GOOD MORNING. Welcome to the McMahon Clarke and Property Funds Association Forum Current market performance and the 2014 investment climate

GOOD MORNING Welcome to the McMahon Clarke and Property Funds Association Forum Current market performance and the 2014 investment climate

NAVIGATING THE FUNDS MANAGEMENT REGULATORY LANDSCAPE Brendan Ivers Partner - Funds Management, McMahon Clarke

Q Developments in the funds management space what are we setting up? + + Mortgage funds + + Development funds + + Manufactured home park funds + + Significant investor visa (SIV) funds

A closer look at SIV funds + + SIV applicants utilising managed funds + + Big risk appetite or capital guarantee + + Partnering with overseas investors + + Which managed funds comply?

One structuring idea... ORDINARY UNITS INVESTORS TRUSTSEE ABC Pty Ltd (AFS Licensee) CASH UNITS MASTER FUND Development Mangager SPV TRUSTEE 2 GSA SPV TRUSTEE 1 SUB TRUST 2 LOAN FINANCIER SUB TRUST 1 CUSTODIAN RPM CUSTODIAN DEVELOPMENT PROJECT CASH

and something a little less complex... ABC PTY LTD (AFS Licensee) As Trustee for SIV TRUST SPV DEVELOPER 1st Ranking Mortgage Loan CUSTODIAN

mfund Settlement Service + + What is it? + + What are the benefits? + + How do you gain admission? + + Which managed funds are specifically excluded?

mfund Settlement Service

ASIC reverses position on trustees of SMSFs + + ASIC s original position + + What s changed? + + What does it mean in practice?

Q What does it all mean? + + Check structuring of SIV funds + + mfund is a significant opportunity + + ASIC s changed position on trustees of SMSFs

Paul Healy, CEO

The sponsors Thank you for your support Australia All Property Index Unlisted Wholesale & Retail Fund Index Unlisted Wholesale Fund Index Retail Fund Index Australia Green Index Australia Hotel Index CAPEX Index Australia Unlisted Infrastructure Index Healthcare Index 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 2

Return performance across selected property structures 25% Performance across property structures average nominal returns as at June 24.3% 20% 15% 12.9% 10% 9.2% 9.7% 8.9% 9.4% 9.2% 10.7% 5% 0% 2013 2014 2013 2014 2013 2014 2013 2014 Direct property UWPFs URPFs A-REITs Source: IPD 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 5

Commercial property investment market cycle showing early signs of an upswing 20% Total return for direct commercial property annual return on quarterly periods to June 2014 15% 10% 9.7% 5% 0% -5% Capital return -10% Income return Total return Long-run average -15% Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Source: IPD As at June 2014, annual total return was 9.7% comprised of a 7.2% income return and 2.3% capital return. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 6

Relative property sector performance: office soft while all other sectors are strengthening 16% 14% 12% 10% 8% 6% 4% 2% 0% Performance across property sectors annual returns on quarterly periods capital return income return total return 9.8% 9.0% 12.1% 10.7% 12.5% -2% J13 D13 Retail J14 J13 D13 Office Note: J = June and D = December J14 J13 D13 J14 J13 D13 Industrial Hotel J14 J13 D13 J14 Healthcare Source: IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 7

Cap rates across property sectors show mild firming 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Trends in direct property sector cap rates sample period ending June 2014 GFC Lehman Bros collapse Industrial Retail Healthcare Office Total property Hotel 5.5% Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Source: IPD 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 8

net income ($/sqm) The firming of cap rates highlights the disconnect between capital and space markets $350 Net income versus cap rate period: March 2010-June 2014 $340 $330 2014:Q1 2013:Q4 trend line $320 2014:Q2 2013:Q3 $310 $300 recent trend $290 $280 2010:Q1 $270 7.0% 7.1% 7.2% 7.3% cap rate 7.4% 7.5% 7.6% Source: IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 9

annual net transactions ($m) Transactional activity is strengthening and trending up driven by office sector $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,000 -$2,000 -$3,000 Net transactions by property sector annual amounts on quarterly periods GFC Lehman Bros. collapse -$4,000 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Retail Office Industrial Other Source: IPD 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 10

Buoyancy in capital markets fuelled by rising stock markets 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Intro of Super in AUS 1990 Recession US and AUS stock market price indices monthly observations ending June 2014 Tech Boom/Bust Period Asian crisis 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 1,000 2,000 Sep 11 Attack 0 0 Jun-91 Dec-93 Jun-96 Dec-98 Jun-01 Dec-03 Jun-06 Dec-08 Jun-11 Dec-13 GFC Soveriegn debt crisis Events AUS - S&P/ASX200 (lhs) US - DJIA (rhs) Source: IRESS and IPD Research. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 11

Re-balancing of growth across state economies Shift away from resource-rich states of WA & QLD to NSW and VIC 10% 8% 6% State final demand across states average annual growth rate Pre GFC (2003:12-2007:12) Post GFC (2008:1-2014:6) Year to June 2014 4% 2% 0% -2% AUS NSW VIC QLD SA WA Source: ABS and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 13

Sydney CBD market strengthening while all other CBD markets display softening in investment return 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Returns across CBD office property markets 9.5% 9.8% 10.4% 10.0% 8.9% 8.5% annual return to June 8.6% 8.0% capital return income return total return 13.3% 5.5% 5.8% 5.9% 10.7% 9.0% 13 14 13 14 13 14 13 14 13 14 13 14 13 14 Total SYD MEL BRI PER CAN ADL Note: 13 refers to 2013 and 14 refers to 2014. Source: IPD 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 14

Labour market exhibits on-going weakness as growth rebalances away from resource-rich states 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Employment growth across states average annual growth (s.a.) Pre GFC (2003:12-2007:9) Post GFC (2008:2-2014:5) Year to May 2014 2.8% 3.0% 1.2% 0.9% 0.4% -3.6% 10.8% 6.6% -4.9% Total NSW (FIN INS) WA (MINING) Source: ABS and IPD Research. 30,000 25,000 20,000 15,000 10,000 5,000 Trends in mining investment quarterly value of investment ($m) AUS: mining investment (lhs) WA: investment (rhs) 0 0 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Source: ABS and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 15

Vacancy rates for across CBD office markets rising Perth and Brisbane office markets experiencing steep rises in vacancies 40% 35% 30% 25% 20% Trends in CBD office vacancy rates spot values, biannual periods ending June 2014 recession: 1990/91 weak demand stock oversupply Sydney CBD Canberra Perth CBD Hobart CBD pre- GFC: 2006/07 economic expansion lack of supply Melbourne CBD Brisbane CBD Adelaide CBD Total 15% 10% 5% 0% Jun-90 Jun-93 Jun-96 Jun-99 Jun-02 Jun-05 Jun-08 Jun-11 Jun-14 Source: PCA and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 16

Cap rates across CBD office markets show mild firming 9.0% 8.5% 8.0% AUS weighted CBD office cap rates period ending March 2014 GFC Lehman Bros collapse 7.5% 7.0% 6.5% 6.0% 5.5% AUS CBD Office Sydney CBD Melbourne CBD Brisbane CBD Perth CBD 5.0% Mar-05 Sep-06 Mar-08 Sep-09 Mar-11 Sep-12 Mar-14 Source: IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 17

Vacancy rate versus capital growth 35% 30% 25% 20% 15% 10% 5% Recession Perth CBD vacancy versus capital return annualised values on bi-annual rests ending June 2014 Tech wreck Vacancy rate (lhs) real capital return - inverse (rhs) GFC -10% -20% -30% 0% -40% Jun-90 Jun-94 Jun-98 Jun-02 Jun-06 Jun-10 Jun-14 50% 40% 30% 20% 10% 0% Source: PCA and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 18

Retail property sector continues to strengthen particularly in sub-regional, neighborhoods & BGs 16% 14% 12% 10% 8% 6% 4% 2% 9.8% 8.7% Returns across retail property markets 8.1% 8.6% 8.7% 8.6% annual return to June capital return income return total return 9.3% 11.9% 8.8% 13.0% 9.6% 12.2% 0% 13 14 13 14 13 14 13 14 13 14 13 14 Total SM Regional Regional Sub Regional N'hoods BGs Note: 13 refers to 2013 and 14 refers to 2014. Source: IPD 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 19

Retail property performance boosted by improving retail consumption 14% 12% Retail turnover growth across categories annual MAT growth on monthly periods to July 2014 GFC Lehman Bros collapse 10% 8% 6% 4% 2% 0% LT average S/market & Grocer -2% HH & Bulky Goods Clothing & Dept Stores -4% Total Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Source: ABS and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 20

Retail sector demand showing early signs of recovery 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Note: seasonally adjusted series. Retail turnover across states nominal MAT growth ending July 2014 NSW VIC QLD SA WA ACT National Source: ABS and IPD. 16% 14% 12% 10% 8% 6% 4% 2% 0% Performance across retail property markets annual return to March capital return income return total return 9.0% 8.9% 8.6% 8.5% 12.2% 11.8% 9.2% 9.4% 8.4% 7.9% D13 M14 D13 M14 D13 M14 D13 M14 D13 M14 NSW VIC QLD WA SA Note: D13 refers to Dec2013 and M14 refers to Mar 2014. Source: IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 21

Retail sector recovery linked to strong recovery in housing market 10% 8% 6% Retail turnover and house prices annual growth on quarterly periods to June 2014 Fiscal stimulus 25% 20% 15% 10% 4% 5% 2% decline in cash rate nominal MAT (lhs) established house prices (rhs) GFC 0% -5% 0% -10% Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Source: ABS and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 22

Industrial sector returns continue to strengthen in most sub-sectors with exception of business parks 16% Returns across industrial property markets annual return to June 14% 12% 10% 10.0% 12.1% 10.5% 13.6% 8.7% 10.9% 11.2% 12.4% 9.0% 9.0% 8% 6% 4% 2% 0% 13 14 13 14 13 14 13 14 13 14 Total Distribution Ind. Estate Warehouse HT/BPs capital return income return total return Note: 13 refers to 2013 and 14 refers to 2014. Source: IPD 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 23

Hotel sector in early phase of an upswing supported by improving occupancy rates and rising room prices 20% 15% 10% 5% 0% -5% Return across state hotel property markets annual return to June Capital return Income return Total return 15.1% 13.4% 10.7% 7.4% 9.0% 7.8% 4.1% 5.5% 2013 2014 2013 2014 2013 2014 2013 2014 Total NSW VIC QLD Note: 13 refers to 2013 and 14 refers to 2014. Source: IPD. 83% 82% 81% 80% 79% 78% 77% 76% 75% 74% 73% RevPAR versus Occupancy Australian hotel sector, quarterly periods to June 2014 Occupancy (lhs) RevPAR (rhs) 72% $1.2 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Source: IPD. $1.5 $1.4 $1.4 $1.3 $1.3 $1.2 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 24

Healthcare property sector cycle in upswing phase and continues to outperform the overall property market 25% 20% 15% Return performance for healthcare sector annual return on quarterly periods to June 2014 Capital return Total return Income return All prop total return 11.8% 10% 5% 0% -5% -10% Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Source: IPD Annualised total return for healthcare was 10.7%. The annualised income return was 9.1% versus total property of 7.2%. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 25

Residential property sector cycle at peak with WA market showing greater softening 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% Trends in housing approvals: AUS versus WA annualised growth ending June 2014 Private housing approvals - AUS Private housing approvals - WA -10% -20% -30% Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 70% 60% 50% 40% 30% 20% 10% 0% Source: ABS and IPD. 50% 40% 30% 20% 10% 0% House price growth: Australia versus Perth annualised growth on quarterly periods ending June 2014 Perth AUS CBDs -10% Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Source: ABS and IPD. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 26

Summary remarks Overall commercial property market performance Commercial property market showing signs of an early upswing All property sectors experiencing a firming in cap rates, largely due to buoyant capital market conditions rather than favourable space market fundamentals Property sector markets Office sector: remains soft with rising vacancy rates and lower effective rentals Retail sector: strengthening returns due to pick-up in MAT growth Industrial sector: strong investor demand to support strong performance Hotel sector: strong recovery on the back of rising occupancy and room rates Healthcare sector: ongoing delivery of a high and stable income return Residential sector: at peak of cycle with rising asset prices and moderating demand Key risks Macro aggregate demand recovers with strengthening labour market Dampening macro demand with upward review of interest rate setting by RBA Pricing risk indicated by imbalance in capitalization rate-noi growth equation 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 28

Disclaimer 2014 Investment Property Databank Ltd (IPD). All rights reserved. This information is the exclusive property of IPD. This information may not be copied, disseminated or otherwise used in any form without the prior written permission of IPD. This information is provided on an "as is" basis, and the user of this information assumes the entire risk of any use made of this information. Neither IPD nor any other party makes any express or implied warranties or representations with respect to this information (or the results to be obtained by the use thereof), and IPD hereby expressly disclaims all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall IPD or any other party have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 29

PANEL DISCUSSION MODERATOR Brendan Ivers Partner Funds Management McMahon Clarke PANELLISTS Phillip Barker Head of Funds Management Aspen Group Limited Anthony de Francesco Managing Director IPD Australia & NZ Paul Healy CEO Property Funds Association of Australia

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