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INFORMATION MEMORANDUM
Daycare Property Syndicate
Limited Partnership
7.0
PROJECTED
CASH RETURN
%
P.A
PAID MONTHLY
Fully tenanted by Early Childcare
Education centres
Offer restricted to “Wholesale Investors” under clauses 3(2) and 3(3)(a) of schedule 1 to the Financial Markets Conduct Act 2013.
*Projected pre-tax return for full one year period. Details on how the return will be calculated and the risk associated with the
investment and return are set out in the Information Memorandum.
1 DAYCARE PROPERTY SYNDICATE LP
Key Details of Offer
Properties Incremental Investment
This offer comprises of five Early NZ$50,000.
Learning Centres in locations across
New Zealand; Silverdale Auckland,
Papatoetoe Auckland, Pokeno, Offer Closure Date
Tuakau and Dunedin. 9 March 2020 or earlier if fully subscribed.
Syndicate Structure 100% Underwritten Offer
Limited Partnership. Registered name Equity is 100% underwritten.
is Daycare Property Syndicate LP.
Summary Property
Purchase Price Profile
Total Purchase Price $15,304,000.
++ Five Early Learning Centres with
geographical spread nationally.
++ Each fully tenanted by experienced
Loan To Value Ratio Daycare operators.
45% of the purchase price.
++ Initial leases between 10 and 15
years, with built in rent increases.
WALT 12.5 years.
Projected Cash Net ++ Early Childhood Education (ECE) is a
Pre Tax Annual Yield growing business sector and a growth
market as demand increases annually.
On Equity
++ ECE businesses operate long term
–Paid Monthly in the same premises. Properties are
7.0% per annum. Ministry of Education (MOE) registered
for ECE.
Minimum Investment
NZ$50,000.
INFORMATION MEMORANDUM 2
Important Notice
This Information Memorandum has been Offeror. E+O believes that all forward looking
prepared by Erskine and Owen Limited (E+O) information has been prepared with due care
for E+O Property Syndication Limited. E+O and attention, and considers the assumptions,
believes all the information contained in this when taken as a whole, to be reasonable
Information Memorandum is correct at the at the time of preparing this Information
time of publication. E+O has approved and Memorandum. Actual results are likely to
authorised the distribution of this Information vary from the information presented and
Memorandum, subject to the restrictions variances may be material. Accordingly, none
referred to below. However, except as of E+O, its shareholders, directors, employees,
required by law, none of E+O, its shareholders, advisors, agents or any other person can
directors, employees, advisors or agents provide any assurance with respect to such
shall be responsible for any error, omission or information.
misstatement contained in this Information
An Interest in the Limited Partnership is a
Memorandum.
“financial product”, and more particularly
This Information Memorandum has been a “managed investment product”, for the
prepared for general information purposes purposes of the FMCA. The Limited Partnership
and not as specific advice to any particular is also a “managed investment scheme” but
prospective investor or investors. It is not not a “registered scheme” for the purposes of
intended to be, and does not in any manner the FMCA.
whatsoever constitute, a recommendation,
As a consequence of this offer of Interests
expressed or implied, by E+O that any
in the Limited Partnership being restricted
person subscribe for Interests in the Limited
to selected investors only (who must all be
Partnership offered under this Information
“wholesale investors” within the meaning set
Memorandum.
out in clauses 3(2) and 3(3)(a) of Schedule 1
This Information Memorandum does not of the FMCA) and of the Limited Partnership
purport to contain all of the information a not being a registered scheme, this offer of
prospective investor may require. Interests in the Limited Partnership is not a
“regulated offer” under the FMCA. Accordingly,
Prospective investors must determine whether
no “product disclosure statement” is required
the investment is appropriate having regard to
under the FMCA in relation to this offer and the
their own investment objectives and financial
Interests in the Limited Partnership will not be
situation. Investors are encouraged to seek
a “regulated product” within the meaning of the
independent financial, tax and legal advice on
FMCA. As a result, Investors may not receive
these matters.
a complete and balanced set of information.
This Information Memorandum does not Investors will also have fewer legal protections
provide any guarantees, warranties or for this investment.
undertakings in relation to the contents of
E+O and its related companies identify,
this Information Memorandum. No warranty
promote and manage investment opportunities.
or representation is made in respect of
E+O and its related companies have acted
whether the revenue, expenses, or any capital
and will continue to act in multiple capacities
appreciation in the future will be actually
in relation to the Offer and the Limited
achieved. Information relating to the future,
Partnership. These include sourcing the
by its nature is inherently uncertain. It is a
Property as Buying Agent, acting as GP and
prediction of future events which cannot be
acting as Property Manager and sourcing both
assured. It involves risks and uncertainties,
equity and debt funding for the Offer.
many of which are beyond the control of the
3 DAYCARE PROPERTY SYNDICATE LP
E+O, on behalf of E+O Property Syndication Limited, reserves the right to
reject any application to subscribe for Interests in the Limited Partnership
offered under this Information Memorandum at its sole discretion. In
particular, E+O may reject an application where:
++ E+O believes that an invitation or offer to subscribe for Interests in the
Limited Partnership would, in respect of any foreign jurisdiction, not
be permitted in that jurisdiction without the need for any registration,
lodgement, filing, approval by any regulatory authority or other formality;
or
++ E+O has reason to believe the investment is being funded by proceeds
that infringe New Zealand’s Anti-Money Laundering and Countering
Financing of Terrorism (AML/CFT) regulatory regime; or
++ to accept such an application would result in E+O, on behalf of E+O
Property Syndication Limited or any of their respective shareholders,
directors, employees or agents breaching any law, including in
circumstances where a potential investor has not provided the required
certification that they are a Wholesale Investor under clause 3(2) or
clauses 3(3)(a) and 41 of Schedule 1 to the Financial Markets Conduct
Act 2013.
Neither E+O, E+O Property Syndication Limited nor their respective
shareholders, directors, employees, advisors or agents are responsible for any
costs or disbursements incurred by any prospective investor in connection
with its, his or her review of this Information Memorandum and any associated
documents or materials or otherwise, in connection with its or his or her
application for an Interest in the Limited Partnership.
INFORMATION MEMORANDUM 4 Contents 1. Offer Summary................................................................................................................................................. 5 1.1 Offer Summary Details ........................................................................................................................................... 5 2. About the Properties .................................................................................................................................... 6 2.1 Why Daycare .............................................................................................................................................................. 6 2.2 Silverdale ....................................................................................................................................................................... 7 2.3 Papatoetoe ................................................................................................................................................................... 9 2.4 Pokeno ...........................................................................................................................................................................11 2.5 Tuakau ...........................................................................................................................................................................13 2.6 Dunedin .........................................................................................................................................................................15 2.7 Investment Objective ............................................................................................................................................. 18 2.8 Financing Arrangements ...................................................................................................................................... 18 2.9 Underwrite .................................................................................................................................................................. 18 2.10 Annual Accounts ...................................................................................................................................................... 18 2.11 Financial Analysis ..................................................................................................................................................... 19 2.12 What are the Risks? ................................................................................................................................................ 21 3. Terms of Proposed Investment ................................................................................................... 23 3.1 Legal Structure ........................................................................................................................................................ 23 3.2 Entry ............................................................................................................................................................................. 23 3.3 Exit and Transfer of LP Interest ......................................................................................................................... 23 3.4 Termination of the Limited Partnership ......................................................................................................... 24 3.5 Tenancy ....................................................................................................................................................................... 24 3.6 Management ............................................................................................................................................................. 24 3.7 Outgoings .................................................................................................................................................................. 24 3.8 Fees .............................................................................................................................................................................. 24 3.9 Limited Partnership Capital ................................................................................................................................ 25 3.10 Annual Costs ............................................................................................................................................................. 25 3.11 Fees on Sale of the Property ............................................................................................................................. 25 3.12 Distributions .............................................................................................................................................................. 26 3.13 Accounting and Tax ............................................................................................................................................... 26 3.14 General Partner Responsibilities and Powers .............................................................................................. 26 3.15 General Partner Appointment and Removal ............................................................................................... 27 3.16 Terms Not Exhaustive ........................................................................................................................................... 27 3.17 Disclaimer .................................................................................................................................................................. 27 4. Why Property Syndication? Structure and Background ................................. 28 4.1 What is a Property Syndication? ...................................................................................................................... 28 4.2 What are the Advantages of an E+O Syndication? .................................................................................. 28 4.3 Syndicate Structure ............................................................................................................................................... 28 4.4 Advantages of a Limited Partnership Structure ......................................................................................... 29 4.5 Qualifications and Experience - Erskine and Owen Limited ................................................................. 29 4.6 Exclusions from the Financial Markets Conduct Act 2013 for Offers to “Wholesale Investors”...29 5. Why Erskine + Owen? ............................................................................................................................ 31 6. Appendices ....................................................................................................................................................... 33 6.1 Application and Subscription Deed................................................................................................................. 33 6.2 Subscriber Certificate ........................................................................................................................................... 39 7. Glossary ................................................................................................................................................................ 41 8. Anti Money Laundering (AML) Compliance ................................................................ 42 8.1 AML Checklist.............................................................................................................................................................42 8.2 AML Form for an Individual (Form 1) ............................................................................................................. 43 8.3 AML Form for a Company (Form 2) ............................................................................................................ 45 8.4 AML Form for a Trust (Form 3) ......................................................................................................................... 47 9. How Do You Invest? ............................................................................................................................... 49
5 DAYCARE PROPERTY SYNDICATE LP 1. Offer Summary 1.1 Offer Summary Details The total amount being raised is $9,400,000 representing the total of Limited Partnership equity. The offer will close on 9 March 2020 or earlier if fully subscribed. The proceeds of the offer will be primarily used, by the Limited Partnership, to acquire the properties as listed in the table below along with tenant details and property valuations. All properties have been valued either by Telfer Young in January 2020 or Bayleys Valuations Ltd in November or December 2019. Mortgage funding has been arranged with the ASB for an amount of $6,886,800 (being 45% of the purchase price) at an initial interest rate of 3.48%. There is 100% equity underwrite in place for the interests being offered, on terms described in section 2.9 of this Information Memorandum. The projected annual pre-tax net operating cash flow return yield to Limited Partners is 7.0% per annum on equity. Daycare Properties Address Tenant Operator Brand Valuation Silverdale 2 Weir Lane The Learning Tree $7,100,000 Papatoetoe 170 Puhinui Road Pukeko Preschools $1,950,000 Pokeno 2–4 Hillpark Drive Urban Explorers $3,050,000 Tuakau 3 School Road Learning Castle $2,000,000 Dunedin 39 Queens Drive, St Kilda Pukeko Preschools $1,450,000 TOTAL PROPERTY VALUE $15,550,000
INFORMATION MEMORANDUM 6 2. About the Properties 2.1 Why Daycare The Early Childhood Education (ECE) market is a significant and growing business sector. This is largely driven by changes in our population, demographics and the way we live and work. Two working parents in a family unit and many solo parent households, have made childcare an integral part of modern family life. Parents’ expectations of education and the standards of facilities available, typically ensure quality premises and good business practices. Since 2008, the proportion of children enrolled in ECE has risen from 93.6% to 96.6%. Time spent in ECE has increased from 13.5 hours to 21.7 hours a week. Public funding for the sector is generally reliable and secure. The government committed an additional $396.9 million in the 2018 budget to fund the ECE care for an extra 14,000 children by 2019/2020, with a stated objective of 98% of children attending ECE. Population growth is also a key factor in the ECE market. There are 4,596 providers of ECE services in New Zealand today and this has been growing at an average rate of 152 daycare centres per annum, mirroring the growth in population. As population increases, so too does the demand for Daycare centres. Recent sales of Daycare properties have been strong. In our opinion the ECE property sector is regarded as a secure property asset class, due in part to the Ministry of Education (MOE) childcare registration being linked to a Daycare property. In addition, landlords are favourable to this business sector and typically offer long term lease profiles. The value of a childcare business is closely linked to the physical property it operates from. The resource consent for childcare use and the MOE registration is included in the valuations of the Daycare properties. Building obsolescence in Daycare centre properties is low and minimal. Most ECE businesses operate from the same premises long term. Daycare is a growth market. Population growth, dual income families and strong legislation around childcare are all contributors. In particular, Auckland has had a significant growth in the number of Daycare centres in recent years due to demand outstripping supply.
7 DAYCARE PROPERTY SYNDICATE LP
2.2 Silverdale
Silverdale is a town approximately 30km north of Auckland. State Highway 1 passes to the west
of Silverdale via the Northern Motorway.
Due to its proximity to Auckland and main arterial routes, Silverdale is growing in demand
residentially and the 2013 Census* reported a 231.5% increase in population since the 2006 Census.
Population has been rising ever since.
The operator owns and runs 5 Daycare centres under the Learning Tree brand, four of which are
in Auckland. The other locations are in Albany, Westgate, and Hobsonville. The operator has been
in the industry for over 8 years and the Silverdale property also has offices on the second floor
which are used as the Learning Tree head office.
*At time of publishing information from the 2018 Census results were unavailable in composition form.
Property Address 2 WEIR LANE, SILVERDALE
Property Type Daycare property
Title Freehold
Land 1,992m2 and a 1/2 share of 1,345m2
Total Floor Area 600m2
The tenant has been in the industry for 8+ years.
Proposition Operates 5 daycare centres under the Learning Tree
brand. Long lease and new daycare centre property.
Purchase Price $7,054,000
$7,100,000
Valuation
Valued by Bayleys Valuations Ltd on 5 December 2019.
Settlement date 25 March 2020
Initial lease term of 15 years from 1 February 2019.
Rights of renewal are two further rights of ten years
each. Final lease expiry of 31 January 2054.
Lease Details
$405,600 annual rent plus GST.
3% increase in rent from year 4 and 2 yearly after that.
Market reviews on lease rollover dates.
Ministry of Education (MOE) Certification Registered for 150 children.
The tenant operates 5 daycare centres and has been
in the industry for 8+ years. They have operated the
Operator Silverdale daycare property for 8 months since it was
completed and have grown the number of children from
zero to 125 over this 8 month period.
INFORMATION MEMORANDUM 8 Silverdale Daycare This property opened in February 2019 and is located just north of Auckland with easy access to the Northern Motorway and Hibiscus Coast Highway. It is located in an ideal position, near the Silverdale Centre, immediately adjacent to the Silverdale Mall, Silverdale Medical Centre and close to the Northern Arena. The Operator is the Learning Tree, providing a happy, social environment with educational opportunities for children. The Centre is conveniently located for those living in Silverdale, Millwater, Orewa, Red Beach, Whangaparoa, Gulf Harbour, and Wainui.
9 DAYCARE PROPERTY SYNDICATE LP
2.3 Papatoetoe
Papatoetoe is one of the larger suburbs of the area commonly known as South Auckland. It
is located to the northwest of Manukau Central, and is 18 kilometres southeast of Auckland
CBD. Manukau City Council had announced as part of its 10-year budget to spend multi
millions revitalising the town’s centre in the St. George Street area in conjunction with Panuku
Development Auckland, the council development arm. This included new apartment buildings
and a multisports centre, to encourage new shops to the area.
The Daycare centre is conveniently located within easy access to the train station and to the
Southern motorway allowing parents and workers access to the centre at the start and end of
the day.
The operator is Pukeko Preschool and has been in the industry for over 8 years. They currently
operate 5 Daycare centres, four of which are in Auckland and one in Hamilton all under the
Pukeko Preschool brand. The owners are qualified teachers (ECE and secondary), and between
them have taught at Early Childhood, Secondary and Tertiary level.
Property Address 170 PUHINUI ROAD, PAPATOETOE, AUCKLAND
Property Type Daycare property
Title Freehold
Land 814m 2
Total Floor Area 316m 2
The tenant has been in the industry for 8+ years.
Proposition
Operates 5 daycare centres under the Pukeko brand.
Purchase Price $1,800,000
$1,950,000
Valuation
Valued by Bayleys Valuations Ltd on 18 October 2019.
Settlement date 31 March 2020
Initial lease term 12 years from 1 April 2020.
Rights of renewal are two further rights of five years
each. Final lease expiry of 31 March 2042.
Lease Details
$117,000 annual rent plus GST.
Annual CPI or 1% increase in rent, whichever is higher.
Market review every 3 years.
Ministry of Education (MOE) Certification Registered for 50 children.
The tenant operates 5 daycare centres (4 in Auckland
and 1 in Hamilton). The operator and his partner
Operator
are both qualified educators. They have been in the
daycare industry 8+ years.INFORMATION MEMORANDUM 10 Papatoetoe Daycare Zoning and Building The building comprises a single level building constructed with a concrete floor, timber framing, fibre cement exterior walls and corrugated iron roofing. The building was converted into a daycare centre in 2003. The building is in good condition, with little wear and tear evident.
11 DAYCARE PROPERTY SYNDICATE LP
2.4 Pokeno
Pokeno is a town in the north Waikato, just south of the Bombay Hills and a short drive from
New Zealand’s largest city, Auckland. It’s located 53km south of central Auckland and just 72km
north of Hamilton.
Pokeno’s position alongside the Waikato Expressway is a key advantage in relation to the town’s
development. The town has excellent access to the Expressway, both north and south and is poised
for further growth through new residential, business, industrial and recreation zonings. Many new
houses are being built, population is rising and it is becoming a hub for new industry. Woolworths
New Zealand Limited has resource consent approved to build a Countdown in Pokeno Town Centre
to provide for the growing hub with completion scheduled for November 2020. Pokeno is also a
popular resting point for motorists.
The tenants operate under the Urban Explorers brand and own another Daycare centre in Whitianga.
Property Address 2–4 HILLPARK DRIVE, POKENO
Property Type Daycare property
Title Freehold
Land 1,940m2
Floor Area 316m2
The tenant operates one other Daycare centre, which has
Proposition
strong income and long-term yield play.
Purchase Price $3,000,000
$3,050,000
Valuation
Valued by Bayleys Valuations Ltd on 26 November 2019.
Settlement date 31 March 2020
Initial lease term 15 years from 19 October 2018.
Rights of renewal are three further rights of five years
each. Final lease expiry of 18 October 2048.
Lease Details
$182,700 annual rent plus GST.
Annual CPI or 1% increase in rent, which ever is highest.
Ministry of Education (MOE) certification Registered for 75 children.
The tenant operates another daycare centre
Operator
in Whitianga.INFORMATION MEMORANDUM 12 Pokeno Daycare Operator is a family, who split roles between professional development and overseeing of the centre and financial management. The tenancy at this daycare centre commenced in October 2018. The daycare centre operates under the Urban Explorers brand. See www.urbanexplorers.co.nz. They also own and operate another daycare centre in Whitianga called Mercury Bay Preschool.
13 DAYCARE PROPERTY SYNDICATE LP
2.5 Tuakau
Tuakau is in the Waikato region, south west of Auckland’s Bombay Hills. The town supports local
farming and is a strong market gardening centre, supplying Auckland stores. It is also home to
many employees of New Zealand Steel situated at Glenbrook.
Being near the Waikato Expressway is a key advantage in relation to the town’s development
and population in the town is growing considerably. The 2013 census* reports a 19.5% increase
in population since the previous 2006 census.
The property is a brand new building constructed to modern building standards and located
on a prime corner site position conveniently located opposite Tuakau Primary School.
Strong fundamentals include, an initial 12 year lease, plus further rights of renewal. The tenant
is Learning Castle, offering high quality care and innovative education. The Operator has been
in the business for over 7 years and runs another child care centre in Papatoetoe.
*At time of publishing information from the 2018 Census results were unavailable in composition form.
Property Address 3 SCHOOL ROAD, TUAKAU
Property Type Daycare property
Title Freehold
Land 995m2
Total Floor Area 355m2
The tenant has been in the industry 7 years and operates
Proposition another daycare centre under the Learning Castle brand.
Long lease and a new Daycare centre property.
Purchase Price $2,000,000
$2,000,000
Valuation
Valued by Bayleys Valuations Ltd on 20 December 2019.
Settlement date 31 March 2020.
12 year lease with rights of renewal of two further
terms of six years each with lease commencing
1 February 2020.
Lease Details $143,000 annual rent plus GST.
Market reviews every 3 years.
1% increase in rent annually from 1 February 2025.
Ministry of Education (MOE) certification Registered for 53 children.
Operator Learning Castle.INFORMATION MEMORANDUM 14 Tuakau Daycare Zoning and Building The newly constructed building is two storeys, housing the Daycare facilities on the ground floor, with the operator’s offices and staff rooms above on the second floor. Timber decking, a concreted driveway and perimeter fencing complete the property.
15 DAYCARE PROPERTY SYNDICATE LP
2.6 Dunedin
Dunedin is one of the emerging stars in NZ’s property market and is being recognised as a region
of growing potential. Dunedin’s population grew 2.7% in the year to September 2019, well ahead
of the national average. Employment opportunities are on the rise. Enrolments at the University of
Otago are increasing and with the talent pool of graduates, feeds a strong ‘start up’ eco system.
Dunedin’s economy is very sound, having grown steadily since 2015. While construction is already
one of the biggest contributors, this is only set to strengthen with the $1.4B build of the new
Dunedin Hospital and the University of Otago’s biggest campus expansion about to commence.
St Kilda is a suburb of Dunedin and is a densely populated residential suburb that boasts one of
the best inner-city beaches in New Zealand. The property is on 1140 square metres of land and is a
well maintained building that was originally a hall repurposed into a Daycare centre. The operator
owns and runs 9 Daycare centres and has a very strong reputation in the industry.
Property Address 39 QUEENS DRIVE, ST KILDA, DUNEDIN
Property Type Daycare property
Title Freehold
Land 1,138m2
Total Floor Area 453m2
The tenant has a good reputation within the industry
Proposition and also with the MOE. The tenant has a strong income
and long-term yield play.
Purchase Price $1,450,000
$1,450,000
Valuation
Valued by Telfer Young on 29 January 2020.
Settlement date 31 March 2020
Initial lease term 10 years from 29 September 2017.
Rights of renewal are two further rights of ten years
each. Final lease expiry of 28 September 2047.
Lease Details
$109,520 annual rent plus GST.
Annual CPI or 1% increase in rent, which ever is higher.
Market review every 3 years.
Ministry of Education (MOE) Certification Registered for 68 children.
The tenant operates another 8 daycare centres
Operator throughout NZ, together with a consulting
company that focusses upon the daycare sector.INFORMATION MEMORANDUM 16 St Kilda Daycare Zoning and Building The St Kilda daycare land is zoned Residential 2 on the Dunedin City District Plan and ECE is a Discretionary Activity (unrestricted) within this zone. The building dates from the 1950’s. It comprises an open hall area, with adjoining classrooms and ancillary offices and toilet facilities. General construction is concrete foundations, with brick exterior walls, iron roof and a mix of timber and metal window joinery. The interior is mostly timber floors. The building is in a tidy condition commensurate with its age and use. There are no outstanding maintenance requirements noted. The operator has recently spent in excess of $100,000 making improvements to the interior of the building and outside play area. The building has been assessed as having a seismic grade rating of A, with a seismic strength of 84.5% (new business standard). Dunedin is categorised as a low risk earthquake region.
17 DAYCARE PROPERTY SYNDICATE LP
INFORMATION MEMORANDUM 18
2.7 Investment Objective
The primary objective of the Limited Partnership is to maximise the long term rental income.
2.8 Financing Arrangements
The GP has entered into an indicative term sheet with the ASB under which ASB will finance 45%
of the purchase price of the properties. The key terms of the arrangement are set out below;
Lender ASB
Facility Limit $6,886,800
Expected Borrowings $6,886,800 being 45% loan to value ratio.
Finance Establishment Fee $15,000
Term 2 year initial term, annually extendable with bank approval.
BKBM + Margin. The bank offer provides for an initial interest rate
Interest Rate of 3.48% and was dated 3 December 2019. Subject to interest
rate changes and bank margin rates.
Nil during the term of the loan. The principal amount is repayable
Principal Repayments
in full at the end of the loan term.
First registered and exclusive mortgage in favour of the ASB over
Security all 5 Daycare properties.
A first and exclusive General Security Deed over the Borrower.
The total loan amount secured by the property must not exceed
45% of the market value of the properties.
Covenants EBITA or net rental proceeds received from the property must
exceed two times gross interest expense and four times cover
based on projected earnings.
2.9 Underwrite
The GP has arranged commitments to underwrite the Offer and to subscribe for up to 100% of the
Interests to the extent of any shortfall. This will help secure funding for the property transactions
which are the subject of the Offer. An underwriting fee of $282,000 is payable to the underwriters
for this underwriting commitment, of which about 30% is payable to underwriters who are related
parties of the Limited Partnership or the GP.
Under the terms of the underwriting agreements, E+O Property Syndication Limited is required to
find purchasers for any shortfall Interests underwritten by the underwriters and to repay the
underwriters’ capital commitment before the first anniversary of completion.
E+O Property Syndication Limited has given an indemnity to the Limited Partnership to hold it
harmless from any loss it might suffer as a result of the undertaking.
2.10 Annual Accounts
++ Financial statements of the Limited Partnership will be prepared annually and audited.
Grant Thornton has been appointed as the auditor.
++ The GP will obtain registered valuations of the properties annually.
++ The GP will furnish Limited Partners with a set of the financial statements, including any report of
the auditors and a statement of accounting policies, together with any relevant tax information in
connection with the Limited Partnership annually.19 DAYCARE PROPERTY SYNDICATE LP 2.11 Financial Analysis PURCHASE PRICE Property 1: Silverdale Daycare 7,054,000 Property 2: Papatoetoe Daycare 1,800,000 Property 3: Pokeno Daycare 3,000,000 Property 4: Tuakau Daycare 2,000,000 Property 5: St Kilda Daycare 1,450,000 Total Purchase Price 15,304,000 Gross Purchase Yield 6.26% In order to get Annual Income Return Yield 6.60% Capitalised Costs Maintenance sinking fund 50,000 Establishment fee 301,400 Finance fee 15,000 Brokerage fee 2.00% 188,000 Marketing fees 70,250 Underwrite 3.00% 282,000 Legal fees, valuation and DD fees 76,150 Total Capitalised Cost 16,286,800 Bank funding 45.00% 6,886,800 Valuation Total Registered Value (refer note) 15,550,000 Equity Equity on purchase 8,417,200 Equity - capitalised costs 982,800 Total Equity 9,400,000 Note: The Registered Valuations were prepared by Telfer Young and Bayleys Valuations Ltd.
INFORMATION MEMORANDUM 20 FORECAST ANNUAL PROFIT AND LOSS ACCOUNT (TO 31 MARCH 2021) Income % $ Property 1: Silverdale Daycare 42.33% 405,600 Property 2: Papatoetoe Daycare 12.21% 117,000 Property 3: Pokeno Daycare 19.10% 182,700 Property 4: Tuakau Daycare 14.93% 143,000 Property 5: St Kilda Daycare 11.43% 109,520 Total Income 100% 957,820 Costs Landlord expenses/ Maintenance sinking fund 15,000 Interest 3.48% 239,661 Corporate management 0.30% 48,860 Accounts/audit 25,326 Valuation 8,500 Total Costs 337,347 Net Profit Before Tax 620,473 Income Return / Property Cash Yield 6.60% Refer to Principal Assumptions to the Forecast Financial Information and Notes on page 21 Lending Ratios LVR (purchase price) 45.00% LVR (valuation) 44.29% Interest cover 4.00 VALUATION SUMMARY Total Purchase Price 15,304,000 Total Registered Valuation 15,550,000 Difference (Gain) 246,000
21 DAYCARE PROPERTY SYNDICATE LP
PRINCIPAL ASSUMPTIONS TO THE 2.12 What are the Risks?
FORECAST FINANCIAL INFORMATION
There are a number of risks that could impact on
AND NOTES
the performance and financial returns of the Limited
The principal assumptions and notes on which the Partnership. Potential general and specific risks include,
forecast financial information has been prepared and but are not limited to, the following:
based on, are set out below. These assumptions and
++ Liquidity - Property is an inherently long-term
notes should be read in conjunction with the risks set
investment and cannot be easily sold. A Property
out in section 2.12.
may be sold at a loss in which case LPs will not
++ Income is GST exclusive and extracted from lease be able to recover the full amount of their original
agreements. Income assumes no lease defaults. investment. There is no guarantee of capital gain on
++ All costs are GST exclusive. These costs are forecast the Properties.
to be incurred by the LP in the forecast period and ++ Tenant Default - The tenants of the Properties may
are explained in section 3. The forecast maintenance fail to pay the rental and outgoings (defaulting)
sinking fund amount is to cover unexpected which may affect projected returns. Also, the current
maintenance or other costs. The corporate tenants may not renew lease arrangements and a
management fee in year one has been discounted new tenant may be required. Costs, including lease
to 0.3%. incentives may be required on re-leasing.
++ The forecast is using the initial interest rate which is ++ Interest and Derivative - Interest rates may
3.48%. This interest rate can change and any change increase (and consequently increase the mortgage
to this interest rate will affect the above forecast. repayments due from the Limited Partnership to
The forecast interest cost is based upon total bank the bank). 45% of the Properties will be funded by
facilities of $6,886,800 and total LP equity on interest-bearing borrowings at a floating interest
commencement of $9,400,000. rate and the interest expense incurred by the Limited
++ The Limited Partnership intends to settle the Partnership is a material expense for the LP. Changes
acquisition of the daycare properties either on 25 to bank loan terms and conditions, for example in
or 31 March 2020 in accordance with the property respect to interest rates, bank margins, loan to value
agreements for sale and purchase. The forecast has ratios, principal repayment requirements etc, either
been prepared to reflect the estimated income and as a result of bank policy changes or the requirement
costs for a full year following acquisition of all five that the bank comply with changes to external
daycare properties. regulatory requirements may affect the Limited
Partnership. The GP will actively monitor the interest
++ No taxation is included in the forecast as taxation
rates during the life of the LP.
is for the account of and responsibility of a Limited
Partner given the legal structure of the Limited ++ Damage or Destruction - A Property may be
Partnership. destroyed and the event may not be adequately
covered by the insurer of the Property. The GP
++ It is assumed that $9,400,000 of LP equity is raised
arranges insurance on the Properties and recharges
to cover the acquisition of the properties and the
this cost to the tenants, in accordance with the
capitalised costs. The assumed capitalised costs
leases.
comprise maintenance sinking fund allowance,
establishment fee, finance fee, brokerage fee, ++ Capital Expenditure - The capital expenditure
marketing fees, underwrite fee and due diligence for the Properties may be more than budgeted.
fees, including legal and valuation costs. These Significant additional capital expenditure in excess of
forecast costs are associated with the acquisition of forecast amounts may be required for a number of
the properties and issue costs associated with the reasons, including undertaking structural repairs or
Limited Partnership. related work to bring a Property up to a designated
standard or to meet new requirements resulting from
++ Actual results may differ from the forecast annual
changes to current regulations or standards.
profit and loss results. The resulting variance may
be material. E+O and the GP give no guarantee
or assurance that the forecast financial results
presented will be achieved.INFORMATION MEMORANDUM 22
++ Property Manager Fees - The Property Manager
may increase its fees over the life of the Limited
Partnership. Note under the lease arrangements
these costs are payable directly by the tenant.
++ Transfer of Interests - While Interests in the LP are
transferable, a buyer of such Interests may not be
found 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 a $50,000 initial maintenance sinking
fund will be created for unexpected maintenance
or other costs. Included within the annual
projected profit and loss account is also a $15,000
maintenance sinking fund contribution allowance.
These amounts could be used to pay in part or in full
any amounts relating to the risks identified above.
++ The New Zealand Government currently provides
substantial subsidies to the Early Childcare
Education (ECE) industry, including the ECE
Childcare Subsidy and 20 Hours ECE Subsidy. The
subsidies are paid by the Government directly to
the ECE centres on behalf of parents who enrol their
children at the ECE. This results in a guaranteed
level of income for the Fund which have leasing
arrangements with the ECEs set out in this IM.
While the Manager is not aware of any proposals by
the Government to change its funding policies, it
could be changed by the Government at any time
or the Government could change the regulations
that ECE providers need to comply with in order
to obtain subsidies. This may affect the profitability
of the particular ECE centre or the ECE industry
generally. If a ECE centre provider is unable to
maintain a certain level of revenue after changes
to the subsidies, this may mean the ECE centre may
default on its obligations and could even possibly
cease to operate if the business is not commercially
viable.
++ Underwriting - Please refer to section 2.9 Underwrite.23 DAYCARE PROPERTY SYNDICATE LP
3. Terms of Proposed Investment
3.1 Legal Structure 3.3 Exit and Transfer of LP
++ The Limited Partnership is established and Interest
registered on the Limited Partnership Register
An LP can sell or reduce its Interests in increments
of the New Zealand Companies Office, with a
of 50,000 units in accordance with the Limited
placeholder LP in place prior. Following the Offer
Partnership Agreement provided that:
Closure Date, the existing LP will be removed and
the Limited Partnership Interests updated to reflect
investors’ Interests. E+O Property Syndication COSTS AND APPROVAL
Limited (a company whose directors and ++ If the LP is exiting, all monies owed by the LP to
shareholders are the same as Erskine and Owen the Limited Partnership have been paid.
Limited) is the GP of the Limited Partnership. ++ Any recipient must be a “Wholesale Investor”.
++ The GP can only be removed with a unanimous ++ The GP has approved the purchaser in writing.
vote of the LPs. Approval cannot be unreasonably withheld and
++ Any LP who is related in any way to E+O will not evidence of the transferee’s status as a wholesale
be able to vote on a decision to remove the GP. investor may be required.
++ The Limited Partnership will have a minimum of ++ The LP must pay to the GP all reasonable costs
three and a maximum of one hundred and eighty incurred by the GP in transferring the LP’s Interests.
eight LPs. Where an LP transfers Interests, through the
secondary market as described below, an
++ No LP may hold more than 40% of the Interests
administration fee equivalent to 1.5% of the
(3,760,000 units) in the Limited Partnership
transaction value will be payable to E+O.
without the consent of Limited Partners in
accordance with the Limited Partnership
Agreement. In executing the Application and SECONDARY MARKET
Subscription Deed, Investors are deemed to ++ The selling LP’s Interests in the Limited Partnership
consent to an underwriter holding more may be offered to wholesale investors in the
than 40% of the Interests should the underwriter secondary market. The secondary market will be
be required to subscribe for such number of a pool of buyers E+O may identify through its
Interests. database. E+O will seek to facilitate secondary
market transactions but does not act as a broker
++ The Limited Partnership Agreement may be
nor does it provide financial advice to any party.
amended with the approval of 75% of the LP.
This means the terms to which you are bound ++ E+O makes no representations that a secondary
could change without your consent. market is available.
3.2 Entry TAXATION
++ Taxation, if any, is for the account of and
++ Minimum of NZ$50,000 capital to be contributed
responsibility of an LP.
by each LP.
++ Every LP must be a “wholesale investor” as
defined in clauses 3(2) or 3(3)(a) of Schedule 1
of the FMCA.INFORMATION MEMORANDUM 24
3.4 Termination of the Limited 3.8 Fees
Partnership PROPERTY MANAGEMENT FEE
++ It is intended that the Limited Partnership’s ++ Payable by the Limited Partnership to the
investment in the Properties will be a long-term Manager for some leases where not recoverable
investment. from the tenant.
++ A decision to sell the Properties and dissolve the ++ 5% plus GST of rent collected.
Limited Partnership requires the agreement of ++ 8% plus GST of any repairs and maintenance,
LPs holding at least 75% (in aggregate) of the utilities and rates coordinated.
Partnership Interests to a partnership resolution
at a properly constituted meeting of the Limited
Partnership. CORPORATE MANAGEMENT FEE
++ Payable by the Limited Partnership to the GP.
++ If a LP breaches any material obligation of the
Limited Partnership Agreement, including if the LP ++ Up to 1% per annum plus GST of the value of
fails to advance funds or pay capital contributions as each property.
required under the Limited Partnership Agreement,
and fails to remedy the breach within 20 business
days of being notified of it, then the defaulting
ESTABLISHMENT FEE
LP must offer all of its Partnership Interests to ++ An Establishment Fee is payable by the Limited
the Limited Partnership for them to purchase at a Partnership to E+O in the amount of $301,400
purchase price equal to 75% of fair value. plus GST.
3.5 Tenancy PERFORMANCE FEE
++ A Performance Fee is payable to the GP when a
++ The Manager will be responsible for tenanting Property is sold or otherwise transferred and the
the Properties. increase in the value of the relevant Property is in
++ The Manager will approve tenant applications. excess of 8% per annum. The Performance Fee is
only payable on gains in excess of that 8% return
and represents 20% of such excess.
3.6 Management
++ The Manager and the GP have been engaged by BROKERAGE FEE
the Limited Partnership to manage the Properties
++ Payable by the Manager to a third party broker for
pursuant to the terms of a Management Agreement
the facilitation of Interests being transferred.
between the Limited Partnership and the Manager.
++ The fee equals to 2% of the transaction value and is
++ It is intended that the Management Agreement shall
a cost on top of the transfer of Interests.
be for the duration of ownership of the Properties by
the Limited Partnership. ++ The third party broker may be a related party of the
Limited Partnership or the GP.
++ The Manager has the management powers for the
Properties.
++ The Manager must follow the instructions of the GP
– refer powers of the GP below.
3.7 Outgoings
++ The Limited Partnership is liable to pay all outgoings
and costs associated with the Properties (to
the extent that they are not recovered from the
tenants).25 DAYCARE PROPERTY SYNDICATE LP
3.9 Limited Partnership Capital
++ An investor must subscribe for a minimum of
50,000 Interests of NZ$1 each.
++ An investor may subscribe for additional Interests above the Minimum
Investment in incremental parcels of 50,000 Interests up to a maximum of
3,760,000 Interests.
++ By the Offer Closure Date, each LP is required to deposit $1 for each Interest
in the Limited Partnership to the account of the GP the LP is subscribing for.
++ Upon termination of the Limited Partnership Agreement net capital proceeds
will be distributed to LP’s pro rata to their Interest in the Limited Partnership.
++ Each LP will be entitled to one vote per LP Interest.
3.10 Annual Costs
The Limited Partnership will bear all fees, costs and expenses associated with
forming and conducting the business of the Limited Partnership, including:
++ Accounting fees, including for preparation of annual accounts and tax returns.
++ Audit and certification fees.
++ Valuation fees.
++ Legal fees of the Limited Partnership including those arising from rent
reviews and any necessary ongoing compliance costs for the GP and the
Limited Partnership.
++ Bank fees.
++ Interest charges payable in relation to the loan.
++ Property Management.
++ Repairs and maintenance.
++ Utilities.
++ Rates.
++ Insurance.
++ Regulatory costs.
++ Reporting costs.
++ The costs of the Limited Partnership’s administration.
++ All costs of the General Partner.
3.11 Fees on Sale of the Property
++ The Limited Partnership will incur the following fees when a Property is sold:
– Fees payable to a licensed real estate agent to sell the Property.
– Legal fees in relation to sale of the Property and repayment of the
bank loan.INFORMATION MEMORANDUM 26
– Early repayment fee to the bank in the event
3.14 General Partner
the Property is sold prior to the maturation of
the loan. Responsibilities and Powers
– A Performance Fee is payable to the GP when POWERS INCLUDE:
the Property is sold or otherwise transferred and ++ Arrange the mortgage finance.
the increase in the value of the Property is in
++ Refinance if an alternative financing arrangement
excess of 8% per annum. The Performance Fee is
is considered more favourable to the Limited
only payable on gains in excess of that 8% return
Partnership.
and that is equal to 20% of such excess.
++ Appoint the Manager and the Buying Agent.
– Details of calculations are in the Limited
Partnership Agreement. ++ Declare the sale and purchase agreement
unconditional and attend to settlement.
++ Collect and recover rent owing and other
3.12 Distributions amounts due.
++ The GP is responsible for distributing the operating
++ Negotiate all contracts relating to a Property and
cashflow of the Limited Partnership to LPs of such
the Limited Partnership.
amounts as the GP deems to be appropriate. It is
intended that distributions will be made monthly ++ Approve the assignment of the management
on or about five working days post the end of each contract to a third party.
month.
++ Monies can be withheld for capital expenditure as RESPONSIBILITIES INCLUDE:
the GP deems fit acting reasonably.
++ Must keep accounts and distribute profits at such
++ The Manager is responsible for collecting and times and of such amounts as the GP deems to be
disbursing monies as agreed in the Management appropriate.
Agreement or as directed by the GP.
++ Authorised to retain monies for any future
++ The GP is authorised to instruct the Manager to expenditure the GP deems necessary to comply with
undertake repairs, maintenance or improvements the terms of a tenancy agreement or the Limited
on a Property up to the value of NZ$50,000 Partnership Agreement, or to maximise the value of
plus GST. the investment.
++ Any individual expense, in excess of NZ$50,000 plus ++ Must comply with all relevant legislation.
GST must be authorised by LPs who collectively
hold no less than 50% of the Interests in the Limited ++ Must insure the Properties upon acquisition and
Partnership (except in the case of emergencies or to maintain such insurance at all times.
comply with applicable laws). ++ Can undertake maintenance and/or improvement of
the Properties at its sole discretion if any individual
expense does not exceed $50,000 plus GST. Any
3.13 Accounting and Tax single item of maintenance and/or improvement
++ The Limited Partnership will be GST registered. with a cost exceeding $50,000 plus GST can only be
undertaken with the approval of LPs who collectively
++ Accounts and a tax return will be completed for
hold no less than 50% of the Interests in the Limited
the Limited Partnership within five months of each
Partnership (except in the case of emergencies).
financial year ending 31 March, with the first financial
The Manager, however, may undertake maintenance
statements to be prepared as at 31 March 2021.
and/or improvement necessary.
++ The GP will arrange for the accounts to be
++ The Limited Partnership will hold an annual meeting.
completed and sent to each LP.27 DAYCARE PROPERTY SYNDICATE LP
INDEMNITY:
++ Under the terms of the Limited Partnership Agreement, the GP is indemnified
by the Limited Partnership for any loss incurred by the Limited Partnership or
any LP, arising in connection with the services provided by the GP pursuant
to the Limited Partnership Agreement. The GP is indemnified out of the
Limited Partnership assets against any and all claims, liabilities (including
liabilities in contract or tort), costs or expenses (including legal fees) incurred
or threatened to the extent relating to its role (direct or indirect) in respect of
the Limited Partnership.
3.15 General Partner Appointment and Removal
++ The GP can only be removed, and a new GP appointed, following the
agreement of 100% of LPs.
3.16 Terms Not Exhaustive
The terms set out in paragraphs 3.1 to 3.15 above summarise the key terms of
the Limited Partnership Agreement and the Application and Subscription Deed
but are not the only terms of those agreements. All proposed LPs should read,
consider carefully and take legal advice, in relation to both agreements before
committing to invest in the Limited Partnership.
3.17 Disclaimer
No officer, director, employee, agent or advisor of or to E+O or any other person
guarantees the performance of the Limited Partnership or guarantees any return
on investment in the Limited Partnership.INFORMATION MEMORANDUM 28 4. Why Property Syndication? Structure and Background 4.1 What is a Property Syndication? A property syndication is a group of investors who are pooled together to purchase one or more properties. Property syndication offers you the opportunity to invest in property assets and own a stake in the Property. Investors subsequently receive a proportionate share of any net rental income via distributions made by the syndicate. 4.2 What are the Advantages of an E+O Syndication? ++ Opportunity to gain access to the property market when you may currently be unable to invest otherwise. ++ Exposure to the property market with sensible leverage. ++ Access to potentially higher value commercial and industrial property. ++ No recourse funding; the bank does not require personal guarantees and has recourse only to the Property. ++ Leverage E+O’s considerable property buying and negotiating experience. ++ A fully managed asset with all property management, financial and administrative matters taken care of. 4.3 Syndicate Structure ++ Limited partnerships are a common business and investment vehicle used in many western countries and are internationally recognised. ++ Limited partnerships were introduced to New Zealand under the Limited Partnerships Act 2008. ++ Investors have interests in the assets of a Limited Partnership by becoming a limited partner pursuant to a limited partnership agreement. ++ A limited partnership is made up of the general partner and limited partners. The general partner runs the limited partnership on the behalf of the limited partners. ++ Limited partners cannot take over or interfere with the running of the limited partnership. Doing so puts any such limited partner at risk of losing its limited status. ++ Limited partners are only liable to the extent of their capital contributions. This is on the proviso that they do not take part in the management of the limited partnership.
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