Investing in Prime Industrial Property
E+O Property Syndication Limited (E+O, General Partner or GP) is establishing a new Limited Partnership – the Westland Property Syndicate LP (Limited Partnership or LP) – to purchase a prime industrial building. The objective of the Limited Partnership is to provide investors with a competitive return through investment in a single, high-quality, commercial property.
The General Partner has the property management expertise and experience to work with the tenant of the building, ensure the property is well managed and well maintained, and have strategies in place to grow the value of the property over time.
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 LP. 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 Property.
Tenant Default or Non-Renewal: The tenant of the Property may fail to pay the rental and outgoings (defaulting) which may affect projected returns. Also, the current tenant 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. 43.96% of the purchase price of the Property will be funded by interest-bearing borrowings and the interest expense is a material expense for the LP. 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 LP. The GP will actively monitor interest rates during the life of the LP.
Damage or Destruction: The Property may be destroyed and in this event may not be adequately covered by the insurer of the Property. The GP will arrange insurance on the Property and recharge this cost to the tenant, in accordance with the lease.
Capital Expenditure: The capital expenditure for the Property 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 the 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 Property, the amount which can be recovered from the tenant is limited to 1% of the annual rent.
Transfer of Units: While Units in the LP are transferable, a buyer for the Units may be difficult to find, and investors may not be able to realise their investments in the LP before the Property is 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, working capital of $29,000, and the bank guarantee provision of $468,000, 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.