AUSTRALIAN

PROpERTY INVESTMENT RESEARCH

Peet Greenvale Syndicate

January 2013
An opportunity to generate returns from a residential land subdivision project in Greenvale, Melbourne

Peet Greenvale Syndicate, January 2013

Contents
1. 2. 3. 4. 5. 6. Overview Trust Overview Property Investment Analytics Management & Corporate Governance Past performance 3 5 11 14 16 19 20

Appendix Ratings Process

For Advisors Only

IMPORTANT NOTICE
Independent Investment Research 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, PIRs 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 Pty Limited (ABN 90 111 536 700), 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

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Note: This report is based on the Peet Greenvale Syndicate PDS, dated 19 November 2012, together with other information provided by the Peet Group.

Unlisted Property Melbourne residential land subdivision

Peet Greenvale Syndicate

Exposure to Melbourne residential land development
Investment Rating

Offer Overview
Product Summary The Peet Greenvale Syndicate (the Syndicate) is a closed-ended, single-asset fund. The Responsible Entity (RE) is Peet Funds Management Limited (PFML or the RE), which will manage the asset together with its associated entities. PFML is a wholly owned subsidiary of the ASX listed Peet Limited (Peet or the Peet Group) which is the third largest listed land developer in Australia and has over a 100-year history in land sub-division activity. Peet has considerable experience, good corporate governance, and a demonstrable track record of managing land syndicates with past returns for completed syndicates since 2000 averaging in excess of 15% per annum.

Refer to Appendix for a description of our ratings. The above rating must be viewed in the context of comparable land syndications and not across all products.

Offer Details Offer Open Offer Close Min. Investment Period Min. Investment Liquidity
2

For Advisors Only

20 Nov 2012 15 Mar 2013 7 years $5,000 Illiquid Qtrly/Half yearly A$0.99

The sole asset of the Syndicate is a residential land sub-division project located at Lot 1170 Mickleham Road, Greenvale, Melbourne. The REs strategy is to develop the land into a residential estate and sell the resulting lots. The RE estimates the subdivision of land will yield 437 lots that will be developed over 10 stages over a seven year period. The Gross Realisation Value (GRV) of the project is $109M (ex GST). After reviewing the independent expert reports provided as part of the PDS, PIR notes that the REs assumptions are slightly conservative, or in line with, the experts estimates. We detail these in the Property and Investment Analytics sections of this report. The RE is offering up to 17M units for sale under the offer at A$1.00 per unit. The balance of the land acquisition price and development costs will be funded through debt, resulting in initial gearing of 19% increasing to a maximum of 47% during the development phase. The RE estimates a pre-tax internal rate of return (IRR) of 17%, net of all fees, interest and costs. This is in the low-to-middle end of the 1525% range typical for residential projects. However, this should be set alongside somewhat lower risk: the property already has development consent, no environmental issues, and the vendor providing services to the property. On balance, PIR considers the Syndicate to be aboveaverage on a risk/return basis when compared with its peers. PIR notes that development projects by their very nature carry a higher level of risk compared to passive rent collecting commercial property syndicates. The risks include, but are not limited to, losses due to project delays, increase in development costs, slow-downs in lot sales, and adverse market conditions.

Distributions1 Initial NTA

1

The distributions will be made up of a return of original capital, fully franked distributions and franking credits. The RE estimates a total return of $1.85 for every $1 of equity invested over the term of the Syndicate.
2

Initial equity will be progressively returned between October 2014 and January 2019. Fees (paid to advisors), excl. GST, %
All fees paid to Advisers are paid by Peet and not from the Syndicate Funds.

Risk/Return Profile Capital Return Income Return

Investment View
Investor Suitability In PIRs opinion, this product would be best suited to investors who seek to diversify their property portfolio and who are willing to invest in and understand the risk/return relationship of land funds. As this is a closed-ended vehicle, the Syndicate is an illiquid investment (despite progressive return of capital) and investors must be prepared to remain invested for the full term to benefit from forecast returns. Target IRR in excess of 15%. Well-regarded management with good track record, and corporate governance structure. No diversification. Cash flow is entirely reliant on the performance of one land subdivision project. Best suited as an addition to an overall diversified portfolio. Capital Return Volatility Income Volatility

Risk to Capital

Tax Effectiveness

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

SWOT Summary
Strengths The asset is located in the Hume growth corridor region which is
expected to experience population growth of 4.2% p.a., and consequently strong demand for new dwellings over the term of the Syndicate. Greenvale is expected to benefit with an increased share of land sales activity in the region.

Key Qualitative Criteria (in the context of comparable land syndications)

Management

Track record Investment process and philosophy Corporate Governance Product Structure Fees Liquidity Leverage/Capital structure Portfolio Property Grade/Asset quality Property diversification Investment Profile Number of properties Property location Property sector Initial LVR/ Max LVR Bank LVR covenant Source and Application of Funds
A$M

Although employment growth has declined across the state of

Victoria, the consulting economist (citing policy settings as part of the Hume Economic Development Strategy 2030) believes the Hume corridor has strong prospects.

Peet is an experienced land syndicator with a strong track record

of returns from land syndications over two decades. Peet will hold a minimum of 10% of the units in the Syndicate, providing a degree of alignment with unitholders. As the vendor, Peet will also bear the costs (to the tune of $1.1M) of completing certain project works. Peet as the development manager earns fees on receipt of revenue and not as an annual charge of gross assets.

The property is being acquired at a 10% discount to the

independent valuation, and has development consent for its first 5 stages. This should help accelerate the sale of lots and sales proceeds are expected 12 months after acquisition of the property.

For Advisors Only

1 Greenvale, Melbourne Residential land subdivision 19%/ 47% 50%

High initial NTA of $0.99 per unit due to the purchase price
(including set-up costs) being at a discount to valuation.

Weaknesses

While all of the assumptions are slightly conservative relative to, or

in line with, independent expert reports, unitholder returns are highly sensitive to changes in lot sale prices, the rate of lot sales, and any increase in development costs.

A lack of diversity leaves investors fully exposed to the

performance of a single asset. Equity sought Initial Debt Total initial assets Financial Forecasts
IRR1 (pre-tax, %) IRR2 benchmark (%) Performance fee hurdle (%) Min. investment period (years) Franking credits3 Distribution frequency
1

17.0 3.2 20.2

The Syndicate is an illiquid investment despite the progressive

return of capital over the full term.

Opportunities

Improving affordability conditions through lower interest rates and

an improvement in employment growth could accelerate lot sales, therefore improving project profitability and returns to unitholders.

17.0% 15.0% 12.0% 7 Yes Qtrly/ half yearly

Threats

The Property abuts the Greenvale Reservoir. To obtain a planning

permit for stages 6 to 10 of the Project, Melbourne Water needs to consent to the issuing of a planning permit. While securing this consent is work in progress, any delays beyond July 2015 may materially affect forecast returns.

Deterioration in the asset value say, due to a weak market and

an inability to achieve forecast revenue and profit could lead to strains on the bank covenant. In the most extreme case, that of a covenant breach, there could be serious repercussions to the viability of the Syndicate.

IRR forecast is based on forecast project cash

flows and is after all fees and expenses but before tax. The IRR is highly sensitive to assumptions on sale price of lots and assumption of lot sales per calendar month. For further details, please see Section 4, Investment Analytics.
2

PIRs expected return range of 15 -25% for sector. The forecast distributions assume franking credits

are available over the term of the Syndicate.

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

2.Fund Overview
Product Overview
Peet Greenvale Syndicate (the Syndicate or Fund) is an unlisted unit trust, which has been registered with ASIC as a managed investment scheme. Investors will receive Units in the Trust and will be entitled to capital repayments throughout the life of the investment, plus dividends once the Syndicate has generated taxable profits. The sole asset of the Syndicate is a residential land sub-division project located at Lot 1170 Mickleham road, Greenvale, Melbourne. The REs strategy is to develop the land into a residential estate and sell the resulting lots to deliver profits to the Syndicate. The life of the Syndicate is estimated to be seven years from formation to winding up. The Fund aims to provide unitholders with a blend of fully franked distributions and returns of capital once lot settlements commence and the Syndicate achieves a taxable profit. PIR notes that distributions will vary from period to period, depending on the level of lot settlements and the need to maintain adequate working capital to progress the project. An investment in this Fund must be considered illiquid. Investors will need to stay invested for the term of the Fund to benefit from forecast returns, although initial capital will be returned progressively from October 2014. Prospective investors must note that this is a land development syndicate and will carry a higher risk/ return character than a traditional income producing commercial property syndicate. The Offer The Offer is for 17 million fully paid units at an issue price of $1.00 per unit. The Offer is to raise $17.0 million in equity towards the acquisition of the land, which will be acquired for $18.0 million (excluding GST). Peet will initially subscribe to a maximum of 25% of all units on issue although it will retain a core holding in the Syndicate of no less than 10% if the offer is fully subscribed. The RE estimates the initial NTA on formation at $0.99 per unit, suggesting minimal up-front dilution to invested equity. In any event, if the RE determines not to proceed with the offer, then all application monies plus accrued interest will be returned to investors. PIR notes that this is typical for an unlisted property syndicate. The Asset The Property, comprising 39.4 hectares, is located at 1170 Mickleham Road, Greenvale and is approximately 24 kilometres from the Melbourne CBD. Greenvale is a well-established suburb and the Property is located close to vital community infrastructure such as schools, shopping centre and healthcare facilities, and to a number of other estates which have been developing residential housing over the last few years. The land is located within the Hume Growth Corridor. The Hume Corridor is considered to be one of the key growth corridors of Melbourne and has experienced average population growth of 5.9% per annum over the last five years. Peet has completed the rezoning of the Property and the land currently has a planning permit in place for its western portion to commence construction in mid 2013. The Project is expected to produce 437 lots over ten stages and the RE estimates that the total life of the Syndicate from formation to completion of all settlements will be seven years. The purchase price of the asset is $18M (ex GST) and is at a 10% discount to the independent valuation of $20.1M undertaken by the valuation firm Charter Keck Cramer, an established valuation agency from Melbourne. Given that Syndicate is acquiring the property from a related party, PIR and the RE have discussed the processes followed to ensure that the transaction is undertaken on an armslength basis. As the PDS highlights, the property was unsuccessfully marketed for sale 12months ago by Peet given the tough market conditions and the expected sale price. The Property is now being sold as a serviced lot and in addition, Peet (as the vendor) is providing an interest free loan of $1.5M to fund construction of a signalised intersection. Taking into account the concessions made by Peet, and Peets acceleration of the development process such that lot sales can commence in the first 12 months, suggests that the price paid is fair and reasonable as per the independent valuer.

For Advisors Only

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

In light of the assessments made by the consulting engineer, the independent valuer, consulting economist, and the consulting town planner, the REs assumptions appear to be slightly conservative. We discuss the main assumptions in the Property and Investment Analytics sections in more detail. Leverage The PDS forecasts that the Syndicate will use debt to partially fund the acquisition and thereon fund transaction and development costs. As is typical for a property development, interest payable will be capitalised and added to the loan principal during the development phase. Figure 2 highlights the expected gearing profile of the Syndicate with peak gearing expected to be slightly below 50% in 2014. The REs stated objective is to maintain gearing below 50%, in line with the bank covenant. An important feature of the bank term facility is the staged way in which it will fund the development. The proposed debt facility is structured to fund stages individually, with Stage 2 funding being provided on the condition that 80% or more of Stage 1 has been sold. The duration for stage 1 debt funding is 18 months. The Interest Cover Ratio (ICR) is not an appropriate measure for a development fund as interest is capitalised to the loan amount until lot settlements commence. The all-in interest rate for Stage 1 of the syndicate development is 7.15%pa. Peet plans to actively manage interest rate exposures and may hedge interest rates to minimise the negative effects of any increase in interest rates. Investors must be aware that future distributions may be helped or harmed by movements in interest rates, should the Manager not hedge the Trusts interest rate exposure beyond the initial period. Overall, the RE expects the gearing to be within the bank-imposed covenant. However, it is important to remember the GFC has proven that returns from geared investments are riskier than comparable un-geared funds Figure 1: Trust debt metrics Facility limit/ initial draw-down All-in cost of debt Initial LVR / facility limit* Initial ICR/ ICR Covenant % hedged/ hedge expiry
Source: Peet/ PIR

For Advisors Only

$11.2M BBSY plus 3.5% (or 7.15% at current BBSY) 19%/ 50% not relevant not hedged

(19% after GST refund or 28% pre refund)

Figure 2: LVR profile over Syndicate term

60% LVR Normal 50% 40% 30% Facility Limit

20% 10%
0%

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Source: Peet/ PIR

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Fund Structure The Fund is a registered Managed Investment Scheme that will be operated and managed by the Responsible Entity, Peet Funds Management Limited, a wholly owned subsidiary of the ASX-listed Peet Limited. PIR considers the structure of the Fund as typical of a direct property development syndicate. Peet has been syndicating land sub-divisions for over two decades and, in PIRs view, has a strong track record of generating positive returns for investors. We discuss this in more detail in the Management and Corporate Governance section of this report. Figure 3: Fund Structure
Development Management and Services Agreement

Responsible Entity

For Advisors Only

Peet Funds Management Ltd Peet Development Managementy Pty Ltd Development Manager

Sales and Marketing Agreement

Internal Development Management Team

Funds Management Trust Management Accounting & Tax Investor Relations

Financial Management Retail and Institutional Investors (including Cornerstone Investment by Peet of a max. 25%)

Distributions Equity Funding

Peet Estates (VIC) Pty Ltd Sales & Mktg Manager

Peet Greenvale Syndicate

Interest Debt Facility

Bank Debt Funding

Internal Sales Agents

Property Assets
1170 Mickleham Road,
Greenvale, Melbourne

Source: Peet/PIR

Liquidity/ Exit strategy The term of the Syndicate is seven years from the first close date, expected to be March 2013. Following the settlement of all subdivided lots within the Property, the Responsible Entity will seek to wind-up the Syndicate in accordance with the Syndicates Constitution and the Corporations Act with any remaining profits and capital returned to Unitholders. However, at any time during the Trusts term, the RE may recommend the sale of the property if it deems this is in the best interests of unitholders. Such an early termination would be subject to unitholder approval. There is no other means of providing liquidity in the Syndicate, although units may be transferred (subject to transfer provisions under the Funds constitution). Peet does maintain a list of interested buyers for its retail syndicates, which it provides to any syndicate investor looking to sell, and it will do so for investors in this Syndicate as well.

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Sources and Application of Funds (fees)

The Syndicate is structured to minimise up-front costs that would normally reduce the value of an investors contribution. Lower up-front fees and costs, all other things being equal, improve unitholder returns over the term of the Fund and limit NAV dilution. PIR estimates the initial NTA of the Syndicate at $0.99 but notes that as a development fund, the NTA may vary over the life of the Syndicate depending on the revaluation of the asset, market conditions, and the development cost expended. PIR notes that it is not uncommon for managers to charge an up-front fee, typically ranging from 1.5%-5% of equity sought. In the case of the Fund, the acquisition fee payable is 2% of the total equity raised, which PIR considers at the mid-to-low end of the fee range. PIR also notes that there is no deferral of any fees forecast, although the RE may defer its ongoing fees, if required.

For Advisors Only

Figure 4: Sources and Applications of Funds ($'000) Sources of funds Equity subscriptions Senior bank debt Total sources of funds Applications of funds Property purchase price Transaction fee (paid to RE) Stamp duty, rates, taxes, legals Other offer costs (legal, debt set-up costs, etc.) Total applications of funds Up-front cost as a % of equity/ total funds
Source: Peet/PIR

% of equity raising

% of total funds

17,000 3,217 20,217

18,000 340 1,407 470 20,217 4.8% 4.0% 2.8% 2.3% 2.0% 1.7%

Costs over the Term of the Fund

The three components of fees and cost recovery charged by the RE over the term of the Fund are as follows: Capital raising fee A one-off capital raising facilitation fee is payable to the RE from the assets of the Syndicate on issue date. The fee is 2% of the targeted $17M equity raising. PIR notes that the fee is payable as a percentage of equity raised and not gross assets as is the norm for traditional non-development syndicates. Development management and sales fees The Peet Group (or wholly owned subsidiaries) is entitled to a development management and sales fee of 9% of the gross sale price of the 437 lots. This fee is payable as and when lots are sold and ownership has transferred to the buyer. This fee essentially is for the services such as sales and marketing, development management and other services provided by Peet to manage the whole project. 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

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

entitled to a two tier performance fee structure:

The Tier 1 performance fee is payable to the RE equating to 20% of any pre-tax profit
above a 12% return on equity raised (calculated simple interest-style).

The Tier 2 performance fee is payable over and above the Tier 1 performance fee, once
pre-tax profits exceed a 20% return on equity over the life of the project. The Tier 2 performance fee will equate to 20% of the excess profit after all fees and costs. Based on the financial forecasts provided in the PDS, the RE expects to pay a performance fee of $752,600 over the life of the Syndicate. The forecast Syndicate IRR of 17% is net of all fees and costs.

All-in fee analysis

As a percentage of total Fund cash flow

For Advisors Only

PIR has analysed the fees that accrue to the RE over the term of the Fund as a percentage of all of the cash flow generated after deducting interest costs and ongoing Fund costs, but before unitholder distributions and management fees payable to the RE. This also assumes a performance fee is payable (due to the Syndicate generating expected returns in excess of the benchmark). As such, under these circumstances, our estimates suggest the manager is expected to take 26% of the net cash flow, leaving 74% of the cash flow to unitholders. Although the fees appear high compared to an income-producing commercial property syndicate, they are in line with past development syndicates reviewed by PIR. PIR also notes that compared to passive commercial asset syndicates, there is a significantly higher cost involved in property development activities. The fees are split such that 3% of all fees are received upfront, 90% represents ongoing fees, and 7% is paid out as performance fees. PIR notes that ongoing fees are paid to the RE (or Peet) only when lot settlements occur and ownership title has passed on to the buyer. PIR notes that the structure of the ongoing fee is a positive for the Syndicate, as the development manager will only be paid after receipt of sales proceeds by the Syndicate. Fees payable to the RE and Peet total 9.2% of the gross realisable value (incl GST) of the project. This is a standard measure used in development projects and in this case, the amount is in line with industry averages. Figure 5: Fees in Perspective Pre-tax cash flow Cash inflow Project costs GST Borrowing costs Other syndicate costs Net cash flow pre fees Fees payable to Peet Fees as a % of net cash flow pre fees Fees as a % of Gross Realisable Value (GRV)
Source: Peet/ PIR

Initial equity (000) 17,000

Project cash flow (000) 119,887 -79,110 -10,890 -1,984 -2,436

Total cash flow (000) 136,887 -79,110 -10,890 -1,984 -2,436 42,467 11,040 26% 9.2%

17,000

25,467 11,040

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Fund Structure
Responsible Entity (RE) Investment Term: Peet Funds Management Limited (PFML), a wholly owned subsidiary of ASX listed Peet Limited Minimum of seven years commencing in March 2013 with expected wind-up in January 2019. The Syndicate must be viewed as an illiquid investment and investors need to stay invested for the full term to benefit from forecast returns. Equity issuance of A$17M would result in a peak gearing ratio of 47% (measured, per ASIC guidelines, as total interest-bearing liabilities to total assets). The initial LVR is 19%. The proposed debt facility will be structured to fund stages individually, with the provision of Stage 2 funding conditional on 80% or more of Stage 1 being sold. The Fund will have an all-in cost of borrowing of 7.15%p.a. for the first 18 months. Beyond this period, the RE will adopt an active approach to interest rate risk management and will fix the interest rate on all or part of the Funds debt exposure if it deems interest rate derivative pricing appropri ate. The bank loan is to be secured by a first mortgage and a fixed and floating charge over the Funds assets, with no recourse to unitholders.

Issue Size/LVR:

Cost of Borrowings:

Security:

Geographic Exposure: Sector Exposure:

For Advisors Only

Fund Profile
100% Melbourne, VIC 100% Melbourne residential property market (sub-market of Greenvale in the Hume growth corridor).

Tax

Disclaimer:

Tax consequences depend on individual circumstances. Investors should seek their own taxation advice. The following comments show PIRs expectation of tax for ordinary Australian taxpayers, but cannot be considered tax advice. Over the life of the Project, unitholders in the Syndicate can expect to receive a capital return of $0.97 for every $1.00 invested. For unitholders who hold the investment on capital account a return of capital generally does not give rise to any income tax liability apart from reducing the tax cost base. $0.03 per unit can be claimed as a capital loss when the units in the Syndicate are ultimately cancelled (upon windup). Unitholders may deduct this capital loss against any other Capital Gains Tax event. Distributions paid by the Syndicate will be eligible to be franked to the extent of the Syndicates available franking credits and when received by Australian residents will normally be taxable as income. Individual Unitholders who are residents of Australia should be entitled to an imputation credit in respect of franked distributions received from the Syndicate.

Capital gains:

Distributions:

Legal Structure
Wrapper: Unlisted Unit Trust PFML The Product Disclosure Statement, dated 12 November 2012. The REs forecast IRR is 17% per annum over the term of the Syndicate Based on the forecasts provided in the PDS, for every $1.00 investors put in, they should receive a $0.97 return of their principal and $0.88 in income. Quarterly, in arrears and will be made up of income and return of capital commencing in FY14. For a more detailed list of the key risks, refer to the Risks section (Section 9) of the PDS. Capital at risk depends on a single residential development property located in Greenvale, Melbourne. Coupled with a maximum LVR of 50% exacerbates the risks associated with the lack of diversification. Any changes in the Syndicates all-in cost of borrowings from 7.15% beyond Stage 1, when interest rates need to be reset, could either increase or reduce distributable income. As the Syndicate is a residential land development project, lower sale price per lot, lower rate of lot sales, cost escalations, and prevailing market conditions could reduce the GRV of the project and therefore harm unitholder returns. Custodian

Offer Document:

Returns

Capital vs. Income: Income Frequency:

Risks

Property/Market Risk: Interest Rate Movements:

Property specific risks

Fees/Expenses Capital raising facilitation Once the Fund is operational, a capital raising facilitation fee of 2.0% of the equity raised will be payable Fee: to the RE. Establishment Fee: Development and sales management Fee: Performance Fee: NIL The Peet Group is entitled to 9% of the GST-inclusive gross sale price of each lot sold, payable on settlement of each lot sold. The RE is entitled to 20% of the portion of outperformance over a benchmark return on equity of 12% (calculated on a simple interest basis). If a second hurdle (pre-tax profits above a 20% simple interest return on funds raised) is met, an additional 20% of the outperformance will be payable.

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

3.Property
Property location
The property is a 39.4 hectare broadacre residential land holding located at 1170 Mickleham Road, Greenvale in the outskirts of Melbourne. Greenvale is located approximately 24 kilometres north of the Melbourne CBD and is positioned at the southern end of the Hume Growth Corridor. The Hume corridor is considered a vital region to accommodate the future population demand and economic development of Melbourne. There are a number of residential estates located within the Greenvale locality, namely Providence (Pask Group), Greenvale Gardens (Australand) and Greenvale Lakes (Peet). Adjacent to the Property is the Greenvale Reservoir. Completed in 1971, the Greenvale Reservoir supplies water for the north-western and western suburbs of Melbourne.

For Advisers Only

Major infrastructure projects such as new roads, expansion of Craigieburn Shopping centre, and new commercial facilities throughout the Hume Corridor is expected to have a positive effect on the demand. An independent consulting economist (MacroPlan Dimasi) has provided a detailed economic overview of residential indicators which have been used as inputs to prepare the financial forecasts for the Syndicate. Please refer to Section 13 of the PDS to access all the independent expert reports. PIR summarises the key takeaways from the report below;

Average annual population growth of 5.9% per annum for the five years to 2011. More
recently, growth is still averaging (over the last two years) around 5% per annum, well above the Victorian average over similar periods;

The consulting economist has forecast that population will increase by 22,376 persons
(4.2% per annum growth) resulting in demand for 7,818 dwellings over 2012-2019; Figure 6: Location map

Source: Peet/ PIR

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Peet Greenvale Syndicate, January 2013

Employment growth across Victoria has slowed considerably since the GFC, with further
cuts expected in state government, finance, manufacturing and services sectors over calendar year 2013. However, the consulting economist (citing policy settings as part of the Hume Economic Development Strategy 2030) believes the Hume corridor has strong prospects. The strategy is aimed at self-sufficiency in the region, and seeks to encourage employment generation through new infrastructure projects.

Improving affordability due to lower house prices (on average, they have fallen by around
9.3% across the state of Victoria over the last 12 months) and lower interest rates. In particular, land prices in Greenvale have dropped approximately 14% over a 12-month period, resulting in the current median price of $255,000 per lot; and

The consulting economist forecasts land prices to increase by 2.0-5.0% per annum for
Greenvale over the 2012-2019 period, based on the suburb capturing a greater share of land sales activity over this period;

For Advisers Only

PIR reminds prospective investors that these forecasts are based on assumptions as to events that are yet to occur. As such, readers should exercise a degree of caution. PIR has adopted the views of the independent experts cited in the PDS, but has not independently tested or verified the above forecasts.

Concept design and lot sales activity

Figure 7 shows the concept plan for the proposed subdivision of the land, which may vary slightly as the project commences. The key points to note are:

The land will be subdivided into Lot A (39.4 hectares, which the Syndicate will buy) and
Lot B (6.9 hectares). Lot A will be held on behalf of the Syndicate and Lot B will be held on behalf of the vendor (Peet). Lot B, which is not changing hands, will be held for future development or sold as a super lot in the future. Peet, not the Syndicate, will provide funds to service Lot B;

Lot A will be further subdivided into 437 lots with an average size of 472sqm (lot sizes
range from 256 to1,334sqm). Figure 7: Concept plan for Peet Greenvale Syndicate

Source: Peet/ PIR

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Peet Greenvale Syndicate, January 2013

Figure 8: Lot sale stages and pricing

Stages 1 2 3 4 5 6 7 No. of lots 48 38 31 42 43 45 42 47 79 22 Total revenue (ex GST) $11,832,000 $9,172,000 $7,412,000 $10,288,000 $10,762,000 $12,387,000 $10,962,000 $12,442,000 $19,240,000 $5,369,000 Valuers assumption (price per lot) 246,500 241,368 239,097 244,952 250,279 275,267 261,000 264,723 243,544 244,045 Adopted by Peet (price per lot) 231,500 231,368 239,097 240,000 245,279 260,267 256,000 259,723 243,544 244,045 Variance -6% -4% 0% -2% -2% -5% -2% -2% 0% 0%

For Advisers Only

8 9 10
Source: Peet/ PIR

Figure 8 summarises the staged development of lots, expected revenue and the average price per lot. PIR notes that the assumptions are slightly conservative relative to the independent valuers (Charter Keck Cramer) assumptions, and that the lot sale prices escalate at a slower rate than that forecast by the consulting economist. The RE has assumed lot sales rate of 6-8 per calendar month, broadly in line with the independent valuer's assumption of 7 sales per calendar month.

Planning encumbrances
The Property abuts the Greenvale Reservoir and to obtain a planning permit for stages 6 to 10 of the Project, Melbourne Water needs to consent to the issuing of a planning permit. This will require Melbourne Water and the Syndicate to agree on the location, scope and size of a Bund. As at the date of this PDS, this issue is unresolved. Melbourne Water has stated that it does not endorse the indicative alignment of the bund shown on the plans prepared by Peets consultants, and it does not consent to Peets proposed alignment. While securing this consent is work in progress, any delays beyond July 2015 may materially affect achieving development consents for Stages 6-10 and consequently harm forecast returns. To satisfy planning requirements set by VicROADS, Peet will provide an interest-free loan of up to$1.5M to fully fund the construction of a signalised intersection at the entrance to the estate.

Development costs
The RE has used the services of SMEC Urban, an industry-recognised consulting firm providing engineering, surveying, planning, and project management, to prepare a preliminary development cost estimate for the project. The consulting engineer has estimated the average cost per lot will be $93,814 (ex GST). Additional costs of $19,701 (ex GST) per lot are included for services such as landscaping, consultancy, sales office construction and other such costs. This adds up to a total of $113,515 per lot (ex GST) The consulting engineer confirms that the development costs and additional development cost estimates are reasonable. Development cost escalations are estimated to be 1.5% per annum at commencement, increasing to 3% per annum from July 2015.

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

4.Investment Analytics
We summarise below the forecasts provided in the PDS. The key points to note are;

The assumptions detailed previously in the report form the basis of the forecast profit. PIR
considers the assumptions to be either slightly conservative relative to, or in line, with the views expressed in the independent expert reports provided in the PDS;

Fees and costs are as per the percentages discussed previously; and Forecast return of capital and distributions are as per the RE forecasts shown in the PDS.

Figure 9: Pro forma profit forecast Forecast Income Forecast for the project ($'000) 108,898 99 108,997

For Advisers Only

Sales (net of GST) Interest income Total income Project costs (net of GST) Development costs, including landscaping costs, project management, and sales, marketing and company management fee Property purchase, acquisition costs Advertising and promotional expenses Settlement costs on lot sales Interest expense, borrowing costs Holding, contingency, administration costs and general expenses Development managers performance fee Total expenditure Forecast profit before tax Tax expense Forecast profit after tax Source: Peet/ PIR

(64,106) (19,139) (4,569) (259) (1,984) (2,932) (753) (93,743) 15,254 (4,328) 10,926

Based on the profit forecast for the project, the RE estimates that unitholders will receive $1.85 for every $1 of equity invested. Figure 10 shows the forecast break-up of the fully franked dividends, franking credits, and return of capital components. Figure 10: Forecast distribution and return of capital
$0.60 $0.50
$0.40 $0.22 $0.30 $0.09 $0.20 $0.10 $0.13

Capital Returns

Franking Credits

Franked Dividends

$0.22

$0.21 $0.18
$0.03

$0.07 $0.17 $0.21

$0.07
$0.17

$0.00
2013FY
Source: Peet/ PIR

$0.07
2014FY 2015FY 2016FY 2017FY 2018FY 2019FY

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Expected Syndicate returns (IRR)

Based on the forecast return of capital and pre-tax unitholder distributions, the RE estimates an Internal Rate of Return (IRR) of 17% over the term of the Syndicate. PIR believes this level of return is consistent with past syndicates completed by the Peet Group, and generally in line with peers. Furthermore, with planning approvals in place to facilitate commencement of development and Peet providing services to the property, the Syndicate should be less risky compared to land syndicates that operate with no development consent. However, the forecast return is dependent on certain forward estimates that may not eventuate. Divergence from these estimates could harm the actual return achieved over the term of the Syndicate. In particular, PIR notes the following:

A change in the all-in cost of debt has only a minor effect on the forecast return. As an
example, a 2% increase to the average all-in cost of debt results in an expected IRR of 16.5% (or only a 0.5% decline to the base case forecast return). As such, a change in the cost of debt is not expected to be a major issue. As an example. Figure 12 shows that if lot prices fell by 5% below base case and development costs increased by 5%, then the unitholder IRR would be a mere 3.5%. Therefore, prospective investors must be aware, first, of the higher risk involved in property development projects, and second, that adverse market conditions could materially harm expected returns. Figure 11. IRR sensitivity to base case changes on costs and lot sale price escalations
Change to base case sale price escalations

For Advisers Only

Change to base case cost increase per annum 1.0% 0% -1.0%

-1.0% 13.7% 15.3% 16.8%

0% 15.5% 17.0% 18.4%

+1% 17.2% 18.6% 19.9%

Figure 12: IRR sensitivity to base case changes on lot sale price and development cost
Change in base case lot sale price

Change to base case lot development cost 5.0% 0% -5.0%

-5.0% 3.5% 7.0% 10.2%

0% 14.6% 17.0% 19.3%

+5% 22.6% 24.3% 26.0%

Figure 13: IRR sensitivity to change in lot price sale and lot sales per month
Change in base case lot sale price

Change to base case lot sales per month -2 0 +2

Source: Peet/ PIR

-5.0% 0.3% 7.0% 7.5%

0% 11.2% 17.0% 18.5%

+5% 18.9% 24.3% 26.2%

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

5.Management & Corporate Governance

Background of RE and Manager
Peet Funds Management Limited (PFML) is the Responsible Entity (RE) and is a wholly owned subsidiary of the ASX listed-Peet Limited (Peet). Companies associated with Peet or wholly owned subsidiaries will provide development and project management services to the Syndicate for which they will earn a fee. Peet is a leading national property group that has been operating in Australia for more than 115 years. After several decades of successfully undertaking land sub-division activity in Western Australia, Peet expanded into Victoria more than a decade ago and later into Queensland and New South Wales. Peet listed on the ASX in 2004. Peet has the third largest residential land bank of any ASX listed company with the potential to develop approximately 48,500 lots over time. If these lots were to be sold at current prices, the estimated on-completion value would be around $8.8 billion.Peet has pioneered the concept of land syndications and has successfully launched, managed, and operated land syndicates since the mid-1980s achieving total returns in excess of 15% per annum. A key feature of Peet over this time has been its ability to create a sound distribution model with approximately 4,500 direct and active investors. More recently, Peet is looking to expand this distribution model to include financial planning groups, High Net Worth individuals, and wholesale fund managers. PIR has undertaken a high-level review of the Funds constitution, and has found no variance to generally accepted industry practice.

For Advisers Only

Investment Committee
The board of PFML acts as the investment committee. PIR notes that it is not unusual for organisations to have the board act as the investment committee. In the case of PFML, the board has a good deal of experience and depth, and a majority of non-executive members, making it suitable to act as the investment committee.

Compliance Plan and Committee

PIR has reviewed the REs Compliance Plan and believes the compliance framework and procedures are consistent with good corporate governance. The compliance committee comprises three members with one internal (being the Company Secretary) and two external members. The PDS notes that the compliance committee meets quarterly and is required to report any breaches of the Corporations Act, AFSL and constitution to the Directors of the RE and consequently by the board of the RE to ASIC. PricewatehouseCoopers has been appointed as the AFSL and compliance auditor of the RE adding further emphasis on governance and management of the Fund.

ASIC Retail disclosure principles

Under ASICs Regulatory Guide 46: Unlisted property schemes: Improving disclosure for retail investors (RG46), all unlisted property fund managers are required to address disclosures made in the PDS against six benchmarks and eight disclosure principles. PIR advises investors to read Section 1.4 of the Peet Greenvale Syndicate, which addresses the Funds disclosures against each of the benchmarks. While the Fund does not comply with five of the six benchmarks noted below, PIR notes the following:

To a large extent, the ASIC benchmarks address the issues pertaining to core-style
property syndicates, rather than syndicates involved in developing assets that do not produce income until they sell lots or start collecting rent;

Interest is capitalised to the loan principal during the development stage of a property
until the property is able to generate cash flow to reduce debt; and

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Cash flow can be lumpy in the case of residential development, which may lead to a
mismatch between pre-determined payments to unitholders and cash flow generated in a given period. Therefore, the use of debt to pay distributions during such periods will necessarily mean that a Syndicate may not comply with the relevant ASIC benchmarks. Therefore, PIR believes it is acceptable for the Syndicate not to comply with ASIC benchmarks #1-#3 and #6 (see below). However, capitalising interest or making distributions using debt over extended periods can significantly increase the risk of loss (and the breach of bank-imposed covenants) in unfavourable market conditions. As such, investors must accept that a Syndicate with exposure to residential land development will necessarily be more risky than traditional core style syndicate. Figure 14: Summary of ASIC retail disclosure benchmarks
ASIC benchmark 1. Gearing policy Compliant (Y/N) N Comments No formal written policy that governs level of gearing but bank proposed covenant serves as an appropriate substitute. Gearing not expected to exceed 50% PIR believes this is not a relevant ratio for development funds although the RE is expected to manage this in line with established bank covenants. Interest payable on loan will be capitalised and added to the loan principal during the development stage and thereon debt will be reduced as sales occur. This is typical for property development activity albeit carries a risk if sufficient funds are unavailable to repay debt. The property will be independently valued every year or when there has been a material change to the property value The RE does not have a written policy although all transactions will be undertaken on an arms-length basis or better and in compliance with the Corporations Act. Fully franked distributions are made when profits and funds are available subject to the availability of franking credits and working capital requirements. However, debt may be used to make these distributions due to timing of cash flows which will be subsequently repaid from available working capital and subject to maintaining debt covenants.

For Advisers Only

2.

Interest cover

3.

Interest capitalisation

4.

Valuation policy

5.

Related party transactions Distribution practices

6.

Source: Peet/ PIR

Board of the Responsible Entity

PIR has reviewed the composition of the RE board and senior executive team and believes that they have the relevant skills and experience to operate the Fund successfully. 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. PIR has summarised the board composition below and notes that the majority of the directors are independent. A detailed background of each board member and senior executive is provided in the PDS; we recommend investors after more detail take the time to read through Section 7 of the PDS.

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

Name Brendan Gore

Role Exec. Director Peet Funds Management Ltd CEO & MD Peet Limited

Experience Over 20 years of senior corporate, commercial and operational roles. Over five years with the Peet Group Responsible for developing integrated operational strategy and performance of the Group. Prior role as CEO and Company Secretary of Mermaid Marine Australia Ltd.

Anthony Lennon

For Advisers Only

Non-Executive Director Peet Funds Management Ltd Peet Limited

Over 21 years with the Peet Group with responsibilities for project management, broadacre acquisitions, marketing, and financing. Six years as Chairman of one of WAs largest conveyancing businesses. Board member of Urban Development Institute of Australia (UDIA). Previous role with John Laing Plc (UK) in the graduate management training scheme.

Graeme Sinclair

Independent Non-Executive Director Peet Funds Management Ltd Peet Limited Mirrabooka Investment Ltd

Over 35 years of experience in investment and wealth management services. On the board of Peet for the last eight years. Prior role as CEO and MD of the Myer Family Company for 13 years. Non-executive Director of Mirrabooka Investment Ltd.

Dom Scafetta

Company Secretary Peet Funds Management Ltd Peet Limited

Over 20 years of experience in accounting and property sectors. 14 years in the Peet Group in various roles including CFO (prior to ASX listing). Previous role with PricewaterhouseCoopers in accounting, taxation, and general business advisory.

Source: Peet/ PIR

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Peet Greenvale Syndicate, January 2013

6.Past Performance
Peet Syndicate Performance
Peet has created and managed land syndicates since the mid-1980s and has pioneered the concept of land syndicates over three decades. As the table below highlights, the average IRR across the 11 completed syndicates, since 2005, is 23.4% per annum (longer duration the average returns have been in excess of 15%). Peet has successfully raised in excess of $290M of equity for syndicated land acquisitions since 2003, and the on-completion value of Peets existing syndicated projects is $2.5 billion (if sold at current prices). As at June 2012, Peet manages 22 syndicates owning 25 residential land development projects As Figure 15 below suggests, the returns from a few completed Peet syndicates have delivered strong returns and none of them have recorded negative returns. In this context, PIR specifically notes 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 unique attributes. This should be considered when interpreting returns presented in Figure 15 below. Figure 15. Peet completed syndicates annual return (p.a.)

For Advisers Only

45%

40%

40%
35% 30% 25% 20% 15% 10% 5%
Point Cook Junction

34%
29% 27% 20% 16% 14% 25% 18%

20% 16%

Brookland Greens

Panorama Estate

Atwell Waters

Kennedy Gardens

Port Kennedy

The Ridge

Point Cook Gardens

Brimbank Gardens

Ocean Lagoon

Source: Peet/ PIR

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Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Warnbro

0%

Peet Greenvale Syndicate, January 2013

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.

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.

For Advisers Only

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 products 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 20 of 21

Copyright 2013 Independent Investment Research Pty Limited (trading as PIR).

Independent Investment Research Pty Limited Locked Bag 7 Australia Square Sydney NSW 1216 Phone 61 2 8296 1162 Fax 61 2 9299 3777 ABN 90 111 536 700 www.pir.com.au