31 December 2009 (Updated as at 31 March 2010)
Multiplex New Zealand Property Fund ARSN 110 281 055
This Enhanced Disclosure Document is issued by Brookfield Multiplex Capital Management Limited as responsible entity of Multiplex New Zealand Property 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 4 May 2005 (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 financial statements available for the Fund, being for the period ended 31 December 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.
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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 of the key risks
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
Based on the Fund's Interim Financial Report for the half year ended 31 December 2009 (as calculated using the ASIC definition), the Fund's Gearing Ratio equates to 61.9%. However, under the Fund's loan documents, the Fund measures the gearing level with reference to the loan to value ratio (LVR). This is calculated by taking into account the outstanding amount under the loan relative to the aggregate of the market values of the properties based on the latest independent valuations. At 31 December 2009, the LVR was 63.4% which was in compliance with the 65% LVR threshold permitted under the loan documents. If the LVR reaches 65%, the Fund would be in non-compliance with this covenant. As referred to in the Scheme Borrowing section in this document, the responsible entity has implemented a disposal strategy to lower the loan balance.
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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 of the key risks
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
The responsible entity utilises the interest cover ratio (ICR) to monitor the Fund's overall profitability as a ratio of finance costs. This is also a key financial covenant under the Fund's loan documents. The Fund's ability or inability to meet interest payments depends on a variety of factors. Changes to market interest rates may or may not impact the Fund's interest cover ratio, as interest rate hedging or other activities designed to mitigate risk can reduce the impact of market changes on scheme profitability.
Based on the Fund's Interim Financial Report for the half year ended 31 December 2009 (as calculated using the ASIC definition), the Fund's ICR equates to 1.96 times. However, the Fund's loan documents require that the ICR is determined by dividing EBIT by the total interest expense on a rolling 6 month basis. In practical terms, and as at 31 December 2009, the Fund's ICR (under the loan covenant test) equalled 1.96 times, which is higher than the 1.40 times threshold set out in the Fund's loan facility, therefore the Fund is in compliance with this financial covenant.
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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 of the key risks
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 Fund completed an extension of its debt facility of NZ$419 million on 22 December 2009.
Key terms of this facility are:
- Tranche A: NZ$350 million at a margin of 3.75% to be repaid by 30 August 2011
- Tranche B: NZ$69 million at a margin of 5.00% to be repaid by 31 October 2010
- Loan to value ratio (LVR) covenants: 65% on commencement, 55% by 31 December 2010, 50% by 30 June 2011
- Interest Cover Ratio (historical): Greater than 1.4 times
- Interest Cover Ratio (forward): Greater than 1.3 times
- No payment of distributions unless financiers consent
- Management fees only to be paid when Tranche B is fully repaid and LVR is less than 50%
It is a priority of the Fund to pay down the Tranche B debt. A sales program has been identified to comply with the debt covenant under the debt faclity.
At 31 December 2009, the Fund had one interest rate swap in place for a total principal amount of NZ$198.6 million expiring at 31 August 2011. The hedged rate was 6.76%.
The practical application of this hedging profile is that interest expenses (to the extent that the financiers do not levy additional interest rate expenses) may be quantified with certainty to 31 August 2011. A risk associated with this is that higher interest expenses could apply if the average weighted hedged rate is higher than the comparative base interest rate costs.
Amounts owing to lenders and other creditors of the scheme rank before an investors' interest in the scheme.
Further information regarding these covenants is available in the Financial Report (PDF) for the half year ended 31 December 2009.
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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 of the key risks
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 responsible entity uses diversification, to the extent possible, as a principle tool to lower risk by diversifying the portfolio primarily across different property sectors, geographic locations within New Zealand and with the number of tenants in the portfolio. As at 31 December 2009, the Fund's portfolio provided exposure to 17 direct property assets spread between markets such as Auckland, Wellington, Christchurch and provincial areas of New Zealand.
At 31 December 2009, the portfolio occupancy rate was 98.3% and the weighted average lease term was approximately 5.1 years (by income).
The top five tenants within the portfolio at 31 December 2009 included:
- General Distributors Limited;
- Telecom NZ;
- ASB Bank;
- New Zealand Police; and
- Department of Conservation.
There are no property development activities being undertaken by the Fund.
The Fund does not hold any unlisted property trust investments at 31 December 2009 and does not currently intend to acquire investments of this kind.
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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 of the key risks
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 responsible entity's policy is to value properties at each reporting date internally or externally. When internal valuations indicate a change in carrying value greater than 5%, or whenever it is believed that the fair value of property differs significantly from its carrying value, based on a material change to the assumptions and market conditions underlying the valuation, independent external valuations are obtained. Independent external valuations are obtained for each property at least every 3 years. The December 2009 independent external valuations were undertaken in compliance with the relevant International Valuation Standards. Generally, all independent external valuations are adopted at fair value of the investment property at the relevant reporting date. When internal valuations indicate a change from the carrying value between 2% and 5%, the internal valuation is adopted.
The Fund's valuation policy is also available in the Financial Report (PDF) for the half year ended 31 December 2009.
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.
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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 of the key risks
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 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. 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.
The Fund's Financial Report discloses the responsible entity's entitlement to performance fees, management fees, establishment fees and leasing fees. The report also discloses the level of investment in the Fund by related parties. There are no guarantees currently in place between any of the related parties. There is an amount outstanding to the responsible entity in relation to deferred management, performance, leasing and sales transaction fees.
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Distribution practices
Disclosure Principle 7
This relates to information on the Fund's distribution practices
ASIC's description of the key risks
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
The responsible entity amended its distribution policy in December 2008 so that any future distributions are drawn from operating cash flows (after provision for maintenance capital expenditure), rather than from capital and or borrowings.
Per our investor update of 11 February 2010 it is unlikely distributions will be paid during the year ended 30 June 2010 The ability for the Fund to make distributions in the future will be monitored closely by the responsible entity.
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Withdrawal arrangements
Disclosure Principle 8
This relates to investors' withdrawal rights from the Fund
ASIC's description of the key risks
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
The Fund is illiquid and other than the limited liquidity feature referred to in Section 2.11 of the Fund's PDS; there is no regular withdrawal facility.
The facility provides for the Responsible Entity to make an annual offer (around September of each year, if applicable) of $5.0 million available to a maximum commitment of $20 million over the life of the Fund. If acceptances under an offer exceed $5.0 million per annum, the Responsible Entity will acquire units from the participating unitholders on a pro-rata basis.
As at 31 December 2009, the remaining amount available under the limited liquidity facility was $2.76 million.
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1: earnings before interest, tax, depreciation and amortisation
Interests in Multiplex New Zealand Property Fund ARSN 110 281 055 (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 4 May 2005 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.