Acquiring a Portfolio of Daycare Properties
The General Partner’s objective is to create, over a period of time, a portfolio of daycare properties that provide exposure to this unique commercial property category. We are attracted to this sector by the long leases that are typically in place and the value associated with the Ministry of Education (MoE) license for the premises.
Target Annual Cash Return
The SIPO for the Limited Partnership will include a target distribution to investors of at least 6.25% per annum (Cash Net Pre-Tax Annual Yield on Equity).
There are a number of risks that could impact the performance and financial returns of the Limited Partnership. Potential general and specific risks include, but are not limited to, the following:
Liquidity: Property is an inherently long-term investment and cannot be easily sold. A property may be sold at a loss in which case Limited Partners may not be able to recover the full amount of their original investment. There is no guarantee of capital gain on the Properties.
Tenant Default or Non-Renewal: A tenant of the Properties may fail to pay the rental and outgoings (defaulting) which may affect projected returns. Also, the tenants may not renew lease arrangements and a new tenant 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: Interest rates may increase and increase the mortgage repayments due from the Limited Partnership to the bank. 40.52% of the purchase price of the Properties will be funded by interest-bearing borrowings and the interest expense is a material expense for the Limited Partnership. Changes to bank loan terms and conditions, for example in respect to interest rates, bank margins, loan to value ratios, principal repayment requirements, etc, either as a result of bank policy changes or the requirement that the bank comply with changes to external regulatory requirements may affect the Limited Partnership. The General Partner will actively monitor interest rates during the life of the Limited Partnership.
Damage or Destruction: A property may be destroyed and the event may not be adequately covered by the insurer of the Properties. The General Partner will arrange insurance on the Properties and recharge this cost to the Tenants in accordance with the Lease.
Capital Expenditure: The capital expenditure for the Properties 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.
Property Manager Fees: The Property Manager may increase its fees over the life of the Limited Partnership. Under the lease arrangement with the tenant of the Initial Property, these costs cannot be recovered from the tenant.
Transfer of Units: While Units in the Limited Partnership are transferable, a buyer for the Units may be difficult to find, and investors may not be able to realise their investments in the Limited Partnership before the Properties are sold.
Forecasts: Actual results are likely to be different to the forecasts since anticipated events frequently do not occur as expected and the variation may be significant and material. No warranty or representation is made in respect of whether the revenue, expenses, or any capital appreciation in the future will be achieved. Prospective investors should obtain their own independent valuation, legal, accounting and income tax advice in respect to their own individual circumstances. On settlement of the New Property, working capital of $52,000, and the vendor rent contribution for the Initial Property of $35,000, will be available for unexpected maintenance or other costs, which may impact the annual projected cash return. These amounts could be used to pay in part, or in full, any amounts relating to the risks identified above.
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