses Performance Fee Pricing Methodology Pricing Basis Unit Price Calculation Backdating Pricing Suspension Circumstances Required Action Error Management Identification of unit pricing errors Compensation Policy Compensatable Error vs Non-Compensatable Event Materiality Threshold - CDPF Materiality Threshold - Investor Rectification Procedure Non-Compensatable Event Compensatable Error Payment of Compensation Unit Pricing Calculation Taxation..15 2

3 Overview 1.1 Definitions The meaning of words and phrases used in this document is set out in Appendix Introduction Policy ownership and change management Purpose The purpose of this document is to outline Centuria Property Funds Management Limited's (CPFL) policy with regards to the pricing of its Centuria Diversified Property Fund (CDPF). This Unit Pricing Policy is designed to ensure that CPFL adheres to good market practice and is consistent with the standards and principles identified by regulators and industry bodies. This document outlines the unit pricing methodology and approach adopted. In particular the following areas are considered: + Identification of an appropriate unit pricing methodology in line with good market practice; + Guidance to sourcing appropriate valuations of underlying assets; + Management and monitoring of prices; and + Roles and responsibilities. Policy Ownership This policy document shall be maintained by CPFL compliance, and shall be reviewed on a regular basis to ensure the content is current. In addition, compliance with this document will be incorporated as part of CPFL s Risk Management and Compliance Framework. Change Management Any changes made to this document shall be conducted in accordance with the following guidelines: Static Data Static data refers to changes to the following: + Name of CDPF; + Inclusion of additional managed investment schemes, only where the methodologies are consistent with the current policy; + Updates to governing documents (i.e. issue date or name of document), provided there is no impact to a Governing Policy within this document; + Titles or Team changes; + Updates to definitions in Appendix 1; + Amendments to the tables in Appendices 2 and 3. 3

4 Changes to Static Data may be made with the approval of the Chief Financial Officer, or as delegated. or CFO. Board approval is not required for such changes. Governing Policies Governing policies refer to the methodologies and assumptions outlined in Sections 2 to 5 and to any other data in this policy other than Static Data. Changes to Governing Policies must be approved by the Board of CPFL. Communication of Changes Any changes to the policy must be communicated in writing to any appointed service provider and for dissemination as appropriate internally Policy Scope This policy is applicable to the CDPF Relevant Documentation The governing documents which support the content in this policy document have been listed below: i. Scheme Constitutions and Compliance Plans Scheme Constitution and Compliance Plan Centuria Diversified Property Fund Constitution for CDPF dated 21 March 2016 as amended from time to time CDPF Compliance Plan dated 21 March 2016 as amended from time to time ii. Product Disclosure Statements Scheme Product Disclosure Statements Centuria Diversified Property Fund Product Disclosure Statement dated XX 2016 iii. Relevant Legislation and Guidance Regulatory Body Document APRA/ASIC Corporations Act 2001 Regulatory Guide 94 - APRA/ASIC Good Practice Guide to Unit Pricing dated August 2008 Managed Investment Schemes registered under Chapter 5C additional obligations include: s601fc(1) (a), s601fc(1) (b), s601fc(1) (c), s601fc(1) (d), s601fc(1) (j), s601fc(1) (k) 4

5 1.3 Valuation of Investments The following table details the asset classes which the CDPF can invest in. Asset Type Valuation Methodology Responsibility / delegations Cash deposits with banks Market value Chief Financial Officer, or as delegated. Frequency Daily A-REIT s: Direct; via a managed fund; or via ASX listed ETF Closing price Chief Financial Officer, or as delegated. Daily Investment Property held directly Based on underlying property accounts adjusted for the amortisation of acquisition costs. Property Accounts will be adjusted based on audited financial statements if required. Board Bi-annual (or upon acquisition) or if there is a material change. Centuria Unlisted Property Scheme Based on underlying property accounts adjusted for the amortisation of acquisition costs. Property Accounts will be adjusted based on audited financial statements if required. Chief Financial Officer, or as delegated. Bi- annual or more regularly if there is a material change. Externally managed property trust If trust subject to unit pricing issued by the external fund manager If the fund is not unit priced, Net Asset Value as disclosed in biannual audited financial accounts Chief Financial Officer, or as delegated. Bi- annual or more regularly as deemed appropriate by the external manager. Derivative Financial Instruments Mark to market valuation provided by financial institution or external valuer Chief Financial Officer, or as delegated. Monthly or more regularly if the Directors deem necessary to facilitate unit issues or redemptions All other assets and liabilities Net realisable value at the close of the day Chief Financial Officer, or as delegated. Daily or less regularly if the nature of the asset or liability permits 5

6 Additional comments: A-REITS As an ASX listed entity, valuation for the purpose of unit pricing will be taken from the closing unit price listed on the ASX on the trading day the unit price is struck. Externally Managed, Managed Investment Schemes The unit prices obtained from externally managed, managed investment schemes are inclusive of fees ( net unit price ). Independent Property Valuation CPFL has a valuation policy for direct property. CPFL adopt that policy for the CDPF. In summary CPFL will have the CDPF's direct properties valued twice a year alternating between an independent valuation and an internal Directors' valuation. CPFL may also obtain an independent valuation at such other times as it determines where there has been a significant change in market value. Independent valuations of CDPF's direct properties will be undertaken by recognised valuers, selected from Centuria s (and, if the purpose is for refinancing, the respective Bank s) approved valuation panel, having a minimum of 5 years relevant experience. The Head of Portfolio and Asset Management is responsible for coordinating and obtaining valuations. Written instructions will be provided to the valuers specifying that the valuation reports are to be in accordance with the Australian Property Institute standards and that the valuers shall have no pecuniary interest that would create any conflict with the proper valuation of the properties. Unless otherwise specified current market valuations for the investment properties will be based upon the capitalisation of net income approach and include a discounted cash flow calculation in accordance with industry convention. The fair market value of the fund properties as disclosed in the Net Tangible Assets calculation is reviewed by the CPFL Board at a minimum every 6 months, or more frequently if market or property circumstances require Fees and Expenses Responsibility for ensuring that only costs and expenses properly incurred and payable from the assets of CDPF are so paid rests with the Chief Financial Officer, or as delegated. These fee are accrued monthly Performance Fee This is the fee paid to CPFL as an incentive to maximise the value of the portfolio. CPFL will be entitled to a performance fee of 20% of the outperformance of CDPF (pre fees) over the benchmark. The benchmark reflects the long term target asset allocation of CDPF and comprises: 80% IPD Unlisted Core Retail Property Index pre fee net asset value; 15% ASX S&P 300 A-REIT Accumulation Index; and 5% the RBA official cash rate. Performance fees will be calculated and paid quarterly. The performance fee will be charged on a High Watermark basis such that any underperformance must be recovered prior to any performance fee being paid. The performance fee is accrued monthly where High Watermark has been exceeded and paid quarterly. Example of calculation of performance fee This example is provided for information purposes only to illustrate the calculation of the performance fee. Actual results may vary significantly from those in this example. The benchmark performance for the quarter was 3.0% 6

7 The closing net asset value (NAV) per unit $1.02 The opening NAV per unit was $1.00 Distributions per quarter were $0.015 Average daily value of fund during the quarter $50,000,000 It is assumed for the purposes of this example that there has been no prior underperformance in the Fund. The performance for the quarter is 3.5%, calculated as: Formula = (closing NV Opening NAV + distributions)/opening NAV Example = ($1.02-$1.00+$0.015)/1.000 = 3.5% The performance fee is $, calculated as: Formula = Fund performance benchmark performance * number of units on issue * performance fee Example = ((3.5%-3.0%)*50,000,000) * 20% = $50,000 7

8 2 Pricing Methodology 2.1 Pricing Basis The following table details for the key unit pricing principles. Product Group Frequency Basis (historical v forward) Rounding principles Century Diversified Property Fund Every Business Day Forward 4 decimal places for reporting purposes. 2.2 Unit Price Calculation Unit Prices for the CDPF are calculated in accordance with the following calculation. Application unit price = (Net asset Value of the fund + the amortised value of Acquisition Costs)/number of units on offer Redemption unit price = (Net asset Value of the fund + the amortised value of Acquisition Costs)/number of units on offer Net Asset Value The value of all assets and liabilities of CDPF calculated in accordance with the provisions of this policy and the Fund Constitution applicable to the effective date of the unit price. Acquisition Costs Acquisition Costs are defined as capital raising expenses, legal fees, brokerage, stamp duty, taxes and other costs that have been incurred in connection with the acquisition of assets held within the portfolio. These costs will be written off over a five year period. When an asset is sold any outstanding acquisition and sale costs will be written off immediately against the sale price. Where the investment has a shorter holding period, the amortisation of Acquisition Costs will be in line with this period. E.g. should the Fund invest in another property syndicate which has two years remaining on the fund term, the amortisation of Acquisition Costs will occur on a pro-rata basis over two years. This includes any acquisition costs the Fund incurs or charges associated with the purchase of any investment. Unit Pricing Timing - Applications Unit prices are to be calculated daily. Applications are accepted and processed on a daily basis. On the basis that the effective date of these transactions is date of receipt this necessitates daily unit pricings. Under a forward pricing regime the value offered to investors will be based on: where an application is received prior to [2pm] on a Sydney Business Day, the net asset value applicable at the close of business of the Business Day the application was received; and where an application is received after [2pm] on a Business Day, the net asset value applicable at the close of business of the Business Day immediately following the Business Day sole application was received. 8

9 Unit Pricing Timing Redemptions As redemptions are processed once per month, for investors withdrawing from CDPF the applicable redemption unit price will be: where a redemption request is received prior to [2pm] on the final Business Day of the month, the unit price at the close of business on the last Business Day of the relevant month; and where a redemption request is received after [2pm] on the final Business Day of the month, the unit price at the close of business on the last Business Day of the following month.. Redemption proceeds received Effective date of transactions - by the 15 th of the following month - last Business Day of the month Unit Pricing Dividend Re-investment A member may elect to re-invest some or all of their distribution in additional units. In this event, Centuria will be treated as having received and accepted an application to re-invest distributions immediately before the first valuation time after the end of the relevant income distribution period. The investor will therefore receive units at a unit price as at the first day of the month. These units will be allocated at the time the distribution is paid. 2.3 Backdating Under no circumstances can a transaction be backdated in a Scheme s records. In the instance where an investor s transaction was processed at an incorrect date, the investor and/or CDPF should be compensated for any loss arising from a change in the unit price over the period between the correct date and the processing date. 2.4 Pricing Suspension Circumstances CPFL may suspend the unit pricing, and therefore the processing of applications and redemptions in CDPF, in the following instances: + Identification of a unit pricing error; + Significant market movements (i.e. September 11, significant change to tenancy arrangements of property) resulting in an inability to calculate fair value of CDPF; + Inability to value an investment; + Current valuations do not accurately reflect the true value of the CDPF investments; and + Any similar or other circumstances determined by the Board where it would not be in the best interests of CDPF investors to strike a unit price or to allow applications or redemptions from CDPF. Where reasonable suspicion exists that the above events have been triggered, management are to cease unit pricing pending resolution of the relevant issue. Management should develop appropriate procedures and processes to enable timely detection of these issues. Management monitor the unit prices on a regular basis, which ensures the timely identification of a matter which may require unit pricing, and therefore unit applications and redemptions, to be suspended. 9

10 2.4.2 Required Action Upon the identification of the potential need to suspend a unit price, the following actions and approvals must be obtained: + Document the matter which has caused the potential need to suspend unit pricing, including a recommendation to the CEO CPFL and/or Chief Financial Officer, or as delegated.. + Call an urgent meeting with appropriate members of Senior Management (including representatives from Compliance, Legal, Product, and Fund Administration) and the General CEO CPFL and/or Chief Financial Officer, or as delegated.. + The outcome of the meeting should be minuted. + Where the recommendation to suspend unit pricing is approved, proper instructions should be issued to the registry immediately. + Management should conduct all other necessary steps approved at the meeting to rectify the event. + At the completion of the event, a paper should be submitted to the Audit Committee detailing the unit pricing suspension process and its subsequent resolution. 10

11 3 Error Management 3.1 Identification of unit pricing errors The decision tree set out below shall be followed in determining whether a pricing error is a compensatable error or non-compensatable event. Note 1 Does the event impact unit prices previously released by the Scheme Operator and used to transact interests in the scheme? No No pricing Impact In Making this assessment the following factors should be considered; - Is the impact on unit prices due to the application of sound policy, approximations or estimates, or due to a change in a policy or methodology? Yes - Where the impact is not a result of the application of unit pricing policy could the impact of the event been reasonably known when calculating unit prices? Should the Scheme Operator have reasonably incorporated this event when calculating unit prices over the impacted period? (Note 1) No No pricing issue - Where the impact could not have been known was it reasonable and practical to make an estimation for the event when calculating unit prices? Yes Is the impact of the event greater than adopted materiality thresholds? (4.2.2) No Did the Scheme Operator benefit from the event? (e.g. Over charging fees) No Yes Compensatable error (4.3.2) Yes Non Compensatable Event (4.3.1) 11

12 3.2 Compensation Policy Compensatable Error vs Non-Compensatable Event The following definitions have been adopted by CPFL. Compensatable Error a. Unit Pricing error where the impact of the error on the price of a unit is greater than the materiality threshold adopted (refer 4.2.2) or where CPFL benefited from the error and where compensation must be paid (refer 4.3.3). b. A change to an accounting approximation or estimate in the financial statements of CDPF that has resulted from accounting methodology or policy, where, the existing methodology or policy has been determined to be deficient. Non-Compensatable Event Unit Pricing error where the impact of the error in the price of a unit is less than the materiality threshold adopted (refer 4.2.2). i.e. approximations or estimates being updated to actual figures, or a change in methodology or policy, provided that the methodology or policy is sound Materiality Threshold - CDPF The following materiality thresholds apply: Product Group Centuria Diversified Property Fund Tolerance 30 basis points This tolerance threshold has been set having regard to best practice recommendations set out in ASIC/APRA Regulatory Guide 94. No additional dollar limit thresholds apply Materiality Threshold - Investor The materiality threshold adopted by CPFL for an individual investor is $20 minimum, ie. no compensation will be paid to an investor even if the error is a compensatable error where the amount payable to the investor would be less than $ Rectification Procedure Non-Compensatable Event Where an error has been defined as a Non-Compensatable Event, a file note documenting the basis for this assessment must be prepared. This must be signed off by the Chief Financial Officer or CEO CPFL. A log should be retained of all non-compensatable events. This log will be maintained by the CPFL Compliance Officer. Refer to Appendix 2. 12

13 An annual review will be conducted as part of CPFL s compliance monitoring procedures for any recurring items. Where items have been noted on more than two occasions, management must consider implementing steps to mitigate against the recurrence of that item Compensatable Error The following steps shall be undertaken for a compensatable error: + Determine the cause of the error and the period over which the error has occurred. This should be formally documented. + Review the impact on unit prices over that period. This may include a recalculation of previously determined prices. + Review the impact on individual transactions over that period (i.e. applications, redemptions). + Quantify the error to individual investors and CDPF. + Depending on the volume of transactions impacted and the size of the compensation required, an external review of the process may be required. This will be at the direction of management and the Committee. + Prepare a paper for the Committee, including the background, calculations performed and the compensation amounts required at both the Investor and CDPF level. + Upon approval, provide proper instructions for Registry to rectify the error and/or instruction for Finance to compensate the Scheme. + A communication should be sent to impacted investors advising of the steps undertaken to rectify the position. + A file shall be retained of all correspondence, approval and payments made to rectify the error. A log should also be retained of all compensatable errors. This log will be maintained by the Head of Compliance. Refer to Appendix 3. Note. Throughout the process the Head of Compliance shall be kept informed to ensure all regulatory obligations are satisfied Payment of Compensation Compensation payments will vary depending on whether an investor is current or has exited. Current Investor Exited Investor Scheme Payment to nominated bank account. Payment via cheque to the latest address recorded on the registry system. Transfer of funds will take place. Cheques sent to exited members which have not been presented within a 12 month period are considered stale. The required procedures under the Unclaimed Monies Act then apply. CPFL Finance is responsible for managing un-presented cheques. Compensation payment procedures to master fund and platform operators may be dictated by their operational capabilities. 13

14 4 Unit Pricing Calculation 4.1 Calculation of daily unit prices Timing The unit prices are calculated by Centuria on a daily basis for each Business Day. Responsibilities Key responsibility for calculating the daily unit prices will be the Chief Financial Officer, or as delegated (or another delegate from the finance team in their absence). The daily calculations will be reviewed and validated by a second member of the finance team. Inputs Internally managed funds or property held directly sourced internally from financial statements Externally managed funds unit prices Latest reports from Fund Manager ASX closing prices for AREITs Cash at bank statements Latest Valuations of direct properties or syndicates managed by a related party Bank Loan statements MTM Valuations of derivatives from Financial Institutions Accrual for Performance Fee. Calculation Inputs: IPD Unlisted Core Retail Property Index RBA Cash Rate ASX S&P 300 A-REIT Accumulated Index Back up documents and reconciliations for all other Assets and Liabilities (such as debtors, prepayments, creditors and accruals) Amortised Acquisition Costs Systems A spreadsheet model will be used for calculating daily unit prices. This spreadsheet is to be designed by the Chief Financial Officer, or as delegated and reviewed and signed off by an independent third party prior to initial implementation or implementation of any change. The formulas in the spreadsheet are to be locked and changes can only be made by the Chief Financial Officer. The Chief Financial Officer and the Head of Compliance will be the only member with access to the password for editing rights. Validation / Review The Validator of the unit prices is to review the calculations prepared by the Chief Financial Officer, or as delegated against the original input data sources. Testing Unit pricing testing is to be a core recurring item in the internal audit testing plan and is to be conducted twice per year. 14

15 4.2 Other controls Reconciliations performed by Knight Frank Knight Frank in their capacity as external service provider conducts reconciliations daily, weekly and monthly in order to validate the accuracy of the figures in the general ledger Review stale prices CPFL have processes in place to identify when asset information and unit prices from external fund managers are stale and how old this information is. There are a number of reasons why the prices might be stale including, but not limited to, distribution periods, technical difficulties, pricing errors. CPFL will hold pricing for the CDPF until the information becomes available. The following guidelines have been defined: Where the delay is due to distribution periods, CPFL unit prices will not be released until the investment managers prices are received. No indexation is conducted. Where the delay is due to a matter or event more serious, refer to the Suspension Policy in section 2.4. Dissemination of the Unit Price Once calculated and validated, the Chief Financial Officer, or as delegated is responsible for disseminating the daily unit price to the funds Registry Service Provider, OneVue and to the marketing team for placement on the website. Other than in circumstances set out in section or section 3.4, dissemination is to occur on the same day the calculations are validated. 5.0 Taxation As per clause 15.9 of the Fund constitution, the Responsible Entity may take any action that it considers necessary to ensure to the extent possible that any Tax liability under the Tax Act in respect of the Distributable Income of an Income Distribution is borne by the Members and Former Members in proportions that correspond with the shares of Distributable Income to which they are presently entitled, and the Responsible Entity incurs no liability to pay Tax under the Tax Act as Responsible Entity of the Scheme Assets. Accordingly as no Tax is likely to be payable by the Fund, and any Tax payable in relation to distributions will pass through to the Members and Former Members of the Fund, no Tax will be taken into account in relation to the Unit Price of the Fund. 15

16 Appendix 1 The following definitions have been sourced from IFSA Guidance Note No Industry Terms and Definitions. Term Audit Committee Board Business Day Compliance Committee ( Committee ) Constitution Forward Pricing Governing Policies High Watermark Investor(s) Knight Frank Materiality Meaning The Audit, Risk Management & Compliance Committee of the company which operates the relevant Scheme. Board of Directors of Centuria Property Funds Limited. A day that is not a Saturday, a Sunday or a public holiday or bank holiday in Sydney, NSW Compliance Committee of CPFL. The Constitution of CDPF as amended from time to time. When the processing of transactions is done at a unit price calculated based on asset values following receipt of the investor s instructions this is referred to as forward pricing. i.e. unit prices are calculated using asset values at the end of today. The methodologies, policies and assumptions outlined in Sections 2 to 6 of this document. Requirement for CDPF to recover underperformance before the calculation of the performance fee can occur within the Fund. Those persons, whether they be natural persons or not and including responsible entities, managers and trustees, in whose name an interest in CDPF may be registered from time to time. External property management back-office service provider to CPFL Materiality is extensively defined in Accounting Standards. Materiality can be viewed as defining the magnitude of an omission or misstatement of financial or other information that makes it likely that a reasonable investor relying on the information provided would have either changed their mind or been influenced by the omission or misstatement. Materiality can be measured by reference to tests such as the dollar amount involved or % error allowances. In considering whether to adjust for errors, a judgement needs to be made as to whether the costs of correction is substantially more than the benefit derived from the change. Net Asset Value ( NAV ) Net Asset Value Per Unit Product Disclosure Total gross assets less total gross liabilities (inclusive of accrued distributions payable to Unit Holders). Net asset value divided by the number of units in CDPF issued. As defined by requirements set out in Part 7.9 of the Corporations Act 16

17 Term Meaning Statement Property (direct) Refers to direct holdings of real estate. [CU Note: I don't think this definition extends to investments in property indirectly - there is a separate valuation mechanism for these indirect investments.] Responsible Entity The company named in ASIC s record of the Scheme s registration as the Responsible Entity of the Scheme. The Responsible Entity of a Registered Scheme is required to operate the Scheme and perform the functions conferred on it by the Scheme s constitution and the Corporations Act The Responsible Entity of a Scheme must be a public company under the Corporations Act 2001 and must hold an Australian Financial Services licence from ASIC. Unit Supplementary Product Disclosure Statement Property Accounts The measure of an Investor s share of a Scheme, consistent with the concept of a share in a corporate entity. A document designed to correct a deficiency in the product disclosure statement or provide particulars about something that has occurred since the product disclosure statement was prepared. Requirements set out in s1014a of the Corporations Act Unaudited or audited financial accounts which reflect the underlying transactions of the Investment. 17

18 Appendix 2 Non-Compensatable Event Log No. Date identified Person Description of event Cause of event Rectification of Event Steps required to reduce the risk of recurrence Date advised to Compliance 18

19 Appendix 3 Compensatable Error Log No. Date identified Person Description of event Cause of event Steps required to rectify the error Compensation required Date advised to Audit Committee Date advised to regulators (via Compliance) 19