Updated as at 10 November 2009
Multiplex Development and Opportunity Fund ARSN 100 563 488
This Enhanced Disclosure Document is issued by Brookfield Multiplex Capital Management Limited as responsible entity of Multiplex Development and Opportunity Fund (Fund) pursuant to ASIC Regulatory Guide 46 (RG 46): "Unlisted property schemes - improving disclosure for retail investors." The Regulatory Guide lists eight disclosure principles that ASIC has developed that responsible entities of unlisted property schemes are required to apply to their upfront and ongoing disclosures for retail investors.
The Fund has applied these eight disclosure principles in accordance with the form and content stated in RG 46. Investors should be aware that previous disclosures made by the Fund of some of these or similar principles reflect market standard practices which may be different to the requirements of RG 46. Investors are invited to have reference to the Fund's Product Disclosure Statement dated 14 September 2005, as supplemented on 28 July 2006 and 30 July 2008 (PDS) and other publicly released materials which are available at www.brookfieldmultiplex.com.
The responsible entity is committed to providing investors with timely and balanced disclosure of all material matters concerning the Fund in accordance with its continuous disclosure obligations, including RG 46. Key information in this Enhanced Disclosure Document and any material changes will be updated by the responsible entity as soon as practicable and in any event on at least a semi annual basis and made available at www.brookfieldmultiplex.com.
A hard copy of this Enhanced Disclosure Document is available to investors upon request by contacting Brookfield Multiplex Capital Customer Service on 1800 570 000 or by emailing clientservices@brookfieldmultiplex.com.
The information in this Enhanced Disclosure Document is based on the most recent audited financial statements available for the Fund, being for the period ended 30 June 2009. The responsible entity is not aware of any material changes since those statements.
The table below contains an overview of ASIC's description of the eight disclosure principles, the responses of the Fund's responsible entity to those key risk features and then the practical application of each of the eight disclosure principles to the Fund.
Quick links:
Gearing Ratio
Disclosure Principle 1
This principle indicates the extent to which the Fund's assets are funded by external liabilities.
RG 46 defines gearing ratio as:
Total interest bearing liabilities divided by Total assets
ASIC's description
ASIC's description of this key risk states that "a higher gearing ratio means a higher reliance on external liabilities (primarily borrowings) to fund assets. This exposes the scheme to increased funding costs if interest rates rise. A highly geared scheme has a lower asset buffer to rely upon in times of financial stress."
The Fund's Response and Practical Application of the Disclosure Principles
The Consolidated Entity of the Fund (the Fund) includes the Fund and its subsidiaries.
As per the PDS, there are no borrowings at the Fund level. Borrowings may be made by subsidiaries of the Fund, or other vehicles in which the Fund has invested. Such borrowings do not have recourse to other assets of the Fund, only to the assets of that particular entity.
The Fund owns an interest in three development properties (Multiplex Acumen Vale Syndicate, Vale Stages 7-11 and Henley Brook) which each have an indirect loan with an external financier. Indirect loans are those obtained by a subsidiary to purchase property where the Fund owns a share of the subsidiary rather than an interest in the real property. The scheme's gearing ratio is calculated as follows:
(1)Interest Bearing Liabilities exclude bank guarantees as per the Financial Statement
(2) Total asset as per the Financial Statement less equity accounted investment
The scheme's "look through" gearing ratio is 32.0% which includes one off balance sheet financing (Little Bay South).
(3) Interest Bearing Liabilities exclude bank guarantees as per the Financial Statement and includes off balance sheet financing of equity accounted investment
(4) Total asset as per Financial Statement
The gearing ratio represents the percentage of debt compared to the gross assets of the Fund. The gearing ratio can help investors assess risks. It shows how much the Fund owes in debt to its financiers as a proportion of what the Fund owns (assets).
The three indirect and one off balance sheet finance facilities of the Fund are of a development and land banking nature. Each facility has its own loan to valuation ratio (LVR) to comply with. The responsible entity believes that the LVR is more relevant in this Fund than the gearing ratio. The Fund is in compliance with each relevant LVR. Please refer to Scheme Borrowing for more details in relation to the various LVR tests.
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Interest cover
Disclosure Principle 2
This principle indicates the Fund's ability to meet interest payments from earnings.
RG 46 defines interest cover ratio as:
(EBITDA1 minus unrealised gains plus unrealised losses) divided by interest expense
ASIC's description
ASIC's description of this key risk states that "interest cover is a key indicator of financial health. The lower the interest cover, the higher the risk that the scheme will not be able to meet its interest payments. A scheme with a low interest cover 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."
The Fund's Response and Practical Application of the Disclosure Principles
As stated, the three indirect (Multiplex Acumen Vale Syndicate, Vale Stages 7-11 and Henley Brook) and one off balance sheet (Little Bay South) loans are of a development and land bank nature.
Interest costs borne by the subsidiary are capitalised during the development stage. The interest cover ratio is therefore not applicable for the Fund as all projects are at development stage. Interest payments are serviced throughout the life of each relevant project however as with any property development or sale, there is a risk that a purchaser may default in the performance of their contract. As disclosed in the PDS, while it will be usual that non-refundable deposits paid by purchasers would be retained, it is possible that the property in question may not be able to be re-sold for the same purchase price.
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Scheme borrowing
Disclosure Principle 3
This principle requires information on the Fund's borrowing maturity and credit facility expiry and any associated risks
ASIC's description
ASIC's description of this key risk states that "relatively short-term borrowings and credit facilities with short expiry dates are a risk factor if they are used to fund assets intended to be held long term. If the scheme has a significant proportion of its borrowings that mature within a short timeframe, it will need to refinance. There is a risk that the refinancing will be on less favourable terms or not available at all. If the fund cannot refinance, it may need to sell assets on a forced sale basis with the risk that it may realise a capital loss. Breach of a loan covenant may result in penalties being applied, or the loan becoming repayable immediately. This means that the fund may need to refinance on less favourable terms or sell assets. Termination of critical financing could also mean the scheme is no longer viable."
The Fund's Response and Practical Application of the Disclosure Principles
The table below provides an analysis of when the three indirect loans and one off balance sheet loan are due to mature. Off balance sheet financing includes borrowings of equity accounted investments.
| |
Multiplex Acumen Vale Syndicate |
Vale Stages 7-11 (s) |
Henley Brook |
Little Bay South Development |
| Fund Borrowing |
Indirect |
Indirect |
Indirect |
Off Balance Sheet |
| Maturity Date |
Dec 09 |
Nov 09 (2) |
Nov 09 |
Nov 09 |
| Facility Limit |
$17.9m (1) |
$22.0m |
$37.7m |
$16.2m |
| Amount Utilised (3) |
$9.9m (4) |
$21.4m |
$35.9m |
$14.8m |
| Unused Amount |
$8.0m |
$0.6m |
$1.8m |
$1.4m |
| Bank LVR |
Lesser of $17.9m
or 55.0% |
55.0% |
65.0% |
60.0% |
| LVR as at Sep 09 |
25.7% |
53.6% |
61.9% |
54.6% |
Notes:
(1) On 22 September 2009, the facility limit was reduced from $36.0 million to the lower of $17.9 million or 55% of the loan to valuation ratio. All other terms and conditions remain the same.
(2) On 22 September 2009m the financier agreed to extend the facility for a further 2 months on the same terms and conditions, while the refinancing continues.
(3) Amount drawn as at 30 September 2009
(4) Amount drawn includes $2.9 million of bank guarantees. This amount is progressively reduced from sale proceeds when possible.
(5) Vale stages 7 - 11 was independantly valued on 21 July 2009 for $40.0 million including GST for financing purposes. This was subsequently updated on 29 September 2009 to be $39.9 million GST exclusive.
As at 30 September 2009 the Fund is in compliance with all financial covenants, based on the external valuations obtained at the time of securing each facility. An external valuation was obtainedfor Vale stages 7 - 11 for $39.9 million exclusive of GST on 29 September 2009.
All four facilities are due at the end of calendar year 2009 with a total outstanding face amount of $93.8 million. The responsible entity is in discussion with all the financiers with respect to refinancing three of the four facilities. (Vale Stages 7-11, Henley Brook and Little Bay South), whilst the fourth (Multiplex Acumen Vale Syndicate) is expected to be largely repaid from net cash flow from sales less capital works.
There is a risk that the refinancing with the current financier may not be available and even if available and even if available (or if sourced from a new financier) will be on less favourable terms than the current terms. Alternatively, a breach of a loan covenant in one or more of the three indirect loans and/or the off balance sheet loan before repayment is due may result in penalties being applied to that stand alone loan, or a stand alone loan becoming repayable immediately.
The responsible entity is mitigating the refinancing risk by adopting a prudent approach by preserving the Fund's cash position and deferring the payment of distributions or return of capital from realised investments until the refinancing are complete, at which time, if possible, the Fund will consider resuming payments.
It should be noted that retail investors rank behind the senior debt lenders and creditors of the Fund.
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Portfolio Diversification
Disclosure Principle 4
This information addresses the Fund's investment practices and direct property investment portfolio risk
ASIC's description
ASIC's description of this key risk states that "generally, the more diversified a portfolio is, the lower the risk that an adverse event affecting one property or one lease will put the overall portfolio at risk."
The Fund's Response and Practical Application of the Disclosure Principles
The Fund primarily invests in a diversified portfolio of traditional property development projects across all property sectors, value-add opportunities for completed property assets and indirect investments such as providing mezzanine loan funding into developments.
The Fund has allocated its investments over seven projects. These include broadacre land, residential, commercial office and mixed use investments which are scheduled to be delivered between December 2009 through to November 2015.
In addition to the seven investments, the only other significant asset of the Fund is cash. As at 30 September 2009, the Fund had a cash balance of $10.2 million.
The Fund's seven investments are spread over three geographic locations. They consist of three investments in development properties (Multiplex Acumen Vale Syndicate, Vale Stages 7-11 and Henley Brook), three mezzanine loans (King Street Wharf Site 1, Claremont, and Pegasus Town), and one equity accounted investment (Little Bay South)
The portfolio by geographic location by number and value is as follows:
| Investments |
Investment Type |
Sector |
Location |
Initial Investment Amount ($m) |
| King Street Wharf Site (1) |
Mezzanine Loan |
Commercial |
NSW |
$13.1 |
| Claremont |
Mezzanine Loan |
Mixed Use |
WA |
$41.5 |
| Pegasus Town |
Mezzanine Loan |
Broadacre Land |
NZ |
$15.7 |
| Multiplex Acumen Vale Syndicate |
Equity |
Broadacre Land |
WA |
$11.9 |
| Little Bay South |
Equity |
Residential |
NSW |
$16.1 |
| Vale Stages 7 to 11 |
Equity |
Broadacre Land |
WA |
$29.2 |
| Henley Brook |
Equity |
Broadacre Land |
WA |
$33.1 |
Notes: These monies were re - invested in the best interest of investors until finalisation of the refinancing commitment of the Fund is completed and cash requirements of the Fund were assessed further.
(1) King Street Wharf Site 1 was extended for a further eight months from expiry and the loan amount increased from $10.0 millionto $13.1 million for an interest rate of 6.5% per annum. The terms and condition of the extension is that the monies are at call on 20 business days notice and the loan os supported by a Principal and Interest Shortfall Guarantee provided by Brookfield Multiplex Limited.
The table below provides details of the timeframe with key milestones, funding arrangements, presale (if applicable) and development status (percentage completion) of the 3 development properties:
| Investments |
Estimate Completion Date (2) |
Key Milestones |
Funding Arrangements |
Development status |
| Multiplex Acumen Vale Syndicate |
Jun 2010 |
Work commenced in Stage 6C and 6E - 55% of lots pre sold
|
Refer to scheme borrowing |
80.2% (1) |
| Vale Stages 7 to 11 |
Dec 2013 |
Revised subdivision plan approval (Stages 7&8)
recieved in April 2009
|
Refer to scheme borrowing |
Planning Phase with approval |
| Henley Brook |
Nov 2015 |
Albion District Structure Plan has been adapted and forwarded to WAPC for approval
|
Refer to scheme borrowing |
Planning Phase |
Notes:
(1) Total lots settled to 30 September 2009 divided by total number of lots of the project.
(2) As per September 2009 Capital Magazine.
The development properties have been independently externally valued as required by the project's respective financier at the time finance was sourced. Please refer to the section on the Valuation Policy in this document for more details in relation to the independent external valuations. The Fund holds these assets as inventory, which is held at the lower of cost or net realisable value.
As these investments are broadacre land lease expiry profile, occupancy rates and top five tenants are not relevant in this Fund.
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Valuation Policy
Disclosure Principle 5
This information relates to key aspects of the Fund's valuation policy for real property assets
ASIC's description
ASIC's description of this key risk states that "investing in a property scheme exposes investors to movements in the value of the fund's assets. Investors therefore need information to assess the reliability of valuations. The more reliable a valuation, the more likely the asset will return that amount when it is sold. However, any forced sale may still result in a shortfall compared to the valuation."
The Fund's Response and Practical Application of the Disclosure Principles
The Valuation Policy provides that where an asset is being developed or being held for resale then it is classified as inventory. Classification as inventory is permissible when an entity acquires an asset for the purpose of adding value prior to selling to a third party for a profit. The policy for inventories being held for resale will be stated at the lower of cost or net realisable value. Costs will include costs of acquisition, development and the costs of holding such assets, including borrowing costs. Net realisable value is measured as the selling price less any costs necessary to be able to make the sale. The Fund currently holds the three indirect properties referred earlier as inventories.
At 30 September 2009, no direct properties were independently valued. All inventories were stated at cost. The Fund will only obtain external valuations for the purposes of refinancing its loans or as and when required by the financiers. An external valuation for Vale stages 7 - 11 was obtained for the purpose of refinancing. The valuation was dated 21 July 2009 for $40.0 million including GST*. The Fund only uses independent external valuers who are registered and who include a statement in their valuation reports that their valuation complies with all relevant industry standards and codes.
* This was subsequently updated on 29 September 2009 to $39.9 million exclusive of GST.
The table below shows the latest external valuation of the Fund when debt was sought for these investments. It includes the date of the valuation, the independent valuer and the basis on which the valuation was performed.
| Asset |
Date of Independent External Valuation |
Market Value |
Valuer |
Basis |
Capitalisation Rate |
| Multiplex Acumen Vale Syndicate |
18 Apr 2008 |
$62.0m |
Savills |
As Is |
N/A |
| Little Bay South |
29 Nov 2007 |
$27.1m (for Stages 1-2) |
Colliers |
As Is assuming staged payment |
N/A |
| Vale Stages 7 to 11 |
29 Sep 2009 |
$39.9m |
Savills |
As Is |
N/A |
| Henley Brook |
1 Apr 2008 |
$58.0m |
Savills |
As Is |
N/A |
As the facilities are due to expire at end of calendar year 2009, some of these assets will be required to be re-valued by an independent valuer for refinancing purposes.
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Related party transactions
Disclosure Principle 6
This relates to the responsible entity's approach to related party transactions
ASIC's description
ASIC's description of this key risk states that "a conflict of interest may arise when property schemes invest in, make loans or provide guarantees to related parties."
The Fund's Response and Practical Application of the Disclosure Principles
The responsible entity maintains a conflicts of interest policy that provides guidance to the business on the management of conflicts of interest. A summary of the conflicts of interest policy is available on this website. Importantly, a decision about whether the Fund will invest into a Brookfield Multiplex Development may only be made with the approval of all the independent directors of the responsible entity.
Please refer to the related party transaction disclosure note in the year end audited financial report to 30 June 2009 and 30 June 2008. A significant change to the related party transaction disclosure since the last reporting date is the Capped Liquidity Facility which reached its limit of $20.0 million on 30 June 2008. The facility was offered by the responsible entity to acquire Units from Unitholders seeking to exit the Fund.
The responsible entity manages related party transactions and conflicts of interest issues through the application of its governance arrangements, which include board consideration and approval of all investment related transactions. All related party transactions are scrutinised by the responsible entity to ensure compliance with Chapter 2E of the Corporations Act.
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Distribution practices
Disclosure Principle 7
This relates to information on the Fund's distribution practices.
ASIC's description
ASIC's description of this key risk states that "some property schemes make distributions partly or wholly from unrealised revaluation gains and/or capital rather than solely from realised income. This may not be commercially sustainable over the longer term, particularly where property values are not increasing."
The Fund's Response and Practical Application of the Disclosure Principles
Please refer to our September 2009 Capital Magazine for dividend practices.
The Fund's future dividend payments will consist partly of earnings and capital. Income dividends will be funded by earnings and as each investment is realised the capital component will be returned. The forecast capital dividends are sustainable to the extent that there is capital to be repaid.
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Withdrawal arrangements
Disclosure Principle 8
This relates to investors' withdrawal rights from the Fund
ASIC's description
ASIC's description of this key risk states that "unlisted property schemes often have limited or no withdrawal rights. This means they are usually difficult to exit."
The Fund's Response and Practical Application of the Disclosure Principles
As communicated on 29 October 2008 the Fund is closed to new investments and the Liquidity Facility Limit of $20.0 million offered by the responsible entity to acquire units from Unitholders' seeking to exit from the Fund was reached at 30 June 2008. The Fund is illiquid and investors do not have a right to redeem their units while the Fund is illiquid. The responsible entity is not under any obligation to continue to provide further liquidity. Refer section 2.13 of PDS
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1: earnings before interest, tax, depreciation and amortisation
Interests in Multiplex Development and Opportunity Fund ARSN 100563488 (Fund) are issued by Brookfield Multiplex Capital Management Limited ACN 094 936 866 (AFSL 223 809), the responsible entity of the Fund. A Product Disclosure Statement (PDS) for the Fund dated 14 September 2005, as supplemented on 28 July 2006 and 30 July 2008 is available which details the terms of the offer as well as the various assumptions on which forecast financial information is based. Investors who wish to acquire (or continue to hold) an interest in the Fund should first read and consider the PDS and seek their own advice before making any decision about whether to invest. The PDS may be viewed online at www.brookfieldmultiplexcapital.com. A paper copy of the PDS is available free of charge to any person in Australia by telephoning 1800 570 000. Applications must be made by completing the application form in or accompanying the PDS. This notice is not intended as personal advice and has been prepared without taking account of any investor's investment objectives, financial situation or needs. For that reason, an investor should, before acting on this advice, consider the appropriateness of the advice, having regard to their investment objectives, financial situation and needs. Past performance is no indication of likely future performance. Every effort has been made to ensure the accuracy of the financial information herein but it may be based on unaudited figures. This document contains forward looking statements. You should be aware that such statements are only predictions and are subject to inherent risks and uncertainties. Those risks and uncertainties include factors and risks specific to the property industry as well as matters such as general economic conditions and conditions in financial markets. Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement and such deviations are both normal and to be expected. The responsible entity does not make any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement, or any events or results expressed or implied in any forward looking statement. You are cautioned not to place undue reliance on these statements. The forward looking statements in this document reflects the views held only as at the date of this document.