Overall Investment Strategy
Acquiring a Portfolio of Value-Add Properties
The objective of the General Partner is to leverage movements in the New Zealand property market to create,
over time, a portfolio of commercial or residential Properties where capital value or rental income can demonstrably be increased, so that the General Partner can deliver the Target Average Total Return. As a growth fund, the Fund is considered moderate risk, as the Target Average Total Return is dependent on achieving the potential value-add to the Properties.
Investment in the Fund is suitable for wholesale investors who can tolerate a higher level of risk.
Target Annual Cash Return
The SIPO for the Fund includes a target average total (cash distributions and net asset value growth) return to investors of 20%+ per annum over 10 years. The General Partner expects that actual returns over the short term (within the first three years of the Fund) will be lower than the target, but that realised capital gains upon maturity of the Fund are more likely to exceed the target.
The General Partner aims to achieve a total return to investors of 20%+ per annum where total return is averaged across a 10-year period.
Property is an inherently long-term investment and cannot be easily sold. A Property may be sold at a loss, in which case the Fund may experiences a loss of available capital and liquidity and investors may not be able to recover the full amount of their original investment.
Tenant Default or Non-Renewal
The tenants of any tenanted Properties acquired for the Fund, may fail to pay the rental and outgoings (defaulting) which may affect projected returns, or may not renew lease arrangements and new tenants may be required. Costs, including lease incentives, may be required on re-leasing and there may be extended periods where a tenancy does not earn income.
Interest rates may increase and increase the mortgage repayments due from the Fund to its lenders. A portion of the Properties in the Fund will be funded by interest-bearing borrowings, and the interest expense is a material expense for the Fund. Changes to bank loan terms and conditions, for example in respect to interest rates, bank margins, loan to value ratios, or principal repayment requirements, either as a result of bank policy changes or the requirement that the bank comply with changes to external regulatory requirements, may affect the Fund.
Damage or Destruction
A Property may be destroyed, and the event may not be adequately covered by insurance.
Transfer of Units – While Units are transferable by investors, a buyer for the Units may be difficult to find, and investors may not be able to realise their investments in the Fund before the Properties are sold.
Actual results and returns may be different to the forecasts anticipated by the General Partner.
Since anticipated events frequently do not occur as expected, the variation may be significant and material.
There is no guarantee of capital gain on the Properties or any individual Property acquired by the Fund. The Properties may depreciate in value (or appreciate slower than anticipated by the General Partner) due to market or other factors.
Capital expenditure for the Properties or any individual Property acquired by the Fund may be more than budgeted. Significant additional capital expenditure in excess of forecast amounts may be required for a number of reasons, including undertaking structural repairs or related work to bring a Property up to a designated standard, or to meet new requirements resulting from changes to current regulations or standards.
Timeframe / Delays
Changes in the timeframe and delays in achieving an appropriate value-add component in respect of the Properties or any individual Property may delay or affect the realisation of capital growth.
Change of Law or Plans by Local Authority
Changes in laws or regulations (including in relation to property, tax or tenancies) or the plans of a local authority may impact the Fund and its ability to realise capital growth in respect of the Properties or any individual Property.
Failure to Obtain Resource Consent, Subdivision Approval or Title
A failure to obtain any resource consent, sub- division approval or title for the Properties or any individual Property may delay or prevent anticipated capital growth.
Improvement Potential Cannot be Extracted
An inability to fully complete a value-add component or extract improvement potential for the Properties or any individual Property may delay, prevent or reduce anticipated capital growth.
The General Partner anticipates that value-add Property opportunities for the Fund will fall broadly within the Risk Spectrum below.In building a diversified Property portfolio, the General Partner aims to spread the risk of the Fund across multiple categories of Property investment.