KEY RISKS
There are a number of risk factors that could potentially impact on Investors’ returns from their investment in the Trust. By their very nature, the risks involved with property cannot be exhaustively categorised. No guarantee is or can be given that an investment made by an Investor in the Trust will not decrease in value. Whilst some risk factors can be mitigated by use of safeguards, appropriate systems and actions, some fall outside the control of the Trustee and Manager and cannot be mitigated. A prospective Investor may manage the impact of risk by obtaining independent professional advice tailored to their investment objectives, financial situation and particular needs. An investment in the Trust should only be considered by Investors whose financial resources are sufficient to enable them to assume such risk and who have no immediate need for liquidity in their investment. The key risks associated with an investment in the Trust, including risks that may result in a reduction of returns and/or loss of Investors’ capital, include, but are not limited to, the following.
Tenant risks Failure by the Tenants to honour their lease obligations could result in a reduction to the distributions available, or in extreme circumstances, a failure by the Trust to meet its interest obligations on its borrowings. Two leases expire within the 5-year Forecast Income and Distribution Statement period. The forecast assumes that the existing tenant(s) renews their lease, or that a new tenant will occupy the tenancy upon the expiry of the lease(s). The ability of the Property to enable the Trust to achieve the target return on equity set out in this Information Memorandum assumes (among other things) that the Tenant/s honour their lease obligations and pay all rent and other amounts to the Trust, as and when due. Valuation risks Property values may fluctuate depending on market conditions. These factors are beyond the control of the Trustee. If the value of the Property declines during the term of the Trust, this could impact not only the value and potential realisations but could also result in a breach of the Debt Facility. Finance risks The Trust may borrow money on variable rates of interest and interest rate fluctuations could result in lower returns to Investors. As part of the loan facility arrangements, the Trustee will grant security over the assets of the Trust in connection with any borrowings it obtains on behalf of the Trust. If the Trust were to breach any loan covenants with a financier, the performance of the Trust may be affected by the acts of the financier enforcing its rights over the Assets of the Trust and the likelihood of an Investor receiving returns will be diminished. Loan facilities (including the Debt Facility) to be procured are likely to have a term shorter than the life of the Trust or the period for which the Property is held. Therefore, there is a risk that refinancing a loan facility could be on less favourable terms or not available at all. If the Trust were not able to refinance, it would need to sell assets on a forced sale basis with the risk that they may realise a capital loss.
Interest rate risks The current indicative terms from the Debt Lender for the Property provides for a margin of approximately 1.61% over the bank bill rate. In total, as at the date of this Information Memorandum, the interest rate would equate to approximately 6.07% per annum (this is based on the 90 day bank bill rate and is subject to change). Our current adopted interest cost for the Property are set at 5.95% per annum in Year 1. The Manager intends for the Trustee to maintain a prudent cash reserve to either offset future interest rate increases or (if applicable) to purchase interest rate risk management products. However, increases in interest rates will increase the funding costs for existing loan facilities which are refinanced, and may adversely impact the Trustee’s ability to deliver the target rate of return for Investors. Stamp duty The Trust will be a single asset trust, with the number of investors who subscribe for units and the number of units issued (Investor Spread) finalised on the close of the offer. It is possible the Investor Spread will mean that where an Investor transfers their units post Financial Close, such a transfer may be subject to stamp duty. Any stamp duty is the responsibility of transferor and transferee of units. If an Investor is considering transferring their units after the close of the offer, they should first contact the Manager. Engagement risks The Trustee will engage appropriate experts to investigate the environmental, structural and legal aspects of the Trust’s investments. The Trustee will seek to engage experts who are widely regarded for their specialist knowledge in the areas in which the Trustee seeks advice. Despite such investigations, the Trustee will not be able to guarantee the identification and mitigation of all risks associated with the Trust and its investments.
QUANTA TENNYSON STREET OFFICE TRUST | Information Memorandum
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