ASIC RG 46 Benchmarks
ASIC Regulatory Guide 46: Unlisted Property Schemes: Improving disclosure for retail investors (“RG 46”) applies to an unlisted managed investment scheme that has, or is likely to have, at least 50% of its non-cash assets invested in real property and/or in unlisted property schemes.
As the Fund may be in a position where 50% of its non-cash investments are in real property and/or unlisted property schemes, the Responsible Entity has chosen to be an early adopter of RG 46 even though it may not be immediately applicable.
ASIC has formulated six benchmarks and eight disclosure principles to help retail investors decide whether an investment in an unlisted property scheme is suitable for them (“ASIC RG 46 Benchmarks”).
- Benchmark 1: Gearing
- Disclosure Principle 1: Gearing Ratio
- Benchmark 2: Interest Cover
- Disclosure Principle 2: Interest Cover Ratio
- Benchmark 3: Interest Capitalisation
- Disclosure Principle 3: Credit Facility Disclosures
- Benchmark 4: Asset Valuations
- Disclosure Principle 4: Portfolio Diversification
- Benchmark 5: Related Party Transactions
- Disclosure Principle 5: Related Party Disclosures
- Benchmark 6: Distribution Practices
- Disclosure Principle 6: Source of Distributions
- Disclosure Principle 7: Withdrawal Arrangements
- Disclosure Principle 8: Net Tangible Assets
Benchmark 1: Gearing
LAST REVIEWED: 14 AUGUST 2023
Gearing magnifies the effect of gains and losses on an investment. The gearing ratio indicates the extent to which a scheme’s assets are funded by external liabilities. A higher gearing ratio means greater magnification of gains and losses and generally greater volatility compared to a lower gearing ratio. The gearing ratio is calculated as follows:
Gearing ratio = Total interest bearing liabilities / Total assets
The gearing ratio will be based on liabilities recorded in the Fund’s unaudited management accounts. The Fund may borrow up to a maximum of 60% of an inefficient asset’s value at the time of borrowing (including the value of any improvements, capital costs and/or market appreciation on an ‘as if complete’ basis) to finance or refinance an inefficient asset.
The gearing ratio may exceed 60% of an inefficient asset’s fair market value decreases after financing.
Please see Disclosure Principle 3: Credit Facility Disclosures for more information on the Fund’s expected credit facilities.
Disclosure Principle 1: Gearing Ratio
The gearing ratio at 14 August 2023 is 0% as the Fund has not borrowed any money.
Benchmark 2: Interest Cover
LAST REVIEWED: 14 AUGUST 2023
The interest cover ratio indicates an unlisted property scheme’s ability to meet interest payments from earnings, where:
Interest cover ratio = (EBITDA* – unrealised gains + unrealised losses) / Interest expense
* EBITDA (earnings before interest, tax, depreciation and amortisation, and excluding the impact of purchase and sale costs and profits or losses)
The interest cover ratio is a measure of the risk associated with the Fund’s borrowings and the sustainability of borrowings. A fund with a low interest cover ratio only needs a small reduction in earnings (or a small increase in interest rates or other expenses) to be unable to meet its interest payments. Interest cover is also useful for investors when comparing a fund’s relative risks and returns.
It is the Responsible Entity’s intention that when the Fund borrows it will have a long-term goal of ensuring the interest cover ratio is no more than 2.
Disclosure Principle 2: Interest Cover Ratio
The interest cover ratio at 14 August 2023 is 0 as the Fund has no borrowings.
Benchmark 3: Interest Capitalisation
LAST REVIEWED: 14 AUGUST 2023
The Fund does not capitalise interest expense. The Responsible Entity will ensure that any interest payments will be paid out of operational cash flow or cash reserves.
Disclosure Principle 3: Credit Facilities Disclosures
Although there are no scheme facilities as at 14 August 2023, the Fund may borrow up to a maximum of 60% of an inefficient asset’s value at the time of borrowing (including the value of any improvements, capital costs and/or market appreciation on an ‘as if complete’ basis) to finance or refinance an inefficient asset. All amounts owed to lenders and other creditors will rank before each investor’s interest in the Fund. The Fund’s ability to repay principal and interest and meet all loan covenants under its debt facilities is material to its performance and ongoing viability.
Increases in variable market interest rates (after any period of fixed interest rates) will increase interest costs that may result in a reduction in distributions. There is also the risk that the Fund may not be able to refinance borrowings and will need to sell assets to repay those borrowings. This could result in a reduction of the Fund’s income and a reduction in the value of an Investor’s units in the Fund.
The Responsible Entity will seek to ensure that any borrowings undertaken by the Fund will be in accordance with strict borrowing guidelines, which include:
- borrowing on a non-recourse basis (i.e. recourse is limited to that asset or class of assets only);
- the cost of borrowing will be at an appropriate interest rate having considered the asset and risks at the time of loan drawdown; and
- repayments must be able to be made in line with the loan repayment schedule in the loan agreement from the Fund’s operating cashflow.
The Responsible Entity will periodically disclose in relation to any Fund borrowings:
- a loan maturity profile highlighting the total amount of loans due in the year of disclosure, within 1 year, 2 years, 3 years, 4 years and 5 or more years;
- the amount by which operating cashflow and/or the value of assets used as a security for a loan facility must fall before the scheme will breach any covenants in any credit facility;
- for each credit facility, the aggregate undrawn amount, assets to which the facility relates, the loan to valuation and interest cover covenants under the terms of the facility, the interest rate of the facility and whether the facility is hedged;
- details of any terms within a credit facility that may be invoked when Investors exercise their rights under the Fund’s Constitution;
- the prospects for refinancing any credit facilities maturing within 12 months; and
- the status of any breaches of credit facility covenants and how such breaches affect investors.
Benchmark 4: Asset Valuations
LAST REVIEWED: 14 AUGUST 2023
In calculating the Fund’s value the Responsible Entity may determine valuation methods and change these valuation methods from time-to-time, subject to the terms of the Fund’s Constitution.
Direct property will undergo independent valuations as required by Australian law. This requires an independent valuation at least every three years.
Units in unlisted property schemes will be valued at market value calculated in accordance with their published redemption prices.
You can access the following policies by clicking their links below:
Disclosure Principle 4: Portfolio Diversification
Properties are to be valued on the basis of Fair Market Value pursuant to the meaning attributed under AASB 13.
Through its subsidiaries, the Fund expects to gain exposure to a broad range of real estate investment opportunities and has established indicative long-term asset allocation ranges as set in Section 4 of the Fund’s Product Disclosure Statement – About the investment strategy.
As at 14 August 2023, the Fund has not entered into any contracts to acquire any direct property or equity in unlisted property schemes. However, it is the intention of the Responsible Entity to acquire property(ies) and/or equity in unlisted property schemes within twelve months of the minimum subscription Amount being met, subject to suitable opportunities being available.
Once the Fund has acquired direct property the Responsible Entity will periodically disclose the following information about the direct real estate owned by the Fund:
- properties by geographic location (by number and value);
- properties by sector (e.g. industrial, commercial, retail, multi-family) (by number and value);
- for each significant property, the most recent valuation, the date of the valuation, whether the valuation was performed by an independent valuer and, where applicable, the capitalisation rate adopted in the valuation;
- the portfolio lease expiry profile in yearly periods calculated on the basis of lettable area or income and, where applicable, the weighted average lease expiry;
- the occupancy rate(s) of the property portfolio; for the top five tenants that each individually constitute 5% or more by income across the investment portfolio, the name of the tenant and percentage of lettable area or income; and
- the current value of the development and/or construction assets of the scheme as a percentage of the current value of the total assets of the scheme.
Benchmark 5: Related Party Transactions
LAST REVIEWED: 14 AUGUST 2023
The Responsible Entity may enter into related party transactions. The risks associated with related party transactions are that they could be assessed and monitored less rigorously than arm’s length third party transactions.
Related party transactions pertaining to the Fund are only approved by the Responsible Entity without obtaining Unitholder consent if evidence supports the transaction as being on arm’s length terms having regard to generally accepted commercial practice and the market for the type of transaction.
The Responsible Entity has a policy for managing conflicts of interest and related party transactions which ensures that all transactions engaged in by the Fund are assessed for any conflicts of interest and to ensure they are reasonable arm’s length transactions based on appropriate commercial terms. Where the Responsible Entity determines that Unitholder consent is required in respect of a related party transaction, the Responsible Entity will call a meeting where investors can vote on whether to approve the transaction.
Disclosure Principle 5: Related Party Transactions Disclosure
When a related part transaction occurs, the Responsible Entity will also disclose, in respect of each related party transaction pertaining to the Fund:
- the nature of the relationship;
- the value of the financial benefit;
- whether the transaction is on ‘arm’s length’ terms (including whether there is reasonable remuneration) or whether some other exception applies or ASIC has granted relief;
- whether scheme member approval for the transaction has been sought and, if so, when;
- the risks associated with the related party transaction; and
- whether the Responsible Entity complies with its related party transactions policy, and how this is monitored.
The related party transactions between the Responsible Entity as at the 14th August 2023 were:
- Provision of fund’s management services in accordance with the terms outlined in the Fund’s Product Disclosure Statement. There was no financial benefit as yet. The relationship is on an arm’s length basis. Scheme member approval was not needed to be sought, and wasn’t; the risks of the related party transaction are that the Responsible Entity may act in a way that inflates fees. The Responsible Entity complies with it’s Related Party Transactions Policy, which is monitored monthly at the Board level.
Benchmark 6: Distribution Practices
LAST REVIEWED: 14 AUGUST 2023
Subject to the minimum subscription amount being achieved, the Responsible Entity expects that the Fund will declare its first distribution on 30 June 2024.
The Responsible Entity will determine the Fund’s distributable income for each quarterly distribution period. Investors on the unit register as at the last day of the relevant distribution period will be entitled to the distribution for that period. Investors may reinvest all of their distributions to acquire additional units in the Fund using the unit price that applied as at the date of the relevant distribution (via the Fund’s Distribution Reinvestment Policy (“DRP”)).
Distributions are expected to be paid within 21 days of the end of each relevant distribution period. Cash distributions will be made electronically to the bank account Investors nominate. When making their application, if an Investor does not provide clear instructions on their preference for receiving distributions or does not provide valid bank account details to receive their distribution, their full distribution entitlement will be automatically reinvested in additional units in the Fund.
The Fund’s distributable income will primarily be sourced from its cash from operations, and may include: interest from cash, money market instruments and bonds, dividends and distributions from bonds and efficient equity investments, and income from inefficient assets (e.g. interest, dividends, rent, etc.). However, the Responsible Entity may use borrowings to fund a return of capital to Unitholders or to fund any proposed redemption of units in certain circumstances (for instance, where it has realised a capital gain but is awaiting receipt of cash proceeds in respect of that capital gain).
When the Fund sells an asset, capital may not be returned but rather retained by the Fund and reinvested in other assets. As such, investors may receive a distribution of capital gains income upon which they may have to pay income tax without receiving an equivalent cash amount.
Disclosure Principle 6: Source of Distributions
No distributions had been paid as at 14 August 2023.
Ignoring any distribution of interest on subscription money before the minimum subscription is achieved (see Section 6.3 of the Fund’s Product Disclosure Statement), the first distribution from operations is expected to be declared on or about the 30th June 2024, and paid in July 2024.
In respect to future distributions, the Responsible Entity will disclose:
- the source of the distribution current at the date of disclosure;
- the source of any forecast distribution;
- whether the current or forecast distributions are sustainable over the next 12 months;
- if the current or forecast distribution is not solely sourced from cash from operations available for distribution, the sources of funding and the reasons for making the distribution from these other sources;
- if the current or forecast distribution is sourced other than from cash from operations available for distribution, whether this is sustainable over the next 12 months; and
- the impact of, and any risks associated with, the payment of distributions from the scheme from sources other than cash from operations available for distribution.
Disclosure Principle 7: Withdrawal Arrangements
The Responsible Entity does not expect to offer withdrawals (a.k.a. redemptions) until after 31 December 2024.
Thereafter it expects to provide investors with the ability to redeem some or all of their units in the Fund twice each year, subject to the Fund being ‘liquid’ (as that term is defined in the Corporations Act) or, if the Fund is not liquid, if there are sufficient liquid assets to allocate to a withdrawal offer made in accordance with the Corporations Act provisions that apply for withdrawal offers from illiquid funds. Outside of these twice-yearly redemption offers, the Responsible Entity does not intend to honour any redemption requests received from investors.
The Responsible Entity expects to offer Redemption opportunities in April and October each year and such details will be advised to investors by email, or by such other means as determined by the Responsible Entity, including publishing an announcement about the offer on the Fund’s website. Investors should ensure that they keep all their contact details up to date and regularly check the Fund’s website for details on any current or future redemption offers.
Before making a redemption offer, the Responsible Entity will determine an amount of cash within the Fund that is available to satisfy the redemptions of units. An offer will then be made to Investors during a one-month period in which the investors can submit requests to redeem units in the Fund (using the Redemption Request Form made available on the Fund’s website during the period that the redemption offer remains open).
The unit redemption price shall be calculated in accordance with the Fund’s Constitution. The unit redemption price will include an estimate of the anticipated sale and disposal costs, and as such will be lower than the equivalent period’s unit issue price.
Under the Fund’s Constitution, the Responsible Entity has up to 30 days to satisfy any redemption request, and will endeavor to pay redemption requests within 21 days following the satisfaction of the redemption offer. The Responsible Entity has discretion to delay or suspend redemptions, or to scale back all redemption requests on a pro rata basis. The Responsible Entity may determine such other terms and conditions to apply to redemption offers that will be communicated to Investors at the time of the redemption offer. At the expiry of the offer period, the Responsible Entity will satisfy the redemption requests from the amount of cash it set aside for withdrawals. Under the Fund’s Constitution, the Responsible Entity can delay or refuse to provide redemption offers at its complete discretion.
A Withdrawal Form will be made available on the Fund’s website prior to the redemption window beginning.
Minimum Withdrawal Amount
The minimum withdrawal amount is 1,000 units.
Withdrawal Processing Fee
A once-off withdrawal processing fee of $55 (incl. GST) applies to each withdrawal application to cover the administration cost of processing the withdrawal (such as cross-matching bank account information, checking signatures, etc.).
Disclosure Principle 8: Net Tangible Assets (“NTA”)
A NTA calculation helps investors understand the value of the assets upon which the value of their unit is determined. The Fund calculates its NTA using the following formula:
NTA = (Net Assets – Intangible Assets +/- Any Other Adjustments) ÷ Number Of Units In The Scheme On Issue
When making its NTA calculation, the Responsible Entity will comply with all relevant accounting standards and take into account Regulatory Guide 94 – Unit pricing: Guide to good practice.
The Responsible Entity expects that its net assets will primarily consist of investments in cash and money market deposits, high quality bonds, efficient assets such as managed funds that invest in equities in Australia and overseas, and inefficient investment opportunities (e.g. real estate, secured mortgages, unlisted real estate investment trusts, etc.) that are typically illiquid, the value of which will be determined by the assets it holds less any liabilities it has (including, for example, borrowings).
As at 14 August 2023 the Fund had no assets, and so the Fund’s NTA was 0.