Heathley Direct Medical Fund No.1

Transcription

AUSTRALIAN
A
Property Investment Research
Heathley Direct Medical Fund
No.1
November 2014
A closed ended Fund investing in medical property
Heathley Direct Medical Fund No. 1, November 2014
Contents
Overview
3
2.
Fund Overview
5
3.
Property Portfolio
10
4.
Investment Analytics
15
5.
Management & Corporate Governance
19
6.
Past performance
21
Appendix – Ratings Process
22
For Advisors Only
1.
IMPORTANT NOTICE
Independent Investment Research Administration Pty Limited, trading as Property Investment Research (PIR) has not been
commissioned to produce this report. This means that PIR has not received a fee for reviewing and assessing this product. In
compiling this report, PIR’s views remain fully independent of influence or conflicts of interest. Our team of analysts undertake
an objective analysis of the offer and conclusions are presented to senior officers for review.
Disclaimer & Disclosure of Interests
This publication has been prepared by Independent Investment Research Administration Pty Limited (ABN 87 169 890 831), authorised under
an Australian Financial Services Licensee (AFSL no. 293655), trading as Property Investment Research (PIR). PIR has not been commissioned
to prepare this independent research report (the “Report”) and will not receive fees for its preparation. The company specified in the Report
(the “Participant”) has provided PIR with information about its activities. Whilst the information contained in this publication has been prepared
with all reasonable care from sources that PIR believes are reliable, no responsibility or liability is accepted by PIR for any errors, omissions or
misstatements however caused. Any opinions, forecasts or recommendations reflects the judgement and assumptions of PIR as at the date of
publication and may change without notice. PIR and the Participant, their officers, agents and employees exclude all liability whatsoever, in
negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should
not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the
Report is unsolicited general information only. Neither PIR nor the Participant is aware that any recipient intends to rely on this Report or of the
manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment
objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their
investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment
objectives, financial situation or particular needs before acting on such opinions or recommendations. This publication is not for public
circulation or reproduction whether in whole or in part and is not to be disclosed to any person other than the intended recipient, without
obtaining the prior written consent of PIR. This report is intended for the residents of Australia. It is not intended for any person(s) who is
resident of any other country. PIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold
positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities.
PIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or
other benefits from the securities mentioned in this publication.
PIR, its officers, employees and its related bodies corporate have not and will not receive, whether directly or indirectly, any commission, fee,
benefit or advantage, whether pecuniary or otherwise in connection with making any statements and/or recommendation (if any), contained in
this Report. PIR discloses that from time to time it or its officers, employees and related bodies corporate may have an interest in the
securities, directly or indirectly, which are the subject of these statements and/or recommendations (if any) and may buy or sell securities in
the companies mentioned in this publication; may effect transactions which may not be consistent with the statements and/or
recommendations (if any) in this publication; may have directorships in the companies mentioned in this publication; and/or may perform paid
services for the companies that are the subject of such statements and/or recommendations (if any). However, under no circumstances has PIR
been influenced, either directly or indirectly, in making any statements and/or recommendations (if any) contained in this Report.
The information contained in this publication must be read in conjunction with the Legal Notice that can be located at
http://www.pir.com.au/Public/Disclaimer.aspx
For more information regarding our services please refer to our website www.pir.com.au
page 2 of 23
Copyright © 2014 Independent Investment Research Administration Pty Limited (trading as PIR).
Note: This report is based on the Heathley PDS, valuation reports, together with other information provided by Heathley Asset
Management Limited.
Unlisted Property
Heathley Direct Medical Fund No.1
Offer Overview
Investment Rating
The Heathley Direct Medical Fund (the Fund) is a closed-ended Fund
that will provide investors with access to a diversified portfolio of
Australian medical properties. The Fund’s Responsible Entity and
Manager is Heathley Asset Management Limited (RE or the Manager).
The Product Disclosure Statement (PDS) comprises two parts – Part A,
which covers all the disclosures on the Fund, and Part B, which
provides details on the initial portfolio of assets. Future acquisitions and
capital raisings will be subject to additional part PDSs being issued. The
RE has considerable experience, a good track record with past
syndicates, and will meet ASIC’s RG46 regulatory guidelines.
For Advisors Only
During the first two years of the initial 7-year Fund term, the RE
intends to acquire a portfolio of up to $150M of medical property in
accordance with pre-defined investment criteria. To begin with, the
Fund intends to acquire four assets for $20.4M (the initial portfolio) and
intends to raise $11.05M of equity at $1.00 per unit. The balance of the
acquisition will be funded via debt.
See the Appendix for a description of our ratings.
The above rating must be viewed in the context of
comparable core property funds and not across all
products.
Offer Details
Offer Open
November 2014
Offer Close
November 2016
Min. Investment Period
7 years
Min. Investment
$25,000
1
The initial gearing of the Fund is 47.2% (calculated according to ASIC
guidelines), slightly higher than the RE’s target gearing of 45%.
Gearing may temporarily increase (up to 50%) to settle future
acquisitions – subsequent equity inflows will be used to reduce gearing
back within targeted limits. PIR’s analysis suggests that the initial
portfolio will have sufficient headroom against bank loan-to-valuation
ratio (LVR) and Interest Cover Ratio (ICR) covenants.
Liquidity
PIR has analysed the Fund based on the initial portfolio only, and
makes no comment on the impact of future acquisitions. The initial
portfolio has robust operating metrics: (1) 100% occupancy; (2) a
WALE of 5 years; (3) rental growth between CPI and 4.0%; and (4)
strong location-specific tenant demand.
seven-year term.
PIR has reviewed the RE’s assumptions, which are in line with the
assumptions of the independent valuers. PIR estimates the initial
portfolio will produce an internal rate of return (IRR) in the range of
9%-10%, net of fees and costs, over the Initial Term.
Nil
Distributions
Initial NTA
3
Distribution (cents)2
Quarterly
A$0.94
8.0%
1
The Fund will have no liquidity throughout the
2
Distribution of 8.0 cents payable represents the
annualised first full year of distribution.
3
As per PDS and assumes stamp duty and fund
establishment costs are capitalised. Excluding these
would result in NTA of $0.85 at fund
commencement.
Fees (paid to advisors),
The RE is forecasting an average distribution yield of 8.0% from the
initial portfolio with a high level of deferred tax benefit in the initial
years. However, this may change as new assets are acquired.
Direct investors may elect to pay to advisors a
professional fee for service, which will be deducted
from application amounts. This may lead to fewer
units being issued.
Based on past performance measured by IPD, a reputable global firm
that measures and publishes sector level returns, the healthcare
property sector has provided relatively better risk-adjusted total
returns when compared with core real estate asset classes.
Risk/Return Profile
Capital Return
Income Return
The Fund’s initial portfolio has robust metrics and PIR expects the
income profile to be stable. Given the modest risk to income, total
returns will ultimately depend on the sale prices the Fund can achieve
for its assets.
Capital Return
Volatility
Income
Volatility
In PIR’s opinion, the Fund would suit investors who seek a high, secure
income yield. Investors must be comfortable with the risks associated
with a geared vehicle backed by health care assets located across
Australia. The Fund would be best suited as part of an overall
diversified property portfolio. As it is closed-ended, investors must be
prepared to remain fully invested for the Initial Term.
Risk to Capital
Tax Effectiveness
Investor Suitability
page 3 of 23
Key Considerations
Strong tenancy profile. (1) 100% occupancy; (2) contracted fixed
rental increases of between CPI and 4.0%; and (3) a WALE of 5.0
years. Releasing risk is manageable, given the location of assets and
the RE budgeting for tenant incentives in its income forecasts.
Well regarded fund manager with a solid performance track
record and specific expertise in managing property funds. Greater
representation of non-executive directors lends balance to decision
making. Good track record on corporate governance.
Key Qualitative Criteria
Management
Track record
Investment process
and philosophy
Corporate Governance
Product
Structure
Fee structure. In line with industry peers. The fees are paid as a
Fees
percentage of net assets rather than gross assets. This ensures the
manager is not incentivised to increase the Fund’s gearing.
Liquidity
Illiquid investment. Investors must accept that by their very
For Advisors Only
nature, unlisted property trusts are illiquid. If any assets are sold,
capital must be returned to investors and no part of the sale proceeds
can be reinvested.
Headroom to bank-imposed debt covenants. Asset pricing for
the initial portfolio would need to fall by 23% to breach the LVR
covenant. Alternately, net rental income would need to fall by 52% to
breach the ICR covenant. PIR notes that future acquisitions may result
in changes to these metrics.
Initial NTA is $0.94 due to one-off costs and fund set-up costs. If
stamp duty and certain upfront costs were written-off at fund
commencement, the initial NTA would be $0.85 per unit. As our
analysis in Figure 14 shows, 10 cents of the total 15 cents dilution to
NTA can be attributed to stamp duty and DD costs. Refer to
Investment Analytics section for more detail.
Units issued in subsequent equity raising will be issued at a price
being the greater of (a) $1.00 per Unit; and (b) the per unit Net Asset
Value of the Fund plus transaction costs. The adjustments are made
to equalise the impact of transaction costs across all investors.
Expected return sensitivity. PIR estimates investor returns in the
Leverage/Capital structure
Portfolio
Property Grade/Asset
quality
Property diversification1
Tenancy profile
Tenant lease term
1
Initial portfolio only as PIR is unable to determing
the extent of diversification that will eventually be
achieved.
Investment Profile
Number of properties
4
Property locations
VIC, QLD,
NSW
Medical Office
Property sector
Initial LVR/ Bank covenant
50%/ 65%
ICR/ Bank covenant
3.1x/ 1.5x
Source and Application of Funds
range of 9.0%-10%, based around assumptions on terminal yield and
interest rate movements. Refer to Investment Analytics section for
more details. The expected return is in line with the long-term direct
property return of 10%.
Equity sought
Subsequent acquisitions. The RE will acquire an additional
Total uses of funds
portfolio of medical properties in accordance with pre-defined
investment criteria. However, investors will be exposed to the effects
of property acquisitions and also changing market conditions during
the two-year investment period. The initial portfolio represents only
13.6% of the $150M target.
Financial Forecasts
A$M
11.1
Debt
9.3
20.4
Please note Source and Application of funds assumes
equity for initial portfolio is fully raised.
IRR1 (pre-tax, %)
9%-10%
2
9.1%
the Initial Term. The RE will need to refinance before the maturity
date. The RE will also need to source new debt to fund acquisitions
Performance fee hurdle
(%)
10.5% IRR
Diversification. The seed portfolio is well-diversified, with four
Min. investment period
7 yrs
properties across three states. Subsequent property acquisitions will
provide further diversification (albeit unquantifiable at this stage).
Tax advantage3
Refinance Risk. The Fund’s debt facility expires prior to the end of
Capital Expenditure. PIR has adopted the capex assumptions made
by the independent valuers, which equates to 10.5% of gross income
over the Initial Term.
Valuer’s disc. rate (%)
Distribution frequency
1
96%/82%3
Quarterly
IRR forecast range is based on PIR assumptions on
terminal cap rate and unit prices of investments.
IRR estimate is pre performance fee. For further
details, please see Section 4, Investment Analytics.
2
Weighted average independent valuer’s discount
rate assumptions.
3
Represents the expected average tax-deferred rate
over first year and second years.
page 4 of 23
2.Fund Overview
Product Overview
The Fund has been formed with the objective of providing investors with access to a
diversified property portfolio of medical properties managed by Heathley Asset Management
Limited. The Fund will initially invest in four seed medical properties, which are fully leased.
The Manager is then seeking to progressively acquire a portfolio of up to $150M (including
the seed properties) in medical property assets over the first two years (the Investment
Period). The Fund will continue to raise capital to fund the acquisitions for the duration of
the Investment Period. The initial term of the Fund is seven years (the Initial Term), which
may be extended by a further two years. Additional units will be issued during the
investment phase as new equity.
For Advisors Only
The Offer
The RE is seeking to raise $11.1M (the Minimum Offer Amount) and $9.3M of debt to fund
the acquisition of the four seed properties. Units under the Offer will be priced at $1.00 for
initial investment and throughout the first year of the Investment Period. Thereafter, the
unit price will increase or decrease based on changes in the value of the portfolio. If the
Minimum Equity Amount is not raised, the RE may decide not to proceed with the offer. The
minimum investment for investors is $25,000, increasing in multiples of $5,000 thereafter.
Figure 1: Heathley Direct Medical Fund Structure
Heathley Asset Management
(Responsible Entity)
Heathley Direct Medical Fund
No.1
$11.05M
investor equity
87-89 Langtree
Avenue, Mildura
VIC
Seed Properties
547 Melton
Highway,
Sydenham VIC
Lot 4,5 & 6 956
Gympie Road,
Chermside
QLD
Additional equity
raising
Additional debt
$9.3M
borrowings
52 Pendlebury
Road, Cardiff
NSW
Subsequent
medical
property
acquisitions
Source: PIR/ HAML
The initial portfolio
The four seed properties have been independently valued at $19M by reputable agencies.
The four seed properties are geographically diversified with two in Victoria and one each in
Queensland and New South Wales. The total NLA of all four properties is 4,048 sqm.
Approximately 98% or 3,962 sqm of NLA is health/medical-related office use, with the
remaining 2% or 86 sqm being retail. The initial portfolio metrics are robust:



page 5 of 23
100% occupancy;
The weighted average Lease Expiry (WALE) is 5.0 years (by income); and
Rents are subject to contracted fixed increases of CPI and/or 4% per annum;
Loan-to-Value Ratio (LVR) and Interest Cover Ratio (ICR)
The Manager has a target gearing ratio for the Fund of 45%; however, this may be
exceeded from time-to-time as additional properties are acquired. The PDS forecasts that
the gearing ratio at the time the seed properties are settled will be 47.2% (calculated as per
ASIC guidelines). PIR notes that the RE has opted to capitalise stamp duty and fund
establishment costs, whereas the industry norm has been to write off the costs at
commencement of the fund. On this basis, gearing would increase to 49.7%.
The Fund has a credit-approved offer from the National Australia Bank for a three-year
Term Facility of $9.3M to fund the acquisition of the seed properties. At the time the four
seed properties are settled, the bank-imposed interest cover ratio covenant will be 1.5
times against a forecast of 3.1 times and the bank-imposed LVR covenant will be 65%
against a forecast LVR of 50%.
For Advisors Only
Leverage and ICR Sensitivity
For the Fund to breach its LVR covenants, the initial portfolio value would need to fall by
23% or more. Similarly, FY15 forecast net passing income would need to reduce by more
than 52% for the Fund to breach its bank-imposed ICR covenant. PIR believes the Fund’s
metrics provide a comfortable cushion against adverse market movements.
Interest rate hedging
The RE's stated objective is to maintain interest rate hedging of at least 50% of the Fund’s
borrowings for a period of three to five years. PIR believes this would provide some
certainty as to future interest expense.
Investors must remember that geared investments are riskier than comparable un-geared
funds. Gearing improves investor returns when conditions are favourable, but conversely,
gearing detracts from returns when leverage and interest rates rise.
Liquidity/ Exit strategy
The term of the Fund is seven years. At the end of the Initial Term, investors will be asked
to vote in favour of either extending the Fund for a further two-year period or winding up
the Fund. Any further extensions beyond the additional two years will require unanimous
approval from investors.
Investors must view the illiquid nature of the Fund in the context of its direct property
investments, which are illiquid by nature (i.e. exit is based on the sale of the asset). As
such, any sale of an underlying investment to meet liquidity requirements may take several
months.
Figure 2: Initial portfolio debt metrics
Asset value ($M)
Loan facility limit ($M)
Initial Portfolio
18.6
9.3
Implied LVR (%)
50%
Loan covenant (%)
65%
Headroom to covenant (%)
Interest rate hedge
All-in interest rate (%)
ICR (rent/interest paid)
ICR covenant
Headroom to ICR covenant (%)
>20%
50%
4.25%
3.1 times
>1.5 times
>50%
Source: PIR/ HAML
Sources and Application of Funds
page 6 of 23
PIR notes that it is common for managers to charge an up-front fee, typically ranging from
1.5%-5% of equity sought. In the case of the Fund, a total transaction fee of 2.5% will be
charged based on the purchase price of the properties. We discuss fees in more detail
below.
Figure 3. Sources and Applications of Funds
($'000)
% of equity
raising
% of capital
raising
Sources of funds
Proceeds from the offer
Debt facility
For Advisors Only
Total Source of funds
11,050
9,300
20,350
Application of Funds
Purchase price of properties
18,600
Stamp duty plus DD costs
1,114
10.1%
5.5%
Acquisition fee paid to RE
465
4.2%
2.3%
Debt establishment costs
46
0.4%
0.2%
Fund establishment costs
69
0.6%
0.3%
57
0.5%
0.3%
Working capital
Total applications of funds
20,350
Source: HAML/PIR
Costs over the Term of the Fund
The components of fees and cost recovery charged by the RE over the term of the Fund are
as follows:
Ongoing management fee: 1.2% per annum of the NAV. Based on the NAV of the Fund as
at the last day of each month and payable to the Manager at that time.
Ongoing administration costs (accounting, audit, etc.): The RE estimates this will
account for up to a maximum of 0.5% per annum of the NAV of the Fund. PIR excludes this
expense from its all-in fee analysis below.
As such, the total Management Expense Ratio (MER) is estimated to be 1.7% of NAV or
approximately 0.9% of gross assets. This is in line with industry peers rated by PIR in recent
years. PIR notes that the RE is rewarded with higher fees only if the net assets increase, as
compared to fees calculated on gross assets, where the use of higher gearing would allow a
manager to be compensated for taking on additional risk.
Transaction Fee
The RE is entitled to an acquisition fee of up to 2.5% of the acquisition price of the
properties. The fee is payable within 10 business days after settlement of the acquisition.
The total transaction fee is $0.47M for the four seed properties. Transaction fees will be
payable following each subsequent acquisition for the duration of the Investment Period.
Performance Fee
PIR notes that it is normal practice in the industry to charge performance fees should the
total returns of the Fund exceed a benchmark return. According to the PDS, the RE is
entitled to 20% of the portion of outperformance above a 10.5% IRR hurdle (pre tax, net of
fees). If applicable, the performance fee will be payable to the RE on sale of the properties
or wind-up of the Fund. As such, PIR has not included any performance fee that may
become payable in its estimation of returns.
Removal of the RE
The RE can be removed and replaced with another appropriately licensed responsible entity,
page 7 of 23
if investors pass an extraordinary resolution to that effect at a properly convened meeting of
investors. Should the RE be replaced, it will be entitled to recover any deferred fees, plus an
amount equivalent to the performance fee that would have been payable if the investments
were sold on that day. An extraordinary resolution requires at least 50% of the votes cast
by investors entitled to vote on the resolution.
Disposal Fee
The Fund will pay a disposal fee equal to 2% of the gross sales price of the property to the
Manager. The Manager will pay any selling costs payable to external real estate agents from
its disposal fee.
As a percentage of total Fund cash flow
For Advisors Only
In Figure 4, below, PIR analyses how much of the Fund’s cash goes to the RE in fees, and
how much is left over for investors. Our key assumptions include:

A term of seven years beginning in November 2014;

A performance fee has not been calculated and based on the assumptions for cap
rate expansion in the valuation reports, we forecast one will not be payable (due to
the Fund not generating returns in excess of the benchmark);

We exclude the disposal fee (2.0% of the sale price) and ongoing Trust expenses
(0.5% pa of net assets) which we treat as costs that would be incurred anyway;

We assume a weighted average terminal yield as per the valuation reports of
8.44%, implying cap rate expansion of 0.2% over the Initial Term;

PIR has not forecast the impact of new property acquisitions on the fund, as we do
not have definitive details other than investment criteria. We note that further
acquisition fees will be charged by the Manager as properties are acquired.
As such, we estimate that the RE is entitled to 6.9% of the total cash flow, which leaves
93.1% to unitholders. PIR views this to be in line with industry averages.
PIR stresses again that these are estimates of how much investors will receive and not
guaranteed amounts. For further details, please refer to the Investment Analytics section.
All-in fee analysis
Figure 4: Fees in Perspective – all numbers on a per-unit basis
PIR estimates that for every $1.00 of equity invested, the Fund can return:
Principal repayment to investors (a):
$1.00
Income and capital gains to investors (b):
$0.69
Total cash to investors (after fees and expenses) (c) = (a + b)
$1.69
Base management fee (d)
$0.08
Transaction fee (e)
$0.04
Total cash generated by the Fund (f) = (c + d + e)
$1.81
Fees = % of total cash generated (before fees)
Calculated as( d + e) /f
6.9%
Source: PIR
page 8 of 23
Fund Structure
Responsible Entity (RE)
Heathley Asset Management Limited
Investment Term:
Seven years from November 2014. This may be extended if 50% or more of all units eligible to vote in
favour .
Issue Size/LVR:
Equity issuance of $11.1M would result in an initial LVR of 50%.
Security:
The bank loan is to be secured by a first mortgage and a fixed and floating charge over the Fund’s
proportionate share of investment in the underlying unit trusts (the initial portfolio), with no recourse to
investors.
Fund Profile
Geographic/ Sector
Exposure:
The initial portfolio will be exposed to the Victorian, Queensland and New South Wales medical office
sector. As subsequent properties are acquired, the geographic reach will expand.
For Advisors Only
Tax
Disclaimer:
Tax consequences depend on individual circumstances. Investors should seek their own taxation advice.
The following comments show PIR’s expectation of tax for ordinary Australian taxpayers, but cannot be
considered tax advice.
Capital gains:
Capital gains tax (CGT) is likely to apply upon the winding up of the Fund as capital is returned to
investors. As the investment term is in excess of 12 months, certain investors will likely be eligible for the
50% CGT discount upon receipt of sale proceeds as per the current CGT ruling.
Distributions:
Distributions will be treated as income in the year they are earned. Distributions may contain some tax
deferred amount, which decreases the cost base and may give rise to a capital gain should the
investment be sold. Distributions may not be reinvested.
Legal Structure
Wrapper:
Unlisted Unit Fund
Custodian
The Trust Company (Australia) Limited
Offer Document:
The Product Disclosure Statement, dated November 2014.
Returns
Capital vs. Income:
The final breakdown of the total return is largely unknown; however, it is generally a function of
distributions or dividends received from a fund’s underlying investments and any capital gains achieved
from its portfolio of investments. PIR expects income returns to be least 70-75% of the total return.
Income Frequency:
Quarterly, in arrears.
Risks
For a more detailed list of the key risks, refer to the Risks section (Section A10) of the PDS.
Property/Market Risk:
The portfolio of investments predominantly comprises suburban medical office properties with strong
operating metrics. However, the sale prices achieved at maturity will be subject to prevailing market
conditions. Any deterioration in market conditions, over-renting (above market rents), and potentially a
thin investor pool may affect sale prices and consequently Fund returns.
Capital structure:
A mix of bank debt and investor equity will be used to fund the acquisition of the four seed properties.
Additional funding will be required for subsequent acquisitions. The RE has a target gearing ratio of 45%.
Any changes in the cost of debt could affect the interest expense and hence, distributable income.
Property specific risks
The Fund has a diversified exposure to property investments. As such, anything that reduces the market
value of these investments would reduce an investor's returns. The use of gearing exacerbates the risks
associated with a potential decline in investment values.
Fees/Expenses
Base Management Fee:
A base management fee of 1.2% of NAV is payable to the Manager. In addition to the management fee,
the RE estimates administration expenses required for the day-to-day operation of the Fund will account
for up to another 0.5% of the NAV.
Property Acquisition Fee: Acquisition fee of up to 2.5% of the value of the properties acquired.
Performance Fee:
page 9 of 23
The RE is entitled to 20% of the portion of outperformance an IRR of 10.5%.
3.Property Portfolio
The Fund’s initial portfolio comprises four assets, detailed in Figure 5. The assets are
geographically diversified across Victoria, Queensland and New South Wales. The initial portfolio
mainly comprises medical centres. The RE intends on acquiring additional properties over the
Investment Period up to a value of $150M.
For Advisers Only
The Manager has identified medical property as an attractive asset class, given:

The health sector is not closely correlated to other property asset classes, which provides
portfolio diversification;

A growing level of non-discretionary demand for health services, given the ageing
population;


Fragmented property ownership represents an opportunity to consolidate; and
The potential to form a partnership with an experienced and skilled operator or
developer who could provide a pipeline of properties.
PIR’s own assessment of the property sector concurs that the healthcare sector is an attractive
asset class for investment purposes.
Based on the metrics outlined below, PIR makes the following observations:
The portfolio’s Weighted Average Lease Expiry (WALE) is around 5.0 years. The 5-year WALE is
supported by ‘sticky’ tenants who have location-specific customers who usually use services
based on their proximity to where they reside. Therefore, these tenancies have a greater
likelihood of renewal than non-location-specific office tenancies.
Tenants at the Mildura property are responsible for all outgoings except land tax and college
lease rent; St Vincent’s Hospital at Sydenham is on a net lease; tenants at the Chermside
property are responsible for all outgoings except land tax (Nikas Café responsible for land tax
and body corporate fees); and the tenants at the property in Cardiff are not responsible for any
outgoings.
Figure 5: Property portfolio metrics
Heathley Direct
Medical Fund No.1
87-89 Langtree
Avenue,
Mildura VIC
547 Melton
Highway,
Sydenham VIC
Lots 4,5 & 6 956
Gympie Road,
Chermside QLD
52 Pendlebury
Road, Cardiff
NSW
Investment timing
Nov-14
Nov-14
Nov-14
Dec-14
Location
Mildura, VIC
Sydenham, VIC
Chermside, QLD
Cardiff, NSW
Sector
Medical
Medical
Medical
Medical
NLA (sqm)
1,608
639
751
1,601
Valuation ($)
$3,900,000
$4,150,000
$5,300,000
$5,250,000
8.44%
7.90%
7.90%
9.46%
6.0
3.5
5.7
4.5
9.25%
9.00%
9.25%
8.75%
CPI
CPI
CPI up to 4.0%2
CPI, capped at
4.0%
Passing Yield (%)
WALE (years)
2
Valuers discount
rate
Rental Growth
(pa)
Tenants
3
1
3
3
NABERS
-
-
-
-
Occupancy
100%
100%
100%
100%
Value/sqm
2,425
6,495
7,057
3,279
Net Rent/sqm
$209
$513
$557
$301
1
WALE by income.
2
CPI for Sonic tenancy, and 4.0% growth for Southern X Imaging and Nikas cafe .
Source: HAML/ PIR/ Jones Lang LaSalle/ Knight Frank
page 10 of 23
Investment criteria
The RE intends to acquire additional properties up to a combined value of $150M (including the
four seed properties). While the composition of the properties in the Fund will not be finalised
until the conclusion of the Investment Period, additional property acquisitions must meet the
investment criteria outlined in Figure 6.
Figure 6: Investment Criteria for future acquisitions
For Advisers Only
Property Type
Medical Centre
Client & Use Description
GP based clinic
Locational Requirements
Specialist Centre
Small Private Hospitals
Privately run small
hospitals with fewer than
100 beds
WALE
Convenience-based
locations more
correlated with retail
locational drivers
>than 4 years
Day Surgery and
specialist services
including ancillary
medical services
Located in, or within
close proximity to,
existing health
precincts and facilities
>than 6 years
Property Occupancy
>90%
>85%
>than 90%
Asset Size
Between $4.0M Between $4.0M Between $5.0M - $40.0M
$15.0M
$25.0M
To provide sustainable and stable income to the fund from properties that
have a strategic advantage, increasing the likelihood of retaining and
extending occupancies and WALE.
The Fund may consider funding greenfield and brownfield development
opportunities that have been de-risked through ensuring each opportunity
has an approved DA, agreements in place for the majority of the space and
other development risk mitigants that are considered necessary.
Property Objective
Development
Located within close
proximity to existing
health precincts and
facilities
>than 6 years
Source: HAML/ PIR
Initial portfolio lease expiry
As highlighted in Figure 7 below, nearly 50% of the rent roll matures in June 2018. Typically,
leases in the sector have a five-year duration.
PIR has reviewed the RE’s assumptions around lease renewals or re-leasing potentially vacant
spaces. We note that the RE has adopted the views expressed by the independent valuers.
Notwithstanding this, the Fund’s ability to maintain high occupancy on attractive terms will affect
both income and the sale prices that it can realise.
Figure 7: Portfolio lease expiry
60%
49.6%
50%
40%
36.4%
30%
20%
13.6%
10%
0%
0.0%
0.4%
0.0%
0.0%
Nov-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20 +
Source: Heathley/ PIR
page 11 of 23
Initial Assets
87-89 Langtree Avenue, Mildura
The property is located within the CBD of Mildura, approximately 560 kilometres north-east of
Melbourne. Situated across Langtree Avenue from the Langtree Mall, development surrounding
the property is primarily commercial and retail. Constructed in 1991 as a purpose built medical
centre, the property underwent a significant refurbishment in 2007/2008. The two storey
building is constructed in reinforced concrete and steel frame, with metal panel wall cladding on
the façade. The property has 1,578 square meters of office space fully let to two tenants. There
are 5 car spaces at the back of the accommodation. The building is fully occupied, with a WALE
of 6.91 years.
The valuer forecasts an unlevered 10-year IRR (including capex) of 9.4%.
For Advisers Only
Lots 4, 5 & 6 956 Gympie Road, Chermside
The property is situated in the Brisbane suburb of Chermside, approximately 9.5 kilometres
north of the Brisbane GPO. The property comprises 5 levels of office/medical specialist
accommodation and basement car parking for 22 vehicles. Constructed in 2007/2008, the
building is surrounded by a range of retail, aged care/residential and commercial buildings. Lots
4, 5, and 6 encompass a net lettable area of 751 square meters leased to three tenants. The
building is fully occupied, with a WALE of 5.9 years by income.
The valuer forecasts an unlevered 10-year IRR of 7.29%.
52 Pendlebury Rd, Cardiff
Located in the suburb of Cardiff, approximately 15 kilometres west of the Newcastle Central
Business District, within the Lake Macquarie LGA. The property consists of a two-storey, full
brick, purpose-built private hospital and medical clinic completed in circa 1990. The western
corner of the property has a two-storey storage shed, with a 52 vehicle car park surrounding the
main building. The NLA is approximately 1,601 square meters on the site having an area of
8,369 square meters. The building is fully occupied. WALE is 4.5 years (as at 5 Dec 2014),
leased to two tenants.
The independent valuer forecasts an unlevered 10-year IRR of 7.7%.
574 Melton Highway, Sydenham
The property is located on Melton Highway, 26 kilometres to the north-west of the Melbourne
CBD. The property is surrounded by a mixture of residential, retail and small office development.
The two-storey purpose built medical centre was constructed in 2012 from reinforced concrete
and steel frame with metal panel cladding. The 639 square meters of net lettable area
accommodates St Vincents Hospital, with 30 car spaces off Melton Highway. The building is fully
occupied, with a WALE of 3.70 years.
The valuer forecasts an unlevered 10-year IRR (including capex) of 9.14%
Capital Expenditure (capex)
PIR has reviewed the valuation reports of the four seed properties and assumed the same level
of capex in its estimates.
page 12 of 23

The capex requirement for 87-89 Langtree Avenue, Mildura is expected to be relatively low
in the short term. However due to a large refurbishment allowance and agent fees in year
7, total capex is estimated over the Initial Term to be $228,127. This equates to 7.7% of
gross income over the Initial Term;

The capex requirement for lots 4, 5 & 6 956 Gympie Road, Chermside over the Initial Term
is expected to be $68,692. This equates to 2.7% of gross income over the Initial Term;

The capex requirement and letting up allowances for 52 Pendlebury Rd, Cardiff over the
Initial Term are expected to be $761,353 due in part to significant capex assumed by the
valuer in year 1. The total capex requirement and letting-up allowance equates to 22.4% of
gross income over the Initial Term; and

The capex requirement for 574 Melton Highway, Sydenham over the Initial Term is
expected to be $154,744. Refurbishment allowances are not forecast until after the Initial
Term. The capex requirement is expected to be 6.0% over the Initial Term.
The total capex, refurbishment allowance and letting up allowance for the four seed properties
equates to approximately $1.2M, equating to 10.5% of gross income over the Initial Term.
Tenant and lease details
PIR has reviewed the tenant and lease summary provided by the RE and believes the majority of
the tenants to be quality tenants. Over 60% of the tenants have numerous locations around the
country and an acceptable level of financial stability. Some of the single-location local tenants
have been in business within the area for long periods and/or provide government-assisted
income such as bulk billing. Figure 8 summarises the contribution of the tenancies.
For Advisers Only
Figure 8: Tenant contribution to passing income
Tenant
Address
% of portfolio
passing
income
(gross)
% of Total
Portfolio Area
(sqm)
Total Area
(sqm)
Lease
expiry
Healthe Care
Cardiff
21.89%
23.92%
1,100
Tristar Medical
Mildura
20.33%
32.42%
1,491
Nov 18
Dec 19/
Dec 20
St Vincents Hospital (Mel)
Sydenham
19.00%
13.89%
639
Jun 18
Southern X Imaging
Chermside
16.57%
10.05%
462
Apr 22
Sonic Healthcare
Pendlebury Management
Services
Chermside
8.59%
4.41%
203
Apr 18
Cardiff
8.21%
10.89%
501
Oct 20
Nikas (Café)
Chermside
3.22%
1.87%
86
Apr 19
Mildura Optical
Mildura
1.66%
2.54%
117
Jun19
Chermside Day Hospital
Chermside
0.14%
Car park
NA
NA
NA
Obesity Solutions
Chermside
0.14%
Car park
NA
Margaret Graham
Chermside
0.13%
Car park
NA
NA
0.12%
Car park
NA
NA
100.00%
99.99%
4,599
Avonder
Chermside
Total
Source: Heathley
Market evidence on rents and recent sales activity
In the tables below, we present evidence on recent leasing and transaction activity. Given the
variance between the types of centres, type of services offered, and location-specific attributes,
the market activity shown below should serve as a guide only.
Figure 9: Recent transactions in medical assets
Sale
Date
NLA
(sqm)
Price
(A$m)
Price
($/sqm)
Initial
Yield
WALE
(years)1
Jul-14
1,147
6.5
5,667
8.45%
4.4
Primary Medical and Dental Centre
21 Bertha St, Caboolture, QLD
May-14
822
4.5
5,474
7.96%
3.6
852 Whitehorse Rd, Box Hill, VIC
Nov-13
680
5.7
8,346
4.82%
5.0
6-8 Waranga Drive, Kialla, VIC
Aug-13
1,011
3.6
3,511
8.77%
15.0
Address
Margate Medical Centre, QLD
Source: Independent valuation reports/ PIR
page 13 of 23
Figure 10: Recent market leasing activity
Address
Term
(yrs)
Area
(sqm)
Net Rent
($/sqm)
Incentive
(%)
Grd Floor, 239-241 Thirteenth Ave, Mildura
15
858
269
NA
First Floor, 239-241 Thirteenth Ave, Mildura
15
604
234
NA
5
104
8031
$50,000
297
1
3 months rent
799 Old Cleveland Rd, Chermside
Ipswich Rd, Annerley
10
700
1
Gross rental (A$/sqm)
For Advisers Only
Source: Independent valuation reports/ PIR
page 14 of 23
4.Investment Analytics
We summarise below the forecasts and assumptions provided by the RE below:
 The forecast net property income is based on the lease terms of each tenant. Rental growth
projections range between CPI and 4.00% per annum;
 Fees and costs are as per the PDS;
 PIR has assumed that the letting-up allowances, agent fees and capex forecast by the valuers
are sufficient to retain the current tenants over the Initial Term;
 The RE forecasts that distribution payments to investors will include some tax-deferred
amounts;
 The all-in interest rate for the debt facility is 4.25% (base rate of 2.8%, plus a 1.45% margin
For Advisers Only
assuming the LVR is between 45% and 55%). 50% of the facility will be hedged for 3 years;
 The RE forecasts an annualised distribution yield of around 8.0% over the forecast period.
Figure 11: Heathley Medical Fund PDS Pro forma income statement
Forecast Cash Flow and Distribution Statement
Net Property Income
Interest Income
Total Income
Management fees
FY15f
$'000
FY16f
$'000
921
1,578
7
3
928
1,581
(82)
(126)
(101)
(128)
(547)
-
199
1,328
Interest expense
(265)
(464)
Net Profit
(67)
(864)
547
-
Fund expenses
Acquisitions costs write off
1
EBIT
Forecast distribution
Add back Acquisition costs1
Fund establishment costs
69
Debt establishment cost amortisation
10
15
560
879
5.1
8.0
8.0%
8.1%
2.8
2.9
Distribution Paid
Distribution (cents)
Annualised distribution yield
Interest Cover Ratio
3
1
Acquisition costs are funded through the equity raising and therefore excluded from the calculation of forecast
distribution.
2
Borrowing costs relating to the debt facility are amortised over the term of the facility.
3
In accordance with ASIC Regulatory Guide 46.
Yield Analysis
A notable feature of the forecasts is the high distribution yield to investors, which is comparable
to the underlying portfolio yield. As the table below highlights, leverage (specifically, the positive
spread between the asset yield and debt costs) essentially negates the effects of one-off upfront
and ongoing management costs. Investors should note that while leverage amplifies returns
when the asset yield is greater than the interest rate, it reduces returns when the spread is
negative.
page 15 of 23
Figure 12: Effect of gearing on investor yield from initial portfolio
Yield
Initial property portfolio yield
8.45%
Comments
Passing yield
Ongoing MER
-0.90%
Unlevered asset yield
7.55%
Effect of upfront costs
-0.62%
Stamp duty, acq. fee, and other upfront costs
Unlevered investor yield
6.93%
Pre-gearing
Effect of gearing
Post-gearing earnings yield
1.11%
8.05%
Management expense payable
+ve spread between asset yield and debt cost
Equates to amount available for distribution
Source: PIR
For Advisers Only
The balance sheet presented below highlights two important features:

The properties are being held on balance sheet at their purchase price plus capitalised
stamp duty costs. This results in gearing of 47%. Assuming stamp duty costs were
written-off at commencement, the gearing would be higher at around 50%.

Similarly, the PDS shows an NTA of $0.94 per unit assuming stamp duty costs are
capitalised. Excluding stamp duty from this calculation results in an NTA of $0.85 per
unit.
Figure 13: Heathley Medical Fund Pro forma balance sheet, per the PDS
As per PDS
($’000)
Assets
Cash
Investment Properties
Total Assets
57
19,632
19,688
Liabilities
Debt
9,300
Debt establishment costs
Total Liabilities
Net Tangible Assets
(47)
9,254
10,434
Units on Issue
11,050
NTA per unit
0.94
Fund gearing
47%
NTA Analysis
The starting NTA is an important consideration, as upfront costs can dilute investors’ returns. It
is also important to assess the NTA dilution in the context of statutory costs and fees paid to the
fund manager.
As Figure 14 shows, 10 cents of the total 15 cents dilution to NTA can be attributed to statutory
costs and fund set-up costs. This equates to 73% of all upfront costs incurred at the
commencement of the Fund. This is a cost that all fund managers would incur under normal
conditions. The remaining 5 cents of the issue price is an acquisition fee payable to the fund
manager for sourcing the asset.
Under exceptional circumstances, where stamp duty may be exempt, a fund’s NTA would be
higher. The NTA would also be higher if the fund manager were to acquire a property at a
discount to the independent valuation of the property. As such, any benefit from one-off
exemptions would be an exception.
page 16 of 23
Figure 14: NTA breakdown
Cents per unit
Issue price
100
Less:
Stamp duty payable
(10)
Fund set-up costs
(1)
Acquisition fee
(4)
73% of upfront costs can be
attributed to property and
fund set up costs.
Add:
Acquisition (premium)/ discount to valuation
For Advisers Only
NTA per unit*
85
* variance due to rounding error. This is on the proviso that stamp duty costs are written off on Fund
commencement. The NTA is $0.94 per unit if stamp duty and fund set up costs are capitalised.
Source: PIR
Expected Future Performance (IRR)
The three main performance drivers for return on equity in the Fund are as follows:
1. The property income profile (affected by lease structure);
2. The terminal value upon the sale of its investments (asset quality + market conditions); and
3. The cost of debt in each of its investments.
As we highlighted in the Property section of this report, in this case PIR believes lease structures
(‘sticky’ medical/health tenants with ‘sticky’ location-specific customers) give no grounds for
concern. PIR has assumed that the forecast letting-up allowances, agent fees and capex will be
sufficient to retain near 100% occupancy across the four seed properties over the Initial Term.
The terminal value of the investments when they are sold will depend on prevailing market
conditions and the metrics of each asset (such as occupancy, rents relative to market rents, and
capitalisation rates). Typically, the industry assumption is to adopt a softer cap rate to take into
account functional obsolescence and allow for unforeseen risks.
Should the Fund refinance debt at a higher rate, this will most probably affect the eventual Fund
IRR.
PIR has undertaken IRR sensitivities using both the weighted average terminal cap rate and the
all-in cost of borrowings as variables. Key assumptions are as follows:
 The cost of borrowings will rise modestly throughout the Initial Term;
 PIR has not assumed any additional property acquisitions after acquisition of the seed
properties;
 All fees payable are implicitly included in the calculation (i.e. the amount distributed in any
given year, and hence factored into the IRR calculation, is calculated after fees).
 We have adopted a weighted average terminal yield of 8.49%, which equates to 25bps of cap
rate expansion compared to the initial weighted average cap rate of 8.24%. This represents
the weighted average cap rate upon time of sale.
Finally, we have calculated the IRR from the perspective of an investor who buys a $1 unit at
fund commencement.
page 17 of 23
Using the assumptions highlighted above, PIR expects an IRR of around 9%-10% as
our base case. The final number will depend on market conditions, the Fund’s net asset position
at the time, and interest rates over the life of the Fund. The most sensitive driver is the terminal
cap rate. Whilst the cost of borrowings does affect returns, PIR does not consider it to be as
important as the terminal yield.
PIR take a conservative view to forecasting performance. A significantly stronger investment
market at the time of sale, or alternatively, lower letting-up allowances, agent fees and capex
could result in an IRR above 10%. Conversely, if demand and market valuations fall significantly,
returns would decline.
Figure 15: Pre-tax IRR (after fees) Sensitivity Analysis
For Advisers Only
Terminal Cap
Rate
page 18 of 23
Cost of borrowing
3.25%
4.25%
5.25%
6.25%
7.99%
11.2%
10.4%
9.7%
8.9%
8.24%
10.6%
9.8%
9.1%
8.3%
8.49%
10.0%
9.2%
8.4%
7.7%
8.74%
9.5%
8.7%
7.9%
7.2%
8.99%
9.1%
8.3%
7.5%
6.7%
Source: PIR
5.Management & Corporate Governance
Background of RE and Manager
Heathley Asset Management Limited (HAML) is the Manager of the Fund. The sole
shareholder of HAML is Heathley Limited, established in 1977. The principal area of
operations of Heathley Limited is funds management. HAML has total property funds under
management of approximately $288 million, spread across seven single-property fixed term
funds.
For Advisers Only
Investment Committee
page 19 of 23
The investment committee comprises the board members of the RE. A majority of the board
comprises non-executive directors. We detail the backgrounds of these individuals on the
next page.
Compliance Plan and Committee
PIR has reviewed the RE’s Compliance Plan and believes the compliance framework and
procedures are consistent with good corporate governance.
The RE’s compliance committee comprises a majority of external members.
Related Party Transaction policy
HAML maintains, and complies with ASIC requirements for, a written policy on related party
transactions, including assessment and approval processes for such transactions. All related
party transactions will be conducted on an arm’s-length basis and will require appropriate
sign-offs at the board level. In all other cases, unless an exception is available under the
Corporations Act 2001, a transaction would be subject to approval by unitholders.
All related party transactions require approval from the HAFM Board who will only approve
transactions that are on arm’s length terms. Any transactions not on arm’s length basis will
require approval from unitholders.
Board of the Responsible Entity
After reviewing the composition of the RE board and senior executive team, PIR believes that
they have the relevant skills and experience to operate the Fund. The senior executive team
comprises the key management personnel of Heathley, while the board (summarised on the
next page) comprises a subset of the Heathley management and non-executive directors.
Each board member and senior executive has demonstrable property and investment
management skills. These extend to an appropriate blend of direct property, funds
management and compliance.
For Advisers Only
Figure 16: Board of directors for the RE
page 20 of 23
Name
Role
Experience
John Stuckey
Chairman & Non-Executive
Director
Limited
25 years’ experience as a
management consultant McKinsey &
Company; former Chairman of
External Advisory Panel of ASIC; and
six years on Heathley Advisory Board.
Peter
Hemming
Founding Chairman & NonExecutive Director
Limited
37 years’ experience having
established Heathley Limited in 1977;
Founding Chairman of Heathley Asset
Management; former member of
External Advisory Panel of ASIC.
David
Smithson
Non-executive Director
Limited
35 years’ experience in banking funds
management and general and life
insurance. Chairman of Heathley’s IT
Committee.
Peter Barnes
Non-executive Director
Limited
21 years’ experinece as Managing
Director CRI Australia and Lend Lease;
Non-Executive Director at Valad V+
Fund, Capstone Recruitment;
Chairman of the Investment
Committee at Charter Hall.
Andrew
Hemming
Managing Director
Limited
11 years’ experience in investment
markets with leading international
financial institutions in Sydney &
London. Appointed in 2013 and
previously worked at Heathley from
2007 to 2011.
George
Websdale
Executive Director
Limited
20 years’ experience in management
and investment management of
commercial and industrial property
across Australia. Previously General
Manager of Office & Industrial at
Stockland Property Group.
Source: HAML/ PIR
6.Past Performance
Heathley Funds Past Performance
Below, we table the lifetime performance history of Heathley’s managed real estate funds.
Currently, Heathley has approximately $300M Funds Under Management (FUM).Of this,
~$160M is in the open-ended Diversified Real Estate Fund and ~$140M is spread across 6
closed-ended, single-asset property funds.
For Advisers Only
Figure 17 illustrates Heathley’s track record over the last 36 years of investing in property
funds. The average IRR is 11.33% across 24 funds. With a focus on office and industrial
property in Brisbane and Sydney, Heathley has managed investments for 2,500 clients. PIR
believes that Heathley has a good track record with its past syndicates.
page 21 of 23
When interpreting the returns below, readers should note that past performance is not a
reliable indicator of future performance as each syndicate – and its respective underlying
asset – has its own specific risks and attributes.
Figure 17: Heathley Property Funds Total Return (IRR)
25.00%
20.00%
15.00%
11.33%
10.00%
5.00%
0.00%
Source: HAML/ PIR
Appendix – Ratings Process
PIR has developed a framework for rating investment product offerings in Australia. Our review process gives
consideration to a broad number of qualitative and quantitative factors. Essentially, the evaluation process includes
the following key factors: product management and underlying portfolio construction; investment management,
product structure, risk management, experience and performance; fees, risks and likely outcomes.
The Ratings
Financial Advisers and investors should note that for all ratings categories, the product may not suit the risk/return
profiles of all investors.
AAA (Highly recommended): This is the highest rating provided by PIR, indicating this is a best of breed product that has
exceeded the requirements of our review process across a number of key evaluation parameters and scored exceptionally in
a number of categories. The product provides a highly attractive risk/return trade-off. The Fund is likely to effectively
manage endogenous and, to the extent that it can, exogenous risk factors with industry best practice.
For Advisers Only
AA+ (Highly recommended): Indicates that PIR believes this is a superior grade product that has exceeded the
requirements of our review process across a number of key evaluation parameters and scored exceptionally in a number of
categories.
AA (Recommended): Indicates that PIR believes this is an above-average grade product that has exceeded the minimum
requirements of our review process across a number of key evaluation parameters. In addition, the product rates highly on
one or two attributes in our key criteria. It has an above-average risk/return trade-off and should be able to consistently
generate above-average risk adjusted returns in line with stated investment objectives. The Fund should be in a position to
effectively manage endogenous and, to the extent that it can, exogenous risk factors. This should result in returns being
reflective of the expected level of up-side and down-side risk.
AA- (Recommended): Indicates that PIR believes this is an above-average grade product that has exceeded the minimum
requirements of our review process across a number of key evaluation parameters. It has an above-average risk/return
trade-off and should be able to consistently generate above-average risk adjusted returns in line with stated investment
objectives.
A+ (Investment grade): PIR believes this is a suitable product that has met the aggregate requirements of our review
process across a number of key evaluation criteria. The product provides some unique diversification opportunities, but may
not stand apart from its peers. It has an acceptable risk/return trade-off and should generate risk adjusted returns in line
with stated investment objectives.
A (Investment grade): PIR believes this is a suitable product that has met the aggregate requirements of our review
process across a number of key evaluation criteria but may not stand apart from its peers. There are certain assumptions,
the outcome of which is sometime in the future and, therefore, less predictable. The product has an acceptable risk/return
trade-off and is potentially able to generate risk-adjusted returns in line with stated investment objectives.
A- (Investment grade): PIR believes this is a suitable product that has met the aggregate requirements of our review
process across a number of key evaluation criteria. There are certain assumptions, the outcome of which is sometime in the
future and, therefore, uncertain. However, it has an acceptable risk/return trade-off. The product has an acceptable
risk/return trade-off and is potentially able to generate risk-adjusted returns in-line with stated investment objectives.
B+ (Speculative): PIR believes this is a product that has a number of positive attributes; however, there are a number of
risks that make investing in this product a speculative proposal. While PIR does not rule out investing in this product,
investors should be very aware of, and be comfortable with, the specific risks. The product may provide unique
diversification opportunities. However, concerns over one or more features mean that it may not be suitable for most
investors.
B (Not recommended): PIR believes that despite the product’s merits and attributes, it has failed to meet the minimum
aggregate requirements of our review process across a number of key evaluation parameters. While this is a product below
the minimum rating to be considered Investment Grade, this does not mean the product is without merit. Funds in this
category are considered to contain high risks which are not reflected by the projected return. Performance volatility,
particularly on the down-side, is likely.
This report has not been commissioned, and, as such, PIR has not directly received a fee for its publication. Under
no circumstances has PIR been influenced, either directly or indirectly, in making statements and/or
recommendations contained in this report.
page 22 of 23

Heathley Direct Medical Fund No.1

Transcription

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