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Brookfield>Australian Investment Platforms>Unlisted Securities>BAO Trust>Enhanced Disclosure - RG 46

NAV per unit (audited)

As at 30 June 2018 $0.001

Enhanced Disclosure - RG 46

As at 28 August 2018

BAO Trust

This Enhanced Disclosure is issued by Brookfield Capital Management Limited as responsible entity of the BAO Trust (Fund) pursuant to ASIC Regulatory Guide 46 (RG 46): “Unlisted property schemes – improving disclosure for retail investors.” The Regulatory Guide lists eight disclosure principles and six benchmarks 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 guidelines in accordance with the form and content stated in RG 46. Investors should be aware that previous disclosures made by the Fund reflect market standard practices which may be different to the requirements of RG 46. Investors are invited to have reference to publicly released materials which are available at www.au.brookfield.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.au.brookfield.com.

A hard copy of this Enhanced Disclosure is available to investors upon request by contacting Brookfield Customer Service on 1800 570 000, or by emailing clientenquiries@au.brookfield.com.

The information in this Enhanced Disclosure is based on the most recent financial statements available for the Fund, being the audited 30 June 2018 financial accounts. 

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

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Risk Feature

What this means

Gearing Ratio 

        

 

 

This 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 this key risk 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 gearing ratio represents the percentage of debt compared to the gross assets of the Fund. The gearing ratio can help investors assess risks. It shows how much the Fund owes in debt to its financiers as a proportion of what the Fund owns (assets).

The Fund's Response and Practical Application of the Disclosure Principle and benchmark

BAO Trust has no borrowings and therefore has no Gearing Ratio.

Interest Cover Ratio

 

 

This 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 this key risk 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 Principle and benchmark

BAO Trust has no borrowings and therefore has no Interest Cover Ratio.

 

Interest Capitalisation

This relates to whether or not the interest expense of the scheme is capitalised

ASIC’s description of this key risk states that “ when a scheme capitalises interest expense, it is important for investors to understand how the scheme will meet its interest obligations when deciding whether to invest in the scheme”.

The Fund's Response and Practical Application of the Disclosure benchmark

BAO Trust does not have an interest capitalisation policy because BAO Trust has no borrowings.

Scheme Borrowing

This relates to the Fund's borrowing maturity and credit facility expiry and any associated risks

ASIC's description of this key risk 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 Principle

BAO Trust has no borrowings.

Portfolio Diversification

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

ASIC's description of this key risk 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

Following from the approval of the BAO wind up proposal in 2012, BAO Trust will hold the investments and when appropriate realise the value of the assets and distribute the proceeds. It is not intended that the Fund will make any further investments. 

As per BAO Trust's last audited accounts, as at 30 June 2018, BAO Trust's total assets of $.8 million were spread over four unlisted investments. During August 2018 BAO Trust disposed of two investments and at 28 August 2018 remains invested in the Multiplex Development and Opportunity Fund and the Multiplex European Property Fund. 

Related Party Transactions

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

ASIC's description of this key risk 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 Principle and benchmark

The Responsible Entity will ensure that related party transactions and conflict of interest issues are managed through the application of its governance arrangements, including board consideration and approval of all investment related transactions. All related party transactions will be scrutinised by the Responsible Entity to ensure compliance with Chapter 2E of the Corporations Act including ensuring that any related party transaction will be on terms that would be reasonable if the transaction were at arm's length or terms less favourable to the related party than such terms. BAO Trust will obtain sign-offs appropriate for this purpose. The Responsible Entity will maintain a conflicts of interest policy that provides guidance to the business on the management of conflicts of interest.

Distribution Practices

This relates to information on the Fund's distribution practices.

ASIC's description of this key risk 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 Principle and benchmark

BAO Trust's distribution practices are detailed in BAO Trust's Constitution.

Following from the approval of the BAO wind up proposal in 2012, BAO Trust will distribute net income earned from its investments to unitholders on a periodic basis and when appropriate, realise the value of its assets and distribute the proceeds. 

Withdrawal Arrangements

This relates to investors' withdrawal rights from the Fund

ASIC's description of this key risk 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 Principle

BAO Trust's Constitution allows, but does not oblige, the Responsible Entity to implement a withdrawal in accordance with BAO Trust's Constitution or Part 5C.6 of the Corporations Act.

In any case, the objective of BAO Trust is to manage the investments and to progressively realise those investments. As a result, if and when the opportunity arises, cash will be returned periodically to unitholders.

Net tangible assets and Valuation Policy

The NTA calculation helps investors understand the value of the assets upon which the value of their unit is determined”.

ASIC's description of this key risk states that “Open-end schemes regularly disclose the NTA for the scheme or a similar measure such as net asset backing or net asset value to support the pricing of units in the scheme. These measures are not generally disclosed for closed-end schemes”.

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

The net asset value (NAV) of the Fund represents the reviewed value of the net assets of the Fund. In accordance with the Australian accounting standards the NAV is calculated using the net asset values of the Fund divided by the number of units on issue. The audited 30 June 2018 NAV of the Fund is $0.001.The NAV is not a representation of what an investor would ultimately realise if the Fund was to be wound up. 

BAO Trust does not hold any direct property and therefore does not conduct any valuations of direct property investments.

In line with BAO Trust's valuation policy, if direct property assets were acquired, they would be valued externally at least once every three years, or valued internally every reporting period (six months). The Responsible Entity would ensure that the valuations are in accordance with relevant industry standards.

The value of investments in each of the underlying unlisted property securities funds is based on the net asset value provided as at the balance date, or where this has not been provided, the latest available net asset value. In circumstances where the latest available net asset value has not been obtained, an assessment of the appropriateness of the value is made based on the knowledge of valuation and transactional movements in the underlying investment's structure as compared to similar portfolios.

1Earnings before interest, tax, depreciation and amortisation.

 

 

  
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