valad opportunity fund no. 11
Transcription
valad opportunity fund no. 11
Product Disclosure Statement VALAD OPPORTUNITY FUND NO. 11 Product Disclosure Statement VALAD OPPORTUNITY FUND NO. 11 Valad Commercial Management Limited ABN 76 101 802 046, ACN 101 802 046, AFSL 223339 as Responsible Entity for Valad Opportunity Fund No. 11 ARSN 108 693 876 An Offer to raise up to $27.294 million at the Application Price of $1.01 per Unit 3 May 2007 Manager www.vof.com.au Valad Commercial Management Limited, ABN 76 101 802 046, ACN 101 802 046, AFSL 223339 Sole Arranger and Underwriter National Australia Bank Limited ABN 12 004 044 937, ACN 004 044 937, AFSL 230686 > IMPORTANT NOTICE Responsible Entity and issuer of this PDS Valad Commercial Management Limited ABN 76 101 802 046, AFS Licence Number 223339 is the Responsible Entity of the Valad Opportunity Fund No. 11 (ARSN 108 693 876) (“Fund”) and is the issuer of this Product Disclosure Statement. > CORPORATE DIRECTORY jurisdiction outside of Australia. This PDS does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The distribution of this PDS in jurisdictions outside Australia may be restricted by law and persons who come into possession of it who are not in Australia should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. Product Disclosure Statement This Product Disclosure Statement (“PDS”) relates to the offer of up to 27.024 million Units at a price of $1.01 each (“Offer”). This PDS is dated 3 May 2007. This PDS is not required to be lodged with ASIC. ASIC takes no Disclaimers responsibility for the contents of this PDS. You Investments in the Fund do not represent should only rely on the information in this PDS. investments in, deposits with or other liabilities of No person is authorised to give any information NAB, Valad Property Group (“Valad”) or any other or to make any representation in connection member of the National Australia Bank or Valad with the Offer which is not contained in this PDS. Any information or representation not contained groups of companies. in this PDS may not be relied upon as having None of the Responsible Entity, Valad, NAB been authorised by the Responsible Entity in and any of their respective directors, officers or connection with the Offer. associates stands behind the capital value nor This is an important document that needs guarantees the performance of the investment your attention. If you are in any doubt as to how to or the underlying assets in the Fund nor provides interpret or deal with it, consult your financial a guarantee or gives any assurance as to the adviser. performance of the investment, the repayment of capital or any particular rate of capital or income Electronic PDS return. This PDS may be viewed online on the Fund’s website at www.vof.com.au or on National The National Australia Bank group of companies Australia Bank Limited’s website at (NAB Group) may also provide debt, treasury www.nabmarkets.com/valad. and other services to the Fund or its controlled If you access the electronic version of this PDS, entities. These services are provided in various you should ensure that you download and read the capacities as a third party provider and the NAB entire PDS. Group will act if necessary to protect its interests A paper copy of this PDS is available free of charge ahead of those of Investors and other parties. In to any person in Australia before the Closing Date acting in its various capacities in connection with of the Offer by telephoning NAB on 1800 652 669. the Fund, the NAB Group will have only the duties and responsibilities expressly agreed to by it in the Up to date information relevant capacity and will not, by virtue of acting Information relating to the Offer that is not in any other capacity, be deemed to have other materially adverse may change from time to duties or responsibilities or be deemed to owe a time. This information may be updated and made standard of care other than as expressly provided available at www.vof.com.au or by telephoning with respect to each such capacity. NAB on 1800 652 669. A paper copy of any updated information will be available free on request. It is NAB (whether in its individual capacity, as recommended that you review any such additional Underwriter, as Sole Arranger, as provider of material before making a decision whether to any debt facilities or treasury services or in any acquire Units. If there is any material adverse other capacity) does not accept any responsibility change, a supplementary product disclosure for any information or errors contained in, statement will be issued. or any omission from, this PDS and has not Pictures of properties in this PDS separately verified the information contained in All pictures of properties in this PDS are actual this PDS and makes no representation, warranty pictures of the Properties unless stated otherwise. or undertaking, express or implied, as to the accuracy or completeness or suitability of the Defined terms information contained in this PDS. Certain terms used in this PDS have been defined Investments in the Fund are subject to investment and the definitions are set out in the Glossary of and other risks, including possible delays in this PDS. Currency amounts are in Australian dollars. payment or loss of capital invested. The information contained in this PDS is not Offer restrictions financial product advice. This PDS has been The Offer is only being made to persons in prepared without reference to your investment Australia and to a limited range of persons in objectives, financial situation and particular some other jurisdictions to whom offers may be made without the need for compliance with any needs. It is important you read this PDS in its registration, licensing or disclosure requirements entirety before making a decision whether in the relevant jurisdiction. to invest. If you are in any doubt, you should consult your broker or financial or other No action has been taken to register Units or professional adviser. otherwise permit a public offering of Units in any Issuer and Responsible Entity Sole Arranger Valad Commercial Management Limited ACN: 101 802 046: AFSL 223339 National Australia Bank Limited Level 33 500 Bourke Street Melbourne VIC 3000 Responsible Entity of Valad Opportunity No. 11 (ARSN: 108 693 876) Level 9 1 Chifley Square Sydney NSW 2000 Directors of the Issuer Stephen Day (Chairman) Peter Hurley Trevor Gerber Bob Seidler Andrew Martin Auditors PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 1171 Registrar Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 precinct.com.au Underwriter National Australia Bank Limited Level 33 500 Bourke Street Melbourne VIC 3000 Solicitors to the Issuer Mallesons Stephen Jaques Level 61 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Investigating Accountant Deloitte Touche Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Information Line NAB: 1800 652 669 www.nabmarkets.com/valad > CHAIRMAN’S LETTER It is my pleasure to invite you to become an investor in Valad Opportunity Fund No. 11 (“VOF” or the “Fund”). I am also pleased to invite existing Unitholders in VOF to remain in the Fund. The responsible entity of the Fund is Valad Commercial Management Limited (“VCML”), a part of the listed Valad Property Group (“Valad”). Valad is one of Australia’s leading property groups and has significant expertise in managing third party equity capital. Valad has an established track record of delivering attractive returns to investors from active property investment, development and management. This is evidenced by the weighted average IRR of 26.5% (pre-tax and post fees and expenses) that Valad has delivered on all projects completed since its inception. The Fund will provide investors with the opportunity to invest in five development and value adding assets located in New South Wales, Victoria and Queensland. VCML will actively manage each asset through implementation of the appropriate repositioning, refurbishment or development strategy relevant to that asset. Based on the target returns from these assets VCML is aiming for the Fund to meet or exceed a 17% internal rate of return for Unitholders before tax and after fees and expenses.1 Indeed, Valad will only earn its full performance fee if each project exceeds this 17% target. The asset portfolio comprises: > Melbourne International Airfreight Centre, Tullamarine, Victoria – an industrial refurbishment and leasing opportunity > Minchinbury Hometown, Western Sydney, New South Wales – a retail/homewares centre being refurbished in advance of strata subdivision of the tenancies > Oran Park, South-west Sydney, New South Wales – 107 hectares of land being positioned for rezoning from rural to residential use prior to sale > Richlands, Brisbane, Queensland – two development land sites covering 6.7 hectares in total, acquired with a view to consolidation in advance of rezoning from future industrial to general industrial and subsequent sale > Noosa North Shore, Noosa, Queensland – an interest in the development of 90 beach holiday homes with masterplan approval already in place. I believe that the Valad Opportunity Fund No. 11 presents a unique and attractive opportunity for investors. > An opportunity to earn higher returns than those which investors would normally expect to receive from investing in a traditional property trust holding core assets with limited development/repositioning potential > Distributions to be paid following realisations from projects throughout the life of the Fund, all of which are expected to be completed within approximately three years > The benefit of proven active property management from an experienced team with a strong track record of performance. Valad has delivered a weighted average IRR of 26.5% for all projects completed since inception (pre-tax and post fees and expenses) > Valad’s interests are aligned with investors in VOF. Valad and its Directors will retain a significant holding in the Fund, and Valad is incentivised to deliver the Target IRR via a performance-based fee structure. This Product Disclosure Statement contains important information about the Offer, and it should be read in its entirety. Please consult your licensed financial adviser or NAB in relation to any questions you may have with regard to the Offer. On behalf of the Directors of VCML I commend this offer to you. Mr Stephen Day Chairman 1 This is not a forecast and should not be relied upon as such. 1 Valad Opportunity Fund Product Disclosure Statement > WHAT YOU NEED TO DO 1 2 3 4 Read this document Please read this PDS in full, paying particular attention to the Important Notice at the front of this PDS. Consider the Offer All risk factors (and other information) concerning Units, the Fund and the Properties need to be considered in light of your own investment situation. Please pay particular attention to the unlisted nature of the Fund and the limited liquidity of Units. If you need more information or clarification, you can contact NAB on 1800 652 669. Consult your adviser Your financial, taxation or other professional adviser is the best person to help you decide whether this investment is right for you. Complete the Application Form Should you wish to proceed with this investment, please complete and return the Application Form accompanying this PDS. The completed and signed Application Form must be returned together with payment by cheque for the full application amount. Cheques must be crossed “not negotiable” and made payable to “Valad Commercial Management Limited: Applications Account”. As the minimum number of Units for each Application is 20,000, the minimum Application is $20,200 (20,000 Units @ $1.01 per Unit). The address for mailing the completed Application Form with your cheque is: 5 Mail your Application Form and cheque 2 Valad Opportunity Fund Product Disclosure Statement Valad Opportunity Fund No. 11 c/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 The completed Application Form and payment must be received no later than 5.00pm (Sydney time) on the Offer Close Date of 29 June 2007. > KEY DATES Product Disclosure Statement date 3 May 2007 Offer opens 3 May 2007 Offer expected to close* 29 June 2007 Allotment of Units 9 July 2007 VCML reserves the right, with the consent of the Underwriter, to vary the dates set out above without notice, including closing the Offer early, or extending the Offer. The Responsible Entity may, in consultation with NAB, accept any application for Units in full, allocate fewer Units than have been applied for (including less than the stated minimum number), accept late applications or decline any application. Where no allocation is made, or where the number of Units allocated is fewer than the number applied for, the surplus application monies will be refunded, without interest, after the Offer Close Date. Holding statements will be forwarded to investors as soon as practicable after the Allotment Date. * Applications may be made at any time during the Offer Period. Pending allocations on 9 July 2007, all application monies will be held in an account established for this purpose, with any interest forming part of the trust income 3 Potential exposure to greater returns 4 Valad Opportunity Fund Product Disclosure Statement VOF strong performance history > Since establishment, VOF has performed well, completing and exiting from three projects, generating a weighted average IRR of 27.4% after all fees. > Existing fund with a strong track record of performance > Alignment of interests through co-investment by Valad > Managed by an experienced team with substantial property investment, development and funds management expertise >Target pre-tax IRR for the Fund, after all fees and expenses subject to the risks set out in Section 6 5 Valad Opportunity Fund Product Disclosure Statement > Three-year investment horizon > VOF projects are diversified across different market sectors and geographical regions > Diversification mitigates the risk of being exposed to a single sector or geographic region 1 > Melbourne International Airfreight Centre, Tullamarine, Victoria – an industrial asset located near Melbourne International Airport undergoing refurbishment and leasing 2 > Minchinbury Hometown, Western Sydney, New South Wales – a retail/homewares centre near the M4/M7 junction in Sydney currently being refurbished in advance of strata subdivision of tenancies 3 > Oran Park, South-west Sydney, New South Wales – 107 hectares of land being positioned for rezoning from rural to residential use prior to sale 6 Valad Opportunity Fund Product Disclosure Statement 4> Richlands, Brisbane, Queensland – two development land sites located 15 kilometres from the Brisbane CBD covering 6.7 hectares in total, acquired with a view to consolidation in advance of rezoning from future industrial to general industrial and subsequent sale 5 > Noosa North Shore, Noosa, Queensland – an interest in the development of 90 beach house holiday homes with Masterplan approval already in place. Stage 1 of the development and sales are underway with Stages 2, 3 and 4, due to be completed by the end of 2009 7 Valad Opportunity Fund Product Disclosure Statement > INVESTMENT SUMMARY Responsible Entity Valad Commercial Management Limited (“VCML”), which is a wholly owned subsidiary of Valad Funds Management Limited. Valad Funds Management Limited (“VFML”) is part of Valad Property Group (“Valad”), which is listed on the Australian Securities Exchange (“ASX”) with a market capitalisation of over $1.7 billion and assets under management of over $5.3 billion. Fund strategy VCML’s strategy for the portfolio is to complete the development and/or repositioning of the assets and to dispose of the assets to realise greater net proceeds from sale than costs incurred in the acquisition and development of each project taking account of the Target IRR. Asset portfolio > Melbourne International Airfreight Centre, Tullamarine, Victoria > Minchinbury Hometown, Western Sydney, New South Wales > Oran Park, South-west Sydney, New South Wales > Richlands, Brisbane, Queensland > Noosa North Shore, Noosa, Queensland Investment term Expected to be approximately three years. Investors will be able to exit the fund three and a half years following Allotment as detailed in Section 2.10. Amount to be raised Up to $27.294 million. Underwriting The offer is fully underwritten by NAB. Application price per Unit $1.01. Minimum Application Amount $20,200 being 20,000 Units at $1.01 per Unit. Use of funds Redemptions under the Withdrawal Offer, investment into the Noosa North Shore project and issue costs. Target IRR At least 17% (pre tax and after all fees and expenses).2 Distributions Distributions of capital and profits will be made within a reasonable time after the receipt of proceeds from the sale of individual assets or parts of assets where those assets are being sold piecemeal. 2 This is not a forecast and should not be relied upon as such. 8 Valad Opportunity Fund Product Disclosure Statement Investment risks The Fund has invested in property development and assets with an opportunity for repositioning which, by their nature, carry a higher level of risk than investments in completed and tenanted properties. Refer to Section 6 for more detail of risks associated with an investment in the Fund. Borrowings/debt Projects are geared at the asset level. Project gearing LVR ranges from 66% to 79% and averages 74% as at the date of this PDS.3 Pro-forma and Adjusted NTA per Unit on Allotment Pro-forma NTA per Unit on Allotment is $0.925. Cornerstone investment Valad, its Directors and their associated entities will hold at least 6,753,000 Units in the Fund, and intend to retain this interest for the life of the Fund. Liquidity There is no formal liquidity offered during the Fund term with the exception of an exit mechanism after three and a half years. Adjusted NTA including estimated fair value of the properties is $0.953. Units will not be quoted on any secondary market. Investors may sell their Units to a third party by negotiation at any time. Role of NAB Sole Arranger and Underwriter.4 Fees and expenses Management and other fees are payable by the Fund as described in more detail in Section 7. Tax status The Fund is a public trading trust for income tax purposes and will elect to be the head entity of a consolidated group with effect from 1 July 2006. This means the Fund will be treated as a company for all tax purposes, i.e. it will be liable to pay income tax at the company tax rate (currently 30%) on its taxable income for each year, which will generate franking credits that may be distributed to Unitholders. It is expected that all income distributions during the Fund term will be fully franked. Potential investors should read the Taxation Report in Section 9.3 for further detail. Labour standards, environmental, social or ethical considerations VCML does not take into account labour standards, environmental, social or ethical considerations in selecting, retaining or realising investments for the Fund, except to the extent that such issues have an effect on the price or value of investments. Cooling-off period There is no cooling-off right for investors as the Fund will be an illiquid scheme. Please read this PDS in its entirety, particularly Section 6.2 – Significant Potential Risks of the Fund. If you have any queries on whether this investment suits your personal financial circumstances, please consult your financial adviser. 3 4 The LVR ranges stated do not include the investment in Noosa North Shore which itself is structured as a debt instrument rather than an investment in freehold land and Oran Park for which debt is yet to be secured. NAB is also a debt provider for the MIAC and the Noosa North Shore Projects. 9 Valad Opportunity Fund Product Disclosure Statement > TABLE OF CONTENTS Important Notice IFC Chairman’s Letter 1 What You Need to Do 2 Investment Summary 8 Table of Contents 10 1. Overview of Valad Opportunity Fund No. 11 11 2. Details of the Offer 17 3. Development and Repositioning of Property 22 4. Valad Property Group 26 5. Asset Portfolio 34 6. Investment Benefits and Risks 49 7. Fees and Other Costs 55 8. Financial Information 62 9. Experts’ Reports 10. Material Documents and Additional Information 11. Glossary 12. Application Forms Corporate Directory 10 68 109 119 122 IBC > 1 OVERVIEW OF VALAD OPPORTUNITY FUND NO. 11 11 Valad Opportunity Fund Product Disclosure Statement > 1 OVERVIEW OF VALAD OPPORTUNITY FUND NO. 11 1.1 Overview of the Fund 1.2 Fund Structure Valad Opportunity Fund No. 11 is focused on generating returns for investors through active development or repositioning of property assets. Generally, the returns from these types of property investments, where successful, are higher than those an investor would normally expect to receive from an investment in a traditional property trust holding core assets with limited development potential. VOF is an ASX listed property trust, for which trading in Units is currently suspended pending the outcome of this Offer. Following the close of the Offer, VOF will delist from the ASX and continue as an unlisted property trust. The Fund will have investments in five Projects across a broad spectrum of property asset classes and geographical locations. The investment strategy in place for each asset is targeted towards maximising returns for investors. The Fund is aiming to provide investors with a pre-tax, post fees and expenses IRR of at least 17% (“Target IRR”).5 The Projects are outlined below: > Melbourne International Airfreight Centre, Tullamarine, Victoria (“MIAC”) – an industrial asset located near Melbourne International Airport undergoing refurbishment and leasing in preparation for sale in 2007 > Minchinbury Hometown, Western Sydney, New South Wales (“Minchinbury”) – a retail/homewares centre near the M4/M7 junction in Sydney currently being refurbished in advance of the strata subdivision of its tenancies due for completion in 2009 > Oran Park, South-west Sydney, New South Wales (“Oran Park”) – 107 hectares of land being positioned for rezoning from rural to residential use prior to sale estimated to be completed by mid 2008 > Richlands, Brisbane, Queensland (“Richlands”) – two development land sites located 15 kilometres from the Brisbane CBD, covering 6.7 hectares in total, to be consolidated in advance of rezoning from future industrial to general industrial and subsequent sale which is scheduled for the end of 2008 > Noosa North Shore, Noosa, Queensland (“Noosa North Shore”) – an interest in the development of 90 beach house holiday homes with masterplan approval already in place. Stage 1 of the development and sales is in the process of being completed with stages 2, 3 and 4, due to be completed by the end of 2009. 5 This is not a forecast and should not be relied on as such. 12 Valad Opportunity Fund Product Disclosure Statement VCML is the responsible entity for the Fund and the issuer of Units offered under this PDS. VCML is a wholly owned subsidiary of VFML, which together with Valad Property Trust forms Valad Property Group, listed on the ASX with a market capitalisation of $1.7 billion and assets under management of over $5.3 billion. Valad has a strong track record of delivering superior returns from property development and repositioning. A key element of the Fund’s structure is the appointment of Valad Development Management Limited (“VDML”) (a wholly owned subsidiary of VFML) as Development Manager for all of the Projects, with the exception of Noosa North Shore which is managed by the independent party who initially sponsored the project. VDML actively participates in the management of the Noosa North Shore project through a Project Control Group structure and oversees all key decisions made in relation to the project. The Responsible Entity retains overall responsibility for the Fund’s operations and is liable for the acts of agents and delegates that it appoints in connection with the Fund, including the Development Manager. The Fund’s interests in the properties are held in special purpose trusts or companies which are 100% owned by the Fund with the exception of Noosa North Shore. This is depicted in Figure 1.1. Figure 1.1 VOF Structure 100% 100% Valad Property Group 19.9%* holding VCML “Responsible Entity” Master Development Management Agreement VDML “Development Manager” Responsible Entity External Investors 80.1% holding VOF “the Fund” Richlands Minchinbury Oran Park MIAC Noosa North Shore * Includes Directors’ holdings. Maximum allowable given stamp duty restrictions. 1.3 Fund History In 2004 Valad established VOF as a listed property trust with the strategy of investing opportunistically in the acquisition, development, repositioning and on-sale of properties. VOF was listed on the ASX on 6 July 2004 following a successful capital raising of $33 million. Since listing on the ASX, VOF has performed well at an asset level, achieving a weighted average pre-tax IRR of 27.4% (after all fees and expenses) on the projects completed prior to the date of this PDS.6 However, as the Fund has developed, VCML has formed the view that the size of the Fund and the nature of the development style earnings are not well suited to the listed environment. Accordingly, VCML made the decision to convert VOF into an unlisted investment vehicle with an expected life of three years. This was announced on 9 March 2007. Existing Unitholders in VOF have the opportunity to either redeem their Units by participation in the Withdrawal Offer or to remain in VOF. 6 The Fund will retain and continue the development and repositioning of four of its five existing assets, and will acquire an interest in Noosa North Shore as an additional investment. VOF’s existing interest in Erskine Park will be sold, as the strategy for this property has changed. VCML is of the opinion that Erskine Park is now better suited to a “develop and hold” strategy which no longer fits within the Fund’s mandate. VOF Units have been suspended from trading on the ASX and will remain suspended throughout the Offer. VOF will be converted into an unlisted trust immediately following the successful completion of this Offer and allotment of the Units to new investors in the Fund. If the Offer is not successful, the suspension of trading will be lifted and trading on the ASX will recommence. This IRR calculation does not include the IRR attributed to Erskine Park which is an unfinished project. The strategy for Erskine Park has changed and as a result no longer fits within VOF’s mandate. Erskine Park will be sold at market value, equal to its accumulated cost, as part of the recapitalisation of VOF. The transaction value will be supported by two independent valuations. The IRR including Erskine Park is 21.1%. 13 Valad Opportunity Fund Product Disclosure Statement > 1 OVERVIEW OF VALAD OPPORTUNITY FUND NO. 11 1.4 Fund Strategy Valad Property Group The strategy of the Fund is to generate attractive returns from the Projects in the Fund by implementing the appropriate development, repositioning or refurbishment strategy for each asset as detailed in Section 5. The Valad management team has an excellent track record in delivering superior returns from active property management and this expertise will be applied to the Asset Portfolio with the objective of maximising equity returns whilst preserving and protecting investor capital. Valad is an ASX listed specialist property investment, development and funds management group with a market capitalisation of more than $1.7 billion with over $5.3 billion of assets under management. Valad has over 12 years experience in the development, repositioning and management of property assets. Valad’s Performance History Since inception in 1995, Valad has completed property repositioning and development projects with an end value of $1.3 billion comprising: As the Projects are sold, the capital and profits arising will be returned to Unitholders within a reasonable timeframe after receipt of the sale proceeds. The progressive return of capital will have the effect of reducing Unitholders’ equity in the Fund over time. > 13 office development, repositioning or refurbishment projects > 8 industrial projects including land subdivisions, developments and refurbishments 1.5 Relevant Experience of the Valad Property Group > 4 residential developments > 5 retail developments and one retail refurbishment and repositioning Importance of Relevant Experience > 5 mixed use developments. The capability and experience of Valad is important to the Fund, as the Asset Portfolio comprises Projects in need of development and repositioning, which require more active management than passive property investment. The weighted average pre-tax IRR (post fees and expenses) for all of the above activities was 26.5%. Figure 1.2 shows the level of IRR performance achieved across different asset classification categories. Figure 1.2 Valad IRR Performance on Completed Projects Weighted Average IRR by Asset Category 43.9% 38.1% 27.4% 27.1% 23.1% 26.5% 15.9% VOF Office Industrial 14 Valad Opportunity Fund Product Disclosure Statement Retail Mixed Use Residential Average IRR The following important factors should be noted in relation to the previous performance of Valad’s projects: > IRR is not the annual yield on equity that investors receive. It is measured over the life of an investment and includes capital growth. For a definition of IRR refer to the Glossary in the back of this document > IRR is generally enhanced by the use of debt financing, due to the return on equity capital being greater when combined with the use of debt > Investment in the Fund will be subject to a number of risk factors including those outlined in Section 6.2 > The past performance of these projects is in no way an indication of the future performance of the Fund. 1.6 VOF’s Performance History Since establishment, VOF has completed and exited from three projects, generating a weighted average pre-tax IRR of 27.4% after all fees and expenses.7 The three projects are detailed below: 2 Richardson Place, North Ryde, NSW One of the original seed assets in VOF, 2 Richardson Place was an A-grade suburban office project with net lettable area of 15,220 square metres and 503 car spaces. At the time of acquisition the property was under construction with a pre-lease commitment in place for 37% of the building. The strategy for the project was to: > complete construction on time and within budget VOF actively managed the construction and development of the property, improving the leasing position to 53%. In October 2005, VOF sold its interest in the property to Valad for $68.5 million which was based on two independent valuation reports obtained by VOF in order to determine and substantiate a fair value for the property. This represented a pre-tax, post fees and expenses IRR of 20.3% on the transaction. Summary of Transaction Acquisition price $33.0 million Sale price $68.5 million IRR 20.3% > lease the vacant space > implement appropriate property management systems > sell the property at a time when it was substantially leased, and VOF had secured the benefit of improving rentals and proposed new infrastructure in the immediate vicinity. 7 This IRR calculation does not include the IRR attributed to Erskine Park which is an unfinished project. The strategy for Erskine Park has changed and as a result no longer fits within VOF’s mandate. Erskine Park will be sold at market value, equal to its accumulated cost, as part of the recapitalisation of VOF which will be supported by independent valuations. The IRR including Erskine Park is 21.1%. 15 Valad Opportunity Fund Product Disclosure Statement > 1 OVERVIEW OF VALAD OPPORTUNITY FUND NO. 11 Regency Green, Regents Park NSW (50%) Pitt Street Portfolio NSW (50%) Regency Green was acquired by VOF at the time of its initial public offering under a joint venture arrangement with VFML. Regency Green was a 25.1 hectare site offering a proposed industrial land subdivision 20 kilometres west of the Sydney CBD. At the time of acquisition, 58% of the land lots were under conditional sale agreements. The strategy for the project was to: In August 2004, VOF purchased a 50% interest in three B-grade commercial office buildings at 51 Pitt Street, 37 Pitt Street and 6 Underwood Street in the Sydney CBD, in joint venture with Valad. These three buildings comprised total net lettable area of 20,400 square metres and are located in a strategic position within the Sydney CBD in close proximity to Circular Quay. The strategy for these buildings was to: > secure authority approvals (to remove conditionality and permit the unconditional sale of the balance of the lots) > secure purchasers for the remaining uncommitted lots > refurbish and upgrade the services and finish of each building > construct infrastructure to service the land subdivision > undertake a leasing program to attract new tenants > settle the sale of individual lots once titles had been issued by the government Land Titles Office. > prepare the buildings for sale. Infrastructure and civil development works were completed by mid 2005, and sales were completed by December 2005. For its 50% interest, VOF generated a pre-tax, post fees and expenses IRR of 22%. Summary of Transaction The joint venture managed the strategic refurbishment, repositioning and leasing of the portfolio, following which the portfolio was sold via a public auction at a value significantly higher than the acquisition price. Summary of Transaction Acquisition price Acquisition price $23.9 million Sale price Sale price $37.4 million IRR IRR 22% 16 Valad Opportunity Fund Product Disclosure Statement $80.2 million $121.4 million 32% > 2 DETAILS OF THE OFFER > 2 DETAILS OF THE OFFER 2.1 Delisting of the Fund 2.4 Property Mix Flexibility The Fund is a registered managed investment scheme established in 2004 which was listed on the Australian Securities Exchange on 6 July 2004 under the ASX code VOF. The Fund proposes to delist from the ASX following completion of a withdrawal offer under Part 5C.6 of the Corporations Act to existing Unitholders (“Withdrawal Offer”). The Withdrawal Offer is conditional upon the successful completion of the Offer. Once delisted, the Fund will continue as an unlisted development fund with an expected life of three years. VOF will realise the value of its investment in Erskine Park under an irrevocable offer granted by the Valad Property Trust. Erskine Park is an existing but as yet unfinished project in which VOF is a minority joint venture participant (36% interest but holding a 50% voting interest). The strategy for Erskine Park has changed and as a result no longer fits within VOF’s mandate. VCML is of the opinion that Erskine Park is now better suited to a “develop and hold” strategy. Under the irrevocable offer, the Fund’s interest will be sold at market, for approximately $7.9 million, which will be supported by two independent valuations. Further details on the irrevocable offer can be found in Section 10.3. The public offer of Units to new investors comprises the Offer under this PDS. 2.2 Existing Unitholders Existing Unitholders have the option of either redeeming their Units as part of the Withdrawal Offer or doing nothing and continuing as Unitholders in the Fund. Existing Unitholders should refer to the Withdrawal Offer which has been provided to them, and contact their financial or other professional adviser should they require further advice. Existing Unitholders may apply for further Units pursuant to the Offer. 2.3 Units Available for Subscription by New Investors This Offer is for up to 27.024 million Units at an Issue Price of $1.01 per Unit, raising total Offer proceeds of up to $27.294 million. The total amount of the capital raising is dependent upon: > the number of Unitholders in VOF who elect to redeem their Units under the Withdrawal Offer > the amount of capital invested by VOF in Noosa North Shore. The Offer under this PDS will raise the amount required to satisfy redemptions under the Withdrawal Offer, plus provide sufficient capital to meet the costs associated with the Offer and the net investment in Noosa North Shore (after accounting for the proceeds from the sale of Erskine Park). As a result, the number of Units to be issued pursuant to this Offer may be less than the maximum of 27.024 million Units. 18 Valad Opportunity Fund Product Disclosure Statement In addition, VCML has entered into a Call Option with Valad to purchase an interest in another project, Noosa North Shore. On acquiring all of Valad’s interest in the Project, VCML will allocate a portion of its interest to VOF up to a maximum value of $10.1 million. The interest allocated to VOF will depend on the level of redemptions under the Withdrawal Offer. Further details on the structure of VOF’s proposed investment in Noosa North Shore can be found in Section 5.2.5. 2.5 Expected Level of the Capital Raising It is not possible to determine the exact level of redemptions under the Withdrawal Offer, and consequently the number of Units that need to be issued under this Offer, prior to the close of the Withdrawal Offer. In order to understand the Offer range needed to fund redemptions under the Withdrawal Offer, the Responsible Entity has examined the register of Unitholders and been able to determine those investors who: > are likely to accept the Withdrawal Offer (namely those investors who usually do not hold unlisted Units under their investment mandates); or > have indicated that they wish to remain in the Fund (including Valad and its Directors). From this analysis, the Responsible Entity has been able to determine with a reasonable level of certainty the likely maximum (“High Capital Raise”) and minimum (“Low Capital Raise”) amount of the capital raising. It has also estimated an “expected” level of redemptions under the Withdrawal Offer. Utilising the flexibility afforded to it under the Call Option agreement for the Noosa North Shore investment, the Responsible Entity has been able to determine that the capital raising will fall within the $22.570 million to $27.294 million range and is targeting a raising of $26.164 million based on its anticipated level of redemptions. The variance in capital raised, the anticipated level of redemptions under the Withdrawal Offer and the size of the investment in Noosa North Shore are indicated in the table below. This analysis is further detailed within the Source and Application of Funds table in Section 8.1. Issue of Units to investors under this PDS Redemption of Units under the Withdrawal Offer Investment in Noosa North Shore LOW CAPITAL RAISE $’000 HIGH CAPITAL RAISE $’000 EXPECTED CAPITAL RAISE $’000 22,570 27,294 26,164 16,031 27,294 21,180 10,100 3,800 8,800 2.8 Potential Scale Back of New Investors In the event that a greater number of applications are received than are required, the Responsible Entity will endeavour to fulfil applications on the basis of giving priority to those investors who lodged their Application Forms together with application monies first. The Responsible Entity and Underwriter retain the right to accept applications in full, to reject applications, or to scale back applications and accept for a lower amount than that applied for. 2.9 Minimum Application The minimum number of Units that can be applied for under this Offer is 20,000 requiring minimum application funds of $20,200. 2.10 Liquidity and Exit Mechanism Investors should view an investment in the Fund as illiquid. 2.6 Offer Is Underwritten NAB has underwritten the Offer to the level of $27.294 million. Subject to the terms of the Underwriting Agreement, the Underwriter will subscribe for any shortfall in applications for Units. Material terms of the Underwriting Agreement, including the circumstances in which the Underwriter may terminate its obligations, are detailed in Section 10.3. If the Underwriting Agreement is terminated no Units will be issued and the Withdrawal Offer will not be completed. 2.7 Issue Mechanics It is currently anticipated that Allotment of new Units will occur on 9 July 2007. The Withdrawal Offer will close approximately one week prior to the close of the PDS offer period and redemption monies will be paid promptly following the issue of new Units in the Fund, but no later than 21 days after the close of the Withdrawal Offer. The Units will not be listed on the ASX or any other secondary market. Investors may transfer or sell their Units at any time provided they are able to locate a purchaser and negotiate a sale price. Any transfer of Units is subject to the Fund Constitution, including the investor bearing any costs and stamp duty associated with such a transfer. The Responsible Entity may refuse to register a transfer of Units at its absolute discretion. To the extent that any Projects remain incomplete at a date three and a half years after the Allotment of Units under this Offer, then VCML will offer an exit mechanism to all Unitholders on the following basis: > If the NTA per Unit is less than 10 cents, then VCML will either offer to redeem all Units, transfer all Units to Valad or the Fund would be terminated. Proceeds received by Unitholders will be based either on independent valuation of the assets or actual sale prices > If the NTA per Unit is 10 cents or greater, then VCML will consider the Fund’s position, and depending on what it considers to be in the best interests of Unitholders it will either: – redeem all Units, transfer all Units to Valad or the Fund would be terminated. Proceeds received by Unitholders will be based either on independent valuation of the assets or actual sale prices; or 19 Valad Opportunity Fund Product Disclosure Statement > 2 DETAILS OF THE OFFER – make a recommendation to Unitholders to vote by ordinary resolution on whether to extend the life of the Fund. However in doing so Valad will still provide Unitholders with a means of exiting at value at that point in time. If Valad purchases any assets of the Fund as part of a winding up of the Fund then it will do so in accordance with the Constitution and VCML’s Conflict Management Strategy. 2.11 Distribution Policy Distributions of capital and income will be made upon the receipt of proceeds from the sale of individual Projects, after provision for taxation and liabilities. 2.12 Debt Funding There will be no borrowings at the Fund level. Borrowings are instead made by the vehicles which own the assets of each Project. As such, financiers will not have recourse to any other assets of the Fund, only to the assets of the particular borrowing entity. 2.13 Expected Life of the Fund and Exit Strategy for Unitholders The expected life of the Fund is dependent upon the time it will take to complete the Projects. During or at the end of each Project the properties and associated assets will be sold and all profits and capital (after all fees, expenses and taxes) will be distributed to Unitholders in proportion to their Unitholdings. The anticipated life of the Fund is three years, representing the estimated time to complete the Project of longest duration. In the event that all of the Projects are not completed by this time then an exit mechanism will be available to investors as outlined in Section 2.10 above. 2.14 Reports to Investors VCML anticipates providing Unitholders with quarterly reports detailing the performance of the Fund and updating Unitholders on progress of the Asset Portfolio. VCML will also provide annual audited accounts for the Fund. VCML will provide Unitholders with notification of distribution payments in advance of those payments being made, including the amount of franking of distributions. 20 Valad Opportunity Fund Product Disclosure Statement 2.15 Tax Implications for Investors The Fund should be classified as a public trading trust for the purposes of the Income Tax Assessment Act and will elect to be the head entity of a consolidated group with effect from 1 July 2006. This means the Fund will be treated as a company for all tax purposes. The effect of this is: > the Fund is considered to be a separate taxable entity from its investors and is liable to pay Australian income tax at the corporate rate (currently 30%) on its net income > the Fund will receive franking credits for the amount of tax paid and these will be used to frank distributions to Unitholders. Unitholders should only be subject to tax on the distributions they receive. To the extent these distributions are distributions of capital, no amount should be assessable to the Unitholder, but rather the cost base of their Units in the Fund will be reduced. To the extent these distributions are distributions of income, the amount received (together with any franking credits attaching to the distribution) will be included in Unitholders’ taxable income. The franking credits may in turn be used to reduce the income tax payable by Australian resident tax paying Unitholders. It is expected that all income distributions during the Fund’s remaining term will be fully franked. A summary of the income tax implications applicable to investors is outlined in the Taxation Report contained in Section 9.3. The advice is general in nature and prospective investors should seek their own professional taxation advice in relation to their own position. 2.16 How to Apply for Units Investors must complete and return an Application Form together with the application monies before the Offer Close Date. Applications for Units can only be made by completing the Application Form accompanying this PDS or attached to the electronic version of this PDS which can be obtained from the VOF website at www.vof.com.au or NAB’s website at www.nabmarkets.com/valad. The Application Form must be completed in accordance with the instructions set out in Section 12 of this PDS and on the reverse of the Application Form. Application Forms must be accompanied by a cheque made payable to “Valad Commercial Management Limited: Applications Account” and crossed “not negotiable” in payment for the Units in the Fund that are the subject of that application. Your Application Form and cheque should be sent to: 2.18 Electronic Offer Document Valad Opportunity Fund No. 11 c/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 This PDS may be viewed online at www.vof.com.au or at www.nabmarkets.com/valad. Applicants using the Application Form that accompanies the electronic version of this PDS must be located in Australia. Persons who receive the electronic version of this PDS should ensure that they download and read the entire PDS. A completed and lodged Application Form, together with payment for the number of Units applied for, cannot be withdrawn except as permitted by law and, when accepted, constitutes a binding commitment for the number of Units specified in the Application Form or such lesser number of Units allocated to the Applicant on the terms set out in this PDS. Application Forms must be received by the Offer Close Date. The Responsible Entity, with the consent of the Underwriter, reserves the right to extend or shorten the Offer Period. If the Application Form is not completed correctly the Responsible Entity has absolute discretion to reject the Application Form, or treat it as valid and construe, amend or complete the Application Form as it deems appropriate. 2.17 Privacy Information By completing the Application Form that accompanies this PDS, you are providing personal information to VCML for the primary purpose of VCML providing this investment product to you. VCML may use the personal information contained in your application form for related purposes such as administration and providing services to you in relation to your investment in the Fund. Administration includes monitoring, auditing, evaluating, modelling data, answering queries and providing services in relation to the investment. If you do not provide the information requested in the Application Form, your application may not be able to be processed. VCML may share your personal information with external service providers and other entities in Valad for the purpose of their providing services such as register keeping, postage, administration, etc. to the Fund and its Unitholders. We will also send you information on new investment offers unless you advise us not to do so. Please contact us on 1800 825 231 (1800 VALAD1) if you do not consent to us using or disclosing your personal information in these ways. You may view Valad’s privacy policy at www.valad.com.au. You may request access to your personal information that VCML or an external service provider holds in relation to your investment by writing to VCML at the address in the Corporate Directory. A paper copy of this PDS will be provided free of charge to any person who requests a copy by contacting Valad or NAB by mail or in person, during the period of the Offer. You should follow the instructions of your financial adviser in making your application. It is important to read the entire PDS before applying for Units. 2.19 Overseas Investors This PDS does not constitute an offer in any jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer. No action has been taken to register or qualify the Units or the Offer or otherwise to permit an offering of the Units in any jurisdiction outside Australia. Accordingly, the distribution of this PDS in jurisdictions outside Australia is limited and may be restricted by law. Persons who come into possession of this PDS who are not in Australia should seek advice on and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of securities laws. 2.20 No Cooling-off Period As the Fund will invest in real estate, which is not liquid for the purposes of the Corporations Act, there will not be a cooling-off period for Applications. Consequently, by submitting an Application Form, you will be deemed to have applied for the number of Units for which payment is made. Once an Application has been accepted it cannot be withdrawn. 2.21 Investor Enquiries This document is important and should be read in its entirety. If you are in doubt as to the course you should follow, you should consult your financial adviser. Questions relating to the Offer can be directed to NAB on 1800 652 669 (local call cost), or your financial adviser. For further contact details, please see the Corporate Directory. 21 Valad Opportunity Fund Product Disclosure Statement > 3 DEVELOPMENT AND REPOSITIONING OF PROPERTY Property Repositioning 3.1 Creating Value from Property Development and Repositioning Property Development Property development is the process of acquiring a property asset, making substantial physical changes to it and selling the asset at a profit. The property development process generally involves: > locating a suitable site for development > designing a concept development > determining if the development is feasible > purchasing the property and arranging finance Property repositioning is the process of acquiring a property asset that is generally under priced by the market, making improvements to it and selling the asset at a profit. Typically, property repositioning involves lesser physical changes than property development, which usually involves construction of a new building or major renovations. Property assets can become undesirable to both tenants and investors because of, for example, inactive property management, lack of maintenance, an unattractive lease profile, or poor building services such as air-conditioning and lifts. Addressing the building’s shortcomings through relatively minor building works and active property management can make it more attractive to investors and tenants and thereby improve the value of the property. > applying for relevant authority permits > construction or subdivision > marketing the project > securing tenants (if applicable) > disposal of the property for net proceeds greater than the total acquisition and development cost. Figure 3.1 Value Creation from Property Development Expected increase in property value Expected property value Value creation from development Accumulated costs of each stage of development Initial feasibility Property acquisition Concept design and town planning Construction or subdivision Property marketing Secure tenants (if applicable) Property disposal Typical stages of property development 23 Valad Opportunity Fund Product Disclosure Statement > 3 DEVELOPMENT AND REPOSITIONING OF PROPERTY In various circumstances, land and property may not be positioned to capitalise on its highest and best use due to factors such as town planning restrictions. By actively managing the process to rezone land or obtain planning and development approvals for changed uses, the value of the relevant land and property can be materially improved and it may be opportune to exit the investment at this point in order to maximise the IRR return rather than continuing to invest further capital for the longer term. Oran Park and Richlands are an example of this strategy. > improving the internal and external appearance of the property The techniques used to reposition an asset depend on whether it is an office, industrial, residential or some other type of property. > leasing vacant space (if applicable) However, repositioning generally involves some or all of the following work: > possibly increasing the lettable area of the building. > rezoning land to support higher and better use > removing restrictions/limitations over the land > improving property facilities and infrastructure to meet current and prospective tenants’ accommodation needs > improving the space utilisation of the property > maintaining available revenue streams during repositioning to limit funding requirements > renegotiating with tenants so that leases are longer and/or at rents reflecting current market > improving the extent to which the building complies with government regulations Property development and property repositioning are inherently riskier than passive property investment but generally provide superior returns. See Section 6.2 for further information on risks. Figure 3.2 Value Creation from Property Repositioning Expected increase in property value Expected property value Value creation from repositioning Accumulated costs of each stage of repositioning Initial feasibility Property acquisition External and internal upgrade or land rezoning Marketing of repositioned property Typical stages of property repositioning 24 Valad Opportunity Fund Product Disclosure Statement Renegotiation of current leases and leasing of vacant space 3.2 Factors Driving Property Development and Repositioning Opportunities Property development and repositioning opportunities are generally driven by changes in the requirements of occupiers and investors, and broader changes in land use patterns over time. Some of the factors that may contribute to these changes include: > businesses placing an increased emphasis on managing occupancy costs > changes in the importance of the presentation of premises > changes in the composition of the Australian labour force and the consequent need for businesses to relocate to areas convenient for labour > change in production and distribution methods affecting space requirements > demographic and lifestyle changes which may create a need for new types of commercial and residential buildings > changes in the community and transport infrastructure > degradation of existing buildings > increasing environmental, social and community standards (for example environmental regulations) affecting the viability and utility of older building stock. VCML will continue to consider these dynamics when reviewing opportunities to further enhance value for the Fund’s investors from property development and repositioning of the Asset Portfolio during the life of the Fund. The property development sector is highly competitive and requires a disciplined approach for consistent success. Valad has an established record of accomplishment in active property investment and development management. For further details see Sections 1.5 and 1.6. 25 Valad Opportunity Fund Product Disclosure Statement > 4 VALAD PROPERTY GROUP 4.1 Valad Property Group Valad is a specialist property investment and funds management group founded in 1995. Valad listed on the ASX in 2002 and now has a market capitalisation of more than $1.7 billion and $5.3 billion of assets under management. Valad brings together experience in the development and management of a broad range of Australian and international property assets and investment vehicles. Since 1995, Valad has managed and invested funds on behalf of investors with exposure to property investments whose value, when combined with the expected end value of current projects and investments, exceeds $6.5 billion. Investments have ranged from greenfield developments, through to the refurbishment of existing assets and their divestment after renegotiating leases and improving management, to investment in passive property assets. Market sectors have included commercial offices, business parks, industrial estates, data centres and multi-unit residential developments. The Board of VCML has extensive property and commercial experience, the details of which are summarised below. The Board of Directors of VCML has appointed Wendy Boxall (detail of experience in Section 4.5 below) as Fund Manager of VOF. 4.2 Key Investment Criteria for the Asset Portfolio Valad follows an intensive investment process when choosing suitable assets to be acquired for its funds or managed entities, which reflect the investment mandate and risk profile of the underlying entity. This is the same investment process that VCML has undertaken in choosing the Asset Portfolio for the Fund. The Projects comprising the Asset Portfolio were each selected following detailed feasibility studies taking account of the Target IRR. As noted earlier, VCML is the responsible entity of the Fund. VCML is also the responsible entity of Valad Property Trust. The Development Manager of the Fund is Valad Development Management Pty Limited (“VDML”). VCML and VDML are wholly owned subsidiaries of Valad. 27 Valad Opportunity Fund Product Disclosure Statement > 4 VALAD PROPERTY GROUP The following process map demonstrates the investment and project implementation processes of Valad and the Fund. Figure 4.1 Valad Investment Evaluation and Implementation Process Project Acquisition and Approval Process Negotiation with Vendor Project Identification Preliminary Investment Review Due Diligence Project Investment Approval and Acquisition Development or Repositioning Activity > Continual review of market fundamentals > Financial due diligence > Establish project team > Compile due diligence findings > Funding structure > Target identified markets > Estimate project costs and revenue > Environmental and technical review > Prepare Final Investment Proposal (“FIP”) > Initial market assessment > Preliminary discussions with tenants > Negotiate final acquisition terms > Initial concept design > Detailed costing > Initial review of planning > Instruct independent valuation > Finalise property and legal due diligence > Highlight key risks > Full market assessment > Finalise funding structure > Pipeline Review Meeting > Preliminary feasibility > Complete acquisition > Determine if project meets Fund mandate and required returns > Legal review > Identify due diligence costs > Finalise project design > Prepare Preliminary Investment Proposal (“PIP”) > Agree funding structure > Access opportunities through Fund Manager’s networks and activities > Identify key risks and possible returns > Identify opportunity to pursue > Board approval of due diligence costs > Refine feasibility and cash flow model > Identify alternative exit strategies > Analyse risk/return Board Approval Process Board Notified of Opportunity Board Approves PIP Due Diligence Update Board Approves FIP Labour Standards, Environmental, Social or Ethical Considerations VCML does not take into account labour standards, environmental, social or ethical considerations in selecting, retaining or realising investments for the Fund, except to the extent that such issues have an effect on the price or value of investments. 28 Valad Opportunity Fund Product Disclosure Statement 4.3 Project Review Process The Board of VCML has established an Investment Committee, which formally meets at least quarterly to review the progress of the Fund’s Projects and consider disposals and/or alternate exit strategies if appropriate. In addition, the Investment Committee continuously reviews each Project at monthly Project Control Group meetings comprising members of the Investment Committee and senior management of VCML. The Investment Committee refers all material matters to the Board of VCML, including: > any project where the Investment Committee expects that material departures from the project’s original development strategy will be necessary > any project whose financial performance is expected by the Investment Committee to be materially different from that budgeted. All disposals of assets require approval from the Board of VCML. Figure 4.2 Valad Ongoing Project Review Process Project Implementation Plan – Monthly Project Control Group – Monthly Sales and Leasing – Monthly Feasibility and Accounting Review Fund Manager Meeting Planning and Design Building Works Marketing Strategy Project Disposal Development Activity > Appoint consultants > Tendering contractor works > Agent appointment > Finalise design and plans > Ongoing project management > Set marketing plan > Preparation of disposal plan for Board approval > Identify value engineering opportunities > Variation management > Tenancy negotiations > Document sale terms > Practical completion of works > Purchaser negotiations > Complete disposal > Organise planning approvals > Finalise sales and leasing 29 Valad Opportunity Fund Product Disclosure Statement > 4 VALAD PROPERTY GROUP 4.4 Board of Directors of the Responsible Entity Stephen Day Executive Chairman Peter Hurley Executive Director Stephen was an Executive Director of Valad since founding the organisation in 1995 until assuming the role of Executive Chairman in July 2004. From 1985 to 1995 Stephen was employed by Lend Lease where he was responsible for the acquisition, development and management of commercial, industrial and residential projects in various Australian capital cities. During this time he was also based in Europe in order to establish a research based acquisition strategy for Lend Lease’s global funds management business. This business had property investments in the UK, France and Spain. Stephen has a degree in economics and accountancy from Macquarie University. He is responsible for the sourcing and acquisition of property related assets and investments, and the initiation and negotiation of new business opportunities consistent with Valad’s expansion strategies. Peter is currently an Executive Director of Valad and has been a director of Valad since 1997. He held the position of Joint Managing Director until 2004, and Managing Director until 2006. Between 1988 and 1997 Peter was employed by Lend Lease where he acted as the investment manager to a number of Lend Lease property investment funds. Immediately prior to joining Valad, Peter was based in Singapore as the investment adviser to Lend Lease’s Asia Pacific Investment Company. Peter also spent three years in Paris and London where he was the Investment Manager responsible for the acquisition and management of Lend Lease’s European retail portfolio. Peter has an honours degree in civil engineering from the University of New South Wales. 30 Valad Opportunity Fund Product Disclosure Statement Trevor Gerber Independent Non-executive Deputy Chairman Trevor was with Westfield Holdings Limited for 14 years until 1999, as Group Treasurer and subsequently as Director of Funds Management responsible for Westfield Trust and Westfield America Trust. Trevor is also a director of Macquarie Airports Group and Macquarie ProLogis Trust, and Chairman of Everest Babcock & Brown Alternative Investments. Trevor has a degree in accountancy from the University of Witwatersrand, South Africa, and is a Chartered Accountant. Bob Seidler Independent Non-executive Director Robert Seidler is a partner of Blake Dawson Waldron lawyers which he joined after the Seidler Law Firm merged with Blake Dawson Waldron in 2004. Prior to establishing the Seidler Law Firm he was managing partner of Coudert Brothers in both Sydney and Tokyo. He is currently a member of the Investment Review Board of Australian Prime Property Fund, a member of the Australian Government’s Corporations and Markets Advisory Committee, an alternate director of Leighton Holdings Limited and Chairman of Hunter Phillip Japan Limited. His previous directorships include Mitsubishi Bank of Australia Limited and Nikko Securities Australia Limited. Robert has a law degree from Sydney University. Andrew Martin Independent Non-executive Director Andrew Martin joined Valad following a 30-year property career including stints in the UK and Indonesian property markets and extensive work with a number of Japan’s major real estate investors, banks, institutions and developers. Andrew spent 23 years with Jones Lang LaSalle, including in the role of Managing Director of Jones Lang LaSalle Advisory. Prior to retiring from Jones Lang LaSalle, Andrew was an International Director in their Capital Markets Group which was responsible for the disposal and acquisition of real estate across the commercial, retail and industrial sectors, acting on behalf of both domestic and international investors. Andrew has a Bachelor of Arts from the University of New South Wales, and is a Fellow of the Royal Institution of Chartered Surveyors and a Fellow of the Australian Property Institute. 31 Valad Opportunity Fund Product Disclosure Statement > 4 VALAD PROPERTY GROUP 4.5 Investment Committee of the Responsible Entity The members of the Investment Committee of the Responsible Entity are as follows: Stephen Day Executive Chairman For details of experience see previous page. Peter Hurley Executive Director For details of experience see previous page. Wendy Boxall Fund Manager Wendy Boxall is a Chartered Accountant with over 10 years of experience in accounting and finance. Wendy’s experience began with Deloitte Touche Tohmatsu in Auckland following which she spent several years in London with Close Brothers Corporate Finance, a leading independent UK investment bank. On returning from the UK, Wendy spent three years with Patersons Securities where she worked on a number of capital raising transactions with a particular focus on the property sector. Wendy has a Bachelor of Commerce (Honours) and a Master of Commerce (with Distinction) from the University of Auckland. 4.6 Senior Staff of the Responsible Entity VCML’s senior staff have extensive experience in property management, leasing and development, and finance. The following senior staff of VCML will assist in the management of the Fund on a day-to-day basis. Paul Notaras CEO Funds Management and Capital Services Paul brings over 19 years’ experience as a senior executive in property investment, finance and funds management. At Valad, Paul is responsible for the group’s Funds Management and third party joint venture business. Prior to joining Valad, Paul was a Director and Principal of ICA Property Group (acquired by Valad in July 2004) where he was responsible for the establishment and growth of the ICA Property Development Funds platform. Paul was also a key executive in the establishment of GE Capital Real Estate (a subsidiary of the General Electric Company of the USA) in Australia in early 1997, becoming the Managing Director for Australia, a position he held until joining ICA Property Group. Paul has a degree in economics and accountancy from Macquarie University. Nicki Garrett Head of Equity Markets Nicki has extensive domestic and global investment banking and equity capital markets experience having worked in the industry for over 10 years. In particular, Nicki has a significant track record of successful capital raisings and mergers and acquisitions transactions in Sydney, London and Asia. At Valad, Nicki is responsible for the group’s product development and distribution. Prior to joining Valad, Nicki had positions with Macquarie Bank, ABN AMRO and Patersons Securities Limited. Nicki completed a Bachelor of Laws (Honours) and a Bachelor of Commerce (with Distinction) at the University of Auckland in New Zealand. Wendy Boxall Fund Manager For details of experience see Section 4.5. 32 Valad Opportunity Fund Product Disclosure Statement Chris Carroll General Counsel / Compliance Manager Martyn McCarthy CEO Real Estate Investments Chris has held senior legal and management positions at Lend Lease in Australia and Asia and more recently at Principal Global Investors, where he was largely responsible for the acquisition of the management rights to the Lend Lease US Office Trust and the sale of Principal’s hotel portfolio. Chris has extensive experience in large property transactions, mergers and acquisitions as well as general management. Martyn is responsible for Valad’s acquisition, management and divestment team for Commercial Real Estate Investments. Since joining Valad in 2003, Martyn has sourced, acquired and disposed of in excess of $2 billion worth of commercial, industrial and retail investments including the acquisition of Millers Self Storage properties worth over $250 million, as well as the seed assets for the Fund. Prior to Valad, Martyn was employed for six years at GE Real Estate, where he was responsible for sourcing acquisitions, establishing joint ventures and arranging structured finance for commercial, industrial, retail and residential property, with particular focus on value-adding opportunities. In this role, he was involved in transactions in Australia and New Zealand with a value exceeding $1.5 billion. Prior to joining GE, he worked in commercial real estate agency and valuation practices. Jeremy Stevenson Legal Counsel, Funds Management and Capital Services Jeremy is legal counsel for the funds management and capital markets division at Valad Property Group. He has over 10 years of experience in corporate and commercial legal practice, with a particular focus on investment management law and the establishment of domestic and international investment funds. Jeremy has worked in Adelaide, London (where he spent over five years at Clifford Chance LLP, one of the world’s premier law firms) and Sydney. Jeremy has a Bachelor of Commerce and a Bachelor of Laws (Honours) from the University of Adelaide. He has completed postgraduate studies in legal practice and finance. Shaun Hannah CEO Real Estate Developments Shaun has 20 years of experience in the property industry with considerable expertise in industrial, office and bulky/service retail development. Shaun was a Director and Principal of ICA Property Group from 1992 where he was responsible for sourcing and executing the group’s development projects. With Valad’s acquisition of ICA Property Group in 2004, Shaun is now responsible for the same role within Valad. Shaun is a member of various professional institutions, including being a Fellow of the Australian Property Institute and a Founding Member of the Property Council of Australia Industrial Committee. Todd Solomon Development Executive Todd has responsibility for sourcing and managing Valad investments in Victorian developments. Todd commenced his career in 1994 at the US investment bank Salomon Brothers, based in New York. He transferred to Melbourne with that firm in 1996 where his focus was on equity and debt finance in the resources sector. In 2000, Todd joined Macquarie Bank’s property investment banking group and in mid 2005 he relocated to Sydney with Valad as Fund Manager of VOF. He was actively involved in the purchase and investment management of the assets in the Fund. Todd will maintain an active role with the Fund through to completion of the Offer. His role will then shift to sourcing new assets which may suit Valad fund management platforms. Todd holds a Bachelors Degree (Honours) in Business Economics from the University of California at Los Angeles. 33 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.1 Overview of the Asset Portfolio 5.1.2 Minchinbury Hometown, Western Sydney, NSW The Fund will comprise five Projects in total, four of which are already owned by the Fund. The fifth Project, Noosa North Shore, will be introduced as part of the recapitalisation of the Fund. The Projects comprise: > An established retail homemaker centre in Sydney’s West near the M4/M7 motorway interchange with good exposure to the Great Western Highway 5.1.1 Melbourne International Airfreight Centre, Tullamarine, VIC > 28 tenancies in total, contained within nine separate buildings located around the perimeter of the site in an open centre format. > A prominent industrial estate located two kilometres from Melbourne Airport with over 370 metres of frontage to the Tullamarine Freeway > Net lettable area of 24,137 square metres with 35 office/ warehouse units and parking for 450 cars > MIAC offers excellent access from the Tullamarine Freeway with attractive immediate services including restaurants and a shopping centre. Project Value-adding Strategy > Purchased in August 2005 for refurbishment, lease-up and sale > 19,345 square metres net lettable area and 435 car spaces on approximately 5.3 hectares of land Project Value-adding Strategy > The Fund purchased the property in June 2006 to undertake a cosmetic refurbishment, strata subdivision and on-sale of strata retail units to current tenants and investors > A strata plan has been approved by Council and will shortly be lodged with the NSW Department of Lands > Minchinbury Hometown is to be rebranded as “M Centre” as part of a rebranding and repositioning marketing campaign designed to reinvigorate interest in the centre and attract new tenants to the site. > Building works are now substantially complete > Leasing agents appointed to market remaining vacancies. Key attractions for new tenants include location, affordability compared with nearby offerings and flexibility with office/ warehouse size > Sale of the asset will be undertaken once occupancy exceeds 75%. 5.1.3 Oran Park, South-west Sydney, NSW > Country estate comprising 107 hectares of land approximately eight kilometres from Campbelltown in south-west Sydney > The land is currently zoned rural, but lies within the Sydney Metropolitan Strategy, South-west Growth Centre and has been earmarked by the NSW State Government for future urban growth. Project Value-adding Strategy > Valad is currently working with state and local planning authorities to accelerate the rezoning of the land to position it as a future residential land subdivision and to increase the subdivisible productivity of the land by minimising current heritage overlay restrictions > Upon advancing progress towards both these objectives and achieving an uplift in land value, the Fund will seek to sell its interest in the land. 35 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.1.4 Richlands, Brisbane, QLD 5.1.5 Noosa North Shore, Noosa, QLD > Two vacant adjoining land parcels with a total area of 6.7 hectares in an established industrial precinct 20 kilometres south west of Brisbane > Interest in a 90 beach house holiday home development located in the exclusive and picturesque Noosa North Shore > The land is in close proximity to the Ipswich and Centenary Motorway interchange which is currently under construction. Project Value-adding Strategy > Amalgamation of the two land parcels into a single site, thereby significantly improving access to the second parcel > Improve zoning to “General Industry” and “Light Industry”, drawing upon proven project delivery, town planning execution and marketing expertise possessed by Valad > Upon achieving a satisfactory planning outcome, the Fund will sell the land to either an industrial user or to a property developer with planning consent. > Development is being undertaken by Petrac, an established Queensland-based residential property developer, and overseen by VDML > Masterplan approval has been obtained for the project, and development consent has been obtained for the first stage which is presently under construction > Subject to the successful completion of this Offer, the Fund will purchase a variable preferred equity interest of up to $10.1 million from VCML. Project Value-adding Strategy > Complete zoning and infrastructure works > Market the sale of the land and construct premium accommodation, targeting purchasers who are environmentally conscious and wish to holiday in a natural setting, but do not want to be without modern day luxuries > Stage 1 sales are already virtually complete with an average sale price achieved of $1.2 million per home. Figure 5.1 Summary of Portfolio Assets PROJECT NAME TYPE OF PROJECT MIAC, Tullamarine Property repositioning and lease-up Minchinbury Hometown Property repositioning and strata sell-down INDEPENDENT VALUATION FUND EQUITY INVESTMENT ANTICIPATED REALISATION DATE $24.2m $6.46m September 2007 $17.5m $3.675m February 2010 8 Oran Park Residential rezoning $24.0m $10.1m July 2008 Richlands Industrial rezoning $11.4m $3.9m June 2008 Noosa North Shore9 Residential development $11.6m Up to $10.1m November 2009 8 9 This equity investment will not be required in full until settlement of the acquisition of Oran Park which will take place in December 2007. Based on the Expected Capital Raise the investment in Noosa North Shore will be $8.8 million. The independent valuation is based upon the mid-point of the valuation range. 36 Valad Opportunity Fund Product Disclosure Statement Figure 5.2 Location by Value of Equity Investment Figure 5.3 Location by Gross Value > Victoria 19% > Victoria 28% > Queensland 38% > Queensland 24% > New South Wales 43% > New South Wales 48% Figure 5.4 Equity Investment by Sector Figure 5.5 Gross Value by Sector > Industrial 12% > Industrial 13% > Commercial 19% > Commercial 28% > Residential development 10% > Retail 11% > Residential development 26% > Residential rezoning 28% > Residential rezoning 32% Figure 5.6 Type of Risk Exposure by Equity Investment Figure 5.7 Type of Risk Exposure by Gross Value > Income generating 30% > Development preferred equity 27% > Retail 21% > Development preferred equity 10% > Income generating 49% > Land rezoning 41% > Land rezoning 43% Note: It is assumed the gross value and equity value for the Noosa North Shore investment are the same, being $8.8 million based on the expected capital raise. Figure 5.8 Expected Project Realisation Timetable PROJECT 2007 JUL 2008 OCT JAN APR 2009 JUL OCT JAN APR 2010 JUL OCT JAN MIAC Minchinbury Oran Park Richlands Noosa North Shore 37 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.2 Project Detail 5.2.1 Melbourne International Airfreight Centre, Tullamarine, VIC Project Overview MIAC was acquired by the Fund in August 2005 with the primary strategy being to stabilise an underperforming asset through refurbishment and restructuring of its leases. During 2006 major refurbishment works were completed and the estate now benefits from an updated internal and external presentation, enhanced accessibility (with a new vehicular exit), a B-double truck turning facility, low-maintenance native landscaping, entry signage and a garden café. MIAC will be marketed for sale in the 2008 financial year. Building Description The property comprises a mix of office/warehouse units originally constructed in the 1980s. In aggregate, the property comprises a total of 35 units, with the average office area being 183 square metres and the average warehouse 774 square metres. The net lettable area of the buildings is 24,137 square metres. MIAC offers potential tenants: > close proximity to Melbourne Airport with significant frontage to the Tullamarine Freeway > close proximity to the entry/exit to the Tullamarine Freeway > nearby amenities including Gladstone Park Shopping Centre, fast food restaurants > an affordable alternative to new industrial space Property Location The property is approximately two kilometres from Melbourne Airport with more than 370 metres of frontage to the Tullamarine Freeway and 94 metres of frontage to Mickleham Road. The surrounding area is predominantly industrial warehouses, appealing to airport related uses (freight forwarding and logistics) with the Age Print Centre immediately to the north of the property. Proximity to the Tullamarine Freeway, Western Ring Road and City Link provides excellent linkages to the airport, CBD, ports, suburbs and all major interstate transport routes. The location has historically been attractive to freight forwarders and airport related businesses, and this property offers a cost effective solution for tenants compared to design and construct options nearby. 38 Valad Opportunity Fund Product Disclosure Statement > flexible warehousing with ability for incremental take-up over time > a competitive rental price point. Project Strategy MIAC offers a repositioning opportunity via refurbishment, leasing and on-sale. With the property now 73% occupied and works completed, the main focus is centred on leasing ahead of marketing the property for sale. BROADMEADOWS W Tullamarin es te rn Ri ng Rd Northern Ring Rd MIAC COBURG e Fwy Eastern Hwy MELBOURNE CBD Princes Hwy HAWTHORN PORT MELBOURNE Project Funding The table below shows the total funding requirement for the Project: Senior Debt Limit $16.94 million Mezzanine Debt Limit $0.8 million Equity – VOF (100%) $6.46 million Total Value to Fund $24.2 million Debt Funding Senior debt has been provided to the Project on the following terms: Facility Limit $16.94 million Expiry 30 June 2008 Loan to Value Ratio 70% Repayment Terms: Bullet on sale In addition Valad provides $0.8 million of mezzanine debt to the Project. The mezzanine debt is subordinated to the senior debt facility and ranks in priority to the Fund’s equity investment. The outstanding balance of the facility (including any accrued interest) will be repaid upon the sale of MIAC. Melbourne International Airport Key Property Information PROJECT DESCRIPTION Location International Drive, Tullamarine, VIC Description of Proposed Project Refurbishment, leasing and sale Land Area 5.3ha Building Description Industrial estate offering mix of office/warehouse units Car Spaces Approximately 450 Major Tenants Smith Lewis, United Air Cargo PROJECT VALUATION Valuation $24.2 million Valuer m3property Date of Valuation 31 December 2006 39 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.2.2 Minchinbury Hometown, Western Sydney, NSW Project Overview The Fund purchased Minchinbury Hometown, a first generation bulky goods/homemaker centre, in June 2006. The intention of the purchase is to conduct a cosmetic refurbishment, strata subdivision and sale of the retail premises to investors and owner-occupiers. Property Location The property occupies a prominent corner position on the Great Western Highway, immediately to the north of the M4 Motorway and approximately 41 kilometres by road to the west of the Sydney CBD. The property has good access from the Great Western Highway and Sterling Road, with separate service areas providing vehicular entry and exit points. Bulky goods retail use is well established in the locality of Minchinbury and is interspersed along the arterial thoroughfare. Building Description The building is a single level retail centre in an “open level” format totalling 19,345 square metres of gross lettable area and centralised parking for 435 cars. The centre comprises 28 tenancy areas of varying sizes, but broadly divisible as follows: 2 2 > 20 tenancy areas of between 68m and 701m > 8 larger tenancy areas of between 833m2 and 2,417m2. Most tenancies are occupied by retail tenants, with connected office space available above one of the tenancies. Project Strategy The property trades as “Minchinbury Hometown” and is currently an underperforming retail centre with 28 individual tenancies/units. The intention is to convert the existing buildings on site from leased retail tenancies to separately owned strata units. The cost of this activity will be minimal as the buildings are already suited for this use. 40 Valad Opportunity Fund Product Disclosure Statement The refurbishment works to the centre support an exciting rebranding and repositioning as “M Centre: Lifestyle, Home, Outdoor” and will be marketed as a unique opportunity to purchase retail units in an established precinct. The proposed works are to include new estate signage, painting throughout the complex, improved landscaping, and a commitment to the ongoing promotion of the centre throughout the sell-down period. These works have been tested with the existing tenants within the property, and have been well received. The marketing campaign will be broad reaching, offering major retailers an opportunity to position themselves in the Minchinbury area, and at the same time continuing to provide local businesses a home within an established centre in the area. The Minchinbury market is regarded as a strong precinct for small strata unit sales. M Centre will service this ongoing demand, but also appeal to a user group that seeks to incorporate an opportunity to sell their products in a prominent centre at a comparable price to standard industrial units in the area with lesser exposure. Likely user groups include, but are not limited to, homewares, trade-related businesses and furniture groups. Development Approval The land is currently zoned 4(c) “Special Industrial”, which permits a broad range of light industrial and retail uses. A technical due diligence review has been undertaken which indicates that development consent has been obtained for the strata subdivision of the property. The strata plan was prepared and endorsed by Council, however has not been lodged with the NSW Department of Lands. As the development consent has not been superseded, it remains current and (upon lodgement with the NSW Department of Lands) can still proceed at nil upgrade works cost to VOF, thereby facilitating the exit strategy at negligible cost. e St le Ave Ro Great Georg Hwy Weste pe rR d lis le A y ve MINCHINBURY HOMETOWN Rop Archb r Ca rn Hw old St estern Carlis Great W er Rd BLACKTOWN PENRITH M4 Motorway Project Funding The table below shows the total funding requirement for the Project: Senior Debt Drawdown $13.825 million Equity – VOF (100%) $3.675 million Value $17.5 million Debt Funding Senior debt has been provided to the Project on the following terms: Facility Limit $19.4 million Loan to End Value Ratio 65% on “as if” complete value of $30.5 million Term Expiry 22 June 2009 Repayment Terms Bullet on sales Key Property Information PROJECT DESCRIPTION Location Corner Great Western Highway & Colyton Road, Minchinbury, NSW Description of Proposed Project Bulky retail refurbishment and strata subdivision Land Area 5.315 hectares Building Description Single level bulky goods retail centre Car Spaces 435 Major Tenants Blue Haven Pools PROJECT VALUATION Valuation $17.5 million Valuer Knight Frank Date of Valuation 31 March 2007 41 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.2.3 Oran Park, South-west Sydney, NSW Project Overview Oran Park is a “greenfield” englobo site of approximately 107 hectares which is intended for future residential land subdivision. A call option to acquire the property was entered into by the Fund in July 2006 with deferred settlement due to take place in December 2007. Oran Park was identified by the Fund as an attractive land repositioning/rezoning opportunity with Valad expertise being used to “add value” to the subject land by obtaining planning consent for higher and better use (residential). Property Location The property is situated in Catherine Fields with frontage to Cobbitty Road and Camden Valley Way. Catherine Fields is a predominantly rural/residential suburb that lies some eight kilometres north-west of Campbelltown and 50 kilometres by road south-west of the Sydney CBD. Sydney’s south-west represents an affordable alternative to the inner suburbs, with the median house price in the area more than 25% below the Sydney average. The completion of the M5/M7, Eastern Distributor and M4 have benefited the region with shorter commuting times to the Sydney CBD and airport, and better infrastructure, attracting commercial and industrial operations. PRD Realty highlights Sydney’s south-west as one of Sydney’s few growth corridors, the other being the north-west (Rouse Hill). Project Strategy The strategy for this acquisition is to add value by: > substantially advancing a rezoning to residential usage by positioning this parcel of land in the first stage south-west growth centre release (Oran Park) or within the first stage release of the Catherine Fields precinct > work with neighbouring land owners to achieve a master plan and infrastructure contribution strategy > pursuing the sale of the land on an englobo basis in a two-year time frame. This time frame will be constantly reviewed with the aim of ensuring that the return to the Fund is maximised. 42 Valad Opportunity Fund Product Disclosure Statement The transaction will draw upon significant project delivery, town planning and repositioning expertise possessed by Valad. In Sydney’s south-west there is a supply shortage of large-scale landholdings in the hands of institutional developers. Large parcels of land are controlled by private individuals, with few controlled by institutions especially to the north of the subject site. There is a high degree of fragmented ownership. Valad believes that there is strong competition among major land developers to secure contiguous sites for subdivision. Therefore, Oran Park represents a rare opportunity in the south-west which can be expected to attract significant attention when VOF seeks to sell-down an interest in the project. Development Approval The land is currently zoned “1(a) Rural”, and forms part of the “South-West Growth Centre Draft Structure Plan” under the Department of Planning’s “Sydney Metropolitan Strategy”. The Draft Structure Plan is an indicative regional land use plan that guides detailed planning for land use precincts once released. The land sits within the “Catherine Fields precinct” and is immediately adjacent to the initial release areas of Oran Park and Turner Road. Prior to Valad’s purchase of the site, Oran Park was not being actively positioned as a future residential estate. Valad has made a submission to the Department of Planning to accelerate the rezoning of the land within the first stage of residential land release in the South-West Growth Corridor. Valad is also working with neighbouring landowners to advance resolution of heritage, infrastructure delivery and zoning issues. Northern Growth Centre M7 M2 PARRAMATTA M4 M7 SYDNEY CBD LIVERPOOL M5 South West Growth Centre PORT BOTANY ORAN PARK CAMPBELLTOWN Project Funding To date, all expenses and costs have been funded out of the Fund’s equity. Oran Park was purchased on a deferred settlement basis and is due for settlement in December 2007. The settlement will be funded by a combination of cash held by the Fund and debt finance, which is intended to be secured prior to settlement. The table below shows the total funding requirement for the Project: Senior Debt Drawdown $13.3 million Equity – VOF (100%) $10.1 million Total Cost to Fund $24.0 million 1//354258 190Ha 1//354258 34Ha 27//213330 34Ha 27//213330 59Ha Debt Funding An indicative term sheet for the debt funding has been received and is illustrated below: Facility Limit $18.2 million Expiry 12 months from settlement Loan to Value Ratio 80% of as is value at settlement Repayment Terms Bullet on sale Key Property Information PROJECT DESCRIPTION Location 931 Cobbitty Road, Catherine Fields, NSW Description of Proposed Project Residential rezoning Land Area 107 hectares PROJECT VALUATION Valuation $24.0 million Valuer Colliers Date of Valuation 31 March 2007 43 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.2.4 Richlands, Brisbane, Queensland Project Overview The Fund purchased two vacant parcels of land comprising a contiguous 6.7 hectare future industrial zoned site in November 2006. The opportunity exists to add value to the subject land by consolidating the two properties, obtaining planning consent for industrial uses, drawing upon the proven project delivery, town planning execution and marketing expertise possessed by Valad. Property Location The property is situated within the established industrial area of Richlands, approximately 20 kilometres south-west of the Brisbane CBD. Richlands, which is located in close proximity to the industrial areas of Wacol and Darra, has become popular with transport and logistics companies. Surrounding users in close proximity to the site include Woolworths, Coca-Cola, TNT, Toll Logistics, Electrolux and Scania. This locality is characterised by low supply (of both land and investment stock) and underpinned by increasing tenancy demand driven by infrastructure improvement (including the Logan/Ipswich/Centenary Motorway Corridor). The majority of these upgrades will improve traffic connections to the site. Specifically, it has been reported that the Australian Government has provided $320 million to upgrade the Ipswich Motorway from Wacol to Darra. When complete, this will greatly improve safety, reliability and traffic flows to Richlands and surrounding areas. It is also expected that following the mooted redevelopment of the nearby Wacol Sanananda Barracks site into a large mixed use commercial, retail and industrial development, the profile of the locality will improve greatly by opening up future growth and job opportunities in the surrounding areas. This development is at the very early planning stages and is expected to take several years to complete. Property Description The property comprises two contiguous land parcels totalling 6.7 hectares. The Orchard Road site is currently zoned “General Industry” and the Archerfield Road site is currently zoned “Future Industry”. 44 Valad Opportunity Fund Product Disclosure Statement Project Strategy Since purchase, the Fund has worked with local planning authorities to advance the proposed industrial usage for the site. The opportunity exists to add value to the land by consolidating the two properties, significantly improving access to the second parcel, and obtaining planning consent for industrial uses. The exit strategy will involve securing sale to appropriate users (industrial) and/or on-sale to developers with the planning consent intact. Pre-leases to appropriate users may be considered in order to enhance site value. BIS Shrapnel report that warehousing is the dominant driver for industrial property in the south-east Queensland industrial market and that this trend is set to continue over the next decade. In recent times demand for warehousing in south-east Queensland has been sustained by the resources boom, strong retail activity and higher construction spending, and BIS Shrapnel expects this momentum to be maintained through to at least 2008. Specific elements of the property that will attract future acquirers include: > frontage to each of Orchard Road and Archerfield Road offering good exposure > the location is approximately three kilometres south-east of the Ipswich Motorway/Centenary Motorway interchange which is currently under construction > the locality is underpinned by low industrial land supply and increasing tenant demand > plans for the nearby 107 hectare Wacol Sanananda Barracks site include mooted development plans for a mix of industrial, commercial, residential and large-format retail projects which will further benefit the precinct. Development Approval A preliminary approval for material change of use to “General Industry” and a reconfiguration of lot for a seven lot industrial subdivision has been granted for 301 Orchard Road. There is currently no development approval for the Archerfield Road site. The Fund is working to secure a “Light Industry” zoning for the Archerfield Road site and planning consent for the development of industrial buildings on both sites. The proposed application is consistent with the Brisbane City Council strategic planning objectives. P ac ific Hw Ce nt en ar yH wy y BRISBANE CBD Ipswich Mwy RICHLANDS ci Hw wy fic Logan M Pa IPSWICH y BEENLEIGH Project Funding The table below shows the total funding requirement for the Project: Senior Debt Drawdown $7.5 million Equity – VOF (100%) $3.9 million Total Cost to Fund $11.4 million Debt Funding Senior debt has been provided to the Project on the following terms: Facility Limit $7.5 million Loan to Value Ratio Maximum 60% loan to total cost Term Expires December 2008 Repayment on Sales 100% of the debt will be repaid from sales proceeds Key Property Information PROJECT DESCRIPTION Location 301 Orchard Road & 255 Archerfield Road, Richlands, QLD Description of Proposed Project Rezoning to General and Light Industrial Land Area 6.7 hectares PROJECT VALUATION Valuation $11.4 million Valuer Knight Frank Date of Valuation 31 March 2007 45 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO 5.2.5 Noosa North Shore, Noosa, Queensland Project Overview VFML and a third party property developer, Petrac, have entered into a joint venture over two separate projects in Noosa. The two sites are located within one kilometre of the beach on one side and lake on the other, separated from Noosa by the Noosa River. These projects represent the only development opportunities available in the area. The interest in Noosa North Shore, which is to the south, is the subject of this Offer. The project comprises the development of 90 luxury holiday homes within the existing bushland setting. Masterplan approval has already been obtained for the Project, and development consent has been obtained for the first two stages. Stage 1 is presently under construction. Property Location Noosa North Shore is part of a unique and picturesque wilderness area on Queensland’s Sunshine Coast. With Laguna Bay and the beach to the east and Lakes Cooroibah and Cootharaba to the west, the site has numerous natural features including native animal and bush life and adjoins a national park. Noosa North Shore is accessed via ferry and has undergone little development, with future development of the area restricted and tightly controlled. Whilst Noosa North Shore is situated in a pristine natural setting and physically separated from the rest of the Noosa area, it is only a 15 minute drive (including a five minute ferry trip) to Hastings Street, Noosa. Noosa North Shore Noosa is a tightly held land market with few land subdivision opportunities available within Noosa Shire. The property comprises 71.2 hectares, with the development being contained within a site of approximately 20 hectares and the remainder to be kept in its natural form. Valad’s joint venture partner, Petrac, has controlled the site for over three years, during which time it has masterplanned the development. 46 Valad Opportunity Fund Product Disclosure Statement The Project comprises the development of 90 modern beach houses within the natural environment. The product is designed to cater for purchasers who are environmentally conscious and wish to holiday in a natural setting but do not want to be without modern day luxuries. The beach houses are to be contemporary in style, using lightweight natural building materials designed to blend in with the natural setting. The houses will be built over four stages, with Stage 1 to incorporate common facilities including a recreation centre and associated open space. The houses are designated “short stay” with a maximum stay of 12 weeks per year, and therefore will be sold as holiday homes under a community title. An on-site manager will be available to manage a letting pool for any owners who wish to lease their home when it is not being used and to provide a concierge type service including maintaining the bush environment surrounding the homes. The current status of the project is: > Stage 1 building works approximately 40% complete > Stage 1 roads 100% complete > Stage 2 development application approval expected in May 2007 > Stage 3 concept design commenced. The current status of sales is: Stage 1: > 20 unconditional (average price achieved $1.2 million) > 1 manager’s residence (Lot 2) > 3 available (Lots 5, 8 & 22). Stage 2: > 8 unconditional (Lots 26, 27, 28, 35, 37, 39, 41 & 48) > 16 available. The layout of the project is illustrated on page 48. Beach Road Holiday Homes Noosa Ferry NORTH SHORE Eu mu ndi No osa Rd Bec kma ns R d NOOSA HEADS Fennie Cree k Rd NOOSAVILLE David L ow Wa y Moorin dil Rd Maximil lian Rd Beach Rd Key Property Information PROJECT DESCRIPTION Location Noosa North Shore, – Corner Maximilliam Road and Beach Road, Noosa, QLD Description of Proposed Project Residential land development Land Area 71.2 hectares PREFERRED EQUITY VALUATION Valuation $11.6 million being the mid-point of the valuation range determined of $11.3 million to $11.9 million Acquisition Price to Fund Up to $10.1 million Valuer BDO Corporate Finance Date of Valuation 31 March 2007 47 Valad Opportunity Fund Product Disclosure Statement > 5 ASSET PORTFOLIO The Partner – Petrac Petrac is a south-east Queensland based private development company which was established in 1993. Projects undertaken by Petrac have involved residential land subdivisions including land only and house and land community style developments. In addition, Petrac developed, and currently manages, an existing assisted living retirement village at Banora Point NSW, and has owned and managed the Noosa North Shore site since 2003. Petrac is currently developing one of Australia’s largest active adult retirement communities at Redland Bay, comprising 450 dwellings. The company is soon to undertake another major retirement community development in the bayside suburb of Wynnum. It also recently acquired an 80 hectare waterside development site in Lennox Head in northern New South Wales. The current Petrac pipeline has a value exceeding $1.2 billion. VOF Interest VOF will enter into an investment agreement with VCML under which VOF will have a right (not an obligation) to acquire up to $10.1 million of VCML’s interest in the Project. Funding Structure VCML has a preferred equity investment position in the Project. Part or all of the preferred equity investment will now be assigned to VOF upon exercise of the call option by VCML. The funding for this Project is provided from a number of sources, summarised as follows: (1) Senior debt, which is secured by first mortgage security over the land and project. This is provided by NAB on an arm’s length basis (2) Preferred equity (i.e. secured subordinated debt), which is secured by second mortgage security over the land and project. 70% of the Project equity is provided by VCML on a preferred basis. The balance of equity is provided by Petrac. The key terms of the investment by VOF in the Project are as follows: > VCML and VOF will provide up to $10.1 million of preferred equity, however, based on the expected level of redemptions under the Withdrawal Offer, this is expected to be $8.8 million 48 Valad Opportunity Fund Product Disclosure Statement > The return on VOF’s preferred equity comprises a coupon of 11.5% p.a. payable as detailed below. In addition VOF will receive a proportion of the Project profit based on the proportion of VCML’s interest it acquires. VCML is entitled to receive 40% of the Project profit until it receives all profit and interest owing to it (equal to an IRR of 25%) and thereafter a 25% share of project profit. Proceeds from sale of the Project will be applied in the following priorities: > Firstly, to fund any costs of the Project > Secondly, to pay amounts due and payable to the senior lender > Thirdly, to repay VCML and VOF’s preferred equity finance and associated coupon, which will be in priority to Petrac and its investors’ share of their equity and coupon > Fourth, to repay Petrac and its investors’ equity finance and associated coupon > Finally, to repay the profit share (if any) to each of VOF and Petrac. There are a number of mechanisms in place to ensure VOF maintains close supervision of the project with “step in” rights available should an event of default occur. Noosa North Shore – South Site Plan > 6 INVESTMENT BENEFITS AND RISKS > 6 INVESTMENT BENEFITS AND RISKS 6.1 Significant Potential Investment Benefits of the Fund Potential Exposure to Greater Returns > The Fund provides an opportunity for investors to gain exposure to the attractive returns available from property development and repositioning > These returns are generally higher than investors would expect to receive from investing in more traditional property trusts holding passive assets with limited development upside > The target pre-tax IRR for the fund is at least 17%, after all fees and expenses.10 Experienced Management Team Distributions and Franking Credits > It is intended that the Fund will pay distributions following the realisation of capital and profits for each project. These distributions will consist of both after tax profits and capital returns > Unitholders may be able to use any franking credits on the component of distributions that consists of a distribution of after tax income to reduce income tax otherwise payable. Projects are Diversified Across Different Market Sectors and Geographical Regions > The Fund is diversified across Victoria, New South Wales and Queensland with exposure to retail, commercial/ industrial and residential sectors > The Fund will be managed by an experienced management team with substantial property investment and development, and funds management expertise > Diversification mitigates the risk of being exposed to a single sector or geographic region. > The Board, the Investment Committee and the senior managers of VCML all have extensive experience in project management, project financing, development management and property funds management across a broad range of property investment vehicles and across all property asset classes including office, retail, industrial and residential sectors Enhanced Returns through Debt Funding, with Recourse Limited to Equity Capital Contributed to the Fund by Investors > The weighted average internal rate of return achieved by the previous investment vehicles managed by Valad is 26.5% (after all fees and expenses) demonstrating the success Valad vehicles have experienced through Valad’s management. (Please note: past performance is in no way an indication of the future performance of the Fund). > The Fund has invested in property opportunities that are debt funded at the Project level > This has the benefit of enhancing the returns on investors’ equity capital without investors bearing the risks of direct recourse to other assets commonly associated with personal debt financing. Figure 6.1 Summary of Asset Portfolio Project: Sector: Location: Risk Profile: MIAC Commercial industrial Melbourne, Victoria Repositioning of existing property MINCHINBURY HOMETOWN ORAN PARK RICHLANDS NOOSA NORTH SHORE Retail Residential land Industrial land Residential Western Sydney, New South Wales Repositioning of existing property South-west Sydney, Brisbane, New South Wales Queensland Land rezoning Land rezoning 10 This is not a forecast and should not be relied upon as such. 50 Valad Opportunity Fund Product Disclosure Statement Sunshine Coast, Queensland Residential development Investment Term 6.2 Significant Potential Risks of the Fund > The properties and assets of the Fund are to be sold in accordance with the strategy that VCML believes will maximise Unitholder returns. After sale, all retained earnings and equity capital realised from a project net of liabilities, fees and taxes will be distributed to Unitholders in proportion to their Unitholdings Before deciding whether to apply for Units, investors should consider whether an investment in the Fund is suitable for them, and recognise that there are a number of risks associated with investing in property development and repositioning opportunities. > The Fund has a comparatively short life cycle. It is expected that all projects will be completed and sold within three years. Exit Mechanism > To the extent that there is a residual value of property unsold three and a half years post allotment of Units to new investors, Valad will make an offer to Unitholders to acquire or redeem their Units as described in Section 2.10. Certainty of Projects > The Fund will convert to an unlisted property trust comprising five Projects > No other projects will be introduced to the Fund, providing investors with certainty over the Asset Portfolio and term of the Fund. None of VCML, its Directors and the Underwriters guarantees that the Target IRR will be achieved from all or any Projects. Investors are advised to review the descriptions of the Asset Portfolio in this PDS and the assumptions and financial information in Section 8 to determine their own view on the future performance of the Fund. Investors should note that while the Responsible Entity has undertaken due diligence on each of the Projects and their feasibility studies to satisfy it that the assumptions on which the target return is based are reasonable, including consulting relevant experts, many risks are beyond the control of the Responsible Entity and may not be able to be mitigated. Investors should also note that property repositioning and development activities are by their nature riskier than investing in completed and tenanted properties. Investors should appreciate that: > the Target IRR may not be achieved Alignment of Interests and Co-investment Valad’s interests will be aligned with those of the Fund’s investors via: > Valad will hold a minimum investment of 6,257,000 Units > Valad Directors will hold a minimum of a further 496,000 Units > The Development Manager will be entitled to performance fees from Projects if profits individually exceed the Target IRR. > the amount, timing and tax nature of distributions may be irregular > there is no right for investors to redeem their Units should an investor wish to exit the Fund until three and a half years from Allotment > there is a risk that investors may receive less than their initial investment upon transfer of their Units, or upon the Fund being wound up. The risks described in this section include general risks facing the Fund and specific risks relating to the properties. The Fund has exposure to five Projects, and as such the specific risks described in this section may impact each of the Projects to varying degrees. Prior to making a decision to invest in the Fund, investors should carefully consider the risks detailed below and other information contained in this PDS and seek advice from their financial adviser. 51 Valad Opportunity Fund Product Disclosure Statement > 6 INVESTMENT BENEFITS AND RISKS Assumptions Not Achieved The assumptions made in the feasibility analysis undertaken on the properties in the Asset Portfolio may not eventuate or be met, and as a consequence distributions of capital and profit may be insufficient to meet the Target IRR. Risks from Property Development > The cost of construction or refurbishment may be greater, and the time required to complete the Projects may be longer than expected > The cost of development may be adversely affected by factors such as inclement weather, industrial action and construction and contractual difficulties The return to investors will depend on returns achieved from the Projects. The return from these investments and the value of the Asset Portfolio will be affected by numerous factors. These factors include, but are not limited to the following: > Where Projects are developed or managed by a third party unrelated to Valad, disputes may arise between the Fund and the third party such as disputes over defaults and disputes over strategy for the property. Noosa North Shore is the only Project in the portfolio being developed by an unrelated third party > General economic and real estate market conditions which may affect the value of the Projects. Project values may not increase as forecast, or they may decrease > Contractual counter-parties may default on their obligations to the Fund, thereby leading to increased costs, a capital loss or a reduction in income > Among other things, the value of the Projects may be influenced by changes in inflation, interest rates, government policy, rental levels, land values, supply of competing product, demand for property by investors, the cost of building, the cost of maintenance and refurbishment, and property market vacancy levels generally > Default by tenants or purchasers or contractors on their obligations may reduce the income available to the Fund > Each of the Projects is subject to town planning controls. In some circumstances (and in particular with respect to Oran Park and Richlands), the Fund’s strategy is to obtain amendments to the zoning or planning approvals. There is no guarantee that the desired planning outcome will be achieved within the anticipated timeframe, or at all. Unfavourable planning outcomes may detrimentally affect the future value of the Asset Portfolio. With respect to Oran Park and Richlands, the rezoning strategy of the Fund is considered by VCML to be consistent with publicised strategies of the respective responsible authorities for those properties The nature of the interest VOF is acquiring in the Noosa North Shore Project is a secured subordinated debt to the senior financier and is subject to the rights of the senior financier under a deed of priority and postponement. In particular, those arrangements ensure the senior lender has priority up to an amount of $29 million plus interest, fees, charges and other expenses and allows the senior financier to control enforcement for so long as those amounts are outstanding. If there are insufficient proceeds to pay out the senior financier, then VOF might not recover its investment in the project. > The cost of incentives and commissions required in order to lease vacant space to tenants and to sell Projects may increase Risk to the Fund’s Operating Expenses > The rate at which potential purchasers capitalise income to derive a value for property investments may change, thereby having an adverse impact on the values of the Projects > The illiquid nature of property investment and development means that it may not be possible to sell the Projects at the expected time or on the expected terms 52 Valad Opportunity Fund Product Disclosure Statement > Time delays may lead to increased interest costs and reduced returns. Preferred Equity Investment in Noosa North Shore > The Fund’s expenses or inflation rates may be greater than anticipated, adversely impacting the net income of the Fund. Limited Liquidity > There is no formal secondary market for the buying and selling of Units in unlisted trusts. Investors may not be able to exit their investment during the course of the Investment Term unless they are able to find a buyer and negotiate a sale price for their Units. A transfer of Units may involve stamp duty and other costs as well as having tax implications. Risks Relating to Debt Regulatory and Taxation Risks > The Fund has used, or will use, debt to fund Projects of between 60% and 80% of the total costs of the Projects. The presence of leverage through the use of debt finance can magnify the gains and losses of equity holders. Due to the use of debt it is possible that a reduction in the value of a Project could result in the equity capital invested by the Fund in that Project being lost > It is not uncommon for property investments to be exposed to a variety of legal and legislative risks. These could include, but are not limited to, failure to achieve rezoning, delays in obtaining approvals, unforeseen environmental issues, native title claims and litigation. These risks are particularly pertinent to the Asset Portfolio given Valad’s plans for its repositioning and development > Debt financed Projects are typically governed by detailed legal documents. As a result, the risk of dispute over their interpretation, enforceability or effect may be higher than for other investments > Changes in laws and government policy, including taxation laws, may affect future earnings, the attainability of target returns and the overall attractiveness of an investment in the Fund > The Fund’s debt finance will be secured by a mortgage over the Fund’s properties (among other things). In the event of a default, a financier may be entitled to enforce its security, which may lead to a sale of the property at a time earlier than required to realise the project’s optimum return. The timing of the financier sale may not realise the full potential value of the Project > The taxation rules governing any investment in the Fund may change during the life of the Fund. Both the level and basis of taxation may change > Changes to the availability of borrowings and the level of interest rates required by lenders may result in the Projects paying more interest than anticipated in the feasibility analysis for those Projects, thereby impacting Unitholders’ returns > Unexpected capital expenditure may increase the cost of completing the Fund’s Projects. There is no guarantee that debt will be available on attractive terms, or at all, to meet any costs which have not been budgeted > Although not expected, if the Fund requires an overdraft facility to meet short-term cash requirements, the establishment fees and monthly interest expense of such a facility would adversely affect the Fund’s after-tax profits. Any establishment fees and interest expense would be paid out of the Fund’s assets > While an indicative letter of offer for debt finance has been provided with respect to Oran Park, the Responsible Entity has not yet received notification of all credit approvals, met all conditions precedent and executed documentation required for this loan. While the Responsible Entity expects to be able to achieve this, there is no guarantee that debt will be available to meet the cost of acquiring Oran Park when settlement is due. > The taxation effects of an investment in the Fund may vary between investors. Each investor is encouraged to seek professional tax advice in connection with any investment in the Fund. Stamp Duty Risk The Fund will own property in New South Wales, Queensland and Victoria and is a “land rich trust” for the purposes of the stamp duty legislation in New South Wales and Victoria. Unless an exemption applies, issues, transfers and redemptions of units in the Fund may attract duty at the rate applicable to dealings in the underlying real property in the jurisdiction (currently a maximum rate of 5.5% in New South Wales and Victoria and 4.5% in Queensland) calculated by reference to the market value of the underlying real property. In New South Wales and Victoria any dealing in units which does not result in any investor (together with its associates) holding 20% or more of the Fund will not be liable to any stamp duty. VCML will not knowingly allow any investor to hold 20% or more of the Fund (other than NAB pursuant to the underwriting agreement or Valad itself). During the life of the Fund there is a risk that land transfer rate stamp duty could be payable in Queensland on transfers of Units if the Fund ceases to meet the test in Queensland for widely held (that is, public) unit trusts. VCML will endeavour to ensure that the Fund meets this test and the corresponding exemptions in New South Wales and Victoria at all times during the life of the Fund when property in the State concerned is held in the Fund. 53 Valad Opportunity Fund Product Disclosure Statement > 6 INVESTMENT BENEFITS AND RISKS Other Risks Unforeseen Environmental Issues > War or terrorist attacks may occur and insurance cover may not be available at reasonable premiums to cover the Fund’s property and developments for such occurrences. Unforeseen environmental issues may affect any of the Projects. These liabilities may be imposed irrespective of whether or not the Fund is responsible for the circumstances giving rise to the liability. > Force majeure events, which are events beyond the control of a party, including fire, bushfire, flood, earthquake, and other acts of God, as well as war, strike and terrorist acts, may affect a party’s ability to perform its contractual obligations or may lead to a capital loss or a reduction in income. Reliance on Responsible Entity and Development Manager Unitholders will have no control over the day-to-day operations and investment decisions of the Fund, and must rely on the Responsible Entity and its related entities. The Fund’s success depends largely on the performance of the Responsible Entity and service providers including the Development Manager. The loss of key personnel of the Responsible Entity could have an adverse effect on investment performance of the Fund. Disputes and Defaults In the ordinary course of its operations, the Fund may be involved in disputes and possible litigation. The extent of those disputes and litigation cannot be ascertained at this time but there exists a risk that a material or costly dispute or litigation could affect the value of the assets or expected income of the Fund. There is also a possibility that tenants or other persons may default on their obligations to the Fund, which may lead to a loss of income and increased costs as a result of enforcement action being required. Due Diligence and the Use of Experts The Responsible Entity has engaged various experts to investigate various physical, market and legal aspects of the properties. However, despite such investigations, the Responsible Entity cannot guarantee the identification and mitigation of all risks associated with the properties. 54 Valad Opportunity Fund Product Disclosure Statement The Fund may also be required to remediate sites affected by environmental liabilities. The cost of remediation of sites could be substantial. In addition, if the Fund is not able to remediate a site properly, this may adversely affect its ability to sell the relevant property or to use it as collateral for borrowing. Material expenditure may also be required to comply with new or more stringent environmental laws or regulations introduced in the future. > 7 FEES AND OTHER COSTS > 7 FEES AND OTHER COSTS 7.1 Consumer Advisory Warning The following statement is prescribed by current legislation. DID YOU KNOW? Small differences in both investment performance and fees and costs can have a substantial impact on your long-term returns. For example, total annual fees and costs of 2% of your fund balance, rather than 1%, could reduce your final return by up to 20% over a 30-year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs. You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the fund or your financial adviser. TO FIND OUT MORE If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website (www.fido.asic.gov.au) has a managed investment fee calculator to help you check out different fee options. 56 Valad Opportunity Fund Product Disclosure Statement 7.2 Fees and Other Costs This section shows fees and other costs that you may be charged. These fees and costs may be deducted from your money, from the returns on your investment or from the assets of the Fund as a whole. Taxation information is set out in another part of this PDS (refer to Section 9.3). You should read all of the information about fees and costs because it is important to understand their impact on your investment. TYPE OF FEE OR COST AMOUNT (INCLUDING GST LESS ANY REDUCED INPUT TAX CREDITS) HOW AND WHEN PAID Fees When your Money Moves In or Out of the Fund Establishment Fee Nil Not applicable The fee to open your investment. Contribution Fee Nil Not applicable The fee on each amount contributed to your investment. Withdrawal Fee Nil Not applicable The fee on each amount you take out of your investment. Termination Fee Nil Not applicable The fee to close your investment. Management Costs: The Fees and Costs for Managing your Investment Offer Costs Sole Arranging Fee $1.26 million (5% of the amount of capital raised11 under the Offer plus out of pocket expenses) Underwriting and Issue Management Fees Other Issue Expenses Responsible Entity Fees Annual Management Fee Fund Administration Costs12 $0.718 million (1.5% of the underwritten amount plus 0.35% of the gross value of the Fund’s assets plus out of pocket expenses) Estimated at $0.928 million 0.205% per annum of the gross value of the Fund’s assets Estimated at approximately 0.68% per annum of the Fund’s pro-forma net assets upon Allotment Payable to NAB from the assets of the Fund, on completion of the Offer. NAB will meet the cost of distribution commissions from this fee Payable to NAB from the assets of the Fund, on completion of the Offer Payable to various parties, such as Valad, lawyers, accountants, valuers, printers , advisers and other providers of services (including other Valad entities) as incurred out of the Offer proceeds Calculated monthly, and paid to the Responsible Entity monthly in arrears from the Fund’s assets Paid or reimbursed to the Responsible Entity or a third party service provider from the Fund’s assets when incurred 11 Assumes that $25.17 million of capital is distributed by NAB. 12 Refer to Section 7.4.1. 57 Valad Opportunity Fund Product Disclosure Statement > 7 FEES AND OTHER COSTS TYPE OF FEE OR COST Development Management Fees13 Acquisition Fee Annual Management Fee AMOUNT (INCLUDING GST LESS ANY REDUCED INPUT TAX CREDITS) 1.025% of the amount invested into the Noosa North Shore project and the outstanding amount on Oran Park to be paid at settlement 0.76875% per annum of the gross value of the Fund’s properties Development Fee 5.125% of the amount of development costs incurred on the Fund’s projects14 Debt Arrangement Fee 0.5125% of the amount of debt facilities procured for the Fund’s projects Disposal Management Fee 1.025% of the gross sales proceeds of each of the Fund’s projects Performance Fee15 50% of the surplus profit, after deduction of all fees and costs, above the amount of profit which is required to provide the Fund with a pre-tax IRR of 17% for that particular project Service Fees Investment Switching Fee Nil HOW AND WHEN PAID Paid to the Development Manager from the Fund’s assets upon completion of the investment into the Noosa North Shore project and the settlement of Oran Park Calculated monthly, and paid to the Development Manager monthly in arrears from the Fund’s assets Paid to the Development Manager from the Fund’s assets at the time the development costs are incurred Paid to the Development Manager from the Fund’s assets upon drawdown of the relevant debt facility Paid to the Development Manager from the sale proceeds of the relevant project at the time of completion of the sale Paid to the Development Manager from the sale proceeds of the relevant project upon completion of the disposal of a portion or all of the project Not applicable The fee for changing investment options. 13 These fees are for various services in relation to asset identification and due diligence, development services, repositioning, leasing, marketing and sale of the Fund’s assets. 14 The Development Manager will not be paid a development management fee in relation to the Noosa North Shore investment while Petrac acts as development manager for that project. 15 Refer to Section 7.4.2 for an example and further information about the Development Manager’s performance fee. 58 Valad Opportunity Fund Product Disclosure Statement 7.3 Example of Annual Fees and Costs This table gives an example of how the fees and costs for the Fund can affect your investment over a one-year period. You should use this table to compare this product with other managed investment products. Figure 7.1 First Year after Close of the Offer BALANCE OF $50,00016 Management Costs Offer Costs Sole Arranging Fee $1.26 million (5% of the amount of capital raised under the Offer plus out of pocket expenses) For every $50,000 you have in the Fund you will be charged $1,614.58 Underwriting and Issue Management Fees $0.718 million (1.5% of the underwritten amount plus 0.35% of the gross value of the Fund’s assets plus out of pocket expenses) For every $50,000 you have in the Fund you will be charged $922.31 Other Issue Expenses Estimated at $0.928 million For every $50,000 you have in the Fund you will be charged $1,190.58 0.205% per annum of the gross value of the Fund’s assets Estimated at approximately 0.68% per annum of the Fund’s pro-forma total net assets upon Allotment For every $50,000 you have in the Fund, you will be charged $244.78 For every $50,000 you have in the Fund, you will be charged approximately $320.75 1.025% of the amount invested into the Noosa North Shore project and the outstanding amount on Oran Park to be paid at settlement 0.76875% per annum of the gross value of the Fund’s properties17 5.125% of development costs incurred For every $50,000 you have in the Fund, you will be charged $365.59 Responsible Entity Fees Annual Management Fee Fund Administration Costs Development Management Fees Acquisition Fee Annual Management Fee Development Fee Debt Arrangement Fee Disposal Management Fee Performance Fee EQUALS Cost of the Fund 16 17 18 19 20 0.5125% of the amount of debt facilities procured for the Fund’s projects18 1.025% of the amount of asset disposals 50% on net profit for each project above a 17% project IRR For every $50,000 you have in the Fund, you will be charged $872.06 For every $50,000 you have in the Fund you will be charged $378.49 For every $50,000 you have in the Fund, you will be charged approximately $157.81 For every $50,000 you have in the Fund, you will be charged approximately $131.5119 For every $50,000 you have in the Fund, you will be charged approximately $64.1520 If you had an investment of $50,000, you would be charged costs and fees of $6,262.61 Assumes that gross value of the Fund’s assets is $93.1 million ($88.4 million excluding cash). The value of the Noosa North Shore project is assumed to be the amount of equity invested by the Fund. The debt arrangement fee is expected to apply to the procurement of debt for the Oran Park property and facility arrangements for Noosa North Shore. Assumes $10 million of asset disposals in one year. This is not a forecast with respect to asset sales and should not be relied upon as such. Assumes an excess performance over a 17% IRR of $100,000. 59 Valad Opportunity Fund Product Disclosure Statement > 7 FEES AND OTHER COSTS 7.4 Additional Explanation of Fees and Costs A worked example of the performance fee follows: 7.4.1 Fund Administration Costs Total profit from project x $5.000 million Ongoing administration costs may include but are not limited to: Profit required to deliver a pre-tax IRR of 17% to the Fund $4.500 million > establishing and maintaining the register of Unitholders > preparation of audit, taxation returns and accounts for the Fund and its subsidiaries > engagement of agents, valuers, contractors and advisers (including legal advisers) > custodian and trustee fees and expenses Amount of the surplus profit beyond the benchmark level $0.500 million Performance fee = 50% of surplus $0.250 million Example of the performance fee rebate: > compliance committee costs Total profit from project x $4.250 million > expenses associated with Unitholder communications. Profit required to deliver a pre-tax IRR of 17% to the Fund $4.500 million Amount required to achieve the benchmark level $0.250 million The amount included in the table in Section 6.2 is an estimate only and does not limit the ability of the Responsible Entity to recover any expenses it incurs in the proper performance of its duties as Responsible Entity for the Fund. Rebate 7.4.2 Development Manager’s Performance Fee The Development Manager is entitled to a performance fee in the event that the returns generated for the Fund from the realisation of a Project of the Fund exceed the Target IRR of 17%, after allowance for all other fees and expenses. The performance fee is equivalent to an amount of 50% of the surplus profit beyond that benchmark level. As the performance fee is based on future possible events, there are numerous factors outside of both the Responsible Entity’s and the Development Manager’s control which may affect the quantum, if any, of performance fees. The performance fee becomes due and payable upon the realisation of any of the Fund’s assets. It is possible that a performance fee may become due upon the realisation of one or more of the Fund’s assets, and that one or more subsequent asset realisations fail to achieve the performance fee benchmark of a pre-tax IRR of 17%, after allowance for all other fees and expenses. Should this occur, the Development Manager will provide a rebate from previously paid performance fees to the Fund of an amount that would be required to achieve a pre-tax IRR to the Fund of at least 17% for that particular project. Such rebate will be limited to 25% of all performance fees previously paid by the Fund to the Development Manager. 60 Valad Opportunity Fund Product Disclosure Statement $0.250 million (subject to this amount not exceeding 25% of all performance fees previously paid to the Development Manager) On termination of the Master Development Agreement VDML may be entitled to performance fees as described in Section 10.3. 7.4.3 Fees and Expenses of the Offer Consistent with AIFRS, certain fees and expenses of the Offer have been deducted from the net asset value of the Fund. The total amount of fees and expenses of the Offer that have been deducted from the net asset value of VOF is $2.033 million (net of deferred tax benefits). The resulting Adjusted NTA per Unit, based on an Application Price of $1.01 per Unit, is $0.953 per Unit. 7.4.4 Maximum Fees under the Constitution Under the Fund’s Constitution, the Responsible Entity is entitled to a management fee of 0.2% of the gross value of the Fund’s assets (plus GST) calculated and paid monthly. It is also entitled to be reimbursed for, or to pay from the Fund’s assets, all expenses it incurs in relation to the proper performance of its duties. 7.4.5 Adviser Service Fees An upfront commission fee may be paid directly to investors’ professional financial advisers by the Responsible Entity or by NAB from fees it receives for acting as Sole Arranger. No adviser service fee is payable following a transfer of Units. There are no other adviser service fees associated with the Fund and any amounts that investors agree to pay to their financial adviser for financial advice are separate to the fees charged by the Responsible Entity. 7.4.6 Differential Fees The Responsible Entity may negotiate investor specific fees with wholesale investors, such as master trusts or wrap account platforms. Charging differential fees will be subject to compliance with legal requirements and the conditions of any applicable ASIC relief. Wholesale investors can contact the Responsible Entity or Sole Arranger on the contact details set out in the Directory. 7.4.7 Taxation and Goods and Services Tax For a general overview of the impact of taxation on an investment in the Fund, refer to the Taxation Report in Section 9.3. All fees and charges in this section are quoted inclusive of GST net of any reduced input tax credits to which the Fund is entitled, unless otherwise stated. 61 Valad Opportunity Fund Product Disclosure Statement > 8 FINANCIAL INFORMATION This section provides details of the: Figure 8.1 Sources and Uses of Funds > Sources and uses of funds > Pro-forma Consolidated Balance Sheet of the Fund at Allotment LOW CAPITAL RAISE $’000 HIGH CAPITAL RAISE $’000 EXPECTED CAPITAL RAISE $’000 22,570 27,294 26,164 7,857 7,857 7,857 30,427 35,151 34,021 > Target IRR. Sources of funds The Directors of VCML can give no assurance that the Target IRR will be achieved or that investors’ equity capital will be returned. This is because the Fund’s actual performance will be affected by many factors that are beyond the Directors’ control. Some of these factors are set out under Significant Potential Risks of the Fund in Section 6.2. Capital raising Deloitte has reviewed the Consolidated Balance Sheet of the Fund at 31 March 2007, the Pro-forma Consolidated Balance Sheet of the Fund at Allotment and the Adjusted Pro-Consolidated Balance Sheet of the Fund at Allotment as set out in Section 8.2 (together the “Financial Information”) and its report is set out in Section 9.2. Redemption of Unitholders under the Withdrawal Offer 16,031 27,294 21,180 Acquisition of Noosa North Shore 10,100 3,800 8,800 Capital raising costs 2,716 2,930 2,891 Additional working capital 1,580 1,127 1,150 Total applications of funds 30,427 35,151 34,021 Adjusted NTA $0.958 $0.947 $0.953 8.1 Sources and Uses of Funds The total amount of the capital raising for the Fund is variable as it is dependent upon whether existing Unitholders elect to redeem their units under the Withdrawal Offer. It is not possible to determine the exact level of redemptions and consequently the number of Units that need to be issued under the PDS ahead of the close of the Withdrawal Offer. In order to gain an understanding of the upper and lower levels of new Units likely to be needed to fund redemptions, VCML examined the register of VOF Unitholders and determined those investors that: > are likely to accept the Withdrawal Offer (namely those investors who usually do not hold unlisted Units under their investment mandates – at a minimum expected to be 15.9 million units), and > have indicated that they wish to remain in the Fund (namely Valad and its Directors). From this analysis VCML has been able to determine with a reasonable level of certainty the likely maximum and minimum level of the capital raising. As noted in Section 2.4, flexibility in the size of the investment in Noosa North Shore is being used to manage the size of the capital raising within this prescribed range. From this analysis VCML estimates that the capital raising will fall within the range of $22.570 – $27.294 million and is targeting a raising of $26.164 million based on the expected level of redemptions. Sale proceeds from Erskine Park Total sources of funds Applications of funds 8.2 Consolidated Balance Sheet 8.2.1 Pro-forma Consolidated Balance Sheet The Pro-forma Consolidated Balance Sheet of the Fund at Allotment has been prepared based on the Consolidated Balance Sheet of the Fund at 31 March 2007 assuming the occurrence of the pro-forma adjustments listed below as at Allotment Date including the exercise of VOF’s call option in relation to Oran Park which is due for exercise at December 2007. 8.2.2 Adjusted Pro-forma Consolidated Balance Sheet The Adjusted Pro-forma Consolidated Balance Sheet at Allotment reflects the Pro-forma Consolidated Balance Sheet of the Fund at Allotment adjusted to reflect the market value of property inventory at 31 March 2007. The uplift in property values is supported by valuation reports set out in this PDS in Section 9.1. In addition, a deferred tax liability and an accrual for performance fees has been assumed based on these increases in value. The value of the Asset Portfolio may change between the date of this PDS and 30 June 2007. VCML will seek to obtain confirmation from the valuers as to the updated valuation at the time of calculation of the redemption price under the Withdrawal Offer. 63 Valad Opportunity Fund Product Disclosure Statement > 8 FINANCIAL INFORMATION Figure 8.2 Pro-forma Consolidated Balance Sheet CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 07 $’000 Current assets PRO-FORMA ADJUSTMENTS PRO-FORMA CONSOLIDATED BALANCE SHEET AS AT ALLOTMENT NOTES $’000 ADJUSTED PRO-FORMA CONSOLIDATED BALANCE SHEET AS AT ALLOTMENT* $’000 (Reviewed) Cash Receivables Investment in associates Other financial assets (Oran Park) 14,211 424 52 2,144 (9,561) – – (2,144) 1 Total current assets 16,831 (11,705) Investment in associates Loan receivable Deferred tax asset Property inventory 7,857 – 1,173 51,530 (7,857) 8,800 867 22,657 Total non-current assets 60,560 24,467 85,027 87,940 Total assets 77,391 12,762 90,153 93,066 Payables Current tax liabilities Interest bearing liabilities Provisions 381 3,420 891 718 132 (2,944) – (718) 513 476 891 – 1,603 149 891 – Total current liabilities 5,410 (3,530) 1,880 2,643 Interest bearing liabilities Deferred tax liabilities 38,455 1,183 12,832 – 51,287 1,183 51,534 1,983 Total non-current liabilities 39,638 12,832 52,470 53,517 Total liabilities 45,048 9,302 54,350 56,160 Net assets 32,343 3,460 35,803 36,906 Contributed equity Retained earnings Capital reserve 31,210 3,681 (2,548) 4,764 (2,885) 1,581 35,974 796 (966) 35,974 1,898 (966) Total equity 32,343 3,460 35,803 36,906 Number of units outstanding 33,777 4,935 NTA $0.958 2 4,650 424 52 – 4,650 424 52 – 5,126 5,126 – 8,800 2,040 74,187 – 8,800 2,040 77,100 Non-current assets 3 4 5 6 Current liabilities 7 8 9 Non-current liabilities 10 Equity 11 11 11 38,712 38,712 $0.925 $0.953 * Reflects the Pro-forma Consolidated Balance Sheet of the Fund at Allotment adjusted to reflect the estimated market value of property inventory based on valuations at 31 March 2007 (and 31 December 2006 for MIAC), resulting accrual of performance fees and deferred tax liability. 64 Valad Opportunity Fund Product Disclosure Statement 8.3 Notes to the Pro-forma Consolidated Balance Sheet 1) See Notes 3, 4, 6, 8, 9, 10 and 11 below. 2) VOF owns a call option on Oran Park exercisable in December 2007. For the purposes of the Pro-forma Consolidated Balance Sheet it has been assumed that this has been exercised at allotment. The assumed settlement transfers the current interest in Oran Park to Property inventory. The outstanding balance payable in relation to Oran Park of $18.6 million (including stamp duty of $1.0 million and acquisition costs of $0.5 million) is assumed to be financed through $13.3 million of debt and $5.3 million of cash. 3) Assumed sale of Erskine Park at market from the Fund, sold to VFML. Sale price will be supported by two independent valuations. 4) Assumed investment in Noosa North Shore of $8.8 million being the purchase of a preferred equity interest funded by cash. The size of the Fund’s investment in Noosa North Shore will depend on the level of redemptions and capital raised as noted in Section 8.1 above. 5) Deferred tax asset recorded on issue costs associated with the Offer being the costs available for deduction against income tax provision in future financial years. 6) Assumed settlement of the balance of Oran Park for $18.6 million and resulting transfer from other assets to Property inventory ($2.1 million) and capitalisation of assumed development costs of $1.9 million, on all Properties for the three months to 30 June 2007 including interest, consulting and refurbishment cost net of rent received for the period. PROPERTY INVENTORY COMPRISES THE FOLLOWING: BOOK VALUE AS AT 31 MARCH 2007 ADJUSTED PRO FORMA AT ALLOTMENT BASED ON PRO FORMA VALUATIONS AT AT ALLOTMENT 31 MARCH 2007 Melbourne International Airfreight Centre Minchinbury Hometown Oran Park Richlands $23.1m $18.9m $2.1m(iii) $9.6m $23.8m $19.4m $20.9m $10.1m $24.2m(i) $17.5m(ii) $24.0m $11.4m Total $53.7m $74.2m $77.1m (i) Valuation as at 31 December 2006. (ii) The valuation at 31 March 2007 is below book value as the valuation represents the value the asset could be sold at in its current condition. The book value represents the lower of cost (including capitalised interest and stamp duty) and net realisable value. Based on project feasibility analysis, the carrying value at 31 March 2007 (and the pro-forma carrying value at Allotment) is believed to be recoverable over the life of the project. (iii) Represents deposit paid held as a current asset as the option is exercisable within 12 months of the issue of the option. 7) Accrual for the acquisition fees payable to the development manager in relation to the investment in Noosa North Shore. 8) Assumed payment of accrued tax for the year ended 30 June 2006 net of tax liability associated with performance fee clawback for Erskine Park. 9) Assumed payment of the accrued March distribution. 10)Assumed drawdown of $13.3 million on Oran Park settlement less repayment of $0.468 million associated with a GST facility for Richlands. 11) Assumed redemption of 21.0 million existing Units and issue of 25.9 million new Units in the Fund based on redemption price of $1.01 and issue price of $1.01 net of issue costs of $2.9 million. The assumed volume of redemptions is based on management’s best estimate assumptions through discussion with existing institutional Unitholders and knowledge of other current Unitholder base. Redemptions received are assumed to reduce contributed equity by $19.4 million and will also include payments out of retained earnings ($3.4 million) and an increase to capital reserve ($1.6 million). The level of Units issued and capital raised will depend on the actual level of redemptions received. The assumed capital raised above reflects management’s best estimate of the likely level of redemptions that will be received as described in Section 8.1. 65 Valad Opportunity Fund Product Disclosure Statement > 8 FINANCIAL INFORMATION The movement in retained earnings also reflects the assumed cost of delisting to be borne by the Fund and the clawback of $960,000 of performance fees (tax-effected) as a result of the sale of Erskine Park at market. 8.4 Net Asset Backing Following completion of the Offer, the Adjusted Net Tangible Asset value per Unit is expected to be $0.953, after taking account of the market value of the Fund’s investments and the future income tax benefit arising from the up-front write-off against equity of items associated with raising capital under the Offer. This compares with the Issue Price of $1.01 per Unit. 8.5 Distributions VCML intends to make distributions of capital and income upon the receipt of proceeds from the sale of individual Projects after provision for taxation and liabilities. For Projects where the asset is to be sold as a whole this return will represent the full value of the asset at that time (such as MIAC or Richlands). For projects where the value realisation is to be a staged sales process (such as Minchinbury or Noosa North Shore) this distribution will be upon sale of specific sites/tenancies. At the termination of the Fund, all remaining retained after-tax profits and capital will be distributed to Unitholders. 8.6 Target IRR VCML is targeting for Unitholders to meet or exceed a 17% internal rate of return before tax and after fees and expenses. In order to align the interests of VCML with investors, a performance fee on each asset is payable only on profits received in excess of the Target IRR. Investors should note that the Target IRR is not a forecast return or an indication of likely future returns for the Fund and should not be relied upon as such. It is a benchmark return which the Responsible Entity aims to meet or exceed, and against which the Fund’s performance will be measured by the Responsible Entity. Investors should be aware that property development and repositioning activities are by nature more risky than other types of property investments and should refer to the specific risks associated with these activities as outlined in Section 6.2. 66 Valad Opportunity Fund Product Disclosure Statement 8.7 Key Accounting Policies The Financial Information in this section has been prepared in accordance with the Constitution and Australian Accounting Standards. The Pro-forma Consolidated Balance Sheets are presented in an abbreviated form insofar as they do not comply with all the disclosures required by Australian Accounting Standards applicable to annual reports prepared in accordance with the Corporations Act. The principal accounting policies are described below: (i) Acquisition of Assets All assets acquired including property, are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. The costs of assets constructed or internally generated by the entity will include costs of materials and direct labour. Directly attributable overheads and other incidental costs are also capitalised to the asset. Borrowing costs are capitalised as set out in note (iv). Costs incurred on assets subsequent to initial acquisition are capitalised when it is probable that future economic benefits in excess of the originally assessed performance of the asset will flow to the entity in future years. Costs that do not meet the criteria for capitalisation are expensed as incurred. (ii) Inventories Development properties are carried at the lower of cost and net realisable value. Cost includes the cost of acquisition and development and holding costs such as rates, taxes and interest incurred (net of rental income) from commencement of construction until the point of time that the property is ready for sale. (iii) Impairment At each reporting date, the entity reviews the carrying amounts of its tangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying value does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. (iv) Borrowings Borrowing costs include interest and amortisation of discounts or premiums relating to borrowings. Borrowing costs directly attributable to assets under construction are capitalised as part of the cost of those assets. (v) Goods and Services Tax The Fund is registered for GST purposes and will receive input tax credits for GST paid. Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Receivables and payables are recognised inclusive of GST. (vi) Units Issued Issued and paid up Units are recognised at the fair value of the consideration received by the Responsible Entity. Any transaction costs arising on the Issue of the Units are recognised directly in equity as a reduction of the Unit proceeds received. Debt and equity instruments issued by the Fund are classified as either liabilities or as equity in accordance with the substance of the contractual arrangements. Issued Units are classified as equity in accordance with AASB 132 Financial Instruments: Disclosure and Presentation. (vii) Income Tax Current tax – current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantially enacted by reporting date. Current tax for current or prior periods is recognised as a liability (or asset) to the extent it is unpaid (or refundable). Deferred tax – deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities which affects neither taxable income nor accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the entity intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period – current and deferred tax is recognised as an expense or income in the income statement except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity. 67 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS 9.1 Independent Valuer’s Report MK:kw2 50996/18859 17 April 2007 The Directors Valad Commercial Management Limited Valad Property Group Level 9, 1 Chifley Square SYDNEY NSW 2000 Dear Sirs RE: MELBOURNE INTERNATIONAL AIRFREIGHT CENTRE 1 INTERNATIONAL DRIVE, TULLAMARINE, VICTORIA INSTRUCTIONS We refer to your instructions requesting m3property to undertake a current Market Valuation of Melbourne International Airfreight Centre, 1 International Drive, Tullamarine, Victoria (“subject property”). We have completed a valuation and report of the subject property dated 31 December 2006 and provide this abridged summary for inclusion in the Product Disclosure Statement (“PDS”). For further information reference should be made to the full valuation report. VALUATION SUMMARY In our opinion, subject to the qualifications and assumptions contained within our valuation report, we assess the Market Value of Melbourne International Airfreight Centre, 1 International Drive, Tullamarine, Victoria exclusive of GST, subject to the existing and proposed lease agreements, as at 31 December 2006, to be: $24,200,000 (TWENTY FOUR MILLION TWO HUNDRED THOUSAND DOLLARS) m3property (Vic) Pty. Ltd. ABN 99 472 148 297 Level 5/114 William Street Melbourne Vic 3000 Telephone 03 9605 1000 Facsimile 03 9670 1658 [email protected] www.m3property.com.au 69 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS -2- BRIEF DESCRIPTION An office warehouse development constructed over three stages in the 1980’s known as the Melbourne International Airfreight Centre. The property comprises a mix of office/warehouse units together with tenancies utilised purely as office or warehouse space. Warehouses generally range between 270 and 1,400 square metres while office space generally ranges between 50 and 400 square metres. The improvements are erected upon an irregular shaped site of 5.238 hectares and the land is within a ‘Business 3 Zone’. The site has frontage of 375 metres to the Tullamarine Freeway plus secondary frontage of 94 metres to Mickleham Road. The subject property is located within the established suburb of Tullamarine, being approximately 15 kilometres north west of the Melbourne Central Business District. Surrounding development is largely characterised by a range of commercial uses. Adjoining the property on its rear or northern boundary is The Age Print Centre. Adjacent to the property’s southern/eastern boundaries are a range of uses including fast food restaurants and a service station. Immediately opposite the property on Mickleham Road is Gladstone Park Shopping Centre. Development further east is largely residential in nature. TENANCY DETAILS A multi tenanted estate of which 13,653 square metres or 57% is occupied at the date of valuation. The lease expiry on an area weighted basis is 1.25 years and 2.23 years on an area weighted basis at the date of valuation. At the date of valuation we have assessed the net market income of the property to be $2,017,675 per annum which accounts for adjustments in relation to passing rents which are below/above market and vacancies. 70 Valad Opportunity Fund Product Disclosure Statement -3- VALUATION RATIONALE We have arrived at the Market Value assessment after considering sales evidence and applying this to the capitalisation of net income, discounted cash flow approach and direct comparison methods of valuation. Those sales we have relied upon are provided as follows: Vendor Purchaser Sale Price Sale Date Zoning Land Area m2 Year Built Gross Lettable Area m2 Office Ratio Site Coverage Ratio Passing Net Income ($ p.a.) Average Net Income ($/m2) Market Net Income ($ p.a.) Market Net Income ($/m2) Lessee Lease Expiry (area weighted) Analysis & Assumptions Initial Yield Analysed Market Yield Direct Comparison ($/m2) IRR/Discount Rate Compound Rental Growth (p.a.) Terminal Yield 421 Victoria St Brunswick 418 Sth G'land Hwy Dandenong Sth 450 Princes Hwy Noble Park Wangara Rd Sandringham 362 Wellington Rd Mulgrave ACN 093927283 Australian Unity $7,450,000 Aug-06 Industrial 1 14,140 1995 8,057 20% 51% $644,765 $80 $582,177 $72 Tyco Electronics 3.83 yrs Pomeroy Pacific Abacus $5,300,000 Jun-06 Business 3 9,995 2004 5,345 9% 51% $374,929 $70 $374,929 $70 Norcross P/L 7.75 yrs Undisclosed APPF $13,100,000 Jun-06 Business 3 44,277 1994 & 2006 7,000 12% 16% $623,427 $89 $514,875 $74 Natra P/L 9.00 yrs GE Capital Becton $13,100,500 Dec-06 Business 3 16,804 mid 1980s & 2005 10,224 8% 60% $946,715 $93 $842,646 $82 Laserlite Aust. 6.03 yrs Private Investor Trinity $33,350,000 May-06 Business 3 48,000 1980s 18,633 52% n/a $2,501,250 $134 n/a n/a Various 3.48 yrs 8.65% 8.03% $925/m² 8.94% 3.07% 8.75% 7.07% 7.07% $992/m² 8.86% 3.34% 7.50% 4.76% 7.85% $1,229/m²* 8.75% 3.34% 8.25% 7.23% 6.79% $1,281/m² 8.43% 3.34% 7.50% 7.50% tbc $1,790/m² not available not available not available Our adopted analysis and valuation of the subject property is outlined as follows: Capitalisation IRR/Discount Terminal Direct Market Rate 7.75% Rate 9.00% Yield 8.25% Comparison $1,003/m2 Value $24,200,000 We confirm our rental income forecast is based on our review of the lease documentation and our own independent enquiries and are considered reasonable in all circumstances as at the date of valuation. The total adjustment figure under the capitalisation approach of -$1,791,887 is based on present value calculations for rental reversions, downtime, additional income (telecommunication tower), rent free periods, tenant improvements, leasing commissions and capital expenditure. All present value calculations have used a discount rate of 8.0%. 71 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS -4- DISCLAIMER We the valuers of m3property Pty Ltd, have prepared this summary. We have been involved only in the preparation of this summary and the valuation referred to herein, and specifically disclaim liability to any person in the event of any omission from, or false or misleading statement included in the PDS other than in respect of the summary and valuation. m3property Pty Ltd is not licensed to provide financial product advice under Corporations Act 2001. m3property Pty Ltd confirms it has been paid a fee of $15,500 exclusive of GST to prepare this summary and valuation but that it has not received any other interest whether pecuniary or not and whether directly or indirectly, nor does it have any association with Valad Property Group that might reasonably be expected to, or capable of, influencing the provision of this valuation. In undertaking our valuation we have relied upon various sources of information. Where possible, within the scope of our retainer and limited to our expertise as valuers we reviewed and analysed this information against industry standards. Based upon the review, m3property Pty Ltd has no reason to believe the information is not fair or reasonable or that material facts have been withheld. However, m3property Pty Ltd’s enquiries are necessarily limited by the nature of its role and m3property does not warrant that its enquiries have identified or verified all the matters which a more extensive examination might disclose. For the purpose of our valuation, we have assumed that this information is correct. Neither the whole nor any part of this valuation report summary or any reference thereto may be included in any published documents, circular or statement or published in any part or in full in any way without written approval of the form and context in which it may appear. No liability is accepted for any loss or damage (including consequential or economic loss) suffered as a consequence of fluctuations in the property market subsequent to the date of valuation. m3property Pty Ltd is not related to Valad Property Group and it is therefore independent of them. m3property Pty Ltd has no interest in the subject property and no personal interest with respect to the parties involved. Neither the valuers nor m3property Pty Ltd has any pecuniary interest giving rise to a conflict of interest in valuing the property. 72 Valad Opportunity Fund Product Disclosure Statement -5- The valuers nominated within this letter are authorised under the relevant state laws to practice as a valuer and has in excess of five years continuous experience in the valuation of similar properties to the subject property. Yours sincerely m3property Michael Kealy B.Bus (Prop) AAPI Manager - Industrial Services Martin Reynolds Director [email protected] [email protected] 73 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS 16 April 2007 The Directors Valad Commercial Management Limited Level 9, 1 Chifley Square SYDNEY NSW 2000 Level 18 Angel Place 123 Pitt Street, Sydney NSW 2000 GPO Box 187 Sydney NSW 2001 +61 (0) 2 9036 6666 +61 (0) 2 9036 6770 fax www.knightfrank.com.au Dear Directors RE: Valuation: Minchinbury Hometown, Great Western Highway, Colyton, NSW Instructions We refer to your instructions requesting Knight Frank Valuations to prepare a market valuation of the abovementioned property for inclusion in a product disclosure statement as at 31 March 2007 on the following bases: x x Market Value of the freehold interest subject to the existing leases, and Current Market Value of the Gross Realisation “as if complete” of the property on the basis of strata subdivision assuming full vacant possession and sale of individual lots as at the date of valuation and all costs of enabling strata subdivision are expended. In accordance with the Corporations Law, Current Market Value means the estimated amount for which an asset should exchange on the date of valuation, taking into account the value of all estates in that property, and based on the price at which the property might reasonably be expected to be sold at the date of the valuation, assuming: (i) (ii) (iii) (iv) (v) (vi) a willing, but not anxious, buyer and seller; a reasonable period within which to negotiate the sale having regard to the nature and situation of the property and the state of the market for property of the same kind; that the property was reasonably exposed to the market; that no account is taken of the value or other advantage or benefit, additional to market value, to the buyer incidental to ownership of the property being valued; that the trust has sufficient resources to allow a reasonable period for the exposure of the property for sale; and that the trust has sufficient resources to negotiate an agreement for sale of the property. In formulating our valuation, we have relied upon property information provided by Valad Funds Management, including, but not limited to the following: x x Tenancy schedule; and Budgeted outgoings for the year ending 30 June 2007 Where possible, within the scope of our retainer and limited to our expertise as valuers, we have reviewed this information including by analysis against industry standards. Based upon that review, we have no reason to believe that the information is not fair and reasonable or that material facts have been withheld. However, our enquiries are necessarily limited by the nature of our role and we do not warrant that we have identified or verified all of the matters which a full audit, extensive examination or “due diligence” investigation might disclose. Our valuation is conditional on the following: x x x x x All leases are registered on title; There are no encumbrances or interests in title which materially affect the value, marketability and continued utility of the property; There are no encroachments by or onto the subject property that may potentially affect the value or marketability of the property; The site is free of contamination; The improvements are structurally sound and free from asbestos contamination. Valuations Services (NSW) Pty Ltd ABN: 83 079 862 990, trading under licence as Knight Frank Valuations, is independently owned and operated, is not a member of and does not act as agent for the Knight Frank Group. TM Trade mark of the Knight Frank Group used under licence. 74 Valad Opportunity Fund Product Disclosure Statement VALAD COMMERCIAL MANAGEMENT LIMITED We have disregarded the presence of any mortgage or other financial liens pertaining to the property. We also note that the valuations are current as at the date of valuation only we can give no guarantee that the properties or valuations have not altered since the date of valuation. For further information, reference should also be made to our Valuation Report dated 23 June 2006 which can be inspected at the office of Valad Commercial Management Limited during normal business hours. This correspondence is subject to and should be read in conjunction with all qualifications, assumptions, conditions and disclaimers contained within that report. Valuation Summary We have assessed the market value of the property on each basis as follows. Basis Valuation as at 31 March 2007 (GST exclusive) Market Value $17,500,000 Gross Realisation “as if complete” $30,500,000 Brief Description of the Property The property comprises a “first generation” bulky goods retail centre situated to the south of the Great Western Highway approximately 65 metres east of the intersection with Colyton Road. The property is bound by Sterling Road to the rear of the site. Colyton is located 19 kilometres west of the Parramatta CBD and 41 kilometres west of the Sydney CBD. The property was developed in 1988 as an open centre in ten separate buildings providing predominantly single level retail accommodation and two storey accommodation within two of the buildings fronting Sterling Road. The ten buildings are connected, in some instances, by awnings and are arranged around the perimeter of the site with the exception of a central building which houses customer amenities with part formerly used as a café. We are advised the total gross lettable area (GLA) of the improvements extends to 19,451.3m2 There are a total of 433 marked, on grade car spaces providing as ratio to GLA of 1:45m2. The site coverage is approximately 36.6% and the perimeters and customer parking areas are fully landscaped. Tenancy Overview The property is leased to 21 tenants with a weighted average lease expiry of 0.9 years. Four of the tenancies provide for outgoings recovery. The property has a 13% vacancy rate by GLA. Income Profile We have assessed the net passing income for the property as at the date of valuation to be $1,025,687 per annum. The passing income is based on our review and analysis of the tenancy information provided. We note that should any of the information provided be found erroneous or has varied, we reserve the right to review and if necessary, amend our valuation. Market Commentary Bulky goods property yields have firmed substantially over the last five years. Initially, the improvement was enhanced by a change in sentiment by investors from their earlier perception of the sector as quasi-industrial. This re-rating of bulky goods has seen the risk premium to regional shopping centres compress by, in the region of 150 basis points with prime centres commanding yields in the region of 7%. More recently, the movement has followed the general downward trend experienced throughout the retail property sector. The development of new centres has had an adverse impact on the trading performance of nearby existing centres where the location and property fundamentals of the existing centres are flawed. The general yield range for bulky goods retail centres is now in the order of 7% to 8% although it is not uncommon for yields above and below this range to be achieved for secondary and prime investments respectively. Ref: S4792_Prospectus Letter 16 April 2007 Page 2 75 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS VALAD COMMERCIAL MANAGEMENT LIMITED 2 It is estimated that the supply of bulky goods centres in Australia increased by 750,000m during 2006. This year on year increase has been the largest since the development of the sector and, whilst this rate of development will 2 2 decrease, there is in excess of 1,800,000m of proposed schemes in the pipeline with 400,000m due for completion during 2007. BIS Shrapnel recorded expenditure growth of 7.5% during 2006 and forecast that growth will be tempered to levels below 5% over the next three years. It is believed the sector has benefited from a one-off shift to mortgage backed debts enabling the purchase of “must have” items such as plasma screen TVs. That said, the slowing of the residential market could result in an increase in renovation activity and new technological advances, coupled with a strong, albeit declining, A$, could bolster sales activity, particularly in the audio-visual sector. We anticipate there will be continued slowing in the rental growth of the market as a consequence of declining expenditure with the most marked effect being experienced by older centres in secondary locations. Valuation Analysis & Assumptions The following schedule summarises relevant comparable sales which have been considered in the preparation of our valuation. Property Price Date $/m² GLA Yield IRR Rate (%) Warners Bay $10,800,000 Nov 2006 $2,186 7.95% 8.94% Thornton Supa Centre, Thornton $14,500,000 Jun 2006 $1,926 8.09% 8.79% Homeworks Prospect $58,750,000 Jun 2006 $2,290 8.00% 8.68% At Home, Penrith $55,000,000 Apr 2006 $2,170 9.00% 9.33% $6,802,500 Mar 2006 $406 (land) 9.00% N/A Warners Bay Supa Centre, 431-433 Great Western Highway, Greystanes We have also had regard to the acquisition of the subject property in June 2006 at a consideration of $16,500,000 which reflected a yield of 8.07%. The valuation for Minchinbury Hometown has been determined via the capitalisation of net income approach, with support from direct comparison methodology. In our capitalisation approach, we derived a fully leased estimated gross market rental income based on face rentals for the industrial accommodation as mentioned herein. Outgoings/operating expenses for the first year have been deducted, resulting in a net market income. The gross market rental and operating expenses were capitalised to arrive at the estimated market value before adjustment and allowances. We have adopted a capitalisation rate 7.75% in the capitalisation approach, which has been applied to the assessed net market income of $1,488,940 per annum. We have then made the following adjustments: x x x x x An adjustment for rental shortfall calculated until lease expiry being the difference between the estimated gross face market income until lease expiry and the current passing income and discounted at 9%; A leasing / incentive allowance for current vacancies of 6 months loss of rent during the letting-up period together with a 2 month rent free incentive; Agent’s fees and leasing cost for current vacant space based on 13% of year one gross income; A lease up allowance for imminent expiries which directly accounts for the risk of those tenants with leases that expire over the next 24 months. An average vacancy allowance of 6 months with a 50% tenant retention rate has been adopted in addition to a 5% gross incentive; and Immediate cost estimate with a present value of $557,409 comprising $400,000 immediate re-decoration and marketing expenditure and the present value of ongoing annual expenditure equating $5/m2 and make good 2 allowances on expiry of $25/m assuming a 50% tenant retention rate. Ref: S4792_Prospectus Letter 76 Valad Opportunity Fund Product Disclosure Statement 16 April 2007 Page 3 VALAD COMMERCIAL MANAGEMENT LIMITED The assessed value of $17,500,000 (GST exclusive) reflects the following investment parameters: Initial Yield % Core Market Yield % Rate/m² GLA Rate/m² Land 5.86% 7.75% $900 $329 In assessing the Gross Realisation of the property on the basis of a strata subdivision, we have made the following critical assumptions: x x x Full Vacant Possession assuming sale by individual lots as at the date of valuation; Full statutory approval has been obtained to enable strata subdivision; and All costs of enabling strata subdivision are expended. Sales of industrial strata units in Outer West Sydney represent a range of $1,400/m² - $1,800/m² of gross lettable area (GLA).Based upon the sales, it is considered that a reasonable rate for the subject property, assuming vacant possession and statutory approval, would be in the order of $1,750/m² for prominent units fronting the Great Western Highway to $1,400/m2 overall for shop units with obscured sight lines and the first floor accommodation. On this basis, and on the assumptions set out above, we consider the Gross Realisation of strata subdivision of the property to be in the region of $30,000,000 and $31,000,000, and have adopted $30,500,000 (exclusive of GST). Qualifications & Disclaimers Knight Frank Valuations have prepared this summary which appears in this PDS for Valad Commercial Management Limited. Knight Frank Valuations were involved only in the preparation of this summary and the valuations referred to therein, and specifically disclaim liability to any party in the event of any omission from, or false or misleading statement included in, the PDS or other document, other than in respect of our valuations and this letter. Knight Frank has consented to this summary being included in this PDS, but Knight Frank is not providing advice about a financial product, nor the suitability of the investment set out in this PDS. Such an opinion can only be provided by a person that holds an Australian Financial Services Licence. Knight Frank Valuations does not hold such a licence and is not operating under any such licence in providing its opinions of value as detailed in this summary and our valuation reports. In the case of advice provided within this report which is of a projected nature, we must emphasise that specific assumptions have been made which appear reasonable based upon current market perceptions. It follows that any one of the assumptions set out in the text of this summary may be proved incorrect during the course of time and no responsibility can be accepted in this event. This valuation is current at the date of valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period (including as a result of general market movements or factors specific to the particular property). We do not accept liability for losses arising from such subsequent changes in value. Without limiting the generality of the above comment, we do not assume any responsibility or accept any liability where this valuation is relied upon after the expiration of three (3) months from the date of valuation, or such earlier date if you become aware of any factors that have any effect on the valuation. Knight Frank Valuations has prepared this letter based upon information provided. We have no reason to believe that the information is not fair and reasonable or that material facts have been withheld and for the purpose of this valuation we have assumed that the information is correct. This valuation does not purport to be a site or structural survey of the improvements, nor was any such survey undertaken. Overall, we have assumed that detailed reports with respect to the structure and service installation of the improvements both would not reveal any defects or inadequacies requiring significant capital expenditure. Ref: S4792_Prospectus Letter 16 April 2007 Page 4 77 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS VALAD COMMERCIAL MANAGEMENT LIMITED Knight Frank Valuations has received fees of $16,500 (inclusive of GST) in connection with the preparation of our valuation and this summary. The fee is not in any way linked to nor has influenced the opinion of value noted and Knight Frank Valuations does not have any pecuniary interest in Valad Commercial Management Limited and has provided this report solely in its capacity as independent professional advisor. Yours faithfully KNIGHT FRANK VALUATIONS MATTHEW J RUSSELL GAPI Registered Valuer No. VAL011166 Associate Director Ref: S4792_Prospectus Letter 78 Valad Opportunity Fund Product Disclosure Statement DAVID M CASTLES AAPI Director 16 April 2007 Page 5 Colliers International Consultancy and Valuation Pty Limited 26 April 2007 ABN 88 076 848 112 Level 12 Grosvenor Place 225 George Street Sydney NSW 2000 The Directors Valad Commercial Management Limited Level 9, 1 Chifley Square SYDNEY NSW 2000 PO R61 Royal Exchange NSW 1225 DX 10235 Sydney Stock Exchange Tel 61 2 9257 0222 www.colliers.com.au Dear Sirs, VALAD OPPORTUNTIY FUND No. 11 ORAN PARK HOUSE, 931 COBBITY ROAD, ORAN PARK, NSW 1. Instructions In accordance with our formal terms of engagement dated 15 March 2007, Colliers International Consultancy and Valuation Pty Limited (CICV) have undertaken a valuation of the property described below as at 31 March 2007. We have provided this abridged report on the property for inclusion in a Product Disclosure Statement (PDS). A more detailed report (our reference VW3157) is available for perusal at the offices of Valad Commercial Management Limited (VCML). We confirm that the valuation is prepared in accordance with the Corporations Act, 2001 (Cth). 2. Property Summary The subject property, known as Oran Park House, consists of a large part three (3) storey residence of Georgian styling and dating from the 1850’s. It is located on 107.19 hectares of land just off Camden Valley Way at Catherine Field some seven (7) kilometres north-east of Camden and nine (9) kilometres north-west of Campbelltown. Whilst the property is currently zoned (1a) Rural “A” and is heritage listed under Camden LEP 48, it is strategically located within the South West Growth Centre (SWGC), a large area of land slated by the NSW Government under the Metropolitan Strategy for future urban development. There appears good potential for the subject property being fast tracked in this context via its inclusion in a Precinct Acceleration Protocol currently being considered by Government. The property is located between the Turner Road and Oran Park precincts of the SWGC and our valuation assessment is based on the assumption that re-zoning is achieved in June 2009, which is considered reasonable as at the date of valuation. Indications are, subject to further detailed assessment, the property may yield 650 allotments from a development footprint of approximately 55 hectares, whilst still preserving a significant heritage curtilage and providing large areas of riparian, passive and active open space. The property is under contract for purchase by the instructing party for $19,025,000 with settlement anticipated in December 2007. We understand that the purchase negotiations were completed “off market” in mid 2006 and, since this time, the instructing party has entered into dialogue with the planning authorities to improve the planning risk. We have ascribed a current market value to the property on an “as is” basis of $24,000,000 exclusive of GST. 3. Basis of Valuation The valuation has been prepared on the basis of Market Value as defined by the International Valuation Standards Committee (IVSC) and endorsed by the Australian Property Institute (API):“Market value is the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion.” Our Knowledge is your Property 79 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Valad Commercial Management Limited Oran Park House – Valuation Summary This valuation has been prepared pursuant to various qualifications and assumptions as outlined in our full valuation report. 4. Date of Valuation 31 March 2007, based on our site inspections conducted during March 2007. Due to possible changes in market forces and circumstances in relation to the subject property, the report can only be regarded as representing our opinion of the value of the property as at the date of valuation. 5. Valuation Methodology In determining the market value of the property CICV has examined the available market evidence and utilised a direct comparison approach as the primary method for our valuation assessment. This methodology has in turn been checked by a feasibility analysis to derive the residual land value, assuming the orderly development of the site for residential purposes from June 2009, with retention of heritage and open space elements. Our valuation has been undertaken on a GST exclusive basis. 6. 6. Legal Description The subject property is legally described as being Lots 24, 25 and 26 in Deposited Plan 31996 and Lots 27 and 28 in Deposited Plan 213330 in the Parish of Cook, County of Cumberland, and Local Government Area of Camden. The cumulative site area is 107.19 hectares. 7. Location and Site Particulars The subject property is of irregular shape with its main access via Cobbitty Road with a smaller frontage to Camden Valley Way. It is distanced approximately seven (7) kilometres north-east of Camden and nine (9) kilometres north-west of Campbelltown. The property is bordered by a number of smaller rural/residential style holdings along its southern boundary and adjoins the substantial Leppington Pastoral Company landholding to the west. The subject property is generally cleared and used for grazing and features slight to slight/moderate undulation, with Oran Park House constructed on top of a ridge at the north western corner of the site. The land is bisected by the headwaters of South Creek creating a riparian zone and an element of 1:100 year flood prone area through the middle of the site. There is an existing water main along Camden Valley Way that will require amplification as the SWGC develops. Currently the site is not sewered though we understand that, in the context of future residential development, Sydney Water has a number of temporary and permanent options that still require resolution for this part of the SWGC area. Two (2) transmission line easements cross the site in north to south and north to east directions. These easements are also considered a site constraint but the land take is considered within our estimate of developable area. We understand that Integral Energy have advised that there is existing capacity for an element of the SWGC, but Oran Park and surrounds will require a new Zone substation. 8. Planning Controls and Future Potential Information from zoning maps at Camden Council identifies that the subject property is zoned 1(a) Rural “A” under Local Environmental Plan (LEP) No. 48. The zoning provides for a minimum subdivision size of 40 hectares and promotes the conservation of agricultural uses together with compatible forms of development with council approval. There currently are no Development Applications relating to the subject property before Council for assessment. The subject property is also recorded under LEP 48 as having local heritage significance and, we understand, is currently being considered for inclusion on the State Heritage Register. 2 80 Valad Opportunity Fund Product Disclosure Statement Valad Commercial Management Limited Oran Park House – Valuation Summary A future Local Environmental Study (LES) to underpin the future re-zoning of the land will require a Conservation Management Plan to define and recommend a “heritage curtilage” for the consideration of the relevant authorities. For the purposes of our valuation we have assumed that this will be provided via the current riparian corridor that allows vistas from Camden Valley Way, and the future road entry corridor from Cobbitty Road. The subject property is strategically located within the SWGC and the instructing party has made two (2) detailed submissions to the Department of Planning to have the south Catherine Field precinct (that includes the subject property) included in a “Precinct Acceleration Protocol” that is currently being considered by Government. The Protocol is being assessed in two (2) stages and if successful, the subject property will be included with the Turner Road and Oran Park precincts for priority re-zoning and land release. At this point in time the first stage of the Protocol is yet to be determined by Government. We concur with planning studies provided by the instructing party that identify that it appears practical and reasonable for government to include south Catherine Field in the Protocol given the infrastructure delivery and community benefits achievable by the location of the subject property being in-between the Turner Road and Oran Park precincts. For our valuation we have assumed that the subject property is formally included in the Protocol and that, upon structure planning and the LES being complete, the land is approved for re-zoning and redevelopment in June 2009, which is considered reasonable as at the date of valuation. However we caution that, whilst the highest and best use of the subject property is for future residential redevelopment purposes, the exact development potential of the subject property and its timing for release remains unclear as at the date of valuation given the early stage of the overall development process. 9. Current Improvements Oran Park House is a large imposing residence that appears in good structural condition and is currently utilised by the vendor as a weekend retreat. The residence features numerous bedrooms and living areas with a good standard of cosmetics, appliances and amenities. In addition to the heritage house the subject property contains within the anticipated future heritage curtilage two (2) caretakers residences, a coach house, a silo, water tanks, an in-ground pool, and a number of machinery/storage sheds and garages (of varying vintage and condition). We note from heritage studies perused that the heritage significance of the property appears to lie in the improvements, the driveway, the gardens, ancillary out buildings, silos, and the prior pastoral use of the property. Oran Park House is accessed via a long tree lined unpaved drive from Cobbitty Road. 10. Proposed Development The subject property given its location, topography, infrastructure access and proximity to adjoining precincts identified for “fast tracking” appears well suited for urban development. As the focus of the instructing party at this point in time has been directed at having the subject property included on the Precinct Acceleration Protocol, for our valuation we have not had the benefit of detailed master planning to fully identify the site constraints and opportunities and potential lot yield. Using a Concept Site Master Plan developed for the site, and after detailed discussions with the instructing party, we have adopted the following developable area and open space assumptions: Component Site Area Future Residential 55.00 ha Oran Park House and Heritage Zone 12.00 ha Riparian Zone S94 40.19 ha Total 107.19 ha We have adopted a yield of twelve (12) allotments per hectare at 70% site efficiency, indicating a total lot yield potential of approximately 650 dwellings, which is considered reasonable as at the date of valuation, however may potentially change as the development process progresses. 3 81 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Valad Commercial Management Limited Oran Park House – Valuation Summary We acknowledge that the preference of Government is for fifteen (15) allotments per hectare, however our adoption of twelve (12) may be considered as being an average over the total site when product diversity ranging 2 2 from small courtyard lots (< 350m ) to larger executive lots (>1,000m ) is considered. The Concept Master Plan follows: 11. Market Commentary and Sales Activity The current malaise of the Sydney residential market, which started in early 2004, is well documented. The underlying cause appears to be a combination of poor State economic sentiment, concern regarding continued interest rate increases, the current high cost of land development in terms of state and local government levies, a shortage of low-cost serviced allotments, and boom prices during 2001 to 2003 having created a “spiked” pricing point (notwithstanding recent market softening) that is still difficult for aspiring market entrants but essential for highly geared home owners to maintain. The slow down in the “retail” and “builders” take-up of newly developed and subdivided housing lots, and the softening of prices being achieved, has caused a number of major greenfield developers to defer development activity and reduce stock inventories pending the return of better sentiment. This is widely anticipated in two (2) to three (3) years time when the State economy is expected to have recovered and, with it, the return of a sustainable level of capital growth and market activity. The South West Sydney market has been particularly hard hit over the past three (3) years as the regional employment rate, given the nature of the local demographic, is more susceptible to slow State economic activity than other regions of Sydney. The above notwithstanding, given the current weight of money in the domestic capital market requiring a home and a reasonable return on investment, and the increasing risk tolerance and expertise levels of listed and unlisted fund managers, we are aware of a number of institutions seeking to currently enter the greenfield residential development market as a form of counter cyclical play. 4 82 Valad Opportunity Fund Product Disclosure Statement Valad Commercial Management Limited Oran Park House – Valuation Summary There are few large future residential land acquisition opportunities in the North West Sydney and South West Sydney residential markets given the high number of smaller sized land holdings and fragmented ownership. Large aggregated holdings are attractive in that they offer control, economies of scale and critical mass for viability, particularly given the high cost of the state and local government development levies. The subject property offers this advantage, in that with the exception of the Perich family holdings (Leppington Pastoral Company), the Fairfax family holdings (Harrington Park), the NSW Leagues Club (Camden Valley Golf Resort), McIntosh Brothers (Oran Park), Australand (Edmondson Park) and potentially St Gregorys College (Turner Road), there are few aggregated holdings within the SWGC. Accordingly, given this tightly held ownership scenario, we are aware of only one (1) recent major sale within the SWGC of a large un-rezoned greenfield site for direct comparison to the subject property, as follows: Raby House, 1025 Camden Valley Way, Catherine Field – a 75.6 hectare rural property containing a derelict heritage house and, subject to re-zoning and master planning, a future residential footprint of 37.2 hectares plus heritage curtilage and riparian zones. The property sold for $16,000,000 in December 2005 with analysis indicating the future developable urban area having a value of $386,425 per hectare. We have also relied on the following transactions and have made value judgements to derive a proxy value rate on a per hectare basis. Richardson & Springs Road, Spring Farm – a 43 hectare parcel of residential development land with subdivision approval for 456 allotments. The property sold for $34,000,000 in July 2006 at a rate of $790,698 per developable hectare. 150 Lodges Road, Elderslie – a 12.8 hectare parcel of residential development land with staged development consent providing a total of 145 allotments. The property sold for $12,700,000 in December 2005 (exchange of contracts) at a rate of $1,149,321 per developable hectare. And as a guide to smaller land holdings within the SWGC: 176 Ingleburn Road, Leppington – a 2.8 hectare rural residential property located within the future Leppington Town Centre precinct. We understand that the property sold for $1,500,000 in December 2006 (exchange of contracts). After deducting the estimated value of improvements we estimate an unimproved rate of $487,589 per hectare. 347 Catherine Field Road, Catherine Field - a 2.1 hectare vacant rural residential site just outside the village of Catherine Field that may have a portion of flood prone riparian area at the rear boundary. The property sold in January 2006 at a rate of $378,672 per hectare. 12. Valuation Methodology As indicated in Section 5 our primary method of valuation has been direct comparison given that a detailed master plan and development costings are not available (nor likely warranted) for the subject property at this point in time. After consideration of a number of transactions, including the above described, we have ascribed a value of $21,450,000 or $390,000 per hectare for the potential developable area (55 hectares), added the estimated value of Oran Park House and proposed curtilage (12 hectares) of $2,500,000 on a sub-divided basis and an amount of $50,000 for the residual area of 40.19 hectares proposed for riparian zone. This produces a total adopted market value of $24,000,000. We have checked this approach with a feasibility analysis that, under the circumstances, has required the use of a number of assumptions regarding (but not limited to) development commencement (June 2009), construction costs and levies, debt and holding costs. We have adopted a revenue scenario of eleven (11) production stages for a total of 650 allotments with average gross sale prices inclusive of GST commencing at $260,000 per lot and ranging to $280,000 for the last stage with an average sales rate over the project of eight (8) allotments per month. We have also assumed that Oran Park House and its curtilage is divested for $2,500,000 mid way through the development period. 5 83 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Valad Commercial Management Limited Oran Park House – Valuation Summary A summary of our feasibility calculations follows: Gross Realisation less Selling Expenses $177,300,000 ($5,862,067) Net Realisation less GST on Sales $171,437,933 ($14,185,751) Net Project Revenue less Profit & Risk @ 20.00% Net Realisation after Profit & Risk $157,252,182 ($26,296,541) $130,955,642 Deduct Development costs Construction Costs Professional Fees $31,906,875 $1,943,563 Contributions & Charges Holding Costs $60,170,800 $312,537 Loan Establishment Fee Miscellaneous Costs Add Back GST Input $260,046 $0 ($3,610,343) $90,983,478 $39,972,164 Deduct Interest $14,745,695 Acquisition Costs $1,363,572 Residual Value $23,862,897 Adopted Residual Value $23,900,000 Please note that the above feasibility reflects our view of the market conditions existing at the date of valuation and does not purport to predict the market conditions and the value at the actual completion of development because of the time lag. 13. Sale Contract The instructing party has provided to us an extract of the Sale Contract for the purchase of the subject property prepared by Colin Biggers & Paisley and dated 12 July 2006. The extract confirms the purchase price of $19,025,000 with a completion date of 6 December 2007. No onerous terms and conditions are identified from the extract provided. 14. Valuation We advise that our adopted open market value assessment “as is” as at 31 March 2007 is $24,000,000 (Twenty Four Million Dollars) GST Exclusive. 15. Material Assumptions The material valuation assumptions are contained in our detailed valuation report, which will be available for inspection at the offices of VCML during normal business hours. 16. Qualification & Warning CICV has been engaged by VCML to provide a valuation of the property described in Section 2 of this Summary Report. VCML wish to include the Report in the PDS and have requested CICV to consent to the inclusion of this Report. 6 84 Valad Opportunity Fund Product Disclosure Statement Valad Commercial Management Limited Oran Park House – Valuation Summary CICV consents to the inclusion of this Report in the PDS subject to the condition that VCML include this Qualification and Warning in the PDS and make the recipients of the PDS aware of the following:• This Report has been prepared for VCML only and for the specific purposes outlined in the Introduction to the Report and cannot be relied upon by third parties. • This Report is a summary of the valuation of the property described in Section 2 and has not been prepared for the purpose of assessing properties as an investment opportunity. • CICV has not been involved in the preparation of the PDS nor has the Report had regard to the other material contained in the PDS. The Report and its content does not take into account any matters concerning the investment opportunity contained in the PDS. • CICV makes no representation or recommendation to a Recipient in relation to the valuation of the property or the investment opportunity contained in the Report. • Recipients must seek their own advice in relation to the investment opportunity contained in the PDS. CICV has prepared this Report on the basis of, and limited to, the financial and other information (including market information and third party information) referred to in the Report and contained in the full valuation report. We have assumed that the third party information is accurate, reliable and complete and confirm that we have not tested the information in that respect. 17. Liability Disclaimer In the case of advice provided in this letter and our report which is of a projected nature, we must emphasise that specific assumptions have been made by us which appear realistic based upon current market perceptions. It follows that any one of our associated assumptions set out in the text of this summary may be proved incorrect during the course of time and no responsibility can be accepted by us in this event. This report has been prepared subject to the conditions referred to in our Qualification & Warning. Neither CICV nor any of its Directors makes any representation in relation to the PDS nor accepts responsibility for any information or representation made in the PDS other than in respect of this report. CICV has prepared this summary which appears in the PDS. CICV were involved only in the preparation of this summary and the valuations referred to herein, and specifically disclaim any liability to any person in the event of any omission from, or false or misleading statement included in the PDS, other than in respect of the valuation and this summary. We confirm that this summary may be used in this Product Disclosure Statement. The valuation is current as at the date of the valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period as a result of general market movements or factors specific to the particular property. We do not accept liability for losses arising from such subsequent changes in value. Without limiting the generality of the above comment, we do not assume any responsibility or accept any liability where these valuations are relied upon after the expiration of three months from the date of the valuation, or such earlier date if you become aware of any factors that have any effect on the valuation. CICV confirms that it does not have a pecuniary interest that would conflict with its valuation of the property. CICV is not providing advice about a financial product, nor the suitability of the investment set out in the PDS. Such an opinion can only be provided by a person who holds an Australian Financial Services Licence. CICV does not, nor does the Valuer, hold an Australian Financial Services Licence and is not operating under such a licence in providing its opinion as to the value of the properties detailed in this report. 7 85 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Valad Commercial Management Limited Oran Park House – Valuation Summary 18. Valuer’s Experience and Interest We advise that the respective Valuer, Mr Russell McKinnon, AAPI is authorised under the relevant New South Wales laws to practice as a Valuer and has in excess of five (5) years continuous experience in the valuation of property similar to the subject. Further, we confirm that the nominated Valuer does not have a pecuniary interest that could conflict with the proper valuation of the property, and we advise that this position will be maintained until the purpose for which this valuation is being obtained is completed. Yours sincerely Colliers International Consultancy and Valuation Pty Limited Will Doherty Managing Director 8 86 Valad Opportunity Fund Product Disclosure Statement Level 11 AMP Place 10 Eagle Street Brisbane Qld 4000 GPO Box 146 +61 (0) 7 3246 8888 +61 (0) 7 3229 5436 fax 31 March 2007 The Directors Valad Commercial Management Limited Level 9, 1 Chifley Square Sydney NSW 2000 www.knightfrank.com.au [email protected] Direct: 07 3246 8864 Dear Sir Re: 255 Archerfield Road and 301 Orchard Road, Richlands, Brisbane, Queensland Reference is made to instructions issued by Valad Commercial Management Limited (VCML), for and on behalf of Valad Opportunity Fund (VOF), dated 13 March 2007 requesting Knight Frank Valuations Queensland to assess the “As Is” Market Value of 255 Archerfield Road and 301 Orchard Road, Richlands, Brisbane, Queensland, as an englobo land holding based on current zoning. The valuation is required for asset revaluation and first mortgage security purposes. For the purpose of inclusion in the Product Disclosure Statement, we provide a summary of the valuation report outlining the key features which have been considered in arriving at our opinion of Market Value. For further information we refer the reader to the contents of the comprehensive valuation report, a copy of which is held by VCML. Basis of Valuation For the purposes of this assessment, Market Value is defined as: “The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion”. In respect of our instructions, “‘Market Value’ is to be defined as that price which the property could be expected to realise if offered for sale under normal commercial circumstances, in the prevailing market conditions and with the expectation of a result within 6 months of the date from which the property is offered for sale”. Summary of Value We have assessed the Market Value of the freehold interest in the properties as at 31 March 2007, to be the sum of $11,400,000 exclusive of GST, subject to the qualifications and assumptions contained within our formal report relating to various property details including, but not limited to the following: x Title searches; x Boundary surveys; and x Development and Planning details. Valuations Services (Qld) Pty Ltd ABN: 35 084 750 612, trading under licence as Knight Frank Valuations Queensland, is independently owned and operated, is not a member of and does not act as agent for the Knight Frank Group. Trade mark of the Knight Frank Group used under licence. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc TM 87 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS 31 March 2007 The Directors Valad Commercial Management Limited Level 9, 1 Chifley Square Sydney NSW 2000 Level 11 AMP Place 10 Eagle Street Brisbane Qld 4000 GPO Box 146 +61 (0) 7 3246 8888 +61 (0) 7 3229 5436 fax www.knightfrank.com.au [email protected] Direct: 07 3246 8864 Dear Sir Re: 255 Archerfield Road and 301 Orchard Road, Richlands, Brisbane, Queensland Reference is made to instructions issued by Valad Commercial Management Limited (VCML), for and on behalf of Valad Opportunity Fund (VOF), dated 13 March 2007 requesting Knight Frank Valuations Queensland to assess the “As Is” Market Value of 255 Archerfield Road and 301 Orchard Road, Richlands, Brisbane, Queensland, as an englobo land holding based on current zoning. The valuation is required for asset revaluation and first mortgage security purposes. For the purpose of inclusion in the Product Disclosure Statement, we provide a summary of the valuation report outlining the key features which have been considered in arriving at our opinion of Market Value. For further information we refer the reader to the contents of the comprehensive valuation report, a copy of which is held by VCML. Basis of Valuation For the purposes of this assessment, Market Value is defined as: “The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion”. In respect of our instructions, “‘Market Value’ is to be defined as that price which the property could be expected to realise if offered for sale under normal commercial circumstances, in the prevailing market conditions and with the expectation of a result within 6 months of the date from which the property is offered for sale”. Summary of Value We have assessed the Market Value of the freehold interest in the properties as at 31 March 2007, to be the sum of $11,400,000 exclusive of GST, subject to the qualifications and assumptions contained within our formal report relating to various property details including, but not limited to the following: x Title searches; x Boundary surveys; and x Development and Planning details. Valuations Services (Qld) Pty Ltd ABN: 35 084 750 612, trading under licence as Knight Frank Valuations Queensland, is independently owned and operated, is not a member of and does not act as agent for the Knight Frank Group. Trade mark of the Knight Frank Group used under licence. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc TM 88 Valad Opportunity Fund Product Disclosure Statement Page 2 Valad Commercial Management Limited 31 March 2007 Description of Property The property comprises two adjoining and contiguous parcels of land forming one large redevelopment land holding. The property has a frontage to Orchard Road to the west and Archerfield Road to the east. A summary of the land parcels follows: Lot 1 on RP 62743 – 255 Archerfield Road - Site Area: 41,000m² Located within the north-eastern corner of the site fronting Archerfield Road is a modest brick veneer cottage together with assorted outbuilding structures which are of average to fair condition. The site has been generally cleared with selected natural trees remaining. We noted during our inspection that the property appears to have been utilised for market gardening activities. Lot 2 on RP 62743 – 301 Orchard Road - Site Area: 26,000m² Located towards the central portion of the parcel fronting Orchard Road is an old timber and tin cottage in fair condition with a number of dilapidated outbuildings. This parcel has been partly cleared with the balance of the site comprising natural vegetation and regrowth. The parcels are situated approximately 20 road kilometres south-west of the Brisbane CBD. Surrounding development to the east includes modest residential redevelopment whilst to the west and north includes recently completed, purpose-built industrial complexes used mainly for warehousing and distribution uses together with pockets of vacant land parcels. Immediately adjoining the property to the south is a disused drive-in theatre. All the usual city services including reticulated water, electricity, sewerage and telephone are available to the property. Market Overview The commercial “vacant land” market throughout greater Brisbane has experienced unprecedented growth in values over the last 2 years, with demand predominantly driven by “owner occupiers” within the industrial market (due to the low cost of debt relative to current rental rates) and by developers seeking larger tracts of land for subdivision and subsequent sale. With strong demand and limited supply of “ready to build serviced land”, available properties have attracted a premium when offered for sale with land previously deemed “secondary” having received renewed attention. Many market observers have argued that the key driver of spiralling land values is scarcity of land and that the rapid increases in value are potentially unsustainable, particularly given that nonresidential sector rentals have not kept pace with land values nor increased construction costs. These factors have caused further erosion in yields and a continued compression of development margins. The land value and construction cost/rent imbalance may see a correction. However at this time there is no anecdotal evidence suggesting a near term market correction and commercial/industrial facilities continue to be developed at a higher rate suggesting developers are achieving adequate returns, despite escalating land values and construction costs. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 89 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Page 3 Valad Commercial Management Limited 31 March 2007 Market Overview (cont) The inequity between rents and land values is mainly the problem for new entrants buying in at current high rates. Those developers who were able to identify the demand shift early and subsequently land banked within the growth corridors, are generally the ones still making satisfactory returns. In summary, given that demand has occurred at the heart of the pricing shift, it is considered that the following is likely to occur: x With demand likely to remain strong, rentals will be re-rated upwards to justify the next round of developments; x Investment yields would fall further in anticipation of an uplift in underlying capital values; and x New construction materials and methods will be explored in an effort to reduce, or if not contain, constructions costs. Whether there will be a continuation of the upwards spiral in land values on the back of continuing strong demand occurring within the currently buoyant property cycle, is very much open to speculation. To date, we have not identified any anecdotal evidence suggesting a slowing in current demand levels for serviced land, or any adverse impact upon corresponding land purchase prices. T R O REP S Valuation Rationale ND A L Hthe Market Value of the property comprising two adjoining and We have been instructed to assess contiguous lots described as RLotIC1 on RP 62743 (255 Archerfield Road) and Lot 2 on RP 26743 (301 Orchard Road) as an amalgamated site with two street frontages on an “As Is” basis, but prior to payment of infrastructure levies in accordance with the Richlands Infrastructure Charges Plan. The Brisbane City Council implemented the Infrastructure Charges Plan (ICP’s) during its drafting of the Brisbane City Plan 2000 to comply with the requirements of the Integrated Planning Act 1997 (IPA). In respect of the redevelopment potential of the site, we advise the amalgamated site is within a “Future Industry– FI” area. This area consists mostly of unserviced land considered generally suitable for industrial use and in this regard we understand Lot 2 has obtained preliminary approval for a Material Change of Use that overrides the planning scheme to permit “General Industry” uses of the land. In undertaking our assessment having regard to our instructions in relation to the “As Is” “Future Industry” classification, we have had regard to comments in relation to “rezoning”, as contained in the Town Planning Investigation Report prepared by PMM Brisbane Pty Ltd for the Valad Property Group. This report has been prepared to address the potential subdivision and development options for the subject properties referred to as 255 Archerfield and 301 Orchard Road, Richlands, as well as an adjoining parcel referred to as 295 Archerfield Road. The report advises that under the current Queensland planning provisions “a rezoning” of land is not possible. Rather, development applications are required to seek approval for a “use” of the land rather than a “zone” for the land. That is, for example, under the current plan provisions, owners are required to seek approval for “a warehouse” as opposed to a “General Industry” classified designation. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 90 Valad Opportunity Fund Product Disclosure Statement Page 4 Valad Commercial Management Limited 31 March 2007 Valuation Rationale (cont) In this regard, the report indicates that a recent Town Planning Decision Notice over Lot 2 on RP 62743 (301 Orchard Road, Richlands) has been recently obtained. This decision incorporates the following components: 1. 2. Preliminary approval for Material Change of Use that overrides the planning scheme to permit “General Industry” uses of the land; and Development Permit for reconfiguring a lot (i.e. subdivision) to create 7 lots and new road (Lots ranging in size from 2,630m² to 5,285m²). The report also indicates that a structure plan was approved in conjunction with this application that nominates a future road through Lot 1 on RP 62743 (255 Archerfield Road) and a possible future connection into the eastern side of Lot 3 on RP 62743. The decision gives the approved allotments, once created, the right to be assessed under the provisions of the “General Industry Area”, thereby making subsequent Material Change of Use applications comparatively simpler and of less risk then they would be in a “Future Industry Area” where the applications will be Impact Assessable. The structure plan also considers the future development of Lot 1, therefore any application over Lot 1 would have already had a structure plan considered for the site by Council, therefore saving time and costs. T R O REP S D N A We are of the opinion that the preliminary approval for a Material Change of Use in respect of Lot 2 L CinHrelation to the adjoining Lot 1, being the balance of the subject provides a degree of comfort I R amalgamated development site, in respect of achieving Material Change of Use to permit “General Industry” uses over the balance of the amalgamated site area. The report also indicates the remaining lot, being Lot 1 on RP 62743, can be developed as a single use site requiring development application to be lodged to Council seeking approval for “Light Industry” uses towards the Archerfield Road frontage, acting as a buffer to the existing and future residential uses. Furthermore, the existing parcel may be subdivided as Community Title through the creation of allotments by building format plan. Subdivisions such as these do not require a subdivision approval from Council, however, it must be in accordance with a previously approved Material Change of Use approval granted over the land. The report also indicates the position in respect of reconfiguring the existing lots which would need to be undertaken in accordance with the minimum lot sizes and would require the ultimate development of the resulting parcels to be consistent with the “Light” and “General Industry Area” provisions to ensure the “Light Industry” creates a buffer between the Residential Uses to the east and the “General Industry” uses to the west. Road access will be required to be established from Orchard Road in a similar fashion to that created for Lot 2 on RP 62743 as approved by Council decision or alternatively connected to the ultimate design for Lot 1 on RP 62743 with road access ultimately achieved through Lot 2. This however, will be subject to the assessment of the structure plan prepared as part of the subdivision application for Lot 1 as it is a “Future Industry Area” and that the development of Lot 2 proceeds as approved. The structure plan for Lot 1 will also be required to be prepared in accordance with the structure plan approval for Lot 2 and will necessitate Lot 1 providing a buffer to Lot 2 with “Light Industry Uses”. In either option detailed above, a Material Change of Use application will be required to establish the resulting use on each allotment whether they are the current lots or those resulting from a subdivision application. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 91 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Page 5 Valad Commercial Management Limited 31 March 2007 Valuation Rationale (cont) However, as mentioned previously, the fact that Council was prepared in a Decision Notice over Lot 2 on RP 62743 to provide preliminary approval for Material Change of Use that overrides the planning scheme to permit “General Industry” uses and a development permit for reconfiguring the lot to permit subdivision and create smaller allotments, provides a certain level of comfort in relation to the adjoining remaining portion of the amalgamated site, being Lot 1, including approval from Council in respect of the removal of all or parts of the protected vegetation on-site, as did occur as part of the approval for Lot 2. The PMM Brisbane Pty Ltd report concludes that the ultimate use of the sites for either large or small lot industrial uses will be supported by Council provided the relevant engineering, traffic, environmental and design requirements are met for the sites. We are of the opinion that the Decision Notice over Lot 2 on RP 62743 provides a certain level of comfort in relation to obtaining Council support over the remaining component of the site amalgamation, being Lot 1 on RP 62743, identified as 255 Archerfield Road, Richlands. The above information has been extracted from the aforementioned planning report document prepared for Valad Property Group (Valad) and provided to us by Valad to facilitate the preparation of our valuation and we have assumed the information contained within the report is correct. We make no warranty, however, as to the accuracy of the information and in the event the information contained within the planning reports as provided to us proves to be incomplete or has varied, we reserve the right to review and, if necessary, amend our valuation accordingly. Valuation Methodology “Future Industry” “As Is” Assessment In arriving at our estimate of Market Value on the basis contained within our instructions, we have relied upon the Direct Comparison Method of valuation whereupon the subject parcel has been compared to sales of recent land transactions within the Brisbane metropolitan area, having regard to the site’s location, current “Future Industry” classification, the topography of the site and the physical attributes and detriments. In respect of recent transactions involving the sale of vacant development sites, we have been unable to identify any directly comparable sales evidence due to the fact that the subject property is within a “Future Industry Area” and has a falling cross slope contour. Therefore, we have considered a broad overview of recent and historic sales of vacant development sites and in this regard our research indicates that properties have been sold in the range of $134/m² up to $256/m² of site area, with sales of sites with “Future Industry” and “General Industry” classifications within the Wacol–Richlands area being subject to ICP’s, but without development approvals and elements of low contour land falling within the range of $145/m² up to $240/m² of site area for parcels with site areas ranging from 2.2 hectares up to 9.26 hectares. Based on the limited evidence of a directly comparable nature, the preliminary approval for a Material Change of Use to permit “General Industry” uses of Lot 2, adopting a degree of professional judgement, we are of the opinion that the amalgamated site, having regard to our earlier comments in relation to the land holding, would have a value in the range of $165 to $175/m² of site area on an “As Is” basis. On this basis, the property is considered to have a Market Value in the range of $11,055,000 to $11,725,000 and for reporting purposes, we have adopted a mid point position of $11,390,000 and for Market Value estimation purposes we have adopted a rounded Market Value of $11,400,000, exclusive of GST. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 92 Valad Opportunity Fund Product Disclosure Statement Page 6 Valad Commercial Management Limited 31 March 2007 Valuation Reconciliation We have been advised that the amalgamated property is subject to two separate Contracts of Sale with Lot 1 on RP 62743 (255 Archerfield Road) having a purchase price of $4,150,000 ($101/m²)and Lot 2 on RP 62743 (301 Orchard Road) having a purchase price of $4,680,000 ($180/m²) with both amounts being exclusive of GST. The combined purchase price equates to $8,830,000 ($131.79/m²) exclusive of GST. The draft Contracts of Sale as provided to us are annexed to draft Put and Call Option Deeds, copies of which have been supplied to us. We comment that the respective purchase prices in our opinion reflects the stand alone status of the individual parcels held in different ownership and this is critical in that the development potential of the lots as separate entities is less than the development potential as a combined amalgamated site in the one ownership with two street frontages, which provides significant increased development opportunities. This is particularly so in respect of 255 Archerfield Road which is located opposite a residential area and any development on the site will require setbacks and buffer zones for the reduction of noise which has a significant impact on the development potential of the site as a stand alone entity. Furthermore, we are of the view that there are significant marriage value synergies in relation to an amalgamated site compared with two stand alone allotments which potentially have lesser development potential compared with the overall amalgamated land scenario. Also we note from the Town Planning Investigation Report that road access may well need to be established from Orchard Road and in this regard we note that the schematic plan of subdivision of the site indicates road access from Orchard Road with a 30 metres building setback buffer provided to the Archerfield Road frontage, but no on-site access. We are of the view that the site in amalgamation has significant superior development potential with the two street frontages, compared with the development potential that could be achieved with two stand alone allotments with single road frontage. On this basis, whilst the combined purchase price of the individual lots equates to approximately $132/m², in our opinion the amalgamated site offers superior development potential and the market would have cognisance of this. As an amalgamated site we are of the view that the property has a value of $170/m², which suggests a marriage value premium in the order of 30% above the combined individual purchase prices. Having regard to the current buoyant industrial land market and the lack of opportunity in being able to acquire adjoining land parcels to create a larger development opportunity, we are of the opinion that the aforementioned marriage value premium is reasonable in the current market and on that basis we have adopted a value of $170/m² for the “As Is” amalgamated land holding site area which reflects the two street frontages affording superior development potential. On this basis, in our opinion, the “As Is” Market Value of the property based on available evidence and subject to the qualifications and assumptions contained within the body of our formal valuation report document as at 31 March 2007, as an englobo land holding based on current zoning, exclusive of GST is the sum of: $11,400,000 (Eleven Million Four Hundred Thousand Dollars) P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 93 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Page 7 Valad Commercial Management Limited 31 March 2007 Liability Disclaimer Knight Frank Valuations Queensland has prepared this letter based upon information available as at the date of valuation. Knight Frank Valuations Queensland has prepared this letter of summary for inclusion in the Product Disclosure Statement but has not been involved in the preparation of any other part of the document. Knight Frank Valuations Queensland has not been required to approve or express any opinion about any part of the Product Disclosure Statement other than this letter of valuation summary. Knight Frank Valuations Queensland, its directors, executive officers and employees therefore cannot, and do not, make any warranty or representation as to the accuracy or completeness of any information or statement contained in any part of the Product Disclosure Statement, other than those expressly made or given in this letter of summary. Knight Frank Valuations Queensland specifically disclaims liability to any person in the event of any alleged false or misleading statement in, or material omission from, any part of the Product Disclosure Statement other than in respect of the material prepared by Knight Frank Valuations Queensland. Valuers’ Interest The appointed Valuers from Knight Frank Valuations Queensland do not have any pecuniary interest that would conflict with the proper valuation of the properties and the valuation has been made independently of Valad Commercial Management Limited (VCML) and Valad Opportunity Fund (VOF) and/or its officers. The Valuers performing this valuation have in excess of 5 years continuous experience in the valuation of property of a similar type and are authorised to practise as Valuers in the State of Queensland. The Valuers have prepared this valuation in accordance with all relevant principles applicable to a valuation of this type of property having regard to all relevant and surrounding circumstances and including any particular requirements of VCML and/or VOF. In providing this valuation report, Knight Frank Valuations Queensland is not providing financial product advice. Furthermore, Valuations Services (Qld) Pty Ltd trading as Knight Frank Valuations Queensland is not operating under an Australian Financial Services Licence under the Corporations Act 2001 and is not required to hold a licence in accordance with Regulation 7.6.01(1)(u) of the Act. In providing this report, the benefits received by Knight Frank Valuations Queensland and the persons associated with it pursuant to sub-Section 947B(2)(d) under Corporations Act 2001 are as follows: Property Valuation Fee: Reimbursement of Search Fees and other costs: Preparation of summary letter for inclusion in the Product Disclosure Statement: $3,500 plus GST $ 200 plus GST $5,000 plus GST Total: $8,700 plus GST No commissions, further payments or additional benefits will be paid to Knight Frank Valuations Queensland which are dependent on the success or otherwise of any capital raising or other matters relating to this offer. P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 94 Valad Opportunity Fund Product Disclosure Statement Page 8 Valad Commercial Management Limited 31 March 2007 Valuers’ Interest (cont) Knight Frank Valuations Queensland is not aware of any interests, associations or relationships between Knight Frank Valuations Queensland or its associates with Valad Commercial Management Limited or Valad Opportunity Fund or its associates that may reasonably be expected to be or have been capable of influencing Knight Frank Valuations Queensland in the preparation of our valuation or providing this report. Yours faithfully Knight Frank Valuations Queensland IAN GREGORY Director P:\#FILES\F10715800\10715814\PDS Letter 31-03-07.doc 95 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS BDO Kendalls BDO Kendalls Corporate Finance (NSW) Pty Ltd Level 19, 2 Market St Sydney NSW 2000 GPO Box 2551 Sydney NSW 2001 Phone 61 2 9286 5555 Fax 61 2 9286 5599 [email protected] www.bdo.com.au ABN 91 003 946 030 AFS Licence No. 244345 20 April 2007 The Directors Valad Commercial Management Limited Level 9, 1 Chifley Square SYDNEY NSW 2000 Dear Sirs, VALUATION OF PREFERRED EQUITY INTERESTS IN THE NOOSA NORTH SHORE – SOUTH PROJECT 1 INTRODUCTION In accordance with our engagement letter dated 29 March 2007 BDO Kendalls Corporate Finance (NSW) Pty Limited (“BDO Corporate Finance”) have undertaken an independent valuation of the preferred equity interests that Valad Opportunity Fund No. 11 (“VOF”) may acquire in the Noosa North Shore – South (“NNS – S”) project (“the Project”) currently held by Valad Funds Management Limited (“VFML”). 2 PURPOSE AND SCOPE OF REPORT VOF is in the process of converting from an Australian Securities Exchange (“ASX”) listed fund to an unlisted fund. Unitholders have the option of either redeeming their VOF units or remaining in the unlisted fund. A public offer of VOF units is being undertaken to raise capital to: i. fund the redemptions of those existing unitholders who choose to exit VOF; and ii. acquire the preferred equity interests in the NNS-S property development project currently held by VFML. We have prepared this valuation report (“Report”) for the purpose of valuing the preferred equity interests in NNS-S that VOF will be acquiring. This summary Report is to be included in the Product Disclosure Statement (“PDS”) for the public offer of VOF units. 3 VALUATION SUMMARY The results of our valuation of VFML’s preferred equity interests in NNS-S as at 31 March 2007 are summarised in the table below. VFML’s Interest Total Preferred Equity interests in NNS-S held by VFML Low $’000 11,286 High $’000 11,874 BDO Kendalls is a national association of separate partnerships and entities. Liability limited by a scheme approved under Professional Standards Legislation. 96 Valad Opportunity Fund Product Disclosure Statement 4 OUTLINE OF PREFERRED EQUITY INTEREST VFML has invested $10.1 million in the form of preferred equity as at 31 March 2007. The preferred equity has two components as follows: 4.1 4.2 Coupon Component x VFML receives a coupon on the face value of the preferred equity invested. x The preferred equity has a coupon rate of 11.5% p.a. payable monthly. Unpaid interest is capitalised. Interest is payable on the face value of the preferred equity (Interest is not payable on any unpaid coupons). x VFML’s interest and face value of the preferred equity will be paid ahead of Petrac Property Group’s (“Petrac”)’s interest and face value. Profit Share Component x Any cash remaining in the Project after the repayment of all preferred equity (principal and interest) will be allocated to the investors as follows. Investor VFML Petrac 5 Share of Profits VFML’s IRR below 25% 40% VFML’s IRR above 25% 25% 60% 75% VALUATION METHODOLOGIES We have selected the Discounted Cash Flow (“DCF”) methodology to value VFML preferred equity interests in NNS-S that VOF are acquiring. The DCF methodology requires consideration of forecast cash flows and a discount rate. As different risks are attached to the coupon and profit share components of the Preferred Equity we have valued these elements separately. 6 TARGET CASH FLOWS Valad has provided us with Project operating and financing cash flow targets for the period ending 30 November 2009. These targets have been used as the basis of our valuations. As the detailed cash flow projections are commercially sensitive they have not been set out in our report. The directors of Valad are responsible for the preparation of the targets and the assumptions upon which they are based. Whilst we have not conducted a detailed review of the targets or the underlying assumptions, we note that nothing has come to our attention that would lead us to believe that the assumptions underlying the targets are unreasonable. There is a considerable degree of subjective judgement involved in the preparation of the target financial information. Actual results may vary materially from those targets and the variation may be materially positive or negative. Accordingly, investors should have regard to the Section on risk factors set out in the PDS. BDO CORPORATE FINANCE 2 97 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS 7 VALUATION OF VFML’S PREFERRED EQUITY 7.1 Valuation Of VFML’s Coupon Component Of Preferred Equity The target cash flows for VFML’s coupon component of preferred equity for the period 1 April 2007 to 30 November 2009 have been sourced from the targets discussed in Section 6. We have estimated the discount rate for the coupon component of VFML’s preferred equity between 12% and 14% having considered the following: x The relative riskiness of the coupon component of VFML’s preferred equity instrument to: i. ii. iii. iv. 7.2 the Project’s senior debt; the Project’s mezzanine debt instrument; the preferred equity instrument issued to Petrac; the profit share component of the preferred equity instrument; x The coupon component of VFML’s preferred equity is target to be repaid 5 months before the target end of the Project; x The actual coupon rate attaching to the preferred equity instrument (11.5%); and x The cost of equity determined for the profit share component of the preferred equity instrument in Section 7.2. Valuation Of VFML’s Profit Share Component Of Preferred Equity The target cash flows for VFML’s profit share component of preferred equity for the period 1 April 2007 to 30 November 2009 have been sourced from the targets discussed in Section 6. We have used the cost of equity as the most appropriate discount rate to apply to the profit share component of the preferred equity instrument. We have calculated the cost of equity by applying the Capital Asset Pricing Model (“CAPM”). Having considered comparable listed entities, the level of gearing, and the pre-tax nature of the cash flows, we have determined that an appropriate discount rate is between 30% and 35%. 8 SOURCES OF INFORMATION In preparing this report, we have referred to the following: x NNS-S Project Target Operating and Financing Cash Flows for the period ending November 2009; x Management accounts for the period to 28 February 2007; x Heads of Terms – Transfer of Preferred Equity Position to VOF, March 2006; x Mezzanine Investment Proposal, July 2006; x Facility Agreement – Preferred Equity; x Investment Proposal – Preferred Equity, October 2005 x Discussions with VOF management; x ASX data; x Bloomberg; and x Information available in the public domain. BDO CORPORATE FINANCE 98 Valad Opportunity Fund Product Disclosure Statement 3 9 CONSENTS AND DISCLAIMERS This Report has been prepared for the purpose of valuing the preferred equity interests in NNS-S that VOF may acquire from VFML, and will be included in a PDS for the public offer of VOF units. The Report should not be used for any other purpose without the prior written consent of BDO Corporate Finance. In accordance with normal professional practice, neither BDO Corporate Finance nor any member or employee of BDO Corporate Finance undertakes responsibility in any way whatsoever to any person other than Valad in respect of this Report. Neither the whole of this Report nor any part thereof nor any reference thereto may be published in any document, statement or circular, or in any communication with third parties without BDO Corporate Finance’s prior written approval of the form and context in which it will appear. BDO Corporate Finance has not carried out any work in the nature of an audit in respect of the information contained in the documents noted in Section 8 above, nor have we attempted to independently confirm the information therein and accordingly express no opinion as to its truth or accuracy. Furthermore, whilst we have no reason to doubt that the information provided to us is reliable, complete and not misleading and that no material facts have been withheld, we do not warrant that our enquiries have revealed all matters that a more detailed extensive investigation may have disclosed. To the extent that our conclusions are based on targets, we express no opinion on the achievability of those targets. Neither BDO Corporate Finance nor any member or employee of BDO Corporate Finance undertakes responsibility in any way whatsoever to any person in respect of errors in this report arising from incorrect information provided by Management or in respect of the failure of targets to be achieved. Yours faithfully BDO KENDALLS CORPORATE FINANCE (NSW) PTY LIMITED Sebastian Stevens Director BDO CORPORATE FINANCE 4 99 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS 9.2 Investigating Accountant’s Report Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127 AFSL No. 241457 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Sydney NSW 1220 Australia Note: This report consists of both a Financial Services Guide and a Review of Pro-forma Financial Information Part 1 - Financial Services Guide 3 May 2007 What is a Financial Services Guide? This Financial Services Guide (FSG) is an important document whose purpose is to assist you in deciding whether to use any of the general financial product advice provided by Deloitte Corporate Finance Pty Limited (ABN 19 003 833 127). The use of “we”, “us” or “our” is a reference to Deloitte Corporate Finance Pty Limited as the holder of Australian Financial Services Licence (AFSL) No. 241457. The contents of this FSG include: who we are and how we can be contacted what services we are authorised to provide under our AFSL how we (and any other relevant parties) are remunerated in relation to any general financial product advice we may provide details of any potential conflicts of interest details of our internal and external dispute resolution systems and how you can access them. Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu," or other related names. The financial product advice in our report is provided by Deloitte Corporate Finance Pty Limited and not by the Australian partnership of Deloitte Touche Tohmatsu, its related entities, or the Deloitte Touche Tohmatsu Verein. We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and the Australian partnership of Deloitte Touche Tohmatsu (and its related bodies corporate) may from time to time provide professional services to financial product issuers in the ordinary course of business. What financial services are we licensed to provide? The AFSL we hold authorises us to provide the following financial services to both retail and wholesale clients: Information about us We have been engaged by the Directors of Valad Commercial Management as Responsible Entity for Valad Opportunity Fund No. 11 (“VCML”) to give general financial product advice in the form of a report to be provided to you in connection with the offering of units in the Valad Opportunity Fund No. 11. You are not the party or parties who engaged us to prepare this report. We are not acting for any person other than the party or parties who engaged us. We are required to give you an FSG by law because our report is being provided to you. You may contact us using the details located above. Deloitte Corporate Finance Pty Limited is ultimately owned by the Australian partnership of Deloitte Touche Tohmatsu. The Australian partnership of Deloitte Touche Tohmatsu and its related entities provide services primarily in the areas of audit, tax, consulting, and financial advisory services. Our directors may be partners in the Australian partnership of Deloitte Touche Tohmatsu. The Australian partnership of Deloitte Touche Tohmatsu is a member firm of the Deloitte Touche Tohmatsu Verein. As the Deloitte Touche Tohmatsu Verein is a Swiss Verein (association), neither it nor any of its 100 Valad Opportunity Fund Product Disclosure Statement to provide general financial product advice in respect of: − − − debentures, stocks or bonds to be issued or proposed to be issued by a government interests in managed investment schemes including investor directed portfolio services securities. to deal in a financial product by arranging for another person to apply for, acquire, vary or dispose of financial products in respect of: − − − debentures, stocks or bonds issued or to be issued by a government interests in managed investment schemes including investor directed portfolio services securities. Information about the general financial product advice we provide The financial product advice provided in our report is known as “general advice” because it does not take into account your personal objectives, financial situation or needs. You should consider whether the general advice contained in our report is appropriate for you, having regard to your own personal objectives, financial situation or needs. If our advice is being provided to you in connection with the acquisition or potential acquisition of a financial product issued another party, we recommend you obtain and read carefully the relevant offer document provided by the issuer of the financial product. The purpose of the offer document is to help you make an informed decision about the acquisition of a financial product. The contents of the offer document will include details such as the risks, benefits and costs of acquiring the particular financial product. How are we and our employees remunerated? Our fees are however they another basis. out-of-pocket services. usually determined on an hourly basis; may be a fixed amount or derived using We may also seek reimbursement of any expenses incurred in providing the Fee arrangements are agreed with the party or parties who actually engage us, and we confirm our remuneration in a written letter of engagement to the party or parties who actually engage us. Neither Deloitte Corporate Finance Pty Limited nor its directors and officers, nor any related bodies corporate or associates and their directors and officers, receives any commissions or other benefits, except for the fees for services rendered to the party or parties who actually engage us. Our fee is $70,000 and will also be disclosed in the relevant PDS or offer document prepared by the issuer of the financial product. All of our employees receive a salary. Our employees are eligible for annual salary increases and bonuses based on overall performance but do not receive any commissions or other benefits arising directly from services provided to you. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors do not receive any commissions or other benefits in connection with our advice. We do not pay commissions or provide other benefits to other parties for referring prospective clients to us. Responsibility The liability of Deloitte Corporate Finance Pty Limited is limited to the contents of this FSG and our report referred to in this FSG. What should you do if you have a complaint? If you have any concerns regarding our report, you may wish to advise us. Our internal complaint handling process is designed to respond to your concerns promptly and equitably. Please address your complaint in writing to: The Complaints Officer Practice Protection Group PO Box N250 Grosvenor Place Sydney NSW 1220 If you are not satisfied with the steps we have taken to resolve your complaint, you may contact the Financial Industry Complaints Service (“FICS”). FICS provides free advice and assistance to consumers to help them resolve complaints relating to members of the financial services industry. Complaints may be submitted to FICS at: Financial Industry Complaints Service PO Box 579 Collins Street West Melbourne VIC 8007 Telephone: 1300 780 808 Fax: +61 3 9621 2291 Internet: http://www.fics.asn.au If your complaint relates to the professional conduct of a person who is a Chartered Accountant, you may wish to lodge a complaint in writing with the Institute of Chartered Accountants in Australia (“ICAA”). The ICAA is the professional body responsible for setting and upholding the professional, ethical and technical standards of Chartered Accountants and can be contacted at: The Institute of Chartered Accountants GPO Box 3921 Sydney NSW 2001 Telephone: +61 2 9290 1344 Fax: +61 2 9262 1512 Specific contact details for lodging a compliant with the ICAA can be obtained from their website at http://www.icaa.org.au/about/index.cfm. The Australian Securities and Investments Commission (“ASIC”) regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit. Their website contains information on lodging complaints about companies and individual persons and sets out the types of complaints handled by ASIC. You may contact ASIC as follows: Info line: 1 300 300 630 Email: [email protected] Internet: http://www.asic.gov.au/asic/asic.nsf 101 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Deloitte Corporate Finance Pty Limited A.B.N. 19 003 833 127 AFSL No. 241457 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Sydney NSW 1220 Australia Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au The Directors Valad Commercial Management Limited As Responsible Entity for Valad Opportunity Fund No 11 Level 9, 1 Chifley Square Sydney NSW 2000 3 May 2007 Dear Directors Investigating Accountants’ Report on Financial Information Introduction Deloitte Corporate Finance Pty Limited (“Deloitte”) has been engaged by the Directors of Valad Commercial Management Limited (“VCML”) to prepare this Investigating Accountants’ Report (“Report”) for inclusion in the Product Disclosure Statement (“PDS”) to be dated on or around 3 May 2007, and to be issued by VCML in respect of the issue of new units in the Valad Opportunity Fund No 11 (“VOF” or the “Fund”). Expressions defined in the PDS have the same meaning in this report unless otherwise provided. Scope Review of Financial Information We have reviewed the Consolidated Balance Sheet of the Fund at 31 March 2007, the Pro-forma Consolidated Balance Sheet of the Fund at Allotment and the Adjusted Pro-forma Consolidated Balance Sheet of the Fund at Allotment as set out in Section 8.2 of the PDS (collectively the “Financial Information”). The Pro-forma financial information is based on the Consolidated Balance Sheet of the Fund at 31 March 2007 and incorporates the pro-forma adjustments which the directors of VCML considered necessary to reflect the pro-forma financial position of VOF at allotment as set out in Section 8.2 of the PDS, including the assumed exercise of the call option in relation to Oran Park which is due to be exercised in December 2007. The Adjusted Pro-forma Consolidated Balance Sheet at Allotment reflects the Pro-forma Consolidated Balance Sheet at Allotment amended to reflect the estimated fair value of property inventory. The directors of VCML are responsible for the preparation of the Financial Information, including determination of the pro-forma adjustments. Our review has been conducted in accordance with Australian Auditing Standard AUS 902 “Review of Financial Reports”. We have made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances, including: • Analytical procedures on the Financial Information; • A review of work papers, accounting records and other documents; • A review of the pro-forma adjustments described in Section 8.2 of the PDS; • A comparison of consistency in application of the recognition and measurement principles in AIFRS and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by VOF as disclosed in the VOF financial statements for the period ended 31 December 2006 and in Section 8.6 of the PDS; and • Enquiry of the directors and management of VCML. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu 102 Valad Opportunity Fund Product Disclosure Statement These procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion on the Financial Information. Review Statement Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the Consolidated Balance Sheet of the Fund at 31 March 2007 as set out in Section 8.2 of the PDS is not presented fairly in accordance with: • the recognition and measurement principles prescribed in AIFRS and other mandatory professional reporting requirements in Australia: and • the key accounting policies adopted by VOF as disclosed in Section 8.6 of the PDS Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the Pro-forma Consolidated Balance Sheet of the Fund at Allotment as set out in Section 8.2 of the PDS is not presented fairly in accordance with: • the pro-forma adjustments described in Section 8.2 of the PDS; • the recognition and measurement principles prescribed in AIFRS and other mandatory professional reporting requirements in Australia: and • the accounting policies adopted by VOF as disclosed in Section 8.6 of the PDS Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the Adjusted Pro-forma Consolidated Balance Sheet of the Fund at Allotment as set out in Section 8.2 of the PDS is not presented fairly in accordance with: • the pro-forma adjustments described in Section 8.2 of the PDS; • the recognition and measurement principles prescribed in AIFRS and other mandatory professional reporting requirements in Australia except that property inventory has been reflected at fair value. • the accounting policies adopted by VOF as disclosed in Section 8.6 of the PDS except that property inventory has been reflected at fair value. Subsequent Events Apart from the matters dealt with in this Report, and having regard for the scope of our Report, nothing has come to our attention that would cause us to believe that matters, other than matters dealt with in this Report, would require comment on, or adjustments to, the information contained in this Report, or would cause such information to be misleading or deceptive. Independence and Disclosure of Interest Deloitte Corporate Finance Pty Limited does not have any interest in the outcome of this issue other than the preparation of this Report and participation in due diligence procedures for which normal professional fees will be received. Consent Deloitte Corporate Finance Pty Limited has consented to the inclusion of this Investigating Accountants’ Report in the PDS in the form and context in which it is so included, but has not authorised the issue of the PDS. Accordingly, Deloitte Corporate Finance Pty Limited makes no representation regarding, and takes no responsibility for, any other documents or material in, or omissions from, the PDS. Yours faithfully DELOITTE CORPORATE FINANCE PTY LIMITED Steve Woosnam Director 103 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS 9.3 Taxation Report PricewaterhouseCoopers ABN 52 780 433 757 The Directors Valad Commercial Management Ltd as Responsible Entity for Valad Opportunity Fund No.11 Level 9, 1 Chifley Square SYDNEY NSW 2000 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia www.pwc.com/au Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 Direct Phone 8266 5221 Direct Fax 8286 5221 3 May 2007 Dear Sirs Valad Opportunity Fund No 11 (the Fund) We have prepared this letter to provide a broad summary of the income tax considerations for investors in the Fund for the purpose of inclusion in the Product Disclosure Statement of the Fund to be dated 3 May 2007. The information below is based on existing tax law and established interpretations as at the date of this letter. The taxation information provided below is intended as a brief guide only. The information only applies to Australian resident individual investors who hold their Units on capital account, and may not apply to Unitholders who are traders or are carrying on a business which includes deriving gains from the disposal of Units. The taxation of a unit trust such as the Fund can be complex and may change over time. Accordingly, Unitholders are recommended to seek professional taxation advice in relation to their own position. The information contained in this letter does not constitute "financial product advice" within the meaning of the Corporations Act 2001 (Cth) (Corporations Act). PricewaterhouseCoopers which is providing this letter is not licensed to provide financial product advice under the Corporations Act. To the extent that this letter contains any information about a "financial product" within the meaning of the Corporations Act, taxation is only one of the matters that must be considered when making a decision about the relevant financial product. This letter has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider taking independent financial advice from a person who is licensed to provide financial product advice under the Corporations Act. Liability limited by a scheme approved under Professional Standards Legislation 104 Valad Opportunity Fund Product Disclosure Statement Taxation of the Fund Public trading trusts Generally, the taxation treatment for the Fund will depend on whether the Fund is a public trading trust during a particular income year. The consequences of being a public trading trust will be that the Fund will be treated as a company for most tax purposes. The public trading trust test is a year to year test. In order to be treated as a public trading trust, the Fund must be both a public trust and a trading trust at any time in an income year. The Fund’s Units have been listed on the Australian stock exchange since inception and therefore it has been classified a public trust. The Fund will be a trading trust if it carries on a trading business or controls an entity that carries on a trading business at any time during an income year. Broadly, in the context of land, a trading business is any activity other than investing in land for the primary purpose of deriving rental income. Historically, the Fund has been undertaking trading activities and hence has been taxed as a public trading trust. For the year ending 30 June 2007, we expect that the Fund will still be classified as a public trading trust. Forming a tax consolidated group There are additional tax consequences for a public trading trust that chooses to be the head entity of a tax consolidated group. A unit trust can only be the head entity of a tax consolidated group if it is either a corporate unit trust or public trading trust in the income year that it elects to consolidate. Given that the Fund should be a public trading trust for the year ending 30 June 2007 it is eligible to be the head entity of a tax consolidated group from 1 July 2006. You have advised us that it is intended that the Fund will make the election to be the head entity of a tax consolidated group with effect from 1 July 2006. The consequences of the Fund being the head entity of a tax consolidated group will be that from 1 July 2006 the Fund will be treated as a company for all tax purposes for the remainder of its existence. This is the case even if the Fund fails to satisfy the public trading trust test in any given income year. Taxation of the Fund as a tax consolidated group The effects of the Fund being the head entity of a tax consolidated group include the following: • The Fund is considered to be a separate taxable entity from its investors and is liable to Australian income tax at the corporate rate (currently 30%) on the net income of the entire tax consolidated group. • The Fund and its wholly owned subsidiaries will be treated as a single entity for all income tax purposes. By way of example, if a subsidiary of the Fund incurs an overall tax loss in an income tax year then that loss is deemed to have been made by the Fund. (2) 105 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS • The Fund receives franking credits for the amount of tax paid and these are used to frank distributions to Unitholders just as company dividends may be franked. Tax losses Where a revenue loss or net capital loss is incurred by the Fund, the loss cannot be passed on to Unitholders for tax purposes. Instead, revenue tax losses will be carried forward in the Fund and offset against assessable income derived in future years. Net capital losses will be carried forward in the Fund and offset against future capital gains. Legislation exists which restricts the circumstances in which an entity may claim an allowable deduction for prior and current year revenue and capital losses. Once consolidated, the Fund would need to satisfy the company loss recoupment rules before any revenue or capital losses incurred could be utilised. In particular the Fund would have to meet a greater than 50% underlying ownership test or where its turnover is less than $100 million continue to carry on the same business such that the detailed requirements of the tax law’s same business test were met. Taxation of Australian resident investors Taxation of distributions Distributions received by Unitholders must be included in the Unitholder’s assessable income in the year in which the payment is made. The distributions will be assessable to a Unitholder as if they are dividends paid by a company. This applies except where the distribution is treated as a return of capital (refer below). To the extent that distributions paid to Unitholders are franked, the grossed up amount (ie the distribution plus the attached franking credit) is included in the Unitholder’s assessable income. The Unitholder is then allowed a franking offset equal to the franking credit. Excess franking credits (ie excess of franking credit over tax payable) are refunded to individual and superannuation fund Unitholders after lodgment of annual income tax returns. To the extent that distributions are unfranked, Unitholders are assessed on the unfranked amount received and there is no franking credit available. There are a number of measures that may affect the ability of a Unitholder to use franking credits, including the holding period rule. Broadly speaking, the holding period rule requires Unitholders to hold their Units at risk for more than 45 days during the relevant period. Given that these rules can be complex, investors should be aware of and seek specific advice on their own position. Return of capital by the Fund Amounts that are distributed to Unitholders may be treated as a return of capital and not a dividend, but only to the extent that the amounts are debited against the share capital account of the Fund. Such amounts will be treated as a reduction in the capital gains tax cost base of the (3) 106 Valad Opportunity Fund Product Disclosure Statement Unitholder’s Units. A capital gain will arise for the Unitholder to the extent that the return of capital exceeds the cost base of the Units. The share capital account is defined in the tax law as being amounts that are not attributable to profits of the Fund and we consider the Contributed Equity as shown in the Fund accounts is equivalent to share capital. Even if distributions are debited to the share capital account of the Fund, there are provisions in the tax law which can still treat the amounts as dividends for income tax purposes. These rules only apply where the Commissioner of Taxation determines there is a scheme to provide tax benefits to Unitholders, but, for example, can be applied if there are profits (either realised or unrealised) available for distribution and other circumstances indicate the distribution is in lieu of a dividend. Taxation of capital gains A disposal of Units in the Fund will have CGT implications. Broadly, Unitholders must include any realised capital gain or loss in the calculation of their net capital gain. A net capital gain will be included in a Unitholder’s assessable income for that year. A net capital loss may be offset against other net capital gains or carried forward until the Unitholder has realised capital gains against which the net capital loss can be offset. The net capital gain to Unitholders is worked out as follows: • • • • The capital gain or loss is the excess or shortfall of disposal proceeds over the cost base of the Units. If Units have been held for less than 12 months this is the amount of gain or loss included in the net capital gain calculation. If Units have been held for 12 months or more and there is a loss, similarly this loss is included in the net capital gain calculation. If Units have been held for 12 months or more and there is a gain, a discounting factor may be available to certain Unitholders. The discounting factor for individuals and trusts is 50%, whilst a discount factor of 33 1/3% applies to complying superannuation entities. Exit Mechanism Valad is providing an exit mechanism to those Unitholders who remain in the Fund three and a half years post allotment of Units under this offer (refer to section 2.10 of this PDS). Under this exit mechanism, the Fund will either redeem its Units, the Units will be transferred to Valad or the Fund will be terminated. A disposal of Units by Unitholders will occur for CGT purposes under each scenario. We note that the exact nature of the transaction will ultimately determine the income tax consequences for Unitholders. (4) 107 Valad Opportunity Fund Product Disclosure Statement > 9 EXPERTS’ REPORTS Tax File Numbers and Australian Business Numbers A Unitholder need not quote a Tax File Number ("TFN") when applying for Units. However, if a TFN is not quoted, or no appropriate TFN exemption information is provided, tax is required to be deducted from payments made at the highest marginal tax rate plus Medicare levy. Unitholders that hold their Units as part of their business may quote their Australian Business Number instead of their TFN. Goods and Services Tax The purchase and disposal of Units in the Fund by Unitholders is not subject to GST. Yours sincerely Brian Lawrence Partner Tax and Legal Services (5) 108 Valad Opportunity Fund Product Disclosure Statement > 10 MATERIAL DOCUMENTS AND ADDITIONAL INFORMATION > 10 MATERIAL DOCUMENTS AND ADDITIONAL INFORMATION 10.1 Consents and Disclaimers Directors’ Consent The Directors have each consented to the issue of this PDS. NAB’s Consent National Australia Bank Limited has given, and has not withdrawn, its consent for the references to NAB in its capacity as Sole Arranger and Underwriter. Trust Company Limited – Consent and Disclaimer It is not the role of Trust Company Limited (“TCL”) to protect the rights and interests of investors. TCL does not guarantee the return of any investment, any tax deduction availability or performance of any of the investments of the Fund. TCL has given and not withdrawn its consent to be named as custodian in this PDS. It has not been involved in the preparation of any part of this PDS. It has not authorised or caused the issue of, and expressly disclaims and takes no responsibility for, any part of this PDS, except for reference made to it in the form and context in which it appears. Consents of Experts PricewaterhouseCoopers have given and have not, before the lodgement of this PDS with ASIC, withdrawn their written consent to the inclusion in the PDS of the Taxation Report included in Section 9.3 in the form and context in which it is included and to be named in this PDS. Deloitte Corporate Finance Pty Limited have given and have not, before the lodgement of this PDS with ASIC, withdrawn their written consent to the inclusion in the PDS of the Investigating Accountant’s Report included in Section 9.2 in the form and context in which it is included and to be named in this PDS. M3 Property has given and has not before the lodgement of this PDS with ASIC, withdrawn its written consent to the inclusion in this PDS of the summary of its valuation report in relation to MIAC, Melbourne in the form and context in which that summary is included in Section 9.1, and to be named in this PDS. 110 Valad Opportunity Fund Product Disclosure Statement Knight Frank has given and has not, before the lodgement of this PDS with ASIC, withdrawn its written consent to the inclusion in this PDS of its valuation report in relation to Richlands, Brisbane in the form and context in which that summary is included in Section 9.1, and to be named in this PDS. Colliers has given and has not, before the lodgement of this PDS with ASIC, withdrawn its written consent to the inclusion in this PDS of its valuation report in relation to Oran Park, Sydney in the form and context in which that summary is included in Section 9.1, and to be named in this PDS. Knight Frank has given and has not, before the lodgement of this PDS with ASIC, withdrawn its written consent to the inclusion in this PDS of its summary valuation report in relation to Minchinbury Hometown, Sydney in the form and context in which that summary is included in Section 9.1, and to be named in this PDS. BDO Corporate Finance has given and has not, before the lodgement of this PDS with ASIC, withdrawn its written consent to the inclusion in this PDS of its summary valuation report in relation to the preferred equity position in Noosa North Shore, Noosa in the form and context in which that summary is included in Section 9.1, and to be named in this PDS. 10.2 Disclosure of Interests PricewaterhouseCoopers are entitled to receive professional fees of approximately $35,000 (excluding GST) in connection with the preparation of their Taxation Report in Section 9.3. Deloitte Corporate Finance Pty Limited are entitled to receive professional fees of approximately $70,000 (excluding GST) in connection with the preparation of their Investigating Accountants’ Report in Section 9.2. M3 Property is entitled to receive professional fees of approximately $15,500 (excluding GST) in connection with the preparation of its valuation report in Section 9.1 covering the property at MIAC, Melbourne. Knight Frank is entitled to receive professional fees of approximately $8,700 (excluding GST) in connection with the preparation of its valuation report in Section 9.1 covering the property at Richlands, Brisbane. Colliers is entitled to receive professional fees of approximately $22,000 (excluding GST) in connection with the preparation of its valuation report in Section 9.1 covering the property at Oran Park, Sydney. Knight Frank is entitled to receive professional fees of approximately $15,000 (excluding GST) in connection with the preparation of its valuation report in Section 9.1 covering the property at Minchinbury Hometown, Sydney. BDO Corporate Finance is entitled to receive professional fees of approximately $50,000 (excluding GST) in connection with the preparation of its valuation report in Section 9.1 covering the investment in the project at Noosa North Shore, Noosa. 10.3 Summary of Material Agreements The following is a summary of material legal documents relating to the Fund. These include: 1. Constitution of the Fund 2. Underwriting Agreement 3. Master Development Agreement 4. Development Management Agreement – Noosa North Shore 5. Irrevocable Offer for Erskine Park 6. Call Option for Noosa North Shore 7. Custody Deed 8. Conflict Management Strategy 9. Compliance Plan and Procedures. The summaries are not intended to be exhaustive. Constitution Valad Opportunity Fund No. 11 is a registered managed investment scheme. The responsible entity of the Fund is Valad Commercial Management Limited (VCML). The main rules governing the operation of the Fund are set out in the Fund Constitution which is dated 8 April 2004, and was amended by three supplemental deeds dated 19 and 21 April 2004 and 4 June 2004. The Corporations Act, exemptions and declarations given by ASIC, and the general law of trusts are also relevant to the rights and obligations of VCML and of Unitholders (who are referred to in this summary as members of the Fund). Copies of the Fund’s Constitution are available free of charge, on request. To obtain a copy please contact Valad Property Group on 1800 VALAD1 (1800 825 231). The following brief summary does not refer to every provision of the Constitution and should be read in conjunction with other references contained in this PDS. The main provisions of the Constitution that deal with the rights and obligations of members are as follows. > Units: a fully paid Unit confers an equal undivided interest in the Fund’s assets. The Constitution contemplates the issue of partly paid units, but this is not proposed as part of the Offer > Income: subject to the terms of issue of particular units, members are entitled to a share in distributions of the Fund’s income proportionate to their paid-up Unitholding. VCML may determine the amount to be distributed for a period as at a point in time. VCML may effect a distribution of income or capital (including redemption proceeds) to members by transferring Assets of the Fund to the members > Transfer: Units or options may be transferred in any form approved by the Manager. Any Units classified as “restricted securities” under the ASX Listing Rules cannot be transferred or dealt with by the Manager if it amounts or would amount to a breach of the ASX Listing Rules > No redemption: there is no right to redeem Units while the Fund is listed on ASX or is an illiquid scheme > Winding up: if the Fund is wound up, members are entitled to receive a share of the value of the Fund’s assets, after meeting all liabilities and expenses proportionate to their paid-up Unit holding. The Fund continues until the earliest of the date on which the Fund terminates according to the Constitution or by law, the date specified by the Manager in a notice to members, or the date nominated by VCML and approved by a special resolution of members as the termination date. From the 80th anniversary of the day the Fund commenced, no Units may be issued or redeemed. > Members’ liability: unless a member incurs “user pays” fees or makes a separate agreement with VCML, their liability is limited under the Constitution to the amount (if any) which remains unpaid in relation to their Units, although higher courts are yet to determine the effectiveness of provisions of this kind. User pays fees include taxes or expenses that VCML incurs as a result of a particular member’s request, act or omission 111 Valad Opportunity Fund Product Disclosure Statement > 10 MATERIAL DOCUMENTS AND ADDITIONAL INFORMATION > Meetings: members’ rights to requisition, attend and vote at meetings are mostly prescribed by the Corporations Act. The Constitution provides that the quorum for a meeting is normally at least two members holding at least 10% of Units. It allows meetings by electronic means including telephone. The Constitution also deals with the powers, duties and liability of VCML as responsible entity as follows: > Powers: VCML has powers to invest, borrow and generally manage the Fund subject to the Fund’s principal investment policy, which is to invest directly or indirectly (for example through the purchase of interests in a managed investment scheme, equities, debentures or other debt securities or hybrid securities, or by entering into development management, joint venture or profit sharing agreements) in real property or to develop, subdivide, reposition, refurbish, redevelop or trade property assets; to make such other investments with the Fund assets which in VCML’s opinion are not required for property investments; and to acquire and dispose of derivatives in relation to investments and borrowings. The policy may be changed on reasonable notice to members. VCML also has power to issue units and options over units on such terms as it determines > Duties: VCML’s duties as responsible entity are mainly contained in the Corporations Act and include the duty to act honestly and in the best interests of members, and to exercise the degree of care and skill that a reasonable person would exercise if they were in the Responsible Entity’s position > Rights: VCML may recover out of the Fund’s assets expenses properly incurred in the operation of the Fund including (but not limited to) expenses connected with underwriting the offer of Units, custody of the Assets (including custodian fees) and the fees of any development manager or other agents, valuers, contractors or advisers including those who are associates of the Manager. The Constitution also authorises VCML to charge a trust management fee of 0.2% per annum (plus GST) of the gross value of the Fund’s assets calculated as at the end of each calendar month and payable within seven days of the end of the relevant month. > If VCML becomes liable to pay GST in respect of supplies connected with the Fund, then it is entitled to be paid an additional amount because of this. VCML may accept lower fees than it is entitled to receive or defer payment for any period during which the fee accrues daily until paid. For the fees VCML proposes to charge, see Section 7 112 Valad Opportunity Fund Product Disclosure Statement > VCML may also: – take and act upon advice from professionals – value the assets of the Fund at any time (at market value unless it determines otherwise) – determine the net asset value of the Fund at any time, including more than once a day – hold Units in the Fund in any capacity, contract with itself or any associate, and may be interested in such contract – retire as responsible entity (but normally only if members have approved a replacement) – amend the Constitution, but only with members’ approval, unless the change will not adversely affect members’ rights > Liability: VCML is not liable in contract, tort or otherwise to members for any loss suffered relating to the Fund except to the extent that the Corporations Act imposes such liability. VCML is entitled to be indemnified out of Fund assets for any liability it incurs in properly performing or exercising any of its duties or powers in relation to the Fund > Restructure: the Constitution specifically provides that VCML may unilaterally, and without the consent of members, give effect to a proposal under which Valad will acquire members’ Units in exchange for stapled securities in Valad. However, any acquisition must be made on the basis that: – members’ Units will be valued on the basis of the net asset value of the Fund no later than two months before the time Units are exchanged – the stapled securities of Valad will be valued on the basis of the volume weighted average of the stapled securities over a period of 15 days preceding the date of their issue, less any accrued distribution calculated as at the last day of the trading days for pricing – Valad stapled securities would be issued or transferred to Fund members at a 2% discount to this valuation – any stamp duty in relation to the exchange will not be borne by the Fund members or out of the assets of the Fund – the acquirer of the Units in the Fund makes disclosure to Members in relation to the stapled securities to the extent required by law – members resident outside Australia may not receive stapled securities. The securities they would have received will be sold on their behalf and the cash proceeds (net of expenses) paid to them. VCML does not presently intend to carry out such a restructure. If it wishes to do so in the future, it would give Unitholders at least 60 days notice before commencing the process. Underwriting Agreement The Responsible Entity has entered into an underwriting agreement with NAB (“Underwriter”) to underwrite this Offer, and to subscribe for any of the Units that are not applied for as at the Closing Date. The Offer will be fully underwritten by NAB. We must pay a fee to NAB to underwrite the Offer which we will pay from the capital raised under the Offer upon Allotment. We must accept all valid Applications provided that the acceptance of the Applications does not cause us to breach the Constitution. The Underwriter may terminate its obligations under the underwriting agreement if any of the following events occur: > NAB terminates its mandate with us dated 6 March 2007 > a condition precedent to the underwriting is not satisfied, including NAB receiving a copy of management sign-off and verification sign-off, copy of the due diligence report and a copy of this PDS > VCML retires or is removed as the responsible entity for the Fund > Offer conditions are not met, or the PDS is defective, or omits any material information required by the Corporations Act, or contains a statement which is or becomes materially misleading or deceptive or otherwise fails to comply with the Corporations Act and no supplementary product disclosure statement is issued to correct this > a supplementary product disclosure statement is issued to prospective Unitholders in a form that has not been approved by the Underwriter > this PDS or any supplementary product disclosure statement or any part of the Offer is withdrawn without the consent of the Underwriter (or an event occurs which results in the Offer being withdrawn or not proceeded with) > the S&P/ASX 200 Index or S&P/ASX 200 Property Index falls by 10% from the date of the underwriting agreement and stays at or below that level for at least three Business Days or until the Business Day before the Allotment date > at any time, the yields for treasury bonds issued by the Reserve Bank of Australia which have a tenor of 10 years increase by 100 basis points or more above the yields for those treasury bonds at the date of the agreement > VCML does not provide a closing certificate as and when required or a statement in any closing certificate is untrue or incorrect in a material respect > Any event specified in the timetable of the Offer is delayed for more than four Business Days without the prior consent of NAB (such consent not to be unreasonably withheld) > VCML fails to lodge an “in-use notice” with ASIC as required by the Corporations Act and to comply with any request made by ASIC in relation to the Offer > in relation to the Offer, ASIC issues a stop order, holds a hearing under section 1020E(4) of the Corporations Act, makes an application for an order under Part 9.5 of the Corporations Act, or commences an investigation or hearing under the Australian Securities and Investment Commission Act 2001 (Cth) > there is a disruption in financial markets in Australia or the international financial markets, or any development involving a prospective change in national or international political, financial or economic conditions, the effect of which is such as to make it, in the reasonable opinion of the Underwriter, impracticable to market the Offer or to enforce contracts to issue the Units > any person (other than the Underwriter), whose consent to the issue of the PDS is required, refuses to give their consent or having previously consented to the issue of this PDS withdraws such consent > an insolvency event occurs in respect of the Responsible Entity or the Fund; or > VCML, the Fund or its controlled entities launches, or assists in launching a competing offer without prior approval from NAB. Further, the Underwriter may terminate its obligations under the underwriting agreement if any of the following events occur and in its reasonable opinion the event will have a material adverse effect on the success of the Offer or subsequent selldown of any shortfall Units, or would be likely to give rise to a material liability of the Underwriter: > the report of the due diligence committee to the Offer, or any other information supplied to the Underwriter in relation to the Fund, the Responsible Entity or the Offer is, or becomes, misleading or deceptive > an adverse change occurs in the financial position or performance of the Responsible Entity or the Fund > any of the Fund or its controlled entities is suspended or removed from the ASX other than as contemplated by the Offer 113 Valad Opportunity Fund Product Disclosure Statement > 10 MATERIAL DOCUMENTS AND ADDITIONAL INFORMATION > any material contract summarised in this PDS is terminated (whether by reason of a breach or otherwise), rescinded, altered or amended in a material respect without the prior written consent of the Underwriter > any statement by VCML in this PDS which relates to future matters (including the target return) is or becomes, in the reasonable opinion of the Underwriter, unlikely to be met > there is a change of law intended to come into effect within 12 months, any of which does or is likely to prohibit or regulate the Offer > there is a change in the Board of the Responsible Entity or the parent company of the Fund or its controlled entities > if a director or other officer of the Responsible Entity is charged with a criminal offence or is disqualified from managing a corporation under the Corporations Act > if any government agency commences any public action against the Responsible Entity or any of our Directors or other officers or announces that it intends to take such action > the Responsible Entity contravenes the Corporations Act or the Constitution, or if VCML, or any of its officers, are charged in relation to fraudulent, misleading or deceptive conduct whether or not in connection with the Offer > VCML defaults in the performance of any of its undertakings or obligations under the underwriting agreement, or a representation or warranty made by VCML or the Fund under the underwriting agreement is, or becomes, untrue or incorrect in a material respect > without the prior written consent of the Underwriter, the Constitution is altered in any material respect except for amendments to facilitate the Offer, the form of which has been approved by the Underwriter (such approval not to be unreasonably withheld or delayed), before the date of this PDS; or > hostilities not presently existing commence (whether war has been declared or not) or a major escalation in existing hostilities occurs (whether war has been declared or not) involving any one or more of Australia, New Zealand, the United States of America, the United Kingdom, North Korea, South Korea, the Republic of China, Indonesia, Iran or any member state of the European Union or a major terrorist act is perpetrated on any of those countries or any diplomatic, military, commercial or political establishment of any of those countries elsewhere in the world. 114 Valad Opportunity Fund Product Disclosure Statement If NAB terminates its obligations under the underwriting agreement, and if a suitable replacement is not found, the Offer will not proceed and your Application Monies will be returned to you as soon as practicable without interest. Master Development Management Agreement The Responsible Entity, VDML and TCL have entered into a development management agreement. VDML is appointed development manager by VCML to provide development management services in respect of any property acquired by VCML or in respect of which VCML has acquired control. The Agreement will terminate if any of the following events occur: > sale of the properties after completion of the developments > breach by VDML under the circumstances summarised below; or > breach by VCML under the circumstances summarised below. The agreement sets out the following: > VDML’s duties – VDML will develop the properties in accordance with a commercial assessment agreed between VDML and VCML > After the date of the Agreement, VDML shall, in the name of RP 1 Pty Limited and on its behalf, enter into all contracts and take all other steps necessary or desirable to develop and manage the property in accordance with the agreed commercial assessment including finding tenants, negotiating leases, finding a purchaser and negotiating contracts for sale > Fees – VDML is entitled to fees for its services as set out in Section 7 > Agreement to remain with property during development – RP 1 Pty Limited shall not mortgage, assign, or otherwise deal with (whether at law or in equity) all or any part of its right, title and interest in the properties during the term of this Agreement, without first procuring that any such mortgagee, assignee or other disponee (as the case may be) enters into an agreement with VDML (in such form as VDML may require) acknowledging that it is bound by the obligations and agreements on the part of VCML contained in this Agreement as if it were one of the parties named in this Agreement. VFML shall ensure that RP 1 Pty Limited complies with this obligation > VCML may not (on behalf of RP 1 Pty Limited), prior to the completion of the developments, sell so many of the lots as have not been sold without first procuring that any such purchaser enters into an agreement with VDML (in such form as VDML may require) providing for VDML to provide development management services to the purchaser in respect of the property on the same terms and conditions as this Agreement > Indemnity – VDML agrees to indemnify VCML as the agent of RP 1 Pty Limited, from and against all actions, claims, demands, losses, damages, costs and expenses or other legal liability (Losses) for which VCML becomes liable in respect of negligence by VDML or its contractors including injury to persons (including death), or damage to property (except to the extent that the Losses are caused by the negligence or other wrongful acts or omissions on the part of VCML) > Termination – VCML may terminate the Agreement if VDML is in material breach of the Agreement and has not remedied the breach on 60 Business Days notice – If the breach is not capable of being remedied, VCML may only terminate the Agreement if reasonable compensation for the breach is not paid by VDML to VCML within 90 Business Days – If VCML terminates the Agreement, VDML is entitled to its accrued management fees to the date of termination and a performance fee based on the realisable value of the property as at the date of termination – VDML may terminate the Agreement if VCML is in breach of the Agreement and has not remedied the breach on 20 Business Days notice (or 10 Business Days if the breach relates to payment of money) – If VDML terminates the Agreement, VDML is entitled to receive the fees it would have been entitled to receive if the development was completed in accordance with the feasibility study > Capacity – Each party enters into the agreement only in its capacity as trustee or custodian (as relevant) and the liability of each is limited to its ability to be actually indemnified out of the relevant trust’s assets. Development Management Agreement – Noosa North Shore If VOF acquires an interest in Noosa North Shore, then VOF will appoint VDML as development manager in respect of its interest in the Noosa North Shore Project. The development manager will oversee Petrac’s construction and development of the Project and be responsible for looking after VOF’s interest in the Project. The fee structure for the Noosa North Shore investment will be the same as for other Projects with the exception that no Development Fee will be charged. Irrevocable Offer to Acquire Interest in Units – Erskine Park The trustee of Erskine Park Development Trust (EPDT) is the registered holder of the Erskine Park property (see Section 2.4). The custodian for the trustee (Trustee) of VOF Erskine Park Development Holdings Trust (Holding Trust), a sub trust of VOF, holds 36 of the 100 units on issue in EPDT. If the Offer is successful and an application is made to de-list VOF, VOF will realise the value of its investment in the Erskine Park property pursuant to this irrevocable offer, which is in the form of a deed. Under the deed the responsible entity of Valad Property Trust (VPT) makes to the custodian and the Trustee (and any replacement custodian and Trustee) a conditional irrevocable offer which requires VPT to pay for the benefit of the Holding Trust an amount equal to the value of its 36% interest in EPDT if and when the holder of the 36 EPDT Units (whether the custodian or Trustee or replacement) declares a trust over those units in favour of VPT. The terms on which the declaration of trust must be made are annexed to the deed. ICA Erskine Park Development Holdings Pty Ltd as trustee of ICA Erskine Park Development Holding Trust holds the other 64% of units in EPDT, and it intends to realise the value of its investment in a similar manner. The amount payable to VOF under the deed is $7,857,000 being 36% of the total value of the Erskine Park Property (net of debt) as supported by two independent valuations. The irrevocable offer has an expiry date of 31 July 2007. Deed of Assignment for Noosa North Shore On or before the date of this PDS, VFML as agent for the trustee of the Valad Property Mezzanine Fund will assign all of its rights, title and interests in the Noosa North Shore Project to VCML as trustee of the Valad Property Mezzanine Fund. 115 Valad Opportunity Fund Product Disclosure Statement > 10 MATERIAL DOCUMENTS AND ADDITIONAL INFORMATION Call Option for Noosa North Shore > in dealing with related Valad entities such as VDML Under this agreement, VCML grants to VOF an option to purchase an interest of up to a maximum of $10.1 million of VCML’s interest in the Noosa North Shore Project (at VOF’s discretion). VOF must make its determination prior to 31 July 2007. The price payable for its interest in Noosa North Shore will be a pro rata proportion of the preferred equity in the project as determined by VCML. > in other cases, depending on the facts. Following the capital raising under this PDS, VOF will determine whether or not to purchase an interest in Noosa North Shore and the extent of that interest (based on the determined value and available capital). VOF is under no obligation to acquire any part of Noosa North Shore until making such determination. Custody Deed The Custody Deed between TCL (Custodian) and VCML as Responsible Entity is dated 11 October 2002, and was amended on 13 April 2004 to cover the Custodian’s appointment in respect of the Fund. The Custody Deed appoints the Custodian to hold the Fund’s property on VCML’s behalf, and also covers property of any controlled subtrusts. The Custodian will act in accordance with the instructions of VCML. The terms of the Custody Deed include the specific requirements of ASIC policy. Conflict Management Strategy Introduction Valad Funds Management Limited, or one of its subsidiaries, (collectively: VFML) is the Responsible Entity for several collective investment schemes and other managed funds (collectively, the Funds), and operates a property and land development business. VFML recognises that it may be faced with potential conflicts in meeting its separate responsibilities to each of its existing and future mandates in areas such as: > the purchase of property investment opportunities and its ownership across Funds > the sale of a property of any of the Funds > leasing deals in any market where more than one of the Funds owns lettable premises or occupies lettable space > the sale of a development project or other asset to a Fund of which VFML is the Responsible Entity or of which the Responsible Entity is a subsidiary of VFML 116 Valad Opportunity Fund Product Disclosure Statement This summary outlines the principles by which VFML will resolve potential conflicts in a manner which is equitable to each of the Funds. General Principles of Resolution 1. VFML is committed to the resolution of conflicts in a manner which is equitable to each of the Funds. 2. This commitment is expressed through: (a) the application of this Resolution of Conflict Strategy as a policy endorsed by the boards of VFML; and (b) the creation of an understanding of this Resolution of Conflict Strategy amongst the relevant VFML staff so that they are able to identify situations of potential conflict at the earliest stage. 3. The Resolution of Conflict Strategy contains some guidelines for use in circumstances which may reasonably be foreseen. The Resolution of Conflict Strategy will be reviewed at least annually for continuing application and any proposed alterations presented to the VFML boards. 4. The Chief Executive Officer of VFML has executive responsibility for the observance of the Resolution of Conflict Strategy and may, if considered appropriate, obtain the opinion of any independent expert on any matter to assist in the application of the policy. General Approach The cornerstone of Valad’s Resolution of Conflict Strategy is the development and documentation of a clear investment strategy for each Fund. The Fund Managers, in consultation with their teams, must review the strategy of the Fund including key issues such as likely acquisitions/divestments, leasing, developments, capital expenditure requirements and funding capabilities or requirements. The other important element of Valad’s Resolution of Conflict Strategy is an organisational structure which differentiates the Funds and their business activities and creates a specific business focus. Within the organisational structure, the role of Fund Manager is pivotal to the independence of the Fund. Each Fund Manager is responsible for the direction and performance of one or more Funds that do not have competing investment strategies. > finance and administration Any Fund Manager may pursue the acquisition of an asset being sold by another Fund. At the discretion of the vendor Fund, an asset may be offered to the other Funds as an off market transaction with the price being determined under an agreed independent valuation procedure or process in accordance with the Fund’s policies either as set out in its offer document or as communicated to investors. > company secretariat and legal. Acquisition of Assets In the event that confidential information relating to one Fund becomes known to another and this information is not openly available outside the business unit, then no use can be made of that information without the approval of the party to which the information relates. Each Fund Manager has the right to pursue the acquisition of any asset which meets the investment objectives of the Fund, so long as that Fund has the financial capacity to make such an acquisition. The support services of the business unit assist each Fund in the provision of specialised services as required. These services include: > acquisitions/divestments/leasing/research > developments Guidelines Organisation – Responsible Executive A Fund Manager will have exclusive responsibilities for a particular Fund or Funds, and will be responsible to champion the cause of the relevant Fund. Fund Strategic Plans The Fund Manager will devise and the board of VFML will consider and, if thought fit, approve a clear investment strategy for the Fund. The Fund Manager of each Fund must constantly review and will maintain the investment strategy of the fund including details of key issues of acquisition/ divestments; development and capital expenditure; leasing and investment return objectives; and the funding capacity of the Fund. Leasing Each Fund Manager acts independently of other Fund Managers on leasing activities within the parameters of strategic and asset plans for the relevant Fund. Usually, external leasing agents will be included in some but not all leasing negotiations with prospective tenants. Disposal of Assets Each Fund Manager will be ultimately responsible for the sale of the Fund’s assets on the open market. It is likely that the vendor Fund will appoint external selling agents. The Fund Manager of the vendor Fund is responsible for the recommendation of the final terms of the transaction. When VFML identifies investment opportunities, a conference must be held or Preliminary Investment Proposal must be prepared providing sufficient detail about each asset to enable each separate Fund’s Manager to decide whether to pursue the purchase. After receiving the Preliminary Investment Proposal, each Fund Manager must promptly advise the Chief Executive Officer of VFML if he/she intends to pursue the acquisition of that asset. If more than one Fund wishes to proceed then the asset can be pursued on one of the following bases: 1. an agreed shared ownership basis with another Fund; or 2. full ownership. The costs of due diligence shall be borne by the Fund, or Funds, which successfully pursue the opportunity. Sale of VFML Development or Fund Assets Assets may be sold externally, or offered to a Fund. A Fund Manager will proceed only where all considerations provide an overall integrity to the Fund. Method of Resolution of Conflicts Potential conflicts will immediately be referred to the Chief Executive Officer of VFML who will: > resolve the conflict by reference to the Resolution of Conflict Strategy; or > if the conflict is not able to be resolved that way, refer it to a committee of the VFML Board. 117 Valad Opportunity Fund Product Disclosure Statement > 10 MATERIAL DOCUMENTS AND ADDITIONAL INFORMATION Renewal 10.6 Further Information It is intended that this Resolution of Conflict Strategy will be reviewed in April of each year and any appropriate amendments be agreed upon by the boards of VFML. The Responsible Entity has placed on file the following documents, copies of which are available free of charge to existing and potential investors: Compliance Plan and Procedures 1. VOF Constitution and amendments The compliance plan for the Fund describes the procedures VCML will apply in operating the Fund to ensure compliance with the Corporations Act and the Constitution. 2. Knight Frank property valuation report – Richlands The Board of Directors of VCML will oversee VCML’s procedures for complying with the compliance plan, the Constitution and the Corporations Act. Copies of the compliance plan and Constitution are available free of charge until the Offer closes and can be obtained by contacting VCML on 1800 Valad1 (1800 825 231). 10.4 Role of NAB NAB is the Sole Arranger and Underwriter of the Offer. In addition, NAB is one of the providers of senior debt facilities to the Fund, and may provide interest rate hedging products. In these capacities, NAB will, if necessary, act to protect its interests ahead of those of investors and other parties. NAB gives no advice as to whether any person should invest in Units and does not in any way guarantee or assure the return of any investments, or the performance of the investment generally. 10.5 Complaints If you have a complaint about VCML in connection with the Fund, then please: > contact us on 1800 Valad1 (1800 825 231) from 8.00am to 6.00pm (Sydney time) Monday to Friday; and > if your complaint is not satisfactorily resolved, please refer the matter in writing to the Complaints Handling Officer, Valad Commercial Management Limited, PO Box N817, Grosvenor Place NSW 1220. If your complaint is not resolved within 45 days, you may have the right to take your complaint to the Financial Industry Complaints Service Limited at 31 Queen Street, Melbourne VIC 3007, telephone: (03) 9621 2291 or toll free 1800 780 808. VCML is a member of FICS. ASIC also has a toll free info line on 1300 300 630 which you may use to complain and obtain information about your rights. 118 Valad Opportunity Fund Product Disclosure Statement 3. Knight Frank property valuation report – Minchinbury 4. M3Property property valuation report – MIAC 5. Colliers valuation report – Oran Park 6. BDO Corporate Finance valuation report – Noosa North Shore 10.7 Availability of Documents VCML is a disclosing entity for the purpose of the Corporations Act and is therefore subject to regular reporting and disclosure obligations under the Corporations Act. VCML is required to prepare and lodge with ASIC annual and half-yearly financial statements accompanied by a directors’ declaration and report, and an auditor’s report. Copies of documents lodged in relation to VCML may be obtained from, or inspected at, an office of ASIC. You have the right to obtain a copy of each annual report, halfyearly report and any continuous disclosure notice from VCML since the lodgement of the 2006 annual report, free of charge. VCML will provide a copy of any of the above documents free of charge to any person who requests a copy during the Offer period in relation to this PDS. Requests may be made by contacting VCML on 1800 VALAD1 (1800 825 231). > 11 GLOSSARY > 11 GLOSSARY The following is a glossary of the terms used in this PDS. $ All dollar amounts are in Australian dollars, unless otherwise stated AASB Australian Accounting Standards Board ABN Australian Business Number Adjusted NTA Net tangible assets of the Fund adjusted to take account of the fair market value of the Asset Portfolio, accrual of performance fees and other items as detailed in Section 8.2 AEST Australian Eastern Standard Time AFSL Australian Financial Services Licence AIFRS Australian Generally Accepted Accounting Practices which comprise Australian equivalents to International Financial Reporting Standards Allotment The allotment of Units following the Closing Date Allotment Date The date upon which the Units are allotted, being 9 July 2007, unless otherwise determined by VCML Applicant(s) Person(s) who submit(s) a valid Application Form pursuant to this PDS Application An application to subscribe for Units under this PDS Application Form The Application Form accompanying or attached to this PDS Application Monies Monies received from Applicants in respect of their Applications ARSN Australian Registered Scheme Number Asset Portfolio The proposed portfolio of Projects ASIC Australian Securities and Investments Commission BBSY Australian Bank Bill Swap Reference Rate used to determine the benchmark interest rate to price variable rate loans ASX ASX Limited or the stock market operated by it as the context requires Board The Board of Directors of the Company and/or the Responsible Entity as the context requires Business Day(s) A day other than a Saturday or Sunday on which trading banks are open for general banking business in Sydney Closing Date 29 June 2006 or such date as VCML may determine Corporations Act Corporations Act 2001 (Cth) as amended from time to time Development Manager Valad Development Management Pty Limited ACN 100 248 637 Director A Director of the Responsible Entity from time to time DMA Development Management Agreement Fund Valad Opportunity Fund No. 11 ARSN 108 693 876 Fund Constitution The Constitution of the Fund dated 8 April 2004 as amended GST Goods and Services Tax Investigating Accountant Deloitte Corporate Finance Pty Ltd (ACN 74 490121 060) IRR or Internal Rate of Return The discount rate that results in a net present value of zero for a series of future cash flows. The internal rate of return is generated by an investment over its life or a given timescale, taking into account the purchase price and sale proceeds and all cash flows associated with the holding. Unless otherwise stated, an IRR where quoted in this PDS is on a pre-tax post-fees and expenses basis. Issue Costs The fees and expenses of the Offer set out in Section 7 120 Valad Opportunity Fund Product Disclosure Statement Issue Price $1.01 per Unit Issued Equity The value of each Unit calculated as the Issue Price less any returns of capital previously made by the Fund Issuer VCML LVR Loan to Value Ratio NAB National Australia Bank Limited ACN 004 044 937 Notice Notice of the Withdrawal Offer to Unitholders in VOF NTA Net Tangible Assets Offer The offer of Units under this PDS Offer Period The period during which the Offer is open for receipt of Application Forms, which is 3 May 2007 to 29 June 2007 unless varied by VCML in consultation with the Sole Arranger and Underwriter PDS This product disclosure statement dated 3 May 2007 Performance Fee The fee payable to VDML satisfying certain equity outperformance conditions, calculated in accordance with the Development Management Agreements and summarised in Section 7 Petrac Petrac Limited, development manager for the Noosa North Shore project Pro-forma NTA Net tangible assets of the Fund assuming the occurance of the pro-forma adjustments as at Allotment Date listed in Section 8.2 Project Each of the projects as listed in Section 5 Property A property in the Asset Portfolio as listed in Section 5 Purchase Price Property acquisition price Registry Link Market Services Limited Responsible Entity VCML Sole Arranger and Underwriter National Australia Bank Limited ACN 004 044 937 Target IRR The target IRR as stated in the Investment Summary TCL Trust Company Limited Unitholder A holder of Units Units Units in the Fund Underwriting Agreement The agreement between VCML and NAB dated 3 May 2007 under which NAB has agreed to underwrite the Offer Valad Valad Property Group Valad Property Group The group listed on the ASX comprising the Valad Property Trust (of which VCML is the responsible entity) and Valad Funds Management Limited whose units and shares are stapled together and quoted on the ASX as stapled securities and includes as the context permits, their controlled entities VCML Valad Commercial Management Limited (ABN 76 101 802 046: ACN 101 802 046: AFSL 223339) VDML Valad Development Management Pty Limited ACN 100 248 637 VFML Valad Funds Management Limited VOF Valad Opportunity Fund No. 11 Withdrawal Offer Offer to Unitholders in VOF as at 3 May 2007 to redeem their Units 121 Valad Opportunity Fund Product Disclosure Statement > 12 APPLICATION FORMS HOW TO COMPLETE THE APPLICATION FORM 1. Number of Units applied for Enter the number of Untis you wish to apply for. The Application must be for a minimum of 20,000 Units and thereafter in multiples of 1 Unit. 2. Are you a new investor or an existing investor? If you are an existing investor and would like units from this Application added to your existing holding, please insert the Securityholder Reference Number (SRN) or Holder Identification Number (HIN) of your existing account. Otherwise if you are a new investor or would like a new investment created, please tick the New Investor box. 3. Applicant details Enter the full name which you wish to appear on your statement of unitholding. This must be your own name or the name of a company. Joint Applications are also acceptable. The table below indicates correct forms of registrable title. Enter your postal address for all correspondence. All communications will be mailed to the person(s) and address as shown. For joint Applicants only one address can be entered. If you are applying as an existing investor and the address on this Application differs to your current address, the address on this Application will be used for any future correspondence. 4. Telephone and email details Please enter your telephone and email details. This will allow us to contact you if there are any issues with your applications or subsequently. 5. Cheque details Make your cheque, bank draft or money order payable to “Valad Commercial Management Limited: Applications Account” in Australian currency and cross it “Not Negotiable”. Your cheque or bank draft must be drawn on an Australian bank. Sufficient cleared funds should be held in your account as cheques returned unpaid are likely to result in your Application being rejected. Pin (do not staple) your cheque or bank draft to the Application Form where indicated. Please enter details of the cheque, bank draft or money order that you attach with this Application. 6. Distribution payments Please provide bank account or building society details for payment of distributions. If you do not complete this section, distributions and redemption payments will be paid to you by cheque. 7. TFN or ABN (if company) or Exemption Category Enter your TFN, exemption category or ABN if applicable. Provision of TFN(s) and ABN(s) is not compulsory and will not affect your Application however, if these are not provided the Fund will be required to deduct tax at the highest marginal rate (including Medicare levy) from your distributions. 10. Signatures This form must be signed. Applications which are not signed or not signed correctly may be rejected. Joint holders – all holders must sign. Signature under Power of Attorney – if not already noted by the Registry, a certified copy of the Power of Attorney must accompany this form. Where this form is signed under Power of Attorney, the Attorney declares that the Attorney has no notice of revocation of the power or death of the Attorney. Deceased Estate – all executors must sign and, if not already noted by the Registry, a certified copy of Probate or Letter of Administration must accompany this form. Company – this form must be signed by 2 directors or a director and company secretary, or in the case of companies with a sole director who is also sole company secretary, the sole director. Titles of all signatories should be indicated and inapplicable titles be deleted. LODGEMENT INSTRUCTIONS Please mail this Application Form and your cheque(s), bank draft(s) or money order(s) to: Mailing address: Valad Opportunity Fund No.11, C/- Link Market Services Limited, Locked Bag A14, Sydney South NSW 1235; or Delivery address: Valad Opportunity Fund No.11, C/- Link Market Services Limited, Level 12, 680 George Street, Sydney NSW 2000. PRIVACY STATEMENT Link Market Services Limited advises that Chapter 2C of the Corporations Act 2001 requires information about you as a unitholder (including your name, address and details of the units you hold) to be included in the public register of the entity in which you hold units. Information is collected to administer your unitholding and if some or all of the information is not collected then it might not be possible to administer your unitholding. Your personal information may be disclosed to the entity in which you hold units. You can obtain access to your personal information by contacting us at the address or telephone number set out in the important information located on the inside front cover of the PDS. Our privacy policy is available on our website www.linkmarketservices.com.au. CORRECT FORMS OF REGISTRABLE NAMES Note that ONLY legal entities are allowed to hold Units. Applications must be in the name(s) of natural persons or companies. At least one full given name and the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an account designation if completed exactly as described in the examples of correct forms below. Type of Investor Correct Form of Registration Incorrect Form of Registration Individual Use given names in full, not initials Mrs Katherine C Edwards K C Edwards Company Use Company’s full title, not abbreviations Liz Biz Pty Ltd Liz Biz P/L or Liz Biz Co. Joint Holdings Use full and complete names Mr Peter P Tranche & Ms Mary O Tranche Peter Paul & Mary Tranche Trusts Use the trustee(s) personal name(s) Mrs Alessandra H Smith <Alessandra Smith A/C> Alessandra Smith Family Trust Deceased Estates Use the executor(s) personal name(s) Ms Sophia G Post & Mr Alexander T Post <Est Harold Post A/C> Mrs Sally Hamilton <Henry Hamilton> Estate of late Harold Post or Harold Post Deceased Master Henry Hamilton Fred Smith & Son Long Names Mr Frederick S Smith & Mr Samuel L Smith <Fred Smith & Son A/C> Mr Hugh A J Smith-Jones Clubs/Unincorporated Bodies/Business Names Use office bearer(s) personal name(s) Mr Alistair E Lilley <Vintage Wine Club A/C> Vintage Wine Club Superannuation Funds Use the name of the trustee of the fund XYZ Pty Ltd <Super Fund A/C> XYZ Pty Ltd Superannuation Fund Minor (a person under the age of 18 years) Use the name of a responsible adult with an appropriate designation Partnerships Use the partners’ personal names Mr Hugh A J Smith Jones Put the name(s) of any joint Applicant(s) and/or account description using < > as indicated above in designated spaces at section 3 on the Application Form. This page is left blank intentionally. Pin Pin cheque(s) cheque(s) herehere (do not (do not staple) staple) Broker Code Valad Commercial Management Limited (VCML) ABN 76 101 802 046, AFSL 223339 as responsible entity for Valad Opportunity Fund No.11 (Fund) ARSN 108 693 876 National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 Adviser Code Application Form The securities to which this Application Form relates are units in the Fund (Units). Further details about the Units are contained in the PDS dated 3 May 2007 issued by VCML. During the Offer period, paper copies of the PDS, any supplementary PDS and the Application Form, will be available free of charge on request. ASIC requires that a person who provides access to an electronic Application Form must provide access, by the same means and at the same time, to the relevant PDS. This Application Form accompanies this PDS. The PDS contains important information about investing in the Fund. You should read the PDS before applying for Units. Incomplete Application Forms will be deemed to be valid if the Responsible Entity believes that suf¿cient information, with attached payment, has been provided. Further particulars are contained in the section titled “How to Complete the Application Form” which appears on the last page of this Application Form. PLEASE WRITE CLEARLY USING BLOCK LETTERS 1 INVESTMENT AMOUNT Insert investment amount. Minimum application amount is 20,000 units. Application amounts thereafter must be in multiples of 1 unit at $1.01 per unit. Units 2 , , . Insert your SRN/HIN below if you would like new Fund Units added to your existing holding NEW OR EXISTING INVESTOR NEW INVESTOR 3 A$ @$1.01 OR EXISTING INVESTOR FULL NAME AND DETAILS OF APPLICANT(S) Title Given Name or Company Name (Applicant 1) Middle Initial Surname Title Given Name or Company Name (Applicant 2) Surname Are you making the Application on behalf of a trust or superannuation fund (please tick) Yes No Name of Trust or Superannuation Fund Unit Number/Level Street Number Street Name Suburb/City or Town 4 State Postcode TELEPHONE AND EMAIL DETAILS Home Work Email 5 CHEQUE DETAILS Cheque Number BSB Account Number Amount Payable Please enter details of the cheque(s) below that accompany this application. Cheques to be crossed “Not Negotiable” and made payble to “Valad Commercial Management Limited: Application Account”. Please ensure that you submit the correct amount, incorrect payments may result in your application being rejected. 6 DISTRIBUTION PAYMENTS Name of Australian Financial Institution BSB Number Branch (full address) Account Number Name(s) in which Account is held Page 1 of 4 VOF IPO001 *VOF IPO001* $ 7 APPLICANTS’ TFN OR ABN (IF COMPANY) OR EXEMPTION CATEGORY TFN (Applicant 1) TFN (Applicant 2) ABN Exemption Category ABN Type – If not an individual, please mark the appropriate box Company 8 Partnership Trust Super Fund UNDERWRITER TRANSFERS I/we agree and acknowledge that, if National Australia Bank Limited (NAB) acquires Units pursuant to its obligations as Underwriter, then in respect of those Units: • this form may be treated as an offer by the Applicant to acquire up to the number or value of Units speci¿ed in section 1 of this form from NAB by way of transfer; • NAB is not the issuer of Units in the Fund, and personal information (including any tax ¿le number) I/we supply on this form will be received by NAB and passed on to the Responsible Entity to be used for the purposes referred to in this form; • the PDS has been provided to me by and on behalf of both the Responsible Entity and NAB, but that NAB is not the issuer of Units and its responsibility for the content of the PDS is strictly limited as set out in the Insider Front Cover of the PDS; • the consideration for the units will be payable to NAB; and • if this form is signed below for and on behalf of NAB, the sections of this form titled “Transfer of Units” and “Transferor’s warranty” will apply. Transfer of Units Held by NAB For the consideration referred to in section 1 of this form, NAB as transferor/ seller hereby transfers the Units referred to in section 1 to the transferee/buyer named as the Applicant in section 3, subject to the conditions on which NAB held the Units at the time of signing this form and on the basis that the transferee/buyer accepts the Units subject to the same conditions. Where an attorney signs the transfer on behalf of NAB, the attorney con¿rms they have not received any notice of revocation of the Power of Attorney under which this transfer is signed. Transferor’s warranty By executing this form, NAB warrants that: • it is the registered holder of the Units referred to in section 1; and • it is authorised and entitled to transfer the Units to the applicant, free from all encumbrances. Signed for an on behalf of National Australia Bank Limited: Title Name 9 Signature FURTHER ACKNOWLEDGEMENTS Capitalised terms in the Application Form have the same meaning as in the PDS. • I/We declare that I/we have read the PDS to which this Application Form relates. • I/We declare that this Application is completed according to the declaration/acknowledgements within this form and agree to be bound by the Constitution of the Fund (as amended from time to time). • I/We agree that the return of the Application Form with my/our cheque for the Application Money will constitute an offer to apply for Units in the Fund. • I/We acknowledge that the Responsible Entity has the right to reject my/our Application or allocate a lower number of Units than I/we applied for. • I/we agree that I/we cannot withdraw my/our Application except as permitted by law. • I/we acknowledge that the information contained in the PDS does not constitute ¿nancial product advice or a recommendation that Units are suitable for me/us, given my/our investment objectives, ¿nancial situation and particular needs. • I/we declare that this form is completed and lodged according to the PDS and that all statements made by me/us are complete and accurate. • I/we declare that if signed by an Applicant corporation, this form has been signed in accordance with section 127 of the Corporations Act, the corporation’s constitution and applicable laws. • I/We declare that if signed by an attorney, the power of attorney authorises the signing of this Application Form and no notice of revocation has been received. 10 Date • I/We acknowledge that by submitting an Application, I/we agree and consent to all arrangements between the Responsible Entity and members or related entities of Valad which are disclosed in the PDS. • I/We acknowledge that the PDS contains references to target returns that the Responsible Entity considers to be reasonable at the time of preparing the PDS but these are not forecasts and may not be achieved due to factors outside the Responsible Entity’s control and that actual results may vary materially from the targets. • I/We acknowledge that applications will only be accepted and any income or capital distribution made by the Fund will only be paid, in Australian currency. • I/We declare that I/we are over 18 years of age I/we do not suffer from any legal disability preventing me/us from applying for Units. • I/We will not hold or control more than 19.9% of the Units on issue at any one time unless consent is given by the Responsible Entity. • I/we acknowledge that my/our investment in Units is not an investment in, a deposit with, or any other type of liability of the NAB Group, the Responsible Entity or any of their related bodies corporate. • I/We acknowledge that an investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income or capital invested and agree that those risks are appropriate for a person in my/our circumstances and with my/ our investment objectives. • I/We acknowledge that none of the Responsible Entity, the NAB Group or any of their related entities or af¿liates, or any other person, in any way stands behind or guarantees the repayment of capital from the Fund, the investment performance of the Fund or any particular rate of return. APPLICANT SIGNATURES This form must be signed. I/We agree to apply for Units as instructed on this Application Form. I/We agree to be bound by the provisions and the conditions of the issue of Units as set out in the PDS, the Constitution of the Fund and the Acknowledgements section in section 8 and 9 of this Application Form. Applicant 1 2 SIGN HERE Sole Director/Sole Company Secretary Applicant 2 2 SIGN HERE Applicant 3 2 Director/Company Secretary (delete one) Director SIGN HERE Date / / Pin Pin cheque(s) cheque(s) herehere (do not (do not staple) staple) Broker Code Valad Commercial Management Limited (VCML) ABN 76 101 802 046, AFSL 223339 as responsible entity for Valad Opportunity Fund No.11 (Fund) ARSN 108 693 876 National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 Adviser Code Application Form The securities to which this Application Form relates are units in the Fund (Units). Further details about the Units are contained in the PDS dated 3 May 2007 issued by VCML. During the Offer period, paper copies of the PDS, any supplementary PDS and the Application Form, will be available free of charge on request. ASIC requires that a person who provides access to an electronic Application Form must provide access, by the same means and at the same time, to the relevant PDS. This Application Form accompanies this PDS. The PDS contains important information about investing in the Fund. You should read the PDS before applying for Units. Incomplete Application Forms will be deemed to be valid if the Responsible Entity believes that suf¿cient information, with attached payment, has been provided. Further particulars are contained in the section titled “How to Complete the Application Form” which appears on the last page of this Application Form. PLEASE WRITE CLEARLY USING BLOCK LETTERS 1 INVESTMENT AMOUNT Insert investment amount. Minimum application amount is 20,000 units. Application amounts thereafter must be in multiples of 1 unit at $1.01 per unit. Units 2 , , . Insert your SRN/HIN below if you would like new Fund Units added to your existing holding NEW OR EXISTING INVESTOR NEW INVESTOR 3 A$ @$1.01 OR EXISTING INVESTOR FULL NAME AND DETAILS OF APPLICANT(S) Title Given Name or Company Name (Applicant 1) Middle Initial Surname Title Given Name or Company Name (Applicant 2) Surname Are you making the Application on behalf of a trust or superannuation fund (please tick) Yes No Name of Trust or Superannuation Fund Unit Number/Level Street Number Street Name Suburb/City or Town 4 State Postcode TELEPHONE AND EMAIL DETAILS Home Work Email 5 CHEQUE DETAILS Cheque Number BSB Account Number Amount Payable Please enter details of the cheque(s) below that accompany this application. Cheques to be crossed “Not Negotiable” and made payble to “Valad Commercial Management Limited: Application Account”. Please ensure that you submit the correct amount, incorrect payments may result in your application being rejected. 6 DISTRIBUTION PAYMENTS Name of Australian Financial Institution BSB Number Branch (full address) Account Number Name(s) in which Account is held Page 1 of 4 VOF IPO001 *VOF IPO001* $ 7 APPLICANTS’ TFN OR ABN (IF COMPANY) OR EXEMPTION CATEGORY TFN (Applicant 1) TFN (Applicant 2) ABN Exemption Category ABN Type – If not an individual, please mark the appropriate box Company 8 Partnership Trust Super Fund UNDERWRITER TRANSFERS I/we agree and acknowledge that, if National Australia Bank Limited (NAB) acquires Units pursuant to its obligations as Underwriter, then in respect of those Units: • this form may be treated as an offer by the Applicant to acquire up to the number or value of Units speci¿ed in section 1 of this form from NAB by way of transfer; • NAB is not the issuer of Units in the Fund, and personal information (including any tax ¿le number) I/we supply on this form will be received by NAB and passed on to the Responsible Entity to be used for the purposes referred to in this form; • the PDS has been provided to me by and on behalf of both the Responsible Entity and NAB, but that NAB is not the issuer of Units and its responsibility for the content of the PDS is strictly limited as set out in the Insider Front Cover of the PDS; • the consideration for the units will be payable to NAB; and • if this form is signed below for and on behalf of NAB, the sections of this form titled “Transfer of Units” and “Transferor’s warranty” will apply. Transfer of Units Held by NAB For the consideration referred to in section 1 of this form, NAB as transferor/ seller hereby transfers the Units referred to in section 1 to the transferee/buyer named as the Applicant in section 3, subject to the conditions on which NAB held the Units at the time of signing this form and on the basis that the transferee/buyer accepts the Units subject to the same conditions. Where an attorney signs the transfer on behalf of NAB, the attorney con¿rms they have not received any notice of revocation of the Power of Attorney under which this transfer is signed. Transferor’s warranty By executing this form, NAB warrants that: • it is the registered holder of the Units referred to in section 1; and • it is authorised and entitled to transfer the Units to the applicant, free from all encumbrances. Signed for an on behalf of National Australia Bank Limited: Title Name 9 Signature FURTHER ACKNOWLEDGEMENTS Capitalised terms in the Application Form have the same meaning as in the PDS. • I/We declare that I/we have read the PDS to which this Application Form relates. • I/We declare that this Application is completed according to the declaration/acknowledgements within this form and agree to be bound by the Constitution of the Fund (as amended from time to time). • I/We agree that the return of the Application Form with my/our cheque for the Application Money will constitute an offer to apply for Units in the Fund. • I/We acknowledge that the Responsible Entity has the right to reject my/our Application or allocate a lower number of Units than I/we applied for. • I/we agree that I/we cannot withdraw my/our Application except as permitted by law. • I/we acknowledge that the information contained in the PDS does not constitute ¿nancial product advice or a recommendation that Units are suitable for me/us, given my/our investment objectives, ¿nancial situation and particular needs. • I/we declare that this form is completed and lodged according to the PDS and that all statements made by me/us are complete and accurate. • I/we declare that if signed by an Applicant corporation, this form has been signed in accordance with section 127 of the Corporations Act, the corporation’s constitution and applicable laws. • I/We declare that if signed by an attorney, the power of attorney authorises the signing of this Application Form and no notice of revocation has been received. 10 Date • I/We acknowledge that by submitting an Application, I/we agree and consent to all arrangements between the Responsible Entity and members or related entities of Valad which are disclosed in the PDS. • I/We acknowledge that the PDS contains references to target returns that the Responsible Entity considers to be reasonable at the time of preparing the PDS but these are not forecasts and may not be achieved due to factors outside the Responsible Entity’s control and that actual results may vary materially from the targets. • I/We acknowledge that applications will only be accepted and any income or capital distribution made by the Fund will only be paid, in Australian currency. • I/We declare that I/we are over 18 years of age I/we do not suffer from any legal disability preventing me/us from applying for Units. • I/We will not hold or control more than 19.9% of the Units on issue at any one time unless consent is given by the Responsible Entity. • I/we acknowledge that my/our investment in Units is not an investment in, a deposit with, or any other type of liability of the NAB Group, the Responsible Entity or any of their related bodies corporate. • I/We acknowledge that an investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income or capital invested and agree that those risks are appropriate for a person in my/our circumstances and with my/ our investment objectives. • I/We acknowledge that none of the Responsible Entity, the NAB Group or any of their related entities or af¿liates, or any other person, in any way stands behind or guarantees the repayment of capital from the Fund, the investment performance of the Fund or any particular rate of return. APPLICANT SIGNATURES This form must be signed. I/We agree to apply for Units as instructed on this Application Form. I/We agree to be bound by the provisions and the conditions of the issue of Units as set out in the PDS, the Constitution of the Fund and the Acknowledgements section in section 8 and 9 of this Application Form. Applicant 1 2 SIGN HERE Sole Director/Sole Company Secretary Applicant 2 2 SIGN HERE Applicant 3 2 Director/Company Secretary (delete one) Director SIGN HERE Date / / > IMPORTANT NOTICE Responsible Entity and issuer of this PDS Valad Commercial Management Limited ABN 76 101 802 046, AFS Licence Number 223339 is the Responsible Entity of the Valad Opportunity Fund No. 11 (ARSN 108 693 876) (“Fund”) and is the issuer of this Product Disclosure Statement. > CORPORATE DIRECTORY jurisdiction outside of Australia. This PDS does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. The distribution of this PDS in jurisdictions outside Australia may be restricted by law and persons who come into possession of it who are not in Australia should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. Product Disclosure Statement This Product Disclosure Statement (“PDS”) relates to the offer of up to 27.024 million Units at a price of $1.01 each (“Offer”). This PDS is dated 3 May 2007. This PDS is not required to be lodged with ASIC. ASIC takes no Disclaimers responsibility for the contents of this PDS. You Investments in the Fund do not represent should only rely on the information in this PDS. investments in, deposits with or other liabilities of No person is authorised to give any information NAB, Valad Property Group (“Valad”) or any other or to make any representation in connection member of the National Australia Bank or Valad with the Offer which is not contained in this PDS. Any information or representation not contained groups of companies. in this PDS may not be relied upon as having None of the Responsible Entity, Valad, NAB been authorised by the Responsible Entity in and any of their respective directors, officers or connection with the Offer. associates stands behind the capital value nor This is an important document that needs guarantees the performance of the investment your attention. If you are in any doubt as to how to or the underlying assets in the Fund nor provides interpret or deal with it, consult your financial a guarantee or gives any assurance as to the adviser. performance of the investment, the repayment of capital or any particular rate of capital or income Electronic PDS return. This PDS may be viewed online on the Fund’s website at www.vof.com.au or on National The National Australia Bank group of companies Australia Bank Limited’s website at (NAB Group) may also provide debt, treasury www.nabmarkets.com/valad. and other services to the Fund or its controlled If you access the electronic version of this PDS, entities. These services are provided in various you should ensure that you download and read the capacities as a third party provider and the NAB entire PDS. Group will act if necessary to protect its interests A paper copy of this PDS is available free of charge ahead of those of Investors and other parties. In to any person in Australia before the Closing Date acting in its various capacities in connection with of the Offer by telephoning NAB on 1800 652 669. the Fund, the NAB Group will have only the duties and responsibilities expressly agreed to by it in the Up to date information relevant capacity and will not, by virtue of acting Information relating to the Offer that is not in any other capacity, be deemed to have other materially adverse may change from time to duties or responsibilities or be deemed to owe a time. This information may be updated and made standard of care other than as expressly provided available at www.vof.com.au or by telephoning with respect to each such capacity. NAB on 1800 652 669. A paper copy of any updated information will be available free on request. It is NAB (whether in its individual capacity, as recommended that you review any such additional Underwriter, as Sole Arranger, as provider of material before making a decision whether to any debt facilities or treasury services or in any acquire Units. If there is any material adverse other capacity) does not accept any responsibility change, a supplementary product disclosure for any information or errors contained in, statement will be issued. or any omission from, this PDS and has not Pictures of properties in this PDS separately verified the information contained in All pictures of properties in this PDS are actual this PDS and makes no representation, warranty pictures of the Properties unless stated otherwise. or undertaking, express or implied, as to the accuracy or completeness or suitability of the Defined terms information contained in this PDS. Certain terms used in this PDS have been defined Investments in the Fund are subject to investment and the definitions are set out in the Glossary of and other risks, including possible delays in this PDS. Currency amounts are in Australian dollars. payment or loss of capital invested. The information contained in this PDS is not Offer restrictions financial product advice. This PDS has been The Offer is only being made to persons in prepared without reference to your investment Australia and to a limited range of persons in objectives, financial situation and particular some other jurisdictions to whom offers may be made without the need for compliance with any needs. It is important you read this PDS in its registration, licensing or disclosure requirements entirety before making a decision whether in the relevant jurisdiction. to invest. If you are in any doubt, you should consult your broker or financial or other No action has been taken to register Units or professional adviser. otherwise permit a public offering of Units in any Issuer and Responsible Entity Sole Arranger Valad Commercial Management Limited ACN: 101 802 046: AFSL 223339 National Australia Bank Limited Level 33 500 Bourke Street Melbourne VIC 3000 Responsible Entity of Valad Opportunity No. 11 (ARSN: 108 693 876) Level 9 1 Chifley Square Sydney NSW 2000 Directors of the Issuer Stephen Day (Chairman) Peter Hurley Trevor Gerber Bob Seidler Andrew Martin Auditors PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 1171 Registrar Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 precinct.com.au Underwriter National Australia Bank Limited Level 33 500 Bourke Street Melbourne VIC 3000 Solicitors to the Issuer Mallesons Stephen Jaques Level 61 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Investigating Accountant Deloitte Touche Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Information Line NAB: 1800 652 669 www.nabmarkets.com/valad Product Disclosure Statement VALAD OPPORTUNITY FUND NO. 11 Product Disclosure Statement VALAD OPPORTUNITY FUND NO. 11 Valad Commercial Management Limited ABN 76 101 802 046, ACN 101 802 046, AFSL 223339 as Responsible Entity for Valad Opportunity Fund No. 11 ARSN 108 693 876 An Offer to raise up to $27.294 million at the Application Price of $1.01 per Unit 3 May 2007 Manager www.vof.com.au Valad Commercial Management Limited, ABN 76 101 802 046, ACN 101 802 046, AFSL 223339 Sole Arranger and Underwriter National Australia Bank Limited ABN 12 004 044 937, ACN 004 044 937, AFSL 230686