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  • 8/13/2019 Peet Greenvale Syndicate FINAL 180113

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    AUSTRALIAN

    APROPERTY INVESTMENT RESEARCH

    Peet G reenvale S ynd ic ate

    Januar 2 0 13

    An o p p ortunity to ge nerate returns from ares id ential land sub d ivision p rojec t in G reenvale, M elb ou r

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    Peet Greenvale Syndicate, January 2013

    Page 2 of 21 Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

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    Contents1. Overview 3

    2. Trust Overview 5

    3. Property 11

    4. Investment Analytics 14

    5. Management & Corporate Governance 16

    6. Past performance 19

    Appendix Ratings Process 20

    IMPORTANT NOTICEIndependent Investment Research Pty Limited, trading as Property Investment Research (PIR) hasnot been commissioned to produce this report. This means that PIR has not received a fee for

    reviewing and assessing this produ ct. In compiling this report, PIRs views remain fully independent ofinfluence or conflicts of interest. Our team of analysts undertake an objective analysis of the offer andconclusions are presented to senior officers for review.

    Disclaimer & Disclosure of Interests

    This publication has been prepared by Independent Investment Research Pty Limited (ABN 90 111 536 700), anAustralian Financial Services Licensee (AFSL no. 293655), trading as Property Investment Research (PIR). PIR hasnot been commissioned to prepare this independent research report (the Report) and will not receive fees for itspreparation. The company specified in the Report (the Participant) has provided PIR with information about itsactivities. Whilst the information contained in this pub lication has been prepared with all reasonable care fromsources that PIR believes are reliable, no responsibility or liability is accepted by PIR for any errors, omissions or

    misstatements however caused. Any opinions, forecasts or recommendations reflects the judgement andassumptions of PIR as at the date of publication and may change without notice. PIR and the Participant, theirofficers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damagerelating to this document to the full extent permitted by law. This publication is not and should not be construedas, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinioncontained in the Report is unsolicited general information only. Neither PIR nor the Participant is aware that anyrecipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing ourinformation, it is not possible to take into consideration the investment objectives, financial situation or particularneeds of any individual recipient. Investors should obtain individual financial advice from their investment advisorto determine whether opinions or recommendations (if any) contained in this publication are appropriate to theirinvestment objectives, financial situation or particular needs before acting on such opinions or recommendations.This publication is not for public circulation or reproduction whether in whole or in part and is not to be disclosedto any person other than the intended recipient, without obtaining the prior written consent of PIR. This report isintended for the residents of Australia. It is not intended for any person(s) who is resident of any other country.PIR and/or the Participant, their officers, employees or its related bodies corporate may, from t ime to time holdpositions in any securities included in this Report and may buy or sell such securities or engage in othertransactions involving such securities. PIR and the Participant, their directors and associates declare that fromtime to time they may hold interests in and/or earn brokerage, fees or other benefits from the securitiesmentioned in this publication.

    PIR, its officers, employees and its related bodies corporate have not and will not receive, whether directly orindirectly, any commission, fee, benefit or advantage, whether pecuniary or otherwise in connection with makingany statements and/or recommendation (if any), contained in this Report. PIR discloses that from time to time itor its officers, employees and related bodies corporate may have an interest in the securities, directly or indirectly,which are the subject of these statements and/or recommendations (if any) and may buy or sell securities in thecompanies mentioned in this publication; may effect transactions which may not be consistent with the statementsand/or recommendations (if any) in this publication; may have directorships in the companies mentioned in thispublication; and/or may perform paid services for the companies that are the subject of such statements and/orrecommendations (if any). However, under no circumstances has PIR been influenced, either directly or indirectly,in making any statements and/or recommendations (if any) contained in this Report.

    The information contained in this publication must be read in conjunction with the Legal Notice that can be locatedat http://www.pir.com.au/Public/Disclaimer.aspx

    For more information regarding our services please refer to our website www.pir.com.au

    http://www.pir.com.au/Public/Disclaimer.aspxhttp://www.pir.com.au/Public/Disclaimer.aspxhttp://www.pir.com.au/Public/Disclaimer.aspxhttp://www.pir.com.au/http://www.pir.com.au/http://www.pir.com.au/http://www.pir.com.au/http://www.pir.com.au/Public/Disclaimer.aspx
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    Peet Greenvale Syndicate, January 2013

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    Note: This report is based on the Peet Greenvale Syndicate PDS, dated 19 November 2012, together with other informationprovided by the Peet Group.

    Unlisted Property Melbourne residential land subdivision

    Peet Greenvale Syndicate Exposure to Melbourne residential land development Investment Rating

    Offer Overview Product Summary

    The Peet Greenvale Syndicate (the Syndicate ) is a closed-ended,single-asset fund. The Responsible Entity ( RE ) is Peet FundsManagement Limited (PFML or the RE), which will manage the assettogether with its associated entities. PFML is a wholly owned subsidiaryof the ASX listed Peet Limited ( Peet or the Peet Group ) which is thethird largest listed land developer in Australia and has over a 100-yearhistory in land sub-division activity. Peet has considerable experience,good corporate governance, and a demonstrable track record ofmanaging land syndicates with past returns for completed syndicatessince 2000 averaging in excess of 15% per annum.

    The sole asset of the Syndicate is a residential land sub-division projectlocated at Lot 1170 Mickleham Road, Greenvale, Melbourne. The REsstrategy is to develop the land into a residential estate and sell theresulting lots. The RE estimates the subdivision of land will yield 437lots that will be developed over 10 stages over a seven year period.The Gross Realisation Value (GRV) of the project is $109M (ex GST).

    After reviewing the independent expert reports provided as part of thePDS, PIR notes that the RE s assumptions are slightly conservative, orin line with, the experts estimates. We detail these in the Property andInvestment Analytics sections of this report.

    The RE is offering up to 17M units for sale under the offer at A$1.00per unit. The balance of the land acquisition price and developmentcosts will be funded through debt, resulting in initial gearing of 19%increasing to a maximum of 47% during the development phase.

    The RE estimates a pre-tax internal rate of return ( IRR ) of 17%, net ofall fees, interest and costs. This is in the low-to-middle end of the 15-25% range typical for residential projects. However, this should be setalongside somewhat lower risk: the property already has developmentconsent, no environmental issues, and the vendor providing services tothe property. On balance, PIR considers the Syndicate to be above-average on a risk/return basis when compared with its peers. PIRnotes that development projects by their very nature carry a higherlevel of risk compared to passive rent collecting commercial propertysyndicates. The risks include, but are not limited to, losses due toproject delays, increase in development costs, slow-downs in lot sales,and adverse market conditions.

    Investment ViewInvestor Suitability

    In PIRs opinion, this product would be best suited to investors whoseek to diversify their property portfolio and who are willing to invest inand understand the risk/return relationship of land funds. As this is aclosed-ended vehicle, the Syndicate is an illiquid investment (despiteprogressive return of capital) and investors must be prepared toremain invested for the full term to benefit from forecast returns.

    Target IRR in excess of 15%. Well-regarded managementwith good track record, and corporate governance structure.

    No diversification. Cash flow is entirely reliant on theperformance of one land subdivision project.

    Best suited as an addition to an overall diversified portfolio.

    Refer to Appendix for a description of our ratings.The above rating must be viewed in the context ofcomparable land syndications and not across allproducts.

    Offer Details

    Offer Open 20 Nov 2012

    Offer Close 15 Mar 2013

    Min. Investment Period 7 years

    Min. Investment $5,000

    Liquidity 2 Illiquid

    Distributions 1 Qtrly/Half yearly

    Initial NTA A$0.991The distributions will be made up of areturn of original capital, fully frankeddistributions and franking credits. The REestimates a total return of $1.85 for every$1 of equity invested over the term of theSyndicate.2Initial equity will be progressivelyreturned between October 2014 andJanuary 2019.

    Fees (paid to advisors), excl. GST, %All fees paid to Advisers are paid by Peet and notfrom the Syndicate Funds.

    Risk/Return Profile

    Capital Return Income Return

    Capital ReturnVolatility

    IncomeVolatility

    Risk to Capital Tax Effectiveness

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    SWOT SummaryStrengths

    The asset is located in the Hume growth corridor region which isexpected to experience population growth of 4.2% p.a., andconsequently strong demand for new dwellings over the term ofthe Syndicate. Greenvale is expected to benefit with an increasedshare of land sales activity in the region.

    Although employment growth has declined across the state ofVictoria, the consulting economist (citing policy settings as part ofthe Hume Economic Development Strategy 2030) believes theHume corridor has strong prospects.

    Peet is an experienced land syndicator with a strong track recordof returns from land syndications over two decades. Peet will holda minimum of 10% of the units in the Syndicate, providing adegree of alignment with unitholders. As the vendor, Peet will alsobear the costs (to the tune of $1.1M) of completing certain projectworks. Peet as the development manager earns fees on receipt of

    revenue and not as an annual charge of gross assets. The property is being acquired at a 10% discount to the

    independent valuation, and has development consent for its first 5stages. This should help accelerate the sale of lots and salesproceeds are expected 12 months after acquisition of the property.

    High initial NTA of $0.99 per unit due to the purchase price(including set-up costs) being at a discount to valuation.

    Weaknesses

    While all of the assumptions are slightly conservative relative to, orin line with, independent expert reports, unitholder returns arehighly sensitive to changes in lot sale prices, the rate of lot sales,

    and any increase in development costs. A lack of diversity leaves investors fully exposed to the

    performance of a single asset.

    The Syndicate is an illiquid investment despite the progressivereturn of capital over the full term.

    Opportunities

    Improving affordability conditions through lower interest rates andan improvement in employment growth could accelerate lot sales,therefore improving project profitability and returns to unitholders.

    Threats

    The Property abuts the Greenvale Reservoir. To obtain a planningpermit for stages 6 to 10 of the Project, Melbourne Water needs toconsent to the issuing of a planning permit. While securing thisconsent is work in progress, any delays beyond July 2015 maymaterially affect forecast returns.

    Deterioration in the asset value say, due to a weak market andan inability to achieve forecast revenue and profit could lead tostrains on the bank covenant. In the most extreme case, that of acovenant breach, there could be serious repercussions to theviability of the Syndicate.

    ManagementTrack record

    Investment processand philosophyCorporate Governance

    Product

    Structure

    Fees

    Liquidity

    Leverage/Capital structure

    Portfolio

    Property Grade/Assetquality

    Property diversification

    Number of properties 1

    Property location Greenvale,Melbourne

    Property sector Residentialland

    subdivisionInitial LVR/ Max LVR 19%/ 47%

    Bank LVR covenant 50%

    A$M

    Equity sought 17.0

    Initial Debt 3.2

    Total initial assets 20.2

    Financial Forecasts

    IRR 1 (pre-tax, %) 17.0%

    IRR 2 benchmark (%) 15.0%

    Performance fee hurdle (%) 12.0%

    Min. investment period(years)

    7

    Franking credits 3 Yes

    Distribution frequency Qtrly/ halfyearly

    1 IRR forecast is based on forecast project cash

    flows and is after all fees and expenses but beforetax. The IRR is highly sensitive to assumptions onsale price of lots and assumption of lot sales per

    calendar month. For further details, please seeSection 4, Investment Analytics .

    2PIRs expected return range of 15 -25% for sector.

    3 The forecast distributions assume franking credits

    are available over the term of the Syndicate.

    Key Qualitative Criteria (in the context ofcomparable land syndications)

    Investment Profile

    Source and Application of Funds

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    2. Fund Overview

    Product Overview

    Peet Greenvale Syndicate (the Syndicate or Fund ) is an unlisted unit trust, which has beenregistered with ASIC as a managed investment scheme. Investors will receive Units in theTrust and will be entitled to capital repayments throughout the life of the investment, plusdividends once the Syndicate has generated taxable profits. The sole asset of the Syndicateis a residential land sub-division project located at Lot 1170 Mickleham road, Greenvale,Melbourne. The REs strategy is to develop the land into a residential estate and sell theresulting lots to deliver profits to the Syndicate. The life of the Syndicate is estimated to beseven years from formation to winding up.

    The Fund aims to provide unitholders with a blend of fully franked distributions and returnsof capital once lot settlements commence and the Syndicate achieves a taxable profit. PIRnotes that distributions will vary from period to period, depending on the level of lotsettlements and the need to maintain adequate working capital to progress the project.

    An investment in this Fund must be considered illiquid. Investors will need to stay investedfor the term of the Fund to benefit from forecast returns, although initial capital will bereturned progressively from October 2014. Prospective investors must note that this is aland development syndicate and will carry a higher risk/ return character than a traditionalincome producing commercial property syndicate.

    The Offer

    The Offer is for 17 million fully paid units at an issue price of $1.00 per unit. The Offer is toraise $17.0 million in equity towards the acquisition of the land, which will be acquired for$18.0 million (excluding GST). Peet will initially subscribe to a maximum of 25% of all unitson issue although it will retain a core holding in the Syndicate of no less than 10% if theoffer is fully subscribed. The RE estimates the initial NTA on formation at $0.99 per unit,suggesting minimal up-front dilution to invested equity.

    In any event, if the RE determines not to proceed with the offer, then all application moniesplus accrued interest will be returned to investors. PIR notes that this is typical for anunlisted property syndicate.

    The Asset The Property, comprising 39.4 hectares, is located at 1170 Mickleham Road, Greenvale andis approximately 24 kilometres from the Melbourne CBD. Greenvale is a well-establishedsuburb and the Property is located close to vital community infrastructure such as schools,shopping centre and healthcare facilities, and to a number of other estates which have beendeveloping residential housing over the last few years.

    The land is located within the Hume Growth Corridor. The Hume Corridor is considered to beone of the key growth corridors of Melbourne and has experienced average populationgrowth of 5.9% per annum over the last five years.

    Peet has completed the rezoning of the Property and the land currently has a planningpermit in place for its western portion to commence construction in mid 2013. The Project isexpected to produce 437 lots over ten stages and the RE estimates that the total life of theSyndicate from formation to completion of all settlements will be seven years.

    The purchase price of the asset is $18M (ex GST) and is at a 10% discount to theindependent valuation of $20.1M undertaken by the valuation firm Charter Keck Cramer, anestablished valuation agency from Melbourne.

    Given that Syndicate is acquiring the property from a related party, PIR and the RE havediscussed the processes followed to ensure that the transaction is undertaken on an arms-length basis. As the PDS highlights, the property was unsuccessfully marketed for sale 12-months ago by Peet given the tough market conditions and the expected sale price. TheProperty is now being sold as a serviced lot and in addition, Peet (as the vendor) is

    providing an interest free loan of $1.5M to fund construction of a signalised intersection.Taking into account the concessions made by Peet, and Peets acceleration of thedevelopment process such that lot sales can commence in the first 12 months, suggeststhat the price paid is fair and reasonable as per the independent valuer.

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    In light of the assessments made by the consulting engineer, the independent valuer,consulting economist, and the consulting town planner , the REs assumptions appear to beslightly conservative. We discuss the main assumptions in the Property and Investment

    Analytics sections in more detail.

    Leverage

    The PDS forecasts that the Syndicate will use debt to partially fund the acquisition andthereon fund transaction and development costs. As is typical for a property development,interest payable will be capitalised and added to the loan principal during the developmentphase. Figure 2 highlights the expected gearing profile of the Syndicate with peak gearingexpected to be slightly below 50% in 2014. The REs stated objective is to maintain gearingbelow 50%, in line with the bank covenant.

    An important feature of the bank term facility is the staged way in which it will fund thedevelopment. The proposed debt facility is structured to fund stages individually, with Stage2 funding being provided on the condition that 80% or more of Stage 1 has been sold. Theduration for stage 1 debt funding is 18 months.

    The Interest Cover Ratio (ICR) is not an appropriate measure for a development fund asinterest is capitalised to the loan amount until lot settlements commence.

    The all-in interest rate for Stage 1 of the syndicate development is 7.15%pa. Peet plans toactively manage interest rate exposures and may hedge interest rates to minimise thenegative effects of any increase in interest rates. Investors must be aware that futuredistributions may be helped or harmed by movements in interest rates, should the Managernot hedge the Trusts interest rate exposure beyond the initial period.

    Overall, the RE expects the gearing to be within the bank-imposed covenant. However, it isimportant to remember the GFC has proven that returns from geared investments areriskier than comparable un-geared funds

    Figure 1: Trust debt metrics

    Facility limit/ initial draw-down $11.2M

    All-in cost of debt BBSY plus 3.5% (or 7.15% at current BBSY)

    Initial LVR / facility limit* 19%/ 50%

    Initial ICR/ ICR Covenant not relevant

    % hedged/ hedge expiry not hedged

    (19% after GST refund or 28% pre refund)

    Source: Peet/ PIR

    Figure 2: LVR profile over Syndicate term

    Source: Peet/ PIR

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

    LVR Normal Facili ty Limit

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    Fund Structure

    The Fund is a registered Managed Investment Scheme that will be operated and managedby the Responsible Entity, Peet Funds Management Limited, a wholly owned subsidiary ofthe ASX-listed Peet Limited. PIR considers the structure of the Fund as typical of a directproperty development syndicate. Peet has been syndicating land sub-divisions for over twodecades and, in PIRs view, has a strong track record of generating positive returns forinvestors. We discuss this in more detail in the Management and Corporate Governance section of this report.

    Figure 3: Fund Structure

    Source: Peet/PIR

    Liquidity/ Exit strategy

    The term of the Syndicate is seven years from the first close date, expected to be March2013. Following the settlement of all subdivided lots within the Property, the ResponsibleEntity will seek to wind-up the Syndicate i n accordance with the Syndicates Constitutionand the Corporations Act with any remaining profits and capital returned to Unitholders.

    However, at any time during the Trusts term, the RE may recommend the sale of the

    property if it deems this is in the best interests of unitholders. Such an early terminationwould be subject to unitholder approval.

    There is no other means of providing liquidity in the Syndicate, although units may betransferred (subject to transfer provisions under the Funds constitution). Peet doesmaintain a list of interested buyers for its retail syndicates, which it provides to anysyndicate investor looking to sell, and it will do so for investors in this Syndicate as well.

    Peet GreenvaleSyndicate

    Development ManagementandServices Agreement

    Funds Management Trust Management Accounting & Tax Investor Relations Financial Management

    Distributions

    Equity Funding

    Interest

    Debt Facility

    Retail andInstitutional

    Investors (includingCornerstone

    Investment by Peetof a max. 25%)

    Bank DebtFunding

    Peet DevelopmentManagementy Pty LtdDevelopment Manager

    Internal DevelopmentManagement Team

    Responsible Entity

    Peet FundsManagement Ltd

    Property Assets 1170 Mickleham Road,Greenvale, Melbourne

    Peet Estates ( VIC) PtyLtd

    Sales & Mktg Manager

    Internal Sales Agents

    Sales andMarketing

    Agreement

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    Sources and Application of Funds (fees)The Syndicate is structured to minimise up-front costs that would normally reduce the valueof an investors contribution. Lower up -front fees and costs, all other things being equal,

    improve unitholder returns over the term of the Fund and limit NAV dilution. PIR estimatesthe initial NTA of the Syndicate at $0.99 but notes that as a development fund, the NTAmay vary over the life of the Syndicate depending on the revaluation of the asset, marketconditions, and the development cost expended.

    PIR notes that it is not uncommon for managers to charge an up-front fee, typically rangingfrom 1.5%-5% of equity sought. In the case of the Fund, the acquisition fee payable is 2%of the total equity raised, which PIR considers at the mid-to-low end of the fee range. PIRalso notes that there is no deferral of any fees forecast, although the RE may defer itsongoing fees, if required.

    Figure 4: Sources and Applications of Funds

    ($'000) % of equityraising

    % of totalfunds

    Sources of funds

    Equity subscriptions 17,000

    Senior bank debt 3,217

    Total sources of funds 20,217

    Applications of funds

    Property purchase price 18,000

    Transaction fee (paid to RE) 340 2.0% 1.7%

    Stamp duty, rates, taxes, legals 1,407

    Other offer costs (legal, debt set-up costs,etc.)

    470 2.8% 2.3%

    Total applications of funds 20,217

    Up-front cost as a % of equity/ total funds 4.8% 4.0%

    Source: Peet/PIR

    Costs over the Term of the FundThe three components of fees and cost recovery charged by the RE over the term of the

    Fund are as follows:Capital raising fee

    A one-off capital raising facilitation fee is payable to the RE from the assets of the Syndicateon issue date. The fee is 2% of the targeted $17M equity raising. PIR notes that the fee ispayable as a percentage of equity raised and not gross assets as is the norm for traditionalnon-development syndicates.

    Development management and sales fees

    The Peet Group (or wholly owned subsidiaries) is entitled to a development managementand sales fee of 9% of the gross sale price of the 437 lots. This fee is payable as and whenlots are sold and ownership has transferred to the buyer. This fee essentially is for theservices such as sales and marketing, development management and other servicesprovided by Peet to manage the whole project.

    Performance Fee

    PIR notes that it is normal practice in the industry to charge performance fees should thetotal returns of the Fund exceed a benchmark return. According to the PDS, the RE is

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    entitled to a two tier performance fee structure:

    The Tier 1 performance fee is payable to the RE equating to 20% of any pre-tax profitabove a 12% return on equity raised (calculated simple interest-style).

    The Tier 2 performance fee is payable over and above the Tier 1 performance fee, once

    pre-tax profits exceed a 20% return on equity over the life of the project. The Tier 2performance fee will equate to 20% of the excess profit after all fees and costs.

    Based on the financial forecasts provided in the PDS, the RE expects to pay a performancefee of $752,600 over the life of the Syndicate. The forecast Syndicate IRR of 17% is net ofall fees and costs.

    All-in fee analysisAs a percentage of total Fund cash flow

    PIR has analysed the fees that accrue to the RE over the term of the Fund as a percentageof all of the cash flow generated after deducting interest costs and ongoing Fund costs, butbefore unitholder distributions and management fees payable to the RE. This also assumes

    a performance fee is payable (due to the Syndicate generating expected returns in excess ofthe benchmark).

    As such, under these circumstances, our estimates suggest the manager is expected to take26% of the net cash flow, leaving 74% of the cash flow to unitholders. Although the feesappear high compared to an income-producing commercial property syndicate, they are inline with past development syndicates reviewed by PIR. PIR also notes that compared topassive commercial asset syndicates, there is a significantly higher cost involved in propertydevelopment activities.

    The fees are split such that 3% of all fees are received upfront, 90% represents ongoingfees, and 7% is paid out as performance fees. PIR notes that ongoing fees are paid to theRE (or Peet) only when lot settlements occur and ownership title has passed on to thebuyer. PIR notes that the structure of the ongoing fee is a positive for the Syndicate, as thedevelopment manager will only be paid after receipt of sales proceeds by the Syndicate.

    Fees payable to the RE and Peet total 9.2% of the gross realisable value (incl GST) of theproject. This is a standard measure used in development projects and in this case, theamount is in line with industry averages.

    Figure 5: Fees in Perspective

    Pre-tax cash flow Initial equity(000)

    Project cash flow(000)

    Total cash flow(000)

    Cash inflow 17,000 119,887 136,887

    Project costs -79,110 -79,110

    GST -10,890 -10,890

    Borrowing costs -1,984 -1,984

    Other syndicate costs -2,436 -2,436

    Net cash flow pre fees 17,000 25,467 42,467

    Fees payable to Peet 11,040 11,040

    Fees as a % of net cashflow pre fees

    26%

    Fees as a % of GrossRealisable Value (GRV)

    9.2%

    Source: Peet/ PIR

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    Fund Structure

    Responsible Entity (RE) Peet Funds Management Limited (PFML), a wholly owned subsidiary of ASX listed Peet Limited

    Investment Term: Minimum of seven years commencing in March 2013 with expected wind-up in January 2019. TheSyndicate must be viewed as an illiquid investment and investors need to stay invested for the full termto benefit from forecast returns.

    Issue Size/LVR: Equity issuance of A$17M would result in a peak gearing ratio of 47% (measured, per ASIC guidelines, astotal interest-bearing liabilities to total assets). The initial LVR is 19%. The proposed debt facility will bestructured to fund stages individually, with the provision of Stage 2 funding conditional on 80% or moreof Stage 1 being sold.

    Cost of Borrowings: The Fund will have an all-in cost of borrowing of 7.15%p.a. for the first 18 months. Beyond this period,the RE will adopt an active approach to interest rate risk management and will fix the interest rate on allor part of the Funds debt exposure if it deems interest rate derivative pricing appropri ate.

    Security: The bank loan is to be secured by a first mortgage and a fixed and floating charge over the Funds assets,with no recourse to unitholders.

    Fund Profile

    Geographic Exposure: 100% Melbourne, VIC

    Sector Exposure: 100% Melbourne residential property market (sub-market of Greenvale in the Hume growth corridor).

    Tax

    Disclaimer: Tax consequences depend on individual circumstances. Investors should seek their own taxation advice.The following comments show PIRs expectation of tax for ordin ary Australian taxpayers, but cannot beconsidered tax advice.

    Capital gains: Over the life of the Project, unitholders in the Syndicate can expect to receive a capital return of $0.97for every $1.00 invested. For unitholders who hold the investment on capital account a return of capitalgenerally does not give rise to any income tax liability apart from reducing the tax cost base. $0.03 perunit can be claimed as a capital loss when the units in the Syndicate are ultimately cancelled (upon wind-up). Unitholders may deduct this capital loss against any other Capital Gains Tax event.

    Distributions: Distributions paid by the Syndicate will be eligible to be franked to the extent of the Syndicates availablefranking credits and when received by Australian residents will normally be taxable as income. IndividualUnitholders who are residents of Australia should be entitled to an imputation credit in respect of frankeddistributions received from the Syndicate.

    Legal Structure

    Wrapper: Unlisted Unit Trust

    Custodian PFML

    Offer Document: The Product Disclosure Statement, dated 12 November 2012.

    Returns The REs forecast IRR is 17% per annum over the term of the Syndicate

    Capital vs. Income: Based on the forecasts provided in the PDS, for every $1.00 investors put in, they should receive a $0.97return of their principal and $0.88 in income.

    Income Frequency: Quarterly, in arrears and will be made up of income and return of capital commencing in FY14.

    Risks For a more detailed list of the key risks, refer to the Risks section (Section 9) of the PDS.

    Property/Market Risk: Capital at risk depends on a single residential development property located in Greenvale, Melbourne.Coupled with a maximum LVR of 50% exacerbates the risks associated with the lack of diversification.

    Interest RateMovements:

    Any changes in the Syndicates all-in cost of borrowings from 7.15% beyond Stage 1, when interest ratesneed to be reset, could either increase or reduce distributable income.

    Property specific risks As the Syndicate is a residential land development project, lower sale price per lot, lower rate of lot sales,cost escalations, and prevailing market conditions could reduce the GRV of the project and thereforeharm unitholder returns.

    Fees/Expenses

    Capital raising facilitationFee:

    Once the Fund is operational, a capital raising facilitation fee of 2.0% of the equity raised will be payableto the RE.

    Establishment Fee: NIL

    Development and salesmanagement Fee:

    The Peet Group is entitled to 9% of the GST-inclusive gross sale price of each lot sold, payable onsettlement of each lot sold.

    Performance Fee: The RE is entitled to 20% of the portion of outperformance over a benchmark return on equity of 12%(calculated on a simple interest basis). If a second hurdle (pre-tax profits above a 20% simple interestreturn on funds raised) is met, an additional 20% of the outperformance will be payable.

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    3. Property

    Property locationThe property is a 39.4 hectare broadacre residential land holding located at 1170 MicklehamRoad, Greenvale in the outskirts of Melbourne. Greenvale is located approximately 24kilometres north of the Melbourne CBD and is positioned at the southern end of the HumeGrowth Corridor. The Hume corridor is considered a vital region to accommodate the futurepopulation demand and economic development of Melbourne.

    There are a number of residential estates located within the Greenvale locality, namelyProvidence (Pask Group), Greenvale Gardens (Australand) and Greenvale Lakes (Peet).Adjacent to the Property is the Greenvale Reservoir. Completed in 1971, the GreenvaleReservoir supplies water for the north-western and western suburbs of Melbourne.

    Major infrastructure projects such as new roads, expansion of Craigieburn Shopping centre,and new commercial facilities throughout the Hume Corridor is expected to have a positiveeffect on the demand.

    An independent consulting economist (MacroPlan Dimasi) has provided a detailed economicoverview of residential indicators which have been used as inputs to prepare the financialforecasts for the Syndicate. Please refer to Section 13 of the PDS to access all theindependent expert reports. PIR summarises the key takeaways from the report below;

    Average annual population growth of 5.9% per annum for the five years to 2011. Morerecently, growth is still averaging (over the last two years) around 5% per annum, wellabove the Victorian average over similar periods;

    The consulting economist has forecast that population will increase by 22,376 persons(4.2% per annum growth) resulting in demand for 7,818 dwellings over 2012-2019;

    Figure 6: Location map

    Source: Peet/ PIR

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    Employment growth across Victoria has slowed considerably since the GFC, with furthercuts expected in state government, finance, manufacturing and services sectors overcalendar year 2013.

    However, the consulting economist (citing policy settings as part of the Hume EconomicDevelopment Strategy 2030) believes the Hume corridor has strong prospects. Thestrategy is aimed at self-sufficiency in the region, and seeks to encourage employmentgeneration through new infrastructure projects.

    Improving affordability due to lower house prices (on average, they have fallen by around9.3% across the state of Victoria over the last 12 months) and lower interest rates. Inparticular, land prices in Greenvale have dropped approximately 14% over a 12-monthperiod, resulting in the current median price of $255,000 per lot; and

    The consulting economist forecasts land prices to increase by 2.0-5.0% per annum forGreenvale over the 2012-2019 period, based on the suburb capturing a greater share ofland sales activity over this period;

    PIR reminds prospective investors that these forecasts are based on assumptions as toevents that are yet to occur. As such, readers should exercise a degree of caution. PIR hasadopted the views of the independent experts cited in the PDS, but has not independentlytested or verified the above forecasts.

    Concept design and lot sales activityFigure 7 shows the concept plan for the proposed subdivision of the land, which may varyslightly as the project commences. The key points to note are:

    The land will be subdivided into Lot A (39.4 hectares, which the Syndicate will buy) andLot B (6.9 hectares). Lot A will be held on behalf of the Syndicate and Lot B will be heldon behalf of the vendor (Peet). Lot B, which is not changing hands, will be held for futuredevelopment or sold as a super lot in the future. Peet, not the Syndicate, will providefunds to service Lot B;

    Lot A will be further subdivided into 437 lots with an average size of 472sqm (lot sizesrange from 256 to1,334sqm).

    Figure 7: Concept plan for Peet Greenvale Syndicate

    Source: Peet/ PIR

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    Figure 8: Lot sale stages and pricing

    Stages No. oflots

    Total revenue(ex GST)

    Valuers assumption(price per lot)

    Adopted by Peet(price per lot)

    Variance

    1 48 $11,832,000 246,500 231,500 -6%

    2 38 $9,172,000 241,368 231,368 -4%

    3 31 $7,412,000 239,097 239,097 0%

    4 42 $10,288,000 244,952 240,000 -2%

    5 43 $10,762,000 250,279 245,279 -2%

    6 45 $12,387,000 275,267 260,267 -5%

    7 42 $10,962,000 261,000 256,000 -2%

    8 47 $12,442,000 264,723 259,723 -2%

    9 79 $19,240,000 243,544 243,544 0%

    10 22 $5,369,000 244,045 244,045 0%

    Source: Peet/ PIR

    Figure 8 summarises the staged development of lots, expected revenue and the averageprice per lot. PIR notes that the assumptions are slightly conservative relative to theindependent valuer s (Charter Keck Cramer) assumptions, and that the lot sale pricesescalate at a slower rate than that forecast by the consulting economist.

    The RE has assumed lot sales rate of 6-8 per calendar month, broadly in line with theindependent valuer's assumption of 7 sales per calendar month.

    Planning encumbrancesThe Property abuts the Greenvale Reservoir and to obtain a planning permit for stages 6 to10 of the Project, Melbourne Water needs to consent to the issuing of a planning permit. Thiswill require Melbourne Water and the Syndicate to agree on the location, scope and size of aBund.

    As at the date of this PDS, this issue is unresolved. Melbourne Water has stated that it doesnot endorse the indicative alignment of the bund shown on the plans prepared by Peetsconsultants, and it does not consent to Peets proposed alignment. While securing thisconsent is work in progress, any delays beyond July 2015 may materially affect achievingdevelopment consents for Stages 6-10 and consequently harm forecast returns.

    To satisfy planning requirements set by VicROADS, Peet will provide an interest-free loan ofup to$1.5M to fully fund the construction of a signalised intersection at the entrance to theestate.

    Development costsThe RE has used the services of SMEC Urban, an industry-recognised consulting firmproviding engineering, surveying, planning, and project management, to prepare apreliminary development cost estimate for the project. The consulting engineer has estimatedthe average cost per lot will be $93,814 (ex GST).

    Additional costs of $19,701 (ex GST) per lot are included for services such as landscaping,consultancy, sales office construction and other such costs. This adds up to a total of$113,515 per lot (ex GST)

    The consulting engineer confirms that the development costs and additional developmentcost estimates are reasonable. Development cost escalations are estimated to be 1.5% perannum at commencement, increasing to 3% per annum from July 2015.

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    4. Investment AnalyticsWe summarise below the forecasts provided in the PDS. The key points to note are;

    The assumptions detailed previously in the report form the basis of the forecast profit. PIRconsiders the assumptions to be either slightly conservative relative to, or in line, with theviews expressed in the independent expert reports provided in the PDS;

    Fees and costs are as per the percentages discussed previously; and

    Forecast return of capital and distributions are as per the RE forecasts shown in the PDS.

    Figure 9: Pro forma profit forecast

    Forecast Income Forecast for theproject ($'000)

    Sales (net of GST) 108,898

    Interest income 99Total income 108,997

    Project costs (net of GST)

    Development costs, including landscaping costs, projectmanagement, and sales, marketing and company management fee

    (64,106)

    Property purchase, acquisition costs (19,139)

    Advertising and promotional expenses (4,569)

    Settlement costs on lot sales (259)

    Interest expense, borrowing costs (1,984)

    Holding, contingency, administration costs and general expenses (2,932)

    Development manager s performance fee (753)

    Total expenditure (93,743)

    Forecast profit before tax 15,254

    Tax expense (4,328)

    Forecast profit after tax 10,926

    Source: Peet/ PIR

    Based on the profit forecast for the project, the RE estimates that unitholders will receive $1.85for every $1 of equity invested. Figure 10 shows the forecast break-up of the fully frankeddividends, franking credits, and return of capital components.

    Figure 10: Forecast distribution and return of capital

    Source: Peet/ PIR

    $0.07$0.17 $0.21 $0.17$0.03

    $0.07$0.09

    $0.07

    $0.18

    $0.21

    $0.22

    $0.22

    $0.13

    $0.00

    $0.10

    $0.20

    $0.30

    $0.40

    $0.50

    $0.60

    2013FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY

    Capital Returns Franking Credits Franked Dividends

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    Expected Syndicate returns (IRR)Based on the forecast return of capital and pre-tax unitholder distributions, the RE estimates anInternal Rate of Return (IRR) of 17% over the term of the Syndicate. PIR believes this level of

    return is consistent with past syndicates completed by the Peet Group, and generally in line withpeers. Furthermore, with planning approvals in place to facilitate commencement of developmentand Peet providing services to the property, the Syndicate should be less risky compared to landsyndicates that operate with no development consent.

    However, the forecast return is dependent on certain forward estimates that may not eventuate.Divergence from these estimates could harm the actual return achieved over the term of theSyndicate. In particular, PIR notes the following:

    A change in the all-in cost of debt has only a minor effect on the forecast return. As anexample, a 2% increase to the average all-in cost of debt results in an expected IRR of 16.5%(or only a 0.5% decline to the base case forecast return). As such, a change in the cost of debtis not expected to be a major issue.

    As an example. Figure 12 shows that if lot prices fell by 5% below base case and development

    costs increased by 5%, then the unitholder IRR would be a mere 3.5%. Therefore, prospectiveinvestors must be aware, first, of the higher risk involved in property development projects, andsecond, that adverse market conditions could materially harm expected returns.

    Figure 11. IRR sensitivity to base case changes on costs and lot sale price escalations

    Change to base case sale price escalations

    Change to base casecost increase per annum

    -1.0% 0% +1%

    1.0% 13.7% 15.5% 17.2%

    0% 15.3% 17.0% 18.6%

    -1.0% 16.8% 18.4% 19.9%

    Figure 12: IRR sensitivity to base case changes on lot sale price and development cost

    Change in base case lot sale price

    Change to base case lotdevelopment cost

    -5.0% 0% +5%

    5.0% 3.5% 14.6% 22.6%

    0% 7.0% 17.0% 24.3%

    -5.0% 10.2% 19.3% 26.0%

    Figure 13: IRR sensitivity to change in lot price sale and lot sales per month

    Change in base case lot sale price

    Change to base case lotsales per month

    -5.0% 0% +5%

    -2 0.3% 11.2% 18.9%

    0 7.0% 17.0% 24.3%

    +2 7.5% 18.5% 26.2%

    Source: Peet/ PIR

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    5. Management & Corporate Governance

    Background of RE and ManagerPeet Funds Management Limited (PFML) is the Responsible Entity (RE) and is a wholly ownedsubsidiary of the ASX listed-Peet Limited (Peet). Companies associated with Peet or whollyowned subsidiaries will provide development and project management services to theSyndicate for which they will earn a fee.

    Peet is a leading national property group that has been operating in Australia for more than115 years. After several decades of successfully undertaking land sub-division activity inWestern Australia, Peet expanded into Victoria more than a decade ago and later intoQueensland and New South Wales. Peet listed on the ASX in 2004.

    Peet has the third largest residential land bank of any ASX listed company with the potentialto develop approximately 48,500 lots over time. If these lots were to be sold at currentprices, the estimated on-completion value would be around $8.8 billion.Peet has pioneeredthe concept of land syndications and has successfully launched, managed, and operated land

    syndicates since the mid-1980s achieving total returns in excess of 15% per annum. A keyfeature of Peet over this time has been its ability to create a sound distribution model withapproximately 4,500 direct and active investors. More recently, Peet is looking to expand thisdistribution model to include financial planning groups, High Net Worth individuals, andwholesale fund managers.

    PIR has undertaken a high- level review of the Funds constitution , and has found no varianceto generally accepted industry practice.

    Investment CommitteeThe board of PFML acts as the investment committee. PIR notes that it is not unusual fororganisations to have the board act as the investment committee. In the case of PFML, theboard has a good deal of experience and depth, and a majority of non-executive members,

    making it suitable to act as the investment committee.

    Compliance Plan and CommitteePIR has reviewed the REs Compliance Plan and believes the compliance framework andprocedures are consistent with good corporate governance. The compliance committeecomprises three members with one internal (being the Company Secretary) and two externalmembers.

    The PDS notes that the compliance committee meets quarterly and is required to report anybreaches of the Corporations Act, AFSL and constitution to the Directors of the RE andconsequently by the board of the RE to ASIC. PricewatehouseCoopers has been appointed asthe AFSL and compliance auditor of the RE adding further emphasis on governance andmanagement of the Fund.

    ASIC Retail disclosure principlesUnder ASICs Regulatory Guide 46: Unlisted prop erty schemes: Improving disclosure forretail investors (RG46), all unlisted property fund managers are required to addressdisclosures made in the PDS against six benchmarks and eight disclosure principles. PIRadvises investors to read Section 1.4 of the Peet Greenvale Syndicate, which addresses theFunds disclosures against each of the benchmarks.

    While the Fund does not comply with five of the six benchmarks noted below, PIR notes thefollowing:

    To a large extent, the ASIC benchmarks address the issues pertaining to core-style

    property syndicates, rather than syndicates involved in developing assets that do notproduce income until they sell lots or start collecting rent;

    Interest is capitalised to the loan principal during the development stage of a propertyuntil the property is able to generate cash flow to reduce debt; and

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    Cash flow can be lumpy in the case of residential development, which may lead to amismatch between pre-determined payments to unitholders and cash flow generated in agiven period. Therefore, the use of debt to pay distributions during such periods willnecessarily mean that a Syndicate may not comply with the relevant ASIC benchmarks.

    Therefore, PIR believes it is acceptable for the Syndicate not to comply with ASICbenchmarks #1-#3 and #6 (see below). However, capitalising interest or makingdistributions using debt over extended periods can significantly increase the risk of loss (andthe breach of bank-imposed covenants) in unfavourable market conditions. As such,investors must accept that a Syndicate with exposure to residential land development willnecessarily be more risky than traditional core style syndicate.

    Figure 14: Summary of ASIC retail disclosure benchmarks

    ASIC benchmark Compliant(Y/N)

    Comments

    1. Gearing policy N No formal written policy that governs level of gearing butbank proposed covenant serves as an appropriatesubstitute. Gearing not expected to exceed 50%

    2. Interest cover N PIR believes this is not a relevant ratio for developmentfunds although the RE is expected to manage this in linewith established bank covenants.

    3. Interestcapitalisation

    N Interest payable on loan will be capitalised and added tothe loan principal during the development stage andthereon debt will be reduced as sales occur. This is typicalfor property development activity albeit carries a risk ifsufficient funds are unavailable to repay debt.

    4. Valuation policy Y The property will be independently valued every year orwhen there has been a material change to the propertyvalue

    5. Related partytransactions

    N The RE does not have a written policy although alltransactions will be undertaken on an arms-length basisor better and in compliance with the Corporations Act.

    6. Distributionpractices

    N Fully franked distributions are made when profits andfunds are available subject to the availability of frankingcredits and working capital requirements. However, debtmay be used to make these distributions due to timing ofcash flows which will be subsequently repaid fromavailable working capital and subject to maintaining debtcovenants.

    Source: Peet/ PIR

    Board of the Responsible EntityPIR has reviewed the composition of the RE board and senior executive team and believesthat they have the relevant skills and experience to operate the Fund successfully. Eachboard member and senior executive has demonstrable property and investment managementskills. These extend to an appropriate blend of direct property, funds management andcompliance.

    PIR has summarised the board composition below and notes that the majority of thedirectors are independent. A detailed background of each board member and seniorexecutive is provided in the PDS; we recommend investors after more detail take the time toread through Section 7 of the PDS.

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    Name Role Experience

    BrendanGore

    Exec. DirectorPeet Funds Management Ltd

    CEO & MDPeet Limited

    Over 20 years of senior corporate,commercial and operational roles.Over five years with the Peet Group

    Responsible for developing integratedoperational strategy and performanceof the Group.

    Prior role as CEO and CompanySecretary of Mermaid Marine AustraliaLtd.

    AnthonyLennon

    Non-Executive DirectorPeet Funds Management LtdPeet Limited

    Over 21 years with the Peet Groupwith responsibilities for projectmanagement, broadacre acquisitions,marketing, and financing.

    Six years as Chairman of one of WAslargest conveyancing businesses.

    Board member of Urban DevelopmentInstitute of Australia (UDIA).

    Previous role with John Laing Plc (UK)in the graduate management trainingscheme.

    GraemeSinclair

    Independent Non-ExecutiveDirectorPeet Funds Management LtdPeet LimitedMirrabooka Investment Ltd

    Over 35 years of experience ininvestment and wealth managementservices. On the board of Peet for thelast eight years.

    Prior role as CEO and MD of the MyerFamily Company for 13 years.

    Non-executive Director of MirrabookaInvestment Ltd.

    Dom Scafetta Company Secretary

    Peet Funds Management LtdPeet Limited

    Over 20 years of experience inaccounting and property sectors. 14years in the Peet Group in variousroles including CFO (prior to ASXlisting).

    Previous role withPricewaterhouseCoopers in accounting,taxation, and general business

    advisory.

    Source: Peet/ PIR

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    6. Past Performance

    Peet Syndicate PerformancePeet has created and managed land syndicates since the mid-1980s and has pioneered theconcept of land syndicates over three decades. As the table below highlights, the average IRRacross the 11 completed syndicates, since 2005, is 23.4% per annum (longer duration theaverage returns have been in excess of 15%). Peet has successfully raised in excess of$290M of equity for syndicated land acquisitions since 2003, and the on-completion value ofPeets existing syndicated projects is $2.5 billion (if sold at current prices). As at June 2012,Peet manages 22 syndicates owning 25 residential land development projects

    As Figure 15 below suggests, the returns from a few completed Peet syndicates havedelivered strong returns and none of them have recorded negative returns. In this context,PIR specifically notes that past performance is not a reliable indicator of future performanceas each syndicate and its respective underlying asset has its own specific risks andunique attributes. This should be considered when interpreting returns presented in Figure 15

    below.

    Figure 15. Peet completed syndicates annual return (p.a.)

    Source: Peet/ PIR

    16%

    40%

    20%

    29%27%

    34%

    16%

    20%

    14%

    25%

    18%

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    35%

    40%

    45%

    P o

    i n t

    C o o

    k J u n c t

    i o n

    B r i m

    b a n

    k G a r d e n s

    A t w e

    l l W a t e r s

    B r o o

    k l a n

    d G r e e n s

    P a n o r a m a

    E s t a t e

    P o

    i n t

    C o o

    k G a r d e n s

    K e n n e

    d y

    G a r

    d e n s

    T h e

    R i d g e

    P o r t

    K e n n e

    d y

    O c e a n

    L a g o o n

    W a r n

    b r o

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    ForAdvsersOny

    Appendix Ratings Process PIR has developed a framework for rating investment product offerings in Australia. Our review process givesconsideration to a broad number of qualitative and quantitative factors. Essentially, the evaluation process includes

    the following key factors: product management and underlying portfolio construction; investment management,product structure, risk management, experience and performance; fees, risks and likely outcomes.

    The RatingsFinancial Advisers and investors should note that for all ratings categories, the product may not suit the risk/returnprofiles of all investors.

    AAA (Highly recommended): This is the highest rating provided by PIR, indicating this is a best of breed product that hasexceeded the requirements of our review process across a number of key evaluation parameters and scored exceptionally ina number of categories. The product provides a highly attractive risk/return trade-off. The Fund is likely to effectivelymanage endogenous and, to the extent that it can, exogenous r isk factors with industry best practice.

    AA+ (Highly recommended): Indicates that PIR believes this is a superior grade product that has exceeded the

    requirements of our review process across a number of key evaluation parameters and scored exceptionally in a number ofcategories.

    AA (Recommended): Indicates that PIR believes this is an above-average grade product that has exceeded the minimumrequirements of our review process across a number of key evaluation parameters. In addition, the product rates highly onone or two attributes in our key criteria. It has an above-average risk/return trade-off and should be able to consistentlygenerate above-average risk adjusted returns in line with stated investment objectives. The Fund should be in a position toeffectively manage endogenous and, to the extent that it can, exogenous risk factors. This should result in returns beingreflective of the expected level of up-side and down-side risk.

    AA- (Recommended): Indicates that PIR believes this is an above-average grade product that has exceeded the minimumrequirements of our review process across a number of key evaluation parameters. It has an above -average risk/returntrade-off and should be able to consistently generate above-average risk adjusted returns in line with stated investmentobjectives.

    A+ (Investment grade): PIR believes this is a suitable product that has met the aggregate requirements of our reviewprocess across a number of key evaluation criteria. The product provides some unique diversification opportunities, but maynot stand apart from its peers. It has an acceptable risk/return trade-off and should generate risk adjusted returns in linewith stated investment objectives.

    A (Investment grade): PIR believes this is a suitable product that has met the aggregate requirements of our reviewprocess across a number of key evaluation criteria but may not stand apart from its peers. There are certain assumptions,the outcome of which is sometime in the future and, therefore, less predictable. The product has an acceptable risk/returntrade-off and is potentially able to generate risk-adjusted returns in line with stated investment objectives.

    A- (Investment grade): PIR believes this is a suitable product that has met the aggregate requirements of our reviewprocess across a number of key evaluation criteria. There are certain assumptions, the outcome of which is sometime in thefuture and, therefore, uncertain. However, it has an acceptable risk/return trade-off. The product has an acceptablerisk/return trade-off and is potentially able to generate risk-adjusted returns in-line with stated investment objectives.

    B+ (Speculative): PIR believes this is a product that has a number of positive attributes; however, there are a number ofrisks that make investing in this product a speculative proposal. While PIR does not rule out investing in this product,investors should be very aware of, and be comfortable with, the specific risks. The product may provide uniquediversification opportunities. However, concerns over one or more features mean that it may not be suitable for mostinvestors.

    B (Not recommended): PIR believes that despite th e products merits and attributes, it has failed to meet the minimumaggregate requirements of our review process across a number of key evaluation parameters. While this is a product belowthe minimum rating to be considered Investment Grade, this does not mean the product is without merit. Funds in thiscategory are considered to contain high risks which are not reflected by the projected return. Performance volatility,particularly on the down-side, is likely.

    This report has not been commissioned, and, as such, PIR has not directly received a fee for its publication. Underno circumstances has PIR been influenced, either directly or indirectly, in making statements and/orrecommendations contained in this report.

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