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Enhanced Disclosure - RG 46

31 March 2010 (updated 26 May 2010)

Multiplex Diversified Property Fund

This Enhanced Disclosure is issued by Brookfield Multiplex Capital Management Limited as responsible entity of the Multiplex Diversified Property Fund (Fund) pursuant to ASIC Regulatory Guide 46 (RG 46): “Unlisted property schemes – improving disclosure for retail investors.” The Regulatory Guide lists eight new disclosure principles that ASIC has developed that responsible entities of unlisted property schemes are required to apply to their upfront and ongoing disclosures for retail investors.

The Fund has applied these eight disclosure principles in accordance with the form and content stated in RG 46. Investors should be aware that previous disclosures made by the Fund of some of these or similar principles reflect market standard practices which may be different to the requirements of RG 46. Investors are invited to have reference to the Fund’s Product Disclosure Statement dated 19 March 2007 (PDS) and other publicly released materials which are available at www.brookfieldmultiplexcapital.com.

The responsible entity is committed to providing investors with timely and balanced disclosure of all material matters concerning the Fund in accordance with its continuous disclosure obligations, including RG 46. Key information in this Enhanced Disclosure and any material changes will be updated by the responsible entity as soon as practicable and in any event on at least a semi annual basis and made available at www.brookfieldmultiplexcapital.com. A hard copy of this Enhanced Disclosure is available to investors upon request by contacting Brookfield Multiplex Capital Customer Service on 1800 570 000 or by emailing clientservices@brookfieldmultiplex.com.

The information in this Enhanced Disclosure is based on the most recent financial statements available for the Fund, being the unadutied financial accounts for the period ended 31 March 2010. The responsible entity is not aware of any material changes since those statements.

The information below contains an overview of ASIC’s description of the eight disclosure principles, the responses of the Fund’s responsible entity to those key risk features and then the practical application of each of the eight disclosure principles to the Fund.



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Gearing Ratio

Disclosure Principle 1

This principle indicates the extent to which the Fund’s assets are funded by external liabilities.

RG 46 defines gearing ratio as:

Total interest bearing liabilities divided by Total assets

ASIC’s description of the key risks

ASIC’s description of this principle states that “a higher gearing ratio means a higher reliance on external liabilities (primarily borrowings) to fund assets. This exposes the scheme to increased funding costs if interest rates rise. A highly geared scheme has a lower asset buffer to rely upon in times of financial stress.”

The Fund’s Response and Practical Application of the Disclosure Principles

The responsible entity’s response is that in addition to equity investment, it will utilise gearing where possible to maximise potential returns to shareholders and to leverage the portfolio of assets appropriately dependent upon current market appetite and the specific fund mandate. Direct property traditionally supports higher levels of gearing than other investment classes based on the matching of long term rental payments with interest costs.

In practical terms, and as at 31 March 2010, the Fund had a gearing ratio of zero.

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Interest cover

Disclosure Principle 2

This principle indicates the Fund’s ability to meet interest payments from earnings.

RG 46 defines interest cover ratio as:

(EBITDA1 minus unrealised gains plus unrealised losses) divided by interest expense

ASIC’s description of the key risks

ASIC’s description of this principle states that “interest cover is a key indicator of financial health. The lower the interest cover, the higher the risk that the scheme will not be able to meet its interest payments. A scheme with a low interest cover only needs a small reduction in earnings (or a small increase in interest rates or other expenses) to be unable to meet its interest payments.”

The Fund’s Response and Practical Application of the Disclosure Principles

The responsible entity’s response is that it will utilise the interest cover ratio to monitor the Fund’s overall profitability as a ratio of finance costs. The Fund’s ability or inability to meet interest payments depends on a variety of factors. Changes to market interest rates may or may not impact the Fund’s interest cover ratio, as interest rate hedging or other activities designed to mitigate risk can reduce the impact of market changes on scheme profitability.

In practical terms, and as at 31 March 2010, the Fund had no borrowings and therefore the Fund’s interest cover ratio is zero.

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Scheme borrowing

Disclosure Principle 3

This principle requires information on the Fund’s borrowing maturity and credit facility expiry and any associated risks

ASIC’s description of the key risks

ASIC’s description of this principle states that “relatively short-term borrowings and credit facilities with short expiry dates are a risk factor if they are used to fund assets intended to be held long term. If the scheme has a significant proportion of its borrowings that mature within a short timeframe, it will need to refinance. There is a risk that the refinancing will be on less favourable terms or not available at all. If the fund cannot refinance, it may need to sell assets on a forced sale basis with the risk that it may realise a capital loss. Breach of a loan covenant may result in penalties being applied, or the loan becoming repayable immediately. This means that the fund may need to refinance on less favourable terms or sell assets. Termination of critical financing could also mean the scheme is no longer viable.”

The Fund’s Response and Practical Application of the Disclosure Principles

The responsible entity’s response is that it may utilise borrowings to increase potential returns to unitholders by leveraging against the portfolio of assets appropriately based on current market appetite and the specific fund mandate. Borrowings that require refinancing can produce favourable or unfavourable results dependent on the terms and the market environment during the refinancing period as compared to the market environment during the previous refinancing period. For example, credit market conditions may adversely impact both the availability of borrowings and the ability to refinance any borrowings.

In practical terms, and as at 31 March 2010, the Fund had no borrowings, either on or off balance sheet.

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Portfolio Diversification

Disclosure Principle 4

This information addresses the Fund’s investment practices and direct property investment portfolio risk

ASIC’s description of the key risks

ASIC’s description of this principle states that “generally, the more diversified a portfolio is, the lower the risk that an adverse event affecting one property or one lease will put the overall portfolio at risk.”

The Fund’s Response and Practical Application of the Disclosure Principles

The responsible entity’s response is that it monitors portfolio diversification for both direct property and property securities schemes to ensure that the risk associated with market and industry events appropriately matches the Fund’s mandate. The responsible entity uses diversification as a principle tool to lower risk, and may take the form of a large number of assets in a fund, multiple property asset classes, multiple geographic property locations, multiple managers, etc. For the Fund, diversification is provided on a look-through basis to the Fund’s underlying investments.

As at 31 March 2010, the Fund is an open-ended unlisted trust which may invest into unlisted property trusts, listed property trusts and direct property assets. It aims to maintain a diversified portfolio of property related investments and may maintain exposure to cash and fixed interest securities. The responsible entity relies on its relationship with respective managers, product disclosure statements and other publicly available information issued by the manager of each underlying investment to enable it to review the details, and to assess the quality of, the portfolio composition of each investment.

 
The Fund’s investment strategy is further detailed in the PDS (pages 5 and 6) and the Fund’s home page.

PDS:
Find out more

Fund’s home page:
Find out more

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Valuation Policy

Disclosure Principle 5

This information relates to key aspects of the Fund’s valuation policy for real property assets

ASIC’s description of the key risks

ASIC’s description of this principle states that “investing in a property scheme exposes investors to movements in the value of the fund’s assets. Investors therefore need information to assess the reliability of valuations. The more reliable a valuation, the more likely the asset will return that amount when it is sold. However, any forced sale may still result in a shortfall compared to the valuation.”

The Fund’s Response and Practical Application of the Disclosure Principles

The Fund currently does not hold any direct property and therefore does not conduct any valuations of direct property investments.

Whilst the Brookfield Multiplex valuation policy requires independent valuations be undertaken at least once every 3 years, the responsible entity has resolved that for the immediate future any direct property assets acquired by the Fund will be valued independently at least once per year and property values will be monitored internally on a quarterly basis to assist with the Fund's daily unit pricing process.

The responsible entity values scheme assets, including direct property and property securities, on a regular and consistent basis as required by Australian International Financial Reporting Standards. The Fund’s valuation policy for direct property assets, unlisted property securities and Australian Real Estate Investment Trusts can be found both in the PDS (page 44) and in the Fund’s unit pricing policy (pages 8 and 9)

PDS:
Find out more

Unit Pricing Policy:
Find out more

Valuation Policy:
Find out more

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Related party transactions

Disclosure Principle 6

This relates to the responsible entity’s approach to related party transactions

ASIC’s description of the key risks

ASIC’s description of this principle states that “a conflict of interest may arise when property schemes invest in, make loans or provide guarantees to related parties.”

The Fund’s Response and Practical Application of the Disclosure Principles

The responsible entity publishes related party disclosures for the Fund in its financial statements. The most recent disclosure relating to the period ended 31 March 2010.
Find out more

The responsible entity manages related party transactions and conflicts of interest issues through the application of its governance arrangements, which include board consideration and approval of all investment related transactions. All related party transactions are scrutinised by the responsible entity to ensure compliance with Chapter 2E of the Corporations Act. The responsible entity maintains a conflicts of interest policy that provides guidance to the business on the management of conflicts of interest. A summary of the conflicts of interest policy is available. Find out more.

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Distribution practices

Disclosure Principle 7

This relates to information on the Fund’s distribution practices

ASIC’s description of the key risks

ASIC’s description of this principle states that “some property schemes make distributions partly or wholly from unrealised revaluation gains and/or capital rather than solely from realised income. This may not be commercially sustainable over the longer term, particularly where property values are not increasing.”

The Fund’s Response and Practical Application of the Disclosure Principles

The Fund’s distribution practices are detailed in the PDS (pages 10 to 12)
Find out more

Distributions are paid from current year profits and (to the extent necessary) prior year retained earnings. The Fund’s distribution practices are sustainable in the context that they are not dependent on sources other than realised income. The Fund does not use capital and/or borrowings to pay out unrealised capital gains.

The responsible entity ensures that any material issues related to the Fund’s distribution practices are notified to investors through ongoing disclosure which includes disclosing the changes on the Brookfield Multiplex Capital website.

As outlined in the Fund’s PDS (page 2) distribution forecasts have not been provided for the Fund.

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Withdrawal arrangements

Disclosure Principle 8

This relates to investors’ withdrawal rights from the Fund

ASIC’s description of the key risks

ASIC’s description of this principle states that “unlisted property schemes often have limited or no withdrawal rights. This means they are usually difficult to exit.”

The Fund’s Response and Practical Application of the Disclosure Principles

Investors may withdraw from the Fund as detailed within the PDS (section 3.7 and 3.8)
Find out more

The Fund ensures that any material changes to withdrawal rights are notified to investors through ongoing disclosure which includes disclosing the changes on the Brookfield Multiplex Capital website.

At 31 March 2010, the Fund was liquid.

As outlined in a letter to investors dated 17 December 2008 the manager has given notice to investors that it believes that it is in the best interest  of investors to temporarily close the Fund to new applications and redemptions effective immediately.

As outlined in a letter to investors dated 22 February 2010, the manager has given notice to investors that is has resolved to terminate the Fund effective on 19 February 2010.   Find out more.

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1: earnings before interest, tax, depreciation and amortisation

Interests in Multiplex Diversified Property Fund ARSN 123 879 630 APIR Code MLP0001AU (Fund) are issued by Brookfield Multiplex Capital Management Limited ACN 094 936 866 (AFSL 223 809), the responsible entity of the Fund. A Product Disclosure Statement (PDS) for the Fund dated 19 March 2007 is available which details the terms of the offer as well as the various assumptions on which forecast financial information is based. Investors who wish to acquire (or continue to hold) an interest in the Fund should first read and consider the PDS and seek their own advice before making any decision about whether to invest. The PDS may be viewed online at www.brookfieldmultiplexcapital.com. A paper copy of the PDS is available free of charge to any person in Australia by telephoning 1800 570 000. Applications must be made by completing the application form in or accompanying the PDS. This notice is not intended as personal advice and has been prepared without taking account of any investor’s investment objectives, financial situation or needs. For that reason, an investor should, before acting on this advice, consider the appropriateness of the advice, having regard to their investment objectives, financial situation and needs. Past performance is no indication of likely future performance. Every effort has been made to ensure the accuracy of the financial information herein but it may be based on unaudited figures.

 

 

 

 


 

 

  
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