Application Processing
Applications will ordinarily be processed within ten business days of receipt by the Responsible Entity of an investor’s properly completed application. Once an investor’s application has been processed and accepted by the Responsible Entity, a record will be made confirming that the Applicant has a contractual right to be issued units in the Fund on and from the first business day of the next occurring calendar month in proportion to the value of their application money.
Consequently, an application by an Investor for an investment in the Fund will be an application for a contractual right to units that will be issued once the unit issue price for the relevant month has been finalised.
Owing to the valuation methods and practices for some of the Fund’s assets, the Responsible Entity will determine the unit price monthly as at the last day of the relevant month. However, the processes and practices for valuing the Fund’s assets means that the unit price as at the end of a particular month may not be known or determinable by the Responsible Entity until after the end of that month (ordinarily twenty-one business days after the end of a month, but potentially longer in some circumstances) while the Responsible Entity collates relevant asset valuations and income and calculates liabilities.
Once determined, the prevailing unit price as at the last day of a particular month will be used to determine the number of units to be issued to investors who have been recorded as entitled to units on and from the first business day of the next occurring calendar month. Investors who are recorded as entitled to units on and from the first business day of a calendar month will have a right to be issued units in the Fund proportionate to the value of their application money but will not be entitled to distributions from the Fund, or to exercise voting or other rights in respect of their interest in the Fund, until such time as they are formally issued units in the Fund and recorded on the register as a unitholder.
Unit Pricing
There are two unit prices that investors will need to watch, the Fund’s issue price and its redemption price.
Issue (Unit) Price
The issue price is the price investors will pay to purchase their units (i.e. the price units are issued at).
The issue price is calculated by dividing the net tangible assets of the fund, which are adjusted to reflect once off purchase costs, by the number of units on issue.
Purchase costs that are expensed for accounting purposes are added back in for unit pricing purposes to ensure all investors are treated equally.
For example, say a property was purchased that attracted $200,000 in stamp duty. This would normally be expensed under accounting standards, however ignoring this cost in unit pricing would mean those investors who invested after the property was bought would receive a benefit as they would not have to ‘pay’ their share of the stamp duty. By adding back the $300,000 to the net tangible assets of the Fund the cost is fairly born by all.
Redemption (Unit) Price
The redemption price is the price investors will receive for their redeemed units.
The redemption price will move to a floating monthly value based on the Fund’s net tangible assets, less forecast disposal costs, divided by the number of units on issue.
Forecast disposal costs are deducted from the Fund’s net tangible assets so investors who seek redemption pay their fair share of estimated disposal costs that will become payable when assets are sold.
Why is the Issue Price and Redemption Price Different?
You will notice the Fund’s unit issue is higher than its redemption price for the same month. This is because:
- Actual asset purchase transaction costs are added back as an adjustment to the Fund’s net tangible assets when calculating the issue price; and
- Estimated asset disposal transaction costs are deducted as an adjustment to the Fund’s net tangible assets when calculating the redemption price.
This makes sense when you think about it. For instance, if you paid $1,000,000 for a property on Monday morning, and sold it for $1,000,000 on Tuesday morning, you would incur purchase costs (such as stamp duty) on your purchase which would increase your total ‘cost’, and you would have sales commissions deducted from the sale price, meaning you would receive less than the contract price on settlement.
Values Not Known Ahead of Time of Application or Redemption
As requests for investment and redemption need to be completed before month end, and as unit pricing is based on values at month end, the precise issue price and redemption price will not be known until after an application has been received. Investors are encouraged to seek guidance on what the price might be based on the values of the unit issue and redemption prices for the preceding month.