ASIC Regulatory Guide 45 Disclosure Mortgage schemes Teys Strata Development Trust SAS Global Narre Warren ARSN 112 939 509 Date & history of this Document Date of this Document 23 September 2009 Version No. 1 Last amended 23 September 2009 First published 23 September 2009 The information in this Document is accurate as at the date of this Document. Issuer of this Document TEYS Property Funds Limited ACN 105 164 047 (Australian Financial Services Licence No. 2349677) is the Responsible Entity of the Fund and the issuer of this Document. Our contact details are in the directory at the end of this Document. About this Document ASIC has published Regulatory Guide 45 Mortgage Schemes improving disclosure for retail investors. ASIC s purpose in publishing RG45 is to improve disclosure to help you understand and assess unlisted mortgage schemes like this Fund. ASIC has developed 8 s for mortgage schemes and the Guide requires us to report on the Fund s performance against these s. This Document contains this report. Ongoing disclosure to investors This Document will be maintained and updated for material changes that we become aware of in managing the Fund. It will be maintained on our website (www.teys.com.au) and paper copies will be mailed to investors upon request. In addition we will provide you with updates on key information about the Fund either quarterly or half yearly. These will be mailed to you and placed on our website. Audited financial statements for the Fund are prepared half yearly and these will also be mailed to you and placed on our website. The maintenance and provision of this information forms part of our ongoing disclosure to you to assist you monitor and understand your investment. Definitions Words used in this Document which are defined in the dictionary at the end of this Document have the meanings there set out, unless the context dictates otherwise.
Key Points ASIC has issued Regulatory Guide 45 Mortgage Schemes improved disclosure for retail investors. SAS Global Narre Warren Type of Mortgage scheme The Guide covers a variety of mortgage schemes. Our Fund has the following characteristics. The Guide establishes 8 x s to assist you assess and understand mortgage schemes such as this Fund. Whilst our Fund is closed and the PDS is no longer in use, reporting on the performance of the Fund against these s is a useful tool in keeping you informed about your investment. Our Fund meets 5 out of 7 of these s with the additional being not applicable because of the nature of this Fund. Where the Fund does not meet these s, we have set out the reasons why this is the case. We will keep this Document updated on our website. In addition we will continue to provide you our investor updates and copies of the audited financial accounts. Scheme type Open for investments PDS in use Withdrawal rights Mortgage security Investment risk Nature of return Interest payments Distribution frequency Pooled (various) Contributory (specific) Yes No Yes No Fixed term Upon request Frozen for duration of winding up First mortgage Subsequent mortgage No construction or development risk Construction or development risk Fixed Variable Fixed and variable components Paid periodically by borrower Capitalised and payable upon completion Combination of both. Periodic Upon completion Partly periodic and partly upon completion Suspended pending winding up Should you have any queries about your investment please contact us. Our contact details are: TEYS Property Funds Limited ACN 105 164 047 AFSL 234 9677 Suite 71 Lower Deck Jones Bay Wharf 26 32 Pirrama Road Pyrmont NSW 2009 Tel: 02 9562 6500 Fax: 02 9562 6555 Email: info@teys.com.au www.teys.com.au Performance against ASIC s The following table summarises the Fund s performance against the s: Satisfied 1. Liquidity Yes No 2. Scheme borrowing Yes No 3. Portfolio diversification N/A N/A (pooled mortgage schemes only) 4. Related party transactions Yes No 5. Valuation policy Yes No 6. Lending principles loan to Yes No valuation ratios 7. Distribution practices Yes No 8. Withdrawal arrangements Yes No 1
1: Liquidity The responsible entity of an unlisted mortgage scheme (other than a contributory mortgage scheme) should: (a) have cash flow estimates for the scheme for the next 3 months; and (b) ensure that at all times the scheme has cash or cash equivalents (but not including undrawn amounts under bank overdraft or lending facilities) sufficient to meet its projected cash needs over the next 3 months. Note 1: In estimating cash flows, a responsible entity can take into account a reasonable estimate of investor inflows and outflows based on previous experience. Withdrawals should be determined with reference to the period within which investors would reasonable expect withdrawal requests to be processed, rather than the maximum period within which the responsible entity is able to process withdrawal requests. Note 2: Cash and cash equivalents have the same meaning as in Australian Accounting Standard AASB 107 Cash Flow Statements. Paragraph 9 of AASB 107 defines cash as cash on hand and demand deposits and cash equivalents as shortterm, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. However, for the purposes of the benchmark, a responsible entity cannot take into account undrawn amounts under bank overdraft or lending facilities. Responsible entities of unlisted pooled mortgage schemes should also disclose the policy of the scheme on balancing the maturity of their assets and the maturity of their liabilities. For example, if a scheme has a policy of ensuring that sufficient assets are held in readily realisable investment to meet future withdrawal requests, the responsible entity should state this in their PDS and report against this in their ongoing disclosures. Fund Performance Satisfied Yes We satisfy this. The Fund is a contributory mortgage scheme so is not required to maintain the items listed in (a) and (b) above. Notwithstanding this we do at all times maintain a cash flow forecast for the Fund for the next 3 months at all points in time and where possible maintain sufficient reserves of cash or cash equivalents to meet the Fund s projected cash flow requirements for this period. 2: Scheme Borrowings If an unlisted mortgage scheme has borrowed funds (whether on or off balance sheet), the responsible entity should disclose: (a) for each borrowing that will mature in five years or less the amount owing and the maturity profile in increments of not more than 12 months; Note: For borrowings that will mature within 12 months, the responsible entity should exercise judgment to determine whether it would be appropriate to disclose aggregate amounts for time bands within 12 months. (b) for borrowings that mature in more than five years the aggregate amount owing; (c) for each credit facility the aggregate undrawn amount and the maturity profile in increments of no more than 12 months; (d) the fact that amounts owing to lenders and other creditors of the scheme rank before an investor s interests in the scheme; and (e) the purpose for which the funds have been borrowed, including whether they will be used to scheme distributions or withdrawal amounts. If borrowing and credit facilities are due to mature within 12 months, the responsible entity should make appropriate disclosure about the prospects of refinancing or possible alternative actions (e.g. Sale of assets or equity fund raising). If the responsible entity has no reasonable grounds for commenting on the prospect of refinancing or possible alternative actions, then they should state this and explain why to investors. Note: any forward looking statements should comply with s769c and RG170. Responsible entities should explain any risks associated with their borrowing and credit facility maturity profile, including whether borrowings have been headed and if so, to what extent. Responsible entities should also disclose any information about breaches of loan covenants that is reasonably required by investors and update investors about the status of any breaches through ongoing disclosure. Note: Responsible entities should be aware that, in certain cases, investors would reasonably require information on likely breaches of loan covenants (e.g. if the responsible entity has approached the 2
lender about a likely breach and been informed that the loan is likely to be terminated if the breach occurs). Fund Performance Satisfied Yes We satisfy this because the Fund has no borrowing arrangements. 3: Portfolio diversification (other than a contributory mortgage scheme) should disclose the current nature of the mortgage scheme s investment portfolio, including: (a) by number and value, loans by class of activity (e.g. development projects, industrial, commercial, retail, residential, specialised property, reverse mortgages); (b) by number and value, loans by geographic region; (c) by number and value, what proportion of loans are in default or arrears; (d) by number and value of loans, what is the nature of the security for loans made by the scheme (e.g. first or second ranking); (e) what proportion of the total loan monies have been lent to the largest borrower and the 10 largest borrowers; (f) by number and value, loans that have been approved but have funds that have yet to be advanced and the funding arrangements in place for any of these undrawn loan commitments; (g) by number and value, the maturity profile of all loans in increments of not more than 12 months; (h) by number and value of loans, loan to valuation ratios for loans, in percentage ranges; (i) by number and value of loans, interest rates on loans, in percentage ranges; (j) by number and value, loans where interest has been capitalised; (k) the use of derivatives (if any); and (l) a clear description of the non loan assets of the scheme including the value of such assets. The responsible entity should also disclose their policy on the above matters and on how the scheme will lend funds generally. For example, disclosure should cover: (a) the maximum loan amount for any one borrower; (b) the method of assessing borrower s capacity to service loans; (c) the responsible entity s policy on revaluing security properties when a loan is rolled over; and (d) the responsible entity s approach to taking security on lending by the scheme (e.g. what types of security they take and in what circumstance, and whether the security must be income producing). If an unlisted pooled mortgage scheme invests in, or may invest in, other unlisted mortgage schemes (whether registered or unregistered), the responsible entity should also disclose their policy on investment in those schemes, including the extent to which the responsible entity requires those schemes to satisfy the benchmarks in this guide. Fund Performance Satisfied N/A This is not applicable to the Fund as it is a contributory mortgage scheme and therefore does not have in effect any portfolio diversification. 4: Related party transactions who transacts with related parties of the scheme, including lending or investing scheme funds with related parties should disclose their approach to these transactions, including: (a) details of any loans, investments and transactions they have made to or with any related party; (b) their policy on related party transactions, including the assessment and approval process for related party lending and arrangements to manage conflicts of interest; and (c) how the processes and arrangements are monitored to ensure their policy is followed. Note: The term related party should be interpreted broadly, taking into consideration the definitions of related party in s228 (as applied to the scheme by Part5C.7) and accounting standard AASB 124 Related Party Transactions and includes the responsible entity. 3
Fund Performance Satisfied Yes We satisfy this because the Fund has no related party transactions. A short statement about conflicts of interest is made on p 33 of the PDS referring to the need to manage conflicts of interest. We have adopted a Conflicts of Interest and Related Party Transaction Policy which sets out our procedures for the handling of these transactions. Pursuant to this policy Conflict Register for Directors/Responsible Officers and Related Parties of Teys Property Funds Limited is maintained and tabled at the Compliance Committee meetings. When entering transactions with related parties the policies we have adopted require us to comply with the provisions of the Corporations Act including having the proposed security properties independently valued. 5: Valuation policy should take the following approach to valuations of properties over which it has taken security: (a) properties (i.e. real estate) should be valued on an as is and (for development property) also on an as if complete basis; (b) The responsible entity should have a clear policy on how often they obtain valuations, including how recent a valuation has to be when they make a new loan; and (c) The responsible entity should establish a panel of valuers and ensure that no one valuer conducts more than one third of the responsible entity s valuation work for the scheme, calculated by value of properties (other than for contributory mortgage schemes). The responsible entity should also include information about the valuation of a particular property for an unlisted mortgage scheme where a loan secured against the property accounts for 5% of more of the total value of scheme s loan book. The responsible entity of a contributory mortgage scheme only needs to provide an investor with information about the valuation of a property securing a loan if the investor has, or is being offered, an interest in the loan. Note: We would also expect responsible entities to include the cost of such a property for comparison purposes. We expect responsible entities to only use valuers who: (a) Where possible, are registered under one of the state/territory valuer registration regimes or a relevant overseas registration regime; and (b) Include a statement in their valuation reports on whether the valuation complies with all relevant industry standards and codes. Fund Performance Satisfied No We do not satisfy this in its entirety. We satisfy some aspects of this through our disclosure of the following: a) Basis of valuations where the security property is a development property we have obtained valuations on both an as is basis and an as if complete basis. b) Panel of valuers We utlilise valuers who are either on our panel of valuers or who satisfy our selection criteria. All valuers must be registered under one of the state/territory valuer registration regimes. c) Use of current valuations Prior to making a loan advance we utilise valuation reports that are dated within 12 months of making the loan advance. We provided a copy of the as is valuation to investor at the time investments in the scheme was being offered. d) Re valuation frequency We obtain updated valuations where we consider that there has been a material change in the value of the security property and we have a current need to obtain such updated information. The aspect of the that we do not satisfy is that a as if complete valuation was not provided to investors. The PDS instead provides investors with a marketing overview provided by a licensed real estate agent. 4
6: Lending principles Loan to value ratios should maintain the following loan to valuation ratios for loans made by the scheme: (a) where the loan relates to property development 70% on the basis of the latest as if complete valuation; and (b) in all other cases 80% on the basis of the latest market valuation. Note 1: The loan to valuation ratio should be based on the unencumbered value of the property. Note 2: The responsible entity of a contributory mortgage scheme will meet this benchmark for a particular investor if the loan in which the investor has an interest satisfies the above ratios. Where the loan relates to property development, the responsible entity should ensure that the scheme only provides funds to the developer in stages, based on external evidence of the progress of the development. Fund Performance Satisfied No We do not satisfy this. The forecast costs for the property development were to be 100% funded by senior debt and the balance from the Fund. There was no obligation on the Fund to fund development costs in excess of the loan amount of the fund and any such costs are the responsibility of the borrower. However there is no restriction on the Fund s lending in terms of a specific proportion of the as if complete valuation. Therefore as this value changes from time to time the proportion of the loan amount to the value of the security property (when combined with any project debt that ranks in priority to the loan made by the Fund) will vary and may well at time exceed 70% of the as if complete valuation. 7: Distribution packages If an unlisted mortgage scheme is making or forecasts making distributions to members, the responsible entity should disclose: (a) the source of the current distribution (e.g. from income earned in the relevant distribution period, financing facility, application monies); (b) the source of any forecast distribution; (c) if the current or forecast distribution is not solely sourced from income received in the relevant distribution period, the reasons for making those distributions; and (d) if the current distribution or forecast distribution is sourced other than from income, whether this is sustainable over the next 12 months. Note: Any forward looking statement should comply with s767c and RG 170. If a responsible entity does not have reasonable grounds for disclosing whether current or forecast distributions sourced other than from realised income are sustainable, it should explain this to investors: see RG 170.91 If the scheme promotes a particular return on investments, the responsible entity should clearly disclose details of the circumstances in which a lower return may be payable, together with details of how that lower return will be determined. The responsible entity of a contributory mortgage scheme will meet this benchmark for a particular investor if they disclose the above information to the investor for distributions or returns made or forecast to be made to the investor. Fund Performance Satisfied Yes This is not applicable as we are not making nor forecasting to make distributions to investors. 5
8: Withdrawal arrangements should provide details of whether investors will be able to withdraw from a scheme. If investors are given the right to withdraw from a scheme, the responsible entity should clearly disclose: (a) the maximum withdrawal period allowed under the constitution for the scheme (this disclosure should be at least as prominent as any shorter withdrawal period promoted to investors); (b) any significant risk factors or limitations that may affect the ability of investors to withdraw from the scheme (including risk factors that may affect the ability of the responsible entity to meet a promoted withdrawal period); (c) the approach to rollovers, including whether the default is that investments in the scheme are automatically rolled over; and if withdrawals from the scheme are to be funded from an external liquidity facility, the material terms of this facility, including any rights the provider has to suspend or cancel the facility. If the scheme promotes a fixed redemption unit price for investments (e.g. $1 per unit), the responsible entity should clearly disclose details of the circumstances in which a lower amount may be payable, together with details of how that amount will be determined. Note: The responsible entity of a contributory mortgage scheme will meet this benchmark for a particular investor if the responsible entity discloses the above information to the investor as it relates to the investor s ability to withdraw. Fund Performance Satisfied Yes We satisfy this through our disclosure of investor s ability (or otherwise) to withdraw from their investment in the Fund. 6
Dictionary ASIC as if complete Australian Securities and Investments Commission. Means a basis for valuation which adopts an assessment of the current market value of a property as if certain improvements to the property have been completed. LVR Responsible Entity Loan to value ratio. This is expressed as a percentage of the loan amount to a value. TEYS Property Funds Limited ACN 105 164 047 (also referred to as we, us or our). as is Means a basis for valuation which adopts an assessment of the current market value of a property in its current state (i.e. without any further improvements). Australian Accounting Standards s Compliance Committee Compliance Plan Constitution Corporations Act Custodian Document Fund Standards made for the purposes of section 296(1) of the Corporations Act. The s set out in the Guide. The committee established by us comprising a majority of external members to monitor our compliance with the scheme s compliance plan, constitution and the Corporations Act. The compliance plan for the Fund which outlines how we will operate the scheme in compliance with the constitution and the Corporations Act. The trust deed dated for the Fund as amended from time to time. Corporations Act 2001 (Cth) including regulations made for the purposes of that Act. The company named in the directory and appointed by us to hold the scheme s assets for your protection. Means this document which is a disclosure in accordance with the Guide. The managed investment scheme formed by the Teys Strata Development Trust constitution and known as SAS Global Narre Warren. Guide ASIC RG45 Mortgage Schemes improving disclosure for retail investors. Directory Responsible Entity TEYS Property Funds Limited ACN 105 164 047 AFSL 234 9677 Suite 71 Lower Deck Jones Bay Wharf 26 32 Pirrama Road Pyrmont NSW 2009 Tel: 02 9562 6500 Fax: 02 9562 6555 Email: info@teys.com.au www.teys.com.au Custodian Huntley Custodians Limited Level 3 37 Bligh Street Sydney NSW 2000 www.huntelygroup.com.au Compliance plan and scheme auditor Moore Stephens ABN 90 773 984 843 Level 7 20 Hunter Street Sydney NSW 2000 www.moorestephensydney.com.au Directors of Responsible Entity Michael Teys Nick Murdoch Richard Hart Compliance Committee Paul Dortkamp John Knox Michael Teys 7