OPUS INCOME & CAPITAL FUND NO. 21 ASIC Regulatory Guide 46: Improving Disclosure Updated October 2014 Introduction This document has been prepared by Opus Capital Limited (AFSL 246714), as the responsible entity (RE) for the Opus Income & Capital Fund No. 21 (Fund) for the purposes of addressing the disclosures required under the ASIC Regulatory Guide 46. All disclosures are as at 30 September 2014 unless stated otherwise. This information will be updated on a six-monthly basis or when material changes occur, and will be posted on the Opus website at www.opusaustralia.com. Unitholders may request a printed copy of this document by contacting the Manager, Investor Relations on 1300 889 100 or by email clientservices@opusaustralia.com. Benchmarks & Status The following benchmarks forms part of the Opus Financial Risk Management Policy. Disclosure Principle 1: Gearing Ratio The RE maintains and complies with a written policy that governs the level of gearing Policy at an individual credit facility level. Gearing ratio: 76% The Fund gearing ratio is 76%, based upon the latest audited full year financial statements dated 30 June 2014. The gearing ratio is calculated by dividing the total interest bearing liabilities by total assets, and indicates the extent to which a loans. This provides the investor with an indication of the potential risks of the scheme in terms of its level of borrowings, in the event that interest rates increase or property values decrease. The above formula differs from the gearing and loan-to-value formula prescribed by debt facility covenant calculations. (Earnings before Interest, Tax Depreciation and Amortisation) by the interest payable on the loan facilities. The ICR provides investors with an indication of the ability of the Fund to meet interest payments from the net earnings of the properties. The ICR is a critical indicator of the financial health of a fund and key to analysing the sustainability and risk associated with the level of borrowing. An ICR above 1.0 times means that the Fund is able to cover the interest payments. Conversely, an ICR below 1.0 times means that the Fund is unable to meet all of the repayments. The above interest cover calculation differs from the interest purposes of the debt facility covenant calculations. The ICR for the Fund indicates that it is currently able to meet its interest payments. Disclosure Principle 3: Scheme Borrowing Met Benchmark 1. Gearing Policy Yes 2. Interest Cover Policy Yes 3. Interest Capitalisation No 4. Valuation Policy Yes 5. Related Party Transactions Yes 6. Distribution Practices Yes Disclosure Principle 2: Interest Cover The RE maintains and complies with a written policy that governs the level of interest cover Management at an individual credit facility level. Interest Cover Ratio: 1.17 times interest cover ratio for the twelve months to 30 June 2014 was 1.17 times. This calculation is based upon the full year financial statements dated 30 June 2014. The ICR is calculated by dividing EBITDA borrowing arrangements as at 30 September 2014. Lender GE - Advance GE - Capex OCL - Associates Magnu m Amount $123M $5M $2.1M $1.747M Drawn $112M $3.18M $2.639M $1.988M Expiry Jun 17 Jun 17 Jun 17 Dec 17 Interest Fixed & Variable Variable Fixed Fixed Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 1
The table below provides an analysis of the loan-to-value ratio (LVR) and interest cover covenants (debt service coverage) under the debt facility as at 1 July 2014: LVR LVR DSC DSC Actual Covenant Actual Covenant GE 72% 73% 1.60x 1.35x These aforementioned financial covenants are calculated quarterly and differ from the gearing and interest cover calculations prescribed in Disclosure Principle 1 and 2. Debt Expiry Estate (GE) has a remaining term of 2.75 years. The Facility also includes $5 million of funding for capital improvements of which $1.82 million remains available. The Fund has two junior debt facilities which are fully subordinated to the senior lender, GE. The first of these facilities was provided by associates of Opus Capital Limited and was required to achieve the refinance with GE is June 2013. The second loan was advanced some years ago by Opus Magnum Fund. The interest of each of these subordinated loans capitalise as required by the deed of subordination with GE. Credit facility expiry profiles are important information to consider where a property fund borrows to invest. Credit facilities that are due to expire within a relatively short timeframe can be a significant risk factor, especially in periods where credit is more difficult and expensive to obtain, as new facilities may be on less favourable terms. If a fund is unable to refinance, they may be forced to sell assets and risk facing a considerable loss. Breach of Loan Covenants The Fund is currently not in breach of its lending facilities with GE. When credit is made available to a fund, it is provided with certain provisions and qualifications to ensure that the lender is protected and that the cost of the funds is appropriately priced. Provisions typically include a minimum level of gearing and interest cover. If the provisio occurs. The event of a breach of a loan covenant may result in the lender being able to require immediate repayment of the loan, to freeze any further debt draw-downs or to dictate the application of net income to debt reduction as opposed to investor returns. If the lender exercises such rights, the fund may be forced to arrange alternative financing or to execute asset sales within a short timeframe. Ranking of Investors Investors into property funds should be aware that they rank behind the lenders to the Fund including subordinated loans. Interest Capitalisation The interest expense for the Funds senior facility with GE is not capitalised. The interest expense is capitalised for the Funds two junior debt facilities (OCL Associates & Opus Magnum) where monthly accrued interest and principal are due for full repayment in June 2017 and December 2017 respectively. Disclosure Principle 4: Portfolio Diversification Investment Strategy executed. The goal of this strategy is to improve the capital position and improve the quality of the assets to enable the Fund to reduced LVR, increase distributions and provide a major liquidity event. To achieve this, a capital raising of up to $80 million is being examined and is anticipated to be launched during the 2015 financial year. This capital raising will result in significantly reduced gearing, increased distributions and an option to withdraw equity from the Fund. Geographic Spread follows as at 30 September 2014. Major Tenants income is as Occupancy (by Income) across the portfolio is 93% as at 30 September 2014. Melbourne 42% Gold Coast 6% Cairns 27% Brisbane 25% Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 2
Top 5 Tenants Income % of Total (as at 30 September 2014) ($ ) ANZ $2,484 13% CASA $2,482 13% Golder Associates $2,310 12% DTMR $1,606 9% Fulton Hogan $941 5% Property Valuations The RE maintains and complies with a written valuation policy. website at www.opusaustralia.com. The valuations for the properties in the Fund as at 30 June 2014 are as follows: Property Cap Rate Value Type 9 19 Lake St 9.00% 30,150 Independent Bldg 2, 747 Lytton Rd 9.13% 13,000 Independent Independent Valuations are carried out on all assets at a minimum of either every twelve months, or in the event that an asset is believed to have changed materially in value from the preceding valuation. An Independent Valuer may not value a property more than three times in a row. Internal or Directors Valuations are carried out on all properties for the half-year end accounts as at 31 December each year. Lease Expiry Profile The Weighted Average Lease Expiry (by Income) across the entire portfolio is 3.11 years as at 30 September. 28% 20% 14% 12% 10% 7% 4% 3% Disclosure Principle 5: Related Party Transactions Details of all related party transactions are reported at half year and year end statements. The latest audited full year financial statements dated 30 June 2014 contain a full review of the related party transactions (see Note 16). These accounts can be found on www.opusaustralia.com. Responsible entities who enter into transactions with related parties should disclose their interest in these transactions. A related party transaction is where acquisitions, divestments or loans are conducted with parties related to the responsible entity or the managers. Related party transactions carry a risk that they could be assessed and monitored less rigorously therefore be able to assess whether responsible entities apply an appropriate level of due diligence to related party transactions. Details Fees to Related Parties The table below lists the related party transactions that occurred for the financial year ending 30 June 2014. 142 Benjamin Pl 9.00% 7,500 Independent Sector Diversification Related Party Amount 12-14 The Circuit 9.00% 18,500 Independent 154 Varsity Pde 9.25% 12,200 Independent 700 Springvale Rd 9.50% 15,000 Independent 436 Elgar Rd 9.00% 15,500 Independent The industry sector (by Income) is 97% commercial office, 3% industrial. Development and/or Construction Assets Not applicable. Responsible Entity $1,536k representing management fees, capital works fees and the reimbursement of administration costs. 572 Swan St 8.25% 31,700 Independent Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 3
Integra Asset Management * Integra Facilities Management * Opus Capital Limited Services * Hallett Legal Pty Ltd ** Madsen Finance Pty Ltd *** $1,069k representing property management fees, leasing fees and the reimbursement of administration costs. $165k representing facilities management fee and the reimbursement of administration costs. $98k representing reimbursement of administration costs. $146k representing legal fees. $312k representing financial intermediary fees. * Wholly-owned subsidiary of the responsible entity, Opus Capital Limited ** A related party to Mark Hallett, a Director of the RE. *** A related party to Matthew Madsen, a Director of the RE. Other related-party transactions: Type Amount Distribution paid on units held by RE $146 Details of Loans with Related Parties Loan from Opus Magnum Fund Opening balance Loan repayments received $1,747,650 Interest accrued $241,231 Closing balance $1,988,881 nil Loan from OCL Associates:: Opening balance $2,114,384 Loan repayments received Interest accrued $525,000 Closing balance $2,639,384 Related Party Transaction policy The RE has a Conflicts of interest and related party transactions policy to manage conflicts of interest and related party transactions in accordance with ASIC policy and the relevant provisions of the Corporations Act 2001 (Cth). Compliance with this policy is independently audited on an annual basis. Risks associated with Related Parties Primary risk remains with the relationship, solvency and control of the associated service relationships. Disclosure Principle 6: Distribution Practices Source of Distributions Distributions paid for the full year ended 30 June 2014 were $645,000 which was funded from net cash flow and included reinvestment through the dividend reinvestment plan. The RE intends to continue making distributions from capital or income sources with a goal to increase the distribution to a level reflective of Fund income. This will however depend on the reduction in gearing levels (LVR) and the capital requirements of the Fund. Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 4 Nil Disclosure Principle 7: Withdrawal Arrangements The Fund is currently closed for withdrawals. It is the view of the RE that withdrawal arrangements will not be offered to unitholders until Fund borrowings are reduced to a sustainable level. Disclosure Principle 8: Net Tangible Assets (NTA) value is $0.1601; based on the audited full year financial statements dated 30 June 2014. The NTA value is calculated by dividing the net assets minus any intangible assets (plus or minus any other adjustments) by the total number of units on issue in the Fund. The NTA can be utilised by investors to understand the value of the assets upon which the value of their unit is determined. In particular, potential investors can compare the prevailing there is any premium being paid. The larger the premium, the larger the risks that a potential investor will not achieve a positive capital return. Further Information If you would like further information in relation to the above please refer to our website in the first instance at www.opusaustralia.com or contact the Opus Manager Investor Relations on 1300 889 100 or by email clientservices@opusaustralia.com.
Updates on these Disclosure Principles will be made every six months or in the event of a material change and posted on our website. Disclaimer Opus Income & Capital Fund No 21 (ARSN 104 391 273) (Fund) is issued by Opus Capital Limited (ACN 095 039 366; AFSL 246714) (OCL). OCL has prepared this ASIC Regulatory Guide 46 Report with the information available to it. This information is general in nature and is provided without taking into consideration your objectives, financial situation or needs. Recipients should, before acting on such information, obtain independent financial advice as no information contained in this report constitutes investment, financial product, legal, tax or other advice. Information contained within this Report is not a recommendation and should not be considered as a solicitation, offer or invitation to buy this financial product. An investment in the Fund has risk, can fluctuate in value, is not a bank deposit, is not guaranteed and investors risk achieving lower than expected returns or losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Distributions, if any, will generally be paid monthly. Opus Capital Limited (AFSL# 246714) is the responsible entity of this scheme. Pg 5