ASIC benchmarks and disclosure principles. for the Wholesale Australian Property Fund DATED 27 FEBRUARY 2014

ASIC benchmarks and disclosure principles for the Wholesale Australian Property Fund DATED 27 FEBRUARY 2014 ASIC benchmarks and disclosure principles for the Wholesale Australian Property Fund ARSN 088 996 392 Contents Benchmark and disclosure principles 1. Gearing ratio and policy 2. Interest cover ratio and policy 3. Fund borrowing 4. Interest capitalisation 5. Portfolio diversification 6. Valuation policy 7. Related party transactions 8. Distribution practices 9. Withdrawal arrangements 10. Net tangible assets Important information National Mutual Funds Management Ltd ABN 32 006 787 720 and AFSL 234652 (NMFM) is the Responsible Entity of the Wholesale Australian Property Fund ARSN 088 996 392 (the Fund) and issuer of this disclosure document. AMP Capital Investors Limited ABN 59 001 777 591 and AFSL 232497 (AMP Capital) is the Investment Manager of the Fund and has been appointed by the Responsible Entity to provide investment management and associated services in respect of the Fund. NMFM is a wholly owned subsidiary of AMP AAPH Limited ABN 78 069 123 011 (formerly known as AXA Asia Pacific Holdings Limited) whose ultimate parent entity is AMP Limited ABN 49 079 354 519. AMP Capital is a majority owned subsidiary of AMP Capital Holdings Limited ABN 69 078 651 966 whose ultimate parent entity is also AMP Limited. In this document, AMP Capital is referred to as we or us. Unless otherwise specified, all dollar amounts in this document are Australian dollars. Information about the Fund s management structure, investments, capital management, liquidity terms, fees and risks can be found in the current Product Disclosure Document (PDS) for the Fund. This document should be read in conjunction with the current PDS for the Wholesale Australian Property Fund ARSN 088 996 392 About this document The Australian Securities and Investments Commission (ASIC) has released benchmarks and disclosure principles to assist investors in understanding and comparing risks and returns across investments in the unlisted property sector. This document addresses the benchmarks and adopts the disclosure principles set out in ASIC Regulatory Guide 46 Unlisted property schemes: improving disclosure for retail investors, and the document should be read in conjunction with the current PDS for the Fund. The ASIC benchmarks and disclosure principles for the Wholesale Australian Property Fund document will be updated regularly, or where material changes to information in the document are identified. A copy of the ASIC benchmarks and disclosure principles for the Wholesale Australian Property Fund and a current PDS for the Fund are available online at www.ampcapital.com.au (go to the Fund page), or can be obtained free of charge, on request. Background Information The Fund was formed in 1985 and today holds a portfolio of office, industrial and retail property assets. The objective of the Fund is to provide investors with income and long term capital growth. AMP Capital, the Fund s investment manager, is one of the largest wholesale property fund managers in Australia and New Zealand with over 50 year experience in real estate investing. It operates specialist teams with expertise across research, property management, leasing, capital transactions, development and funds management. Page 1

Benchmarks and disclosure principles Gearing ratio and policy Disclosure Principle 1 Gearing ratio The gearing ratio shows the extent to which the Fund s total assets are funded by interest bearing liabilities and gives an indication of the potential risks investors face in terms of external liabilities that rank ahead of them. The Fund s gearing ratio is calculated by dividing total interest bearing liabilities by total assets as follows: Total interest bearing liabilities Gearing ratio = Total assets of the Fund = 17.1% The assets and liabilities used to calculate this ratio are based on the unaudited management accounts dated 3 February 2014. The Fund has no off-balance sheet financing. Benchmark 1 Gearing policy Benchmark The Responsible Entity of the Fund maintains and complies with a written policy that governs the level of gearing at an individual credit facility level. Benchmark 1 is met. Gearing involves entering into a loan facility (debt) which may or may not be secured against the Fund s assets. Gearing has the effect of magnifying the Fund s returns, both positive and negative, which means that the risk of loss of capital may be greater than if gearing did not take place. Other risks associated with gearing include refinancing risk (the ability to repay the debt when it falls due) and interest rate rises. Interest cover ratio and policy Disclosure Principle 2 Interest cover ratio Interest cover measures the ability of the Fund to meet interest payments on any loan facilities from its earnings, which can provide an indication of the Fund s financial health and assist in assessing the sustainability of, and risks associated with, the level of the Fund s borrowing. It is commonly expressed as a ratio of earnings to interest or Interest Coverage Ratio (ICR). An ICR of 1.0x indicates that all of the Fund s earnings are required to meet its interest expenses on its loan facilities. Generally the higher the ICR, the greater the ability of the Fund to pay its interest expense; for example, a ratio of 2.0x indicates that the Fund s earnings are twice the level required to pay its interest expense. The ICR for the Fund is calculated as follows: Total earnings of the Fund Interest cover ratio = Total interest expenses of the Fund = 8.0x The income and expenses used to calculate this ratio are based on the unaudited management accounts dated 3 February 2014. Benchmark 2 Interest cover policy Benchmark The Responsible Entity maintains and complies with a written policy that governs the level of interest cover at an individual credit facility level. Benchmark 2 is met. The Fund seeks to maintain an ICR of 2.0x or higher for each credit facility under its interest cover policy. The Responsible Entity maintains a written policy that governs the level of gearing within the Fund. The policy outlines record keeping, monitoring and reporting requirements. The Fund s gearing policy is to limit debt to no more than 25% of the Fund s gross assets at the time of borrowing. Debt may be used to acquire investments, fund capital expenditure or meet its liquidity needs (such as funding withdrawals). The Fund s target gearing range is 0-15% of gross assets but it may borrow up to 25%. Responsibility for implementing this is delegated to AMP Capital. AMP Capital manages gearing within the Fund according to the AMP Capital Property Funds Financial Management Policy and the AMP Capital Debt Authorisation Framework policies. The AMP Capital Property Funds Financial Risk Management Policy establishes operational guidelines under which risk tolerances and risk management strategies are developed and implemented for Australian based property funds managed by AMP Capital including across portfolios and in relation to individual property assets. The AMP Capital Debt Authorisation Framework outlines the process for review and authorisation for funds managed or controlled by AMP Capital. All individual credit facilities are monitored on a quarterly basis to ensure that all covenants are met. For information on the Fund s gearing ratio, see Disclosure principle 1 Gearing ratio in this document. Page 2

Fund borrowing Disclosure principle 3 Fund borrowing The Fund may borrow to acquire assets, fund capital expenditure or meet its short term liquidity needs. The Fund has an unsecured loan facility with Westpac Banking Corporation which allows it to borrow up to $110 million. As at 3 February 2014, the Fund had $75 million of drawn borrowings. The key terms of the Fund s loan facility are summarised below: Drawn amount (as at 3 February 2014) Undrawn amount (as at 3 February 2014) Limit $75 million $35 million $110 million Maturity 28 February 2016 Loan to Value Ratio (LVR) covenant limit 50% Amount by which Fund assets must fall in value to cause breach of LVR covenant 64% ICR covenant limit 1.8x ICR for the Fund, calculated in accordance with definition under borrowing facility (as at 3 February 2014) 8.0x Amount by which the Fund s total earnings must fall to cause breach of ICR covenant 78% Interest rate on drawn amount, inclusive of borrowing margin, line fees and interest rate hedges (as at 3 February 2014) 4.24% Fee payable on undrawn amount (as at 3 February 2014) 0.80% % of borrowings that are hedged 0% Weighted hedge expiry Not applicable The Fund complies with applicable loan covenants and has not breached any loan covenants associated with this facility. Provided the Fund complies with its terms, there are no rights for the lender to suspend or cancel this facility. The loan facility specifies certain matters that are events of default which, if they occur, give the lender the right to require repayment of the loan amount, terminate the loan or cancel all or part of the facility limit. Actions which could constitute events of default include a change of responsible entity if the new responsible entity is not a wholly owned subsidiary of AMP Limited, amendments to certain documents (including the constitution) that could have a material adverse effect and unitholders of the Fund calling a meeting to vote on an extraordinary resolution directing the Responsible Entity to wind up the Fund. Where the Fund borrows, this may affect the Fund s returns and value of your investment in the Fund. Risks associated with borrowing include: changes in interest rates may affect the amount of income available for distribution to investors and / or the capital value of the Fund, and financing risk, including the Fund s ability to refinance a debt facility on agreeable terms upon the expiry of the original financing term. Interest capitalisation Benchmark 3 Interest capitalisation Benchmark The interest expense of the Fund is not capitalised. Benchmark 3 is met. Interest capitalisation occurs when accrued or accumulated interest is added to the loan principal instead of being paid on a regular basis. It generally applies where the Fund is holding land or the Fund is holding assets which are being developed, as during development such assets may not generate sufficient income to meet the required interest payments. The Fund s interest expense policy is to pay interest as it falls due and not to capitalise it. Exceptions may apply where the Fund is holding land or developing an asset, however presently no interest is being capitalised. The Fund is able to meet interest obligations under loan facilities. Portfolio diversification Disclosure principle 4 Portfolio diversification As at 3 February 2014, the Fund s gross assets were $427.7 million. The Fund s direct property weighting was 97.8% and 2.2% was held as cash. 3 February 2014 Fund asset allocation ($m) (%) Direct Property Investments* 418.2 97.8 Cash and other assets 9.5 2.2 Fund s Gross Asset Value 427.7 100.0 * Book Value The Fund currently holds 9 assets in major metropolitan markets in Australia. The portfolio is well diversified, with exposure spread across the office (44.0%), retail (33.0%) and industrial (23.0%) sectors. You should be aware that amounts owing to the lender or other creditors under this facility rank before the rights of investors in the Fund. Generally, interest costs relating to the Fund s borrowings will be met from the gross income of the Fund prior to payment of distributions to investors. Page 3

3 February 2014* Sector allocation No. of assets ($m)* (%) Retail 1 138.0 33.0 Commercial 3 184.0 44.0 Industrial 5 96.2 23.0 Direct Property Investments 9 418.2 100.0 Development / Non-development assets Assets currently under development 0 0 0.0 Assets with no significant development activity 9 418.2 100.0 Direct Property Investments 9 418.2 100.0 * Excludes 10 Wesley Ct, Burwood East Geographic allocation NSW 5 308.2 73.7 VIC 2 38.5 9.2 QLD 1 28.5 6.8 ACT 1 43.0 10.3 Direct Property Investments 9 418.2 100.0 * Valuation A valuation summary of the Fund s most significant properties is set out below. Significant Property Valuation ($m) Valuation Date Valuer Cap Rate Casula Mall, Sydney 138.0 31 December 2013 Colliers International 7.25% 124 Walker St, North Sydney 69.0 31 December 2013 Colliers International 8.75% 20 Windmill St, Walsh Bay 72.0 31 December 2013 Colliers International 8.00% The Fund s weighted average lease expiry (calculated on the basis of current rent) is 3.5 years. A table setting out the lease expiry profile in yearly periods is included below: 2014 2015 2016 2017 2018 2019 2020 2021 2022 Beyond 8.5% 20.7 25.2% 5.2% 6.0% 16.1% 7.9% 9.0% 1.4% 0.1% The occupancy of the portfolio is 98% as at 3 February 2014. More detailed information about each property in the portfolio can be obtained from the information about the Fund displayed on the AMP Capital website (www.ampcapital.com.au) or by contacting the Responsible Entity or AMP Capital. The portfolio s top 10 tenants by income are tabled below. Three tenants comprise more than 5% of the Fund s income. Property Tenant Area (m2) Expiry % of Total Fund Income Bond One, Walsh Bay Aegis Media 4,280 Mar-2015 8.8% Casula Mall, Sydney Kmart 7,815 Sep-2016 8.8% Bond One, Walsh Bay Sydney Ports Corporation 3,215 Jun-2019 7.5% 12 Moore St, Canberra ACT Govt Dept. of Justice 5,976 Apr-2021 7.3% Casula Mall, Sydney Coles 5,307 Sep-2016 6.0% 121 Evans Road, Sailsbury Orrcon Steel 15,272 Mar-2020 5.1% 124 Walker St, North Sydney Professional Advantage 2,488 Jan-2016 4.6% Bond One, Walsh Bay Leo Burnett 1,662 Mar-2019 3.9% 2 Pound Rd West, Dandenong Linfox 12,485 Aug-2015 3.5% 121 Evans Road, Sailsbury Tyres 4U 9,502 Nov-2015 3.1% The objective of the Fund is to provide investors with income and long-term capital growth. The Fund s strategy to achieve this is described in detail in the PDS. Updates on the strategy are included in the information about the Fund displayed on the AMP Capital website (www.ampcapital.com.au). Page 4

Valuation policy Benchmark 4 Valuation policy Benchmark The Responsible Entity maintains and applies a written valuation policy in relation to direct property investments that requires: a valuer to: be registered / licensed in the relevant state, territory or overseas jurisdiction where the property is located (where a registration or licensing regime exists) or otherwise be a member of an appropriate professional body, and be independent procedures to be followed for dealing with conflicts of interest rotation and diversity of valuers valuations to be obtained in accordance with a set timetable for each property, an independent valuation to be obtained: before the property is purchased: i. for a development property, on an as is and as if complete basis, and ii. for all other property, on an as is basis within 2 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 Benchmark 4 is met. Written valuation policies are maintained and complied with in relation to direct property investments. The Fund s valuation policy is to have all properties independently valued by a registered valuer every quarter (unless the property is being marketed for sale). Before a property is acquired the Fund s policy is to have it valued on an as is and as if complete basis if the property is a development property; and for all other properties on an as is basis. The Responsible Entity has assigned AMP Capital responsibility for obtaining and managing valuations and properties are valued according to the AMP Capital Valuation Policy for Direct Property. This Policy sets out the methodologies used by AMP Capital and its appointed agents to value direct property assets managed by AMP Capital, or where AMP Capital is the appointed responsible entity or trustee. Under this Policy, properties are valued: by a licensed valuer, authorised under the Law of the State or Territory, or overseas jurisdiction, where the property is located (where licensing laws exist) by an independent valuer with at least five years appropriate experience, selected from an approved panel of third-party valuers in compliance with the AMP Capital Australian Property Conflict of Interest Operational Guidelines, which outline AMP Capital s policies on dealing with conflicts of interest, by valuers who are rotated every two years to minimise any valuation errors and discrepancies, and at least every 12 months. All valuations are recorded in accordance with the Australian Accounting Standard AASB 140 Investment Property. The Fund complies with the AMP Capital Valuation Policy for Direct Property. A copy of the AMP Capital Valuation Property for Direct Property can be obtained free of charge by calling AMP Capital Client Services on 1800 655 655. Related party transactions Disclosure principle 5 and benchmark 5 Related party transactions Benchmark The Responsible Entity maintains and complies with written policies on related party transactions, including the assessment and approval processes for such transactions and arrangements to manage conflicts of interest. Benchmark 5 is met. A related party transaction is a transaction involving parties who have a close relationship with the Responsible Entity and/or with the Investment Manager, for example, where a fund managed by us invests in other funds where we are the responsible entity or trustee; or where the Fund invests in assets where other AMP Group entities may have an interest, or where assets are transferred between different AMP Group funds. There is a risk that related party transactions may not be assessed or reviewed as rigorously as transactions between unrelated parties. The Responsible Entity maintains and complies with written policies on related party transactions, including approval processes of such transactions and arrangements to manage conflicts of interest. Where AMP Capital enters into transactions with related parties, it is done in accordance with related party protocols and AMP Capital policies and procedures which require the transaction to be on terms that would be reasonable if the parties were dealing at arm s length (and therefore member approval is not required). These policies and procedures, including related party policies, are governed by the AMP Capital Conflicts of Interest Guidelines. These guidelines provide that where related party transactions exist, we must ensure legislative requirements are met and investors interests are protected. The guidelines will be reviewed on a regular basis and may change from time to time. The objective of the Guidelines is to assist in the identification of potential or actual conflicts of interests (including in the context of related party transactions), to assess whether any particular conflict of interest is manageable or may be avoided, to adequately monitor, manage and respond to conflicts of interest, and to ensure adequate disclosure of conflicts of interests are made to clients, investors and other stakeholders. AMP Capital has divisional Conflicts Managers who are responsible for the management of conflicts of interests (including in the context of related party transactions) that arise within their division, and for monitoring compliance with agreed management actions for each conflict. Decisions in relation to conflicts of interest and related party transactions are documented in accordance with the Guidelines. Page 5

Where appropriate, ongoing updates of material service engagements and financial benefits paid to related parties are provided through the continuous disclosure notices and updates published on the Fund page in the AMP Capital website, copies of which can be obtained by contacting us. The annual report for the Fund discloses the value of related party payments made from the Fund. Please contact us should you wish to obtain further information on the current related party transactions policy and/or related procedures. Related party activities The Responsible Entity has engaged AMP Capital (a related party) to provide investment management services under an Investment Management Agreement. The Investment Management Agreement was entered into on commercial terms and on an arm s length basis in accordance with the Guidelines. Under the agreement AMP Capital is entitled to the management fees payable to the Responsible Entity under the Fund s constitution, an acquisition fee of 0.40% of the purchase price of each asset acquired by the Fund and a disposal fee of 0.50% of the gross sales proceeds of each asset sold by the Fund. Information about the management fees that are paid out of the Fund is contained in the PDS. Information about fees paid to related parties, including fees payable to AMP Capital, is also provided in the Fund s annual report. Under the Investment Management Agreement AMP Capital may on behalf of the Responsible Entity engage agents to assist in the management of the assets of the Fund. Related bodies corporate of AMP Capital may perform some of the property management functions pursuant to agreements entered into on commercial terms and on an arm s length basis in accordance with the Guidelines. The fees payable for these property management services are expensed from the Fund. Other related party service providers may be appointed from time to time and information provided on the Fund website will be updated to reflect any changes to related party arrangements. Related parties of the Responsible Entity and AMP Capital may invest in the Fund and the Fund may invest in funds operated by the Responsible Entity or its related parties from time to time. Details of related party investments are included in the Fund s annual report. Investor approval is not required as the investments are made on commercial terms and conditions and on an arm s length basis. Distribution practices Disclosure principle 6 and benchmark 6 Distributions Benchmark The Fund will only pay distributions from its cash from operations (excluding borrowings) available for distribution. Benchmark 6 is met. The Fund s distribution policy is to pay distributions sourced from its cash from operations, which is primarily comprised of rental income but may also include interest and realised capital gains. If the cash held by the Fund exceeds the taxable income of the Fund, tax deferred amounts may be distributed. Distributions generally include a tax deferred component. The Fund s objective is to pay distributions every quarter, however the amount of each distribution may vary or no distribution may be paid in a quarter. At the time of your initial or additional investment in the Fund, there may be unrealised capital gains or accrued income in the Fund. If these amounts are subsequently realised, they may be returned to you as part of a distribution from the Fund. If the cash held by the Fund exceeds the taxable income of the Fund, tax deferred amounts may be distributed. As at the date of this document the Responsible Entity believes that the Fund s distributions will be sustainable over the next 12 months, taking into account the following relevant factors: the sources of distributions (the Fund sources distributions from net operating income) levels of occupancy in the Fund s direct real property assets (currently 98%) the average term to expiry of leases on the Fund s direct real property assets (currently 3.5 years), and the number of tenants occupying each of the Fund s direct real property assets (having multiple tenants reduces the impact of fluctuations in rental receipts where for any reason a tenant fails to meet its obligations or a vacancy arises). See the Distributions section of the current PDS for further information about distributions from the Fund. Also, regular updates on the Fund s progress are also available on the AMP Capital website (www.ampcapital.com.au). As at 3 February 2014 related parties held interests in the Fund of approximately $112.0 million (31.9% of net assets). Page 6

Withdrawal arrangements Disclosure principle 7 Withdrawal arrangements Whilst the Fund is liquid, the Responsible Entity aims to process withdrawal requests monthly. Withdrawal requests will generally be paid five business days after the specified withdrawal date, but may take up to 12 months, or longer, as is allowed under the Fund s constitution. The unit price used to calculate your withdrawal amount will generally be the price calculated on the last valuation date before the payment of your withdrawal request (or part of your withdrawal request) is processed, not the day you give notice of your intention to withdraw. Net tangible assets Disclosure principle 8 Net tangible assets This disclosure principle has not been addressed because it is only relevant to closed end schemes and the Fund is not a closed end scheme. At all times, you should be aware that: payment and processing of withdrawal requests is dependent on the availability of cash in the Fund, and the Fund s constitution allows a longer period (than the 12 months referred above) in some circumstances to process withdrawal requests. These circumstances include where the Responsible Entity is unable to realise sufficient assets due to circumstances beyond its control, such as restricted or suspended trading in the market for an asset. Where the amount of funds available for meeting withdrawal requests is not sufficient to fully meet all withdrawal requests relating to a specified withdrawal date, withdrawal amounts may be paid in part. The outstanding unpaid amount will be paid once sufficient cash is available to meet withdrawal requests relating to the specified withdrawal date and may be paid in priority to withdrawal requests subsequently received by the Responsible Entity. Investors should be aware that withdrawal requests can only be processed and met while the Fund is liquid. See the Accessing your money section of the current PDS for further information about withdrawal arrangements for the Fund. Also, regular updates on the Fund s progress are also available on the AMP Capital website (www.ampcapital.com.au). Contacting AMP Capital Further information can be obtained by contacting AMP Capital: Client Services 1800 655 655 8.30am 7.00pm, Monday to Friday ampcapital.com.au Important information National Mutual Funds Management Ltd ABN 32 006 787 720 and AFSL 234652 (NMFM) is the Responsible Entity of the Wholesale Australian Property Fund ARSN 088 996 392 (the Fund). To invest in the Fund, investors will need to obtain the current Product Disclosure Statement (PDS). The PDS contains important information about investing in the Fund and it is important that investors read the PDS before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund. A copy of the PDS can be obtained by calling 137 292. NMFM and its associates derive income from issuing interests in the Fund, full details of which are disclosed in the PDS. Neither NMFM, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this document. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this document, NMFM makes no representation or warranty as to the accuracy or completeness of any statement in it including without limitation, any forecasts. This document has been prepared for the purpose of providing general information, without taking account of any particular investor s objectives, financial situation or needs. Investors should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to their objectives, financial situation and needs. Page 7