Childcare Investor for Loan by oal21426

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									 Lonsec Property Research - Investor Review



  SAITeysMcMahon The Childcare Property Fund
                                                                                                         Highly Recommended
  Report Date: October 2005


 Fund Feature                           Lonsec Assessment                       Fund Features

 Est. Fund IRR pre tax                 12.83%                                   Strengths:
 (after tax @ 48.5%)                   (9.97%)
                                                                                Ø Childcare industry on strong growth path.
                                                                                Ø Tenant is industry leader with sound financials.
 Min. Investment                       $10,000
                                                                                Ø Full occupancy with little prospect of vacancy.
 Investment Term                       Open-ended                               Ø Triple net leases with long unexpired term and
 Total Assets (30 Jun 05)              $148.787m
                                                                                    option to double length.
                                                                                Weaknesses:
 Net Debt                              $67m                                     Ø Single tenant covenant.
 Fund Gearing                          53% (30 June 2005)                       Ø Indirect exposure to potential changes in
 (Loan / Value Ratio)                                                               Government funding policy.
 Accounting NTA                         $0.9152 (30 June 2005)                  Summary
 Lonsec Adjusted NTA                    $0.794 (30 June 2005)
                                                                                • SAITeysMcMahon (SAI) has developed a niche of
                                         Jun 05       Jun 06        Jun 06
                                                                                  investing in non-traditional assets (eg: Medical,
 Investment made                         Nov 03       Nov 03        Oct 05
                                                                                  Agribusiness and Childcare). The Manager has
                                                                                  formed a strong relationship with one of the largest
 Price                                       $1.00     $1.00         $1.08        childcare business operators in Australia.
 Distribution per unit                       9.0c          9.1c      9.1c       • The childcare industry has experienced strong growth
 Pre-tax Yield                                                                    over the last five to ten years as the number of house-
                                             9.0%      9.1%          8.4%
                                                                                  holds with both parents working has increased. This
 Tax Deferred                                100%      100%          100%         has partly been driven by the strong economy and
 Distribution paid                      Quarterly                                 employment opportunities together with the escalation
                                                                                  in residential property prices.
 MER ratio (total assets)               1.3%
                                                                                • SAI’s Childcare Property Fund is one of few
 Property Type                          Childcare centres 100%                    opportunities for investors to gain access to this
                                                                                  industry and the reliable income streams that are
                                        Qld 44%; Vic 24%; NSW 18%;                generated. All levels of government give financial
 Property Location                      WA 11%; Tas 3%.                           support to the industry, with the main method of
                                        SAITeysMcMahon                            improving access being the Child Care Benefit
 Responsible Entity:                                                              payment. This Federal Government payment reduces
                                        Investments Ltd
                                                                                  the cost of childcare for approved childcare services.
                                        4% Initial or 0.35% pa trailing           Although there is a risk that future government
 Advisor Commission
                                        or a combination of both.
                                                                                  decisions could be detrimental to the industry, Lonsec
                                                                                  believes that at this juncture governments are likely to
      Lonsec Ratings Critical Determinants                                        continue their financial support. The trend is also for
                                                                                  the corporate sector to provide facilities on or close to
                                                                                  the workplace.
                  Financial Analysis                                            • The leases incorporate solid increases in rental with
                                                                                  an allowance for lesser increases after years five and
                      Properties                                                  ten in return for an extension of the lease for two
                                                                                  periods of five years each. This will underpin the
                     Managem ent
                                                                                  value of the portfolio assets. The properties are fully
                                                                                  tenanted and there is little likelihood of vacancies.
                    Market Analysis                                             • Furthermore, they are effectively triple net leases,
                                                                                  where the tenant is responsible for all maintenance
                                                                                  and capital expenditure.
                     Exit Strategy
                                                                                • The portfolio of properties comprises 138 centres (as
0.0         2.0           4.0          6.0           8.0          10.0            at June 2005) spread across the five states. The
                                                                                  properties have all been recently refurbished and the
                                                                                  tenant has a strong incentive to keep the centres well
                                                                                  maintained, given the strict regulatory regime of the
                                                                                  industry.

         WE STRONGLY RECOMMEND THAT POTENTIAL INVESTORS READ THE PRODUCT DISCLOSURE STATEMENT.
            For further information or to download the Product Disclosure Statement please visit www.saiteysmcmahon.com
                  This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
Lonsec Property Research - Investor Review

• The main risk of the Fund is that at this stage there is a                 • Lonsec has reviewed the previous performance of
  single tenant. In Lonsec’s view, the tenant is a financially                 SAI’s property trusts and all are meeting distribution
  sound group that has developed a unique formulae for                         forecasts and most are showing strong gains in net
  operating childcare centres, delivering a high standard of                   asset backing (NAB) per unit. The Pacific Private
  service and attractive returns to the operator and                           Property Trust has been restructured and both
  property owner. While the opportunity to expand the                          distributions and net asset backing are growing.
  Fund currently depends on ABC’s growth plans, the                          • The level of disclosure in the PDS could be improved,
  Manager aims to source other childcare operators as a                        although with an open-ended fund it is difficult to be
  means of mitigating this potential risk.                                     definitive with forecasts for even a short period going
• Distribution returns to the investor in this Fund are better                 forward. Lonsec has been able to verify that the
  than the average available on unlisted property trusts,                      original Childcare Property Fund PDS forecast
  especially after tax, as there will be a high tax deferred                   distribution for FY06 is supported by the net income
  portion in the early years. Given the lease structures and                   streams from the properties (less Fund expenses).
  market interest in the sector, Lonsec is confident that                    • The Manager has an alignment of interests with unit-
  capital appreciation is likely to also be above average,                     holders given that the SAI Diversified Property Fund
  with relatively low risk.                                                    has a $22m interest in the Childcare Property Fund.
• The Fund is likely to increase its debt over the next                      • The portfolio is readily divisible and parts could be
  financial year towards 63%, which is relatively high. The                    individually sold as either going concerns or as
  current average interest rate is also at the high end for                    property sites for other purposes. However, the
  unlisted property trusts, however this is expected to                        valuation reports note that conversion to another use
  reduce as further expansion is undertaken.                                   may require substantial capital expenditure by the
• The Fund will also benefit by developing a number of                         owner. In terms of liquidity, the Fund must be viewed
  centres rather than purchase completed centres as the                        as a medium/long term investment, although unit-
  stamp duty is less. Establishment costs are fairly                           holders have the opportunity to access the Manager’s
  apportioned amongst existing and new investors with a                        limited withdrawal offers twice per year. Periodic unit
  5% service fee incorporated into the unit price. The                         pricing also assists if unit-holders arrange to transfer
  annual management expense is relatively high compared                        their units to a third party.
  to Lonsec’s sample of unlisted property trusts, but the                    • In short, Lonsec’s Highly Recommended rating for
  Manager does not charge a performance fee. Lonsec                            the Fund is based on the positive outlook for the
  would prefer to see a lower annual fee and a fair                            childcare industry and despite at this stage having a
  apportionment of capital profits between the Manager                         single tenant, ABC Learning is financially stable and
  and investor.                                                                the Fund will benefit from its continued expansion.
                                                                               Further growth opportunities and diversification will
• The Manager has a clearly developed and soundly
                                                                               come as the Manager establishes relationships with
  based strategy of investing in property. Its resources
                                                                               other childcare operators. The current portfolio of
  have been strengthened over the last 12 months and the
                                                                               centres is well diversified with long term leases
  directors of the RE have extensive experience in the
                                                                               containing good annual rental increases and no
  syndication and management of property trusts. The
                                                                               capital expenditure requirements for the Fund. This is
  Fund Manager of the Childcare Fund has been closely
                                                                               expected to deliver above average total returns to
  involved in the development of this Fund and has had an
                                                                               investors with relatively low risk of potential vacancy.
  association with SAI property trusts over several years.




             This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document   2
Lonsec Property Research - Investor Review
                                                                            SAITeysMcMahon The Childcare Property Fund




       TABLE OF CONTENTS
       1.    Lonsec Methodology .................................................................................................. 3
       2.    Overview .................................................................................................................... 4
       3.    Financial Analysis ...................................................................................................... 5
       4.    Management .............................................................................................................. 7
       5.    Properties................................................................................................................... 9
       6.    Market Analysis........................................................................................................ 11
       7.    Information Used in the Review Process.................................................................. 12




       1.    Lonsec Methodology

       • Lonsec Property Research provides quality                           • The process is consistent for comparable
         research services to investment managers and                          investment products, enabling projects to be
         financial planning groups. Our reports assist                         individually rated, comparatively ranked, and to
         financial planners in the selection and                               establish a Lonsec Research recommendation
         understanding of unlisted property                                    status for use by financial planners.
         trusts/syndicates, property securities funds and                    • The rating determinants are:
         other managed investment products.
         Experienced analysts have conducted an                                  Ø Financial Analysis
         extensive and objective review of the Fund and                          Ø Properties
         its underlying assets.                                                  Ø Management
                                                                                 Ø Market Analysis
       • The research methodology includes a rating
         process designed to assess the qualitative and                          Ø Exit Strategy
         quantitative factors of the investment.


                                          Lonsec Property Research Rating Definitions

       Lonsec Rating                                                    Details
                                  Projects in this exclusive category possess exceptionally high ratings in most of
       Highly
                                  our assessment areas and are considered to be the most favoured investment
       Recommended
                                  alternative.
                                  Although not as highly rated as the above, this category includes projects that
       Recommended
                                  are rated as having good to excellent all-round performance potential in relation
       (Upper and Lower)
                                  to their peers. They are suggested better investment alternatives.
                                  Projects that fall into this category have satisfied Lonsec’s rigorous analysis
       Investment Grade
                                  criteria and are viewed as acceptable for investment.
                                  The project has failed one or more of Lonsec’s major investment rating
       Not Approved               determinants. We advise that projects that fall into this grouping are detrimental
                                  to an investor’s overall investment portfolio.




                     This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document
2.      Overview
  2.1. The Fund                                                           2.4 Overview of Fund Investments
• The Childcare Property Fund (CPF) is an open-                                                Location of Assets by Value
  ended unlisted unit trust. The Fund is open for                                                       Tas
                                                                                         WA                                      QLD
  subscriptions for as long as the PDS is valid.                                         11%
                                                                                                        3%
                                                                                                                                 44%
  Investors are either issued new units or existing                         NSW
                                                                            18%
  units are transferred to them.
• SAITeysMcMahon Investments Limited is
  the Responsible Entity (RE) for the CPF and
  has over a decade of experience in the
  development, management and promotion of
  property investments.
                                                                                             Vic
• SAI and its associated companies manage                                                   24%

  property investments worth $1.2b located
  throughout Australia, with interests in
                                                                          State                         Number of                Licensed
  commercial, industrial, retail, hospitality and
  other special purpose property.                                                                        Centres                 Childcare
                                                                                                                                  Places
• As at 30 June 2005, the Fund has direct
  ownership of 138 properties containing ABC                              Queensland                          49                   4,175
  Learning Centres Ltd childcare centres.                                 Victoria                            41                   3,054
                                                                          NSW                                 31                   1,942
  2.2. Investment Limits/Applications:                                    Western Australia                   13                   1,142
• Minimum investment in the Fund is $10,000                               Tasmania                            4                    330
  and thereafter in multiples of $1,000.
                                                                          Total                               138                 10,643
• In order to facilitate the issue of new/transfer of
  existing units, the Manager calculates a unit
  price, usually on a monthly basis. The current                          2.5 Balance Sheet / Net Asset Backing
  unit price is $1.0804 (as at 1 September 2005)                          STATEMENT OF FINANCIAL POSITION
  and includes a 5% (+GST) Service Fee.                                   SAITM The Childcare Property Fund
                                                                                                            Actual
  2.3. Income Distributions                                               Year end                         Jun-05
                                                                                                               $m
• Distributions will be paid quarterly, within 30                         Cash                              $11.11
  days of the end of March, June, September and
                                                                          Other Assets                       $2.61
  December.
                                                                          Property Value                  $123.04
• Since the December 2003 quarter, the                                    Construction Payments              $4.02
  Manager has paid distributions of 2.25c per                             Stamp Duty                         $5.39
  unit. This represents an annualised yield of
                                                                          Net Capitalised Expenses           $2.70
  9.0% on a unit price of $1.00 at the inception of
  the Fund.                                                               Total Assets                                       $148.86

• In FY06 the Manager is aiming to achieve a                              Current Liabs                                        $5.33
  pre-tax distribution of 9.1c per unit.                                  Loans - Short Term                                   $4.70
                                                                          Loans - Long Term                                   $77.76
                                                                          Total Liabilities                                   $87.79

                                                                          Net Assets                                          $61.08
                                                                          No. of Units Issued                                 66.655
                                                                          Accounting NTA per unit                             $0.916

                                                                          Lonsec Adjustments
                                                                          Less Capitalised Expenses                            $2.70
                                                                          Less Stamp Duty                                      $5.39
                                                                          Net Tangible Assets                                 $52.99

                                                                          Lonsec Adjusted NTA per unit                        $0.795




          This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document            4
3.      Financial Analysis
3.1.    Income Returns                                                      • The following table compares the estimated
                                                                              yield available on SAI’s Childcare Property
     Income/Expense Statement                                                 Fund to Lonsec’s sample of unlisted funds.
     (SAITM estimates)        FY06e                  FY06e                    Based on the current unit price ($1.08), new
                                LVR                    LVR                    investors can expect to receive a pre-tax yield
                                53%                    63%                    slightly lower than what is generally available.
     Project Income                                                           After taking the high tax benefits into account,
     Net Property Income      11.910                 13.096                   investors net return is higher than average.
     Other Income                -                      -                           Industry Distributions Comparison
     Total Income             11.910                 13.096                 Trust/Sector                Pre-    Tax       After
                                                                            (FY06)                      tax     Def.       tax*
     Managers Fees                      -1.166       -1.166                                            Yield              Yield
     Other Trust Expenses               -0.100       -0.100                 SAI Childcare Fund        8.40% 100%          8.40%
     Interest Expense                   -4.764       -5.688                 Lonsec Sample Avg.#       8.80%    86%        8.08%
     Total Operating Exp.               -6.030       -6.954                 (Note*: After tax @ 48.5%).(# Sample last 12 months).
                                                                            3.2.    Total Returns
     Net Income                          5.880        6.142
     Cash Flow adjustments               0.316        0.055
                                                                            • The Manager has not provided detailed
                                                                              projections of future performance of the income
     Distributions                       6.196        6.197
                                                                              to be derived from the assets of the Fund.
     Wtd Ave Units                     68.090        68.090                   Therefore Lonsec has undertaken its own
                                                                              analysis of potential total returns, assuming
     Distrib. per unit                   9.10c        9.10c                   there is no change to the portfolio as at 30 June
     Tax Advantaged                      100%         100%                    2005.
• For FY06 the Manager is confident of delivering                           • Our preliminary analysis suggests that
  a 9.1c per unit distribution, which is in                                   estimates of Total Returns will be affected
  accordance with the original PDS forecast. The                              primarily by the assumptions on lease renewals
  Fund is likely to increase gearing towards 63%.                             and the level of rental increases that are
• In Lonsec’s view, the future income stream                                  subject to this. Under the leases, rental
  looks solid. Given that the Fund assets are fully                           increases will be as follows:
  occupied and are subject to the same lease
  terms, income in the first five years of each                                                        Not take              Take up
  lease will grow by 4% pa. Prior to the start of                                                     up option               option
  the fifth year, the tenant (ABC Learning) is                                  Years 1-5              +4% pa                 +4% pa
  likely to take up the early option to re-sign and                             Years 6-10             +4 % pa                +2% pa
  extend the lease for a further five years (total                              Years 11-15                                  +1.5% pa
  remaining ten years) and rental increases will
  reduce to 2% pa from the start of the sixth year.                         • If the tenant takes up the early option to renew
                                                                              and extend the lease, the rental increase will be
• The Manager has not made any vacancy
                                                                              lower. However, the Fund will be advantaged
  allowances as there is a high likelihood of ABC
                                                                              by having tenants on longer term leases and
  renewing. Lonsec concurs with this view.
                                                                              the overall value of the portfolio should be
• Distributions will have high tax advantages in                              enhanced. (Lonsec’s estimates of total return
  the next few years because the portfolio of                                 reflects this by not increasing the terminal
  properties has a high proportion of both new                                capitalisation rate, which would otherwise
  properties and construction projects. Based on                              detract from the future value of the portfolio).
  the unit price at the start of each financial year,
                                                                            • In order to be comparable with other direct
  the distribution yields are as follows:
                                                                              property trusts, Lonsec’s estimates of total
                                                                              return are made for a ten year period.
 Childcare Property Fund – Distribution Yield
                              FY04        FY05         FY06                  Total Returns (%pa)                      Pre           After
                                                       (Est)
                                                                             Lonsec estimates                         tax            tax
Distrib. per unit          6.75c        9.0c            9.1c
Price at start             $1.00       $1.00          $1.0662                SAITM The Childcare Fund              12.83%           9.97%
Yield over period*        9.0%#        9.0%            8.5%                  Lonsec Benchmark Rate                 10.25%           7.18%
Tax deferred               100%        100%            100%
(Note*: If purchased unit at start of period).                               Lonsec Diversified Avge.              10.92%           7.87%
(Note#: FY04 distrib from 26 Nov 03. Yield annualised)                       Lonsec Sample Average                 10.83%           8.04%




            This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document           5
• It is likely that for a large number of centres,                       Annual Management Fees & Expenses
  ABC will opt to take the early option to renew                         • The maximum annual management fee as
  their lease and get a lesser increase in rental                          permitted by the Constitution is 1.0% pa (plus
  for years 5-10. Assuming all centres do this, the                        GST) of the gross property assets of the Fund.
  portfolio income growth is estimated at 2.8% pa
  over a ten year period. Therefore Lonsec                               • The Manager can defer fees and intends to
                                                                           defer fees of 0.10% of property assets in FY06.
  expects that capital growth of the Fund’s assets
  could, at least, be of this magnitude.                                   Already, management fees for FY04 and FY05
                                                                           have been deferred of 0.50% and 0.35% of
• Capitalisation yields are in the range of 8.5% to                        average gross assets. These fees will be
  11.0% (Mandurah Valuation Report), but given                             clawed back only once annual distributions
  the security of the long lease tenure and if the                         exceed 9.5c per unit or if the Manager is
  buildings are new or purpose built, the yield                            terminated as Responsible Entity.
  would be at the lower end at 8.5% to 9.0%.
  There is some likelihood that yields may                               • In addition, the Manager is entitled to be
  continue to compress as investor interest in the                         reimbursed for expenses incurred in managing,
  childcare sector is high, with private investors                         establishing and promoting the Fund.
  willing to pay higher prices (lower yields). The                       • SAI expects that under normal operating
  portfolio’s capital value may therefore benefit                          conditions, the MER of the Fund should not
  from further tightening in market yields.                                exceed 1.3% of average gross assets for the
• Lonsec’s benchmark rate is based on a long-                              first 12 months from the date of the PDS. This
  term discount rate of 10.00% to 10.50%.                                  is likely to be representative of the maximum
                                                                           total expense ratio over a number of years,
• If investors choose to utilize the withdrawal                            including the claw-back of deferred fees. Also
  offers, there is a 5% Buy/Sell spread applied to                         displayed in the table below is the ratio for
  the sale proceeds of their units, which will                             FY06, where management fees have been
  reduce overall returns.                                                  deferred and expenses are relatively low if no
                                                                           properties are acquired.
3.3.   Gearing/Interest Costs
• The Fund has a debt facility of $105m. As at 30
  June 2005, long-term debt drawn down was                               Comparison of Management Expense Ratios*
  $77.8m, with cash reserves of $11m.                                                                      M’mnt        Other    Total
                                                                           Fund / Sector
                                                                                                            Fee          Exp     MER
• There was also a short-term loan of $4.7m from
  the SAI Diversified Fund. Since balance date                            SAI Childcare PF            1.00%     0.30%   1.30%
  this loan has been paid out.                                            SAI Childcare PF(FY06)      0.90%     0.08%   0.98%
• The debt facility is in four components (with the                       Lonsec Unlisted
                                                                                                      0.53%     0.17%   0.71%
  first three up to $100m) having fixed interest                          Property Avg.
  rates as they are drawn down. Debt is locked in                        (Note*: MER is the on-going non-property expenses
  tranches of $5m to $10m via interest rate                              expressed as a % of total assets).(FY06: $129m
                                                                         average assets).
  swaps for five years. The weighted average
  fixed interest rate is 7.11%. This is toward the
  upper end of rates for recent unlisted Australian                      Other Fees
  property trusts. The working capital component                         • Lonsec has taken the following fees and costs
  is at a variable rate.                                                   into consideration when calculating total
• The loan to value ratio on completed centres is                          returns.
  65% and 60% on the facilities set up for                                 Ø Acquisition Fee of 2% (plus GST) of the
  purchasing vacant sites/developing/working                                 acquisition price of any real property acquired
  capital. The loans are secured by first                                    by the Fund.
  mortgages over the assets of the Fund.
                                                                           Ø Disposal Fee of 0.5% (plus GST) of the sale
• Net of the $11m cash, the Loan to Value Ratio                              price of any real property disposed of by the
  is 53%. If this was taken up to 63%, the Fund                              Fund provided the sale price exceeds the
  could borrow another $13m.                                                 purchase price.
3.4.   Manager’s Fee Structure                                             Ø No Performance Fees are applicable at the
                                                                             termination of the Fund, which benefits
• An initial service fee of up to 5% (plus GST) of                           investors if the Fund performs ahead of
  the initial amount invested is incorporated into                           expectations.
  the unit purchase price.
• This appears to be equivalent to around 3% of
  the portfolio’s property value ($123m) and
  compares favourably to Lonsec’s sector
  average establishment fee of 5.8%.




         This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document     6
4.    Management
• An assessment of Management is another key                             4.3 Investment Style
  performance measure and is largely qualitative,                        Investment Strategy-Direct Investments
  focusing on the ownership, operating and
                                                                         • SAITM employs a value management style,
  reporting structure, property investment policy
                                                                           which is overlaid by analysis of thematic trends
  and selection criteria. Capable and experienced
                                                                           (various investment types). The Fund’s
  management is vital to the success of the
                                                                           investment criterion is based on yield, tax-
  Fund. Previous performance is evaluated, but
                                                                           effectiveness and overall fit with the CPF.
  is not necessarily a guide to future returns.
                                                                         • Assets are selected to improve the overall yield
4.1 Background                                                             from the portfolio, widen diversification and
• SAITeysMcMahon (SAITM) is a specialist fund                              ‘add-value’ to the existing portfolio in terms of
  manager with property investments throughout                             asset class and overall strategic holding in the
  Australia, including commercial, industrial,                             portfolio.
  retail, hospitality and other special purpose                          • Management undertakes extensive research
  property categories.                                                     into an asset class or type of asset prior to
• SAITM currently has in excess of $1.2b in                                initiating an investment in a particular asset
  funds under management and is a wholly                                   class.
  owned Australian private company.                                      • Stability is an important component of the
                                                                           investment process from income distribution
4.2 Management Team                                                        and unit pricing.
                                                                         • Diversification reduces the risk profile of the
             Board of Directors (RE)                                       Fund and increases the potential to achieve a
                   Position                    Industry                    higher overall total return (income and capital
                                             Experience                    growth) from a larger investment universe.
                                              (with SAI)
                   (Director)                    30+                     Property Selection Strategy
Graham Brewer
                                                                         • Key elements for considering an investment
Greg McMahon       (Non Executive                 11
                   Director)                                               include:
                                                                           Ø Securing high quality properties with long-
Grant Ross         (Managing                      14
                                                                             term lease covenants to financially secure
                   Director)
                                                                             companies.
                                                                           Ø Fundamental focus on stable income and
Other Key Management (RE)                                                    reliable growth with moderate levels of capital
• Tim Killian is Portfolio Manager Property and                              growth over time.
  is responsible for the day to day management                             Ø Positive gearing strategy based on having a
  of SAI’s Childcare Property Fund and                                       sustainable rental income from the asset.
  Commercial Office Fund (investing in Australia                           Ø Adopting a pro-active management approach
  and overseas). Tim manages each fund under                                 by understanding the tenant’s business and
  his control including acquisitions and disposals                           operational requirements, close contact with
  to ensure the specific objectives of the fund or                           all tenants and monitoring of the investment
  scheme are met and maintained over time.                                   to ensure tenant retention.
• Tim has been with SAITeysMcMahon since                                   Ø Selection of appropriate properties that are
  June 2000 and has over ten years experience                                located in established growth corridors. Close
  in the financial sector. He formerly worked with                           proximity to major arterial roads, employee
  Permanent Trustee Company Limited where he                                 workforce and transport are other prime
  was responsible for overseeing and                                         considerations.
  administering property trust compliance with
  major public investment companies listed on                            Portfolio & Property Risk Management
  the Australian Stock Exchange and also                                 • The CPF management team handles the asset
  unlisted property trusts. He has a Bachelor of                           strategy and investment management in-house.
  Business (Property) with distinction from RMIT.                        • Property Management is outsourced. Local
                                                                           agents in respective states have been
                                                                           appointed to actively manage the property
                                                                           portfolio on a day to day basis. The individual
                                                                           property managers report directly to SAITM
                                                                           CPF Manager Property Operations on a
                                                                           monthly basis.




         This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document   7
4.4 Fund Performance
                                                              Year end           FY           FY           FY           FY            FY
Syndicate/ Trust                                 Start date     June           Jun-01       Jun-02       Jun-03       Jun-04        Jun-05
SAITM The Primary Infrastructure Fund             Oct-04 Forecast ¢                 -           -            -            -          9.25
                                                            Actual ¢                -           -            -            -          9.25
                                                            NAB     $               -           -            -            -         0.9091
SAITM Sydney HealthCare Trust                     Jun-03 Forecast ¢                 -           -          9.00        9.00           n/a
                                                            Actual ¢                -           -          9.00        9.00          9.25
                                                            NAB     $               -           -         0.8603      0.9188        1.0677
SAITM The Childcare Property Fund                 Nov-03 Forecast ¢                 -           -            -         9.00*         9.00
                                                            Actual ¢                -           -            -         9.00*         9.00
                                                            NAB     $               -           -                      0.8615       0.9152
SAITM Essential Healthcare Trust                  Oct-02 Forecast ¢                 -           -          9.75         9.90          n/a
                                                            Actual ¢                -           -           9.44        9.90         10.00
                                                            NAB     $               -           -         0.7755       0.8971       1.0689
SAITM Pacific Private Property Trust              Oct-00 Forecast ¢              9.40        10.10        10.50        10.80          n/a
                                                            Actual ¢             9.50         3.58         4.50         6.00         8.25
                                                            NAB     $          0.8986       0.6043        0.6158       0.6967       0.7713
SAITM Brisbane Commercial Syndicate               Nov-02 Forecast ¢                 -           -          9.00         9.00          n/a
                                                            Actual ¢                -           -          9.93         9.00         9.10
                                                            NAB     $               -           -        0.9750        0.9702       1.0809
SAITM The Diversified Property Fund                1993     Forecast ¢           n/a          n/a          n/a          n/a           n/a
                                                            Actual ¢            10.75        10.75        11.38        10.90        11.051
                                                            NAB     $                                                 1.1597        1.2003
(Note*: Annualised)


• The table above shows funds managed by SAI                                • The unit price was fairly stable for some time
  and the actual distributions versus forecast plus                           until the Manager began revaluations. This
  the growth in net asset backing per unit. Some                              process will continue on a progressive basis
  funds commenced in 2004 and the data is                                     and about half of the 138 properties have been
  limited, but it appears that in general, funds are                          revalued to date.
  now tracking to expected or target returns.                               • Lonsec has calculated the following total
• The reduction in distributions from the Pacific                             returns from inception to the end of June 2005.
  Private Property Trust has been due to a                                    Note that the Mercer Index does not take into
  major tenant entering into financial difficulties.                          consideration fees payable on the sale of an
  SAITM has turned this property around with                                  investment.
  ASX listed Healthscope taking over the lease
  and SAITM acquiring other private hospitals on
                                                                                                      CPF             CPF           Mercer
  the Gold Coast operated by Healthscope.
  Currently SAITM is working on a strategy to                                                                      (less sell       Index
                                                                                                                    spread)
  consolidate these assets.
                                                                                    Annualised Return (26 Nov 03 to 1 Sept 05)
• As far as the Childcare Property Fund is
  concerned, the following table shows the                                  Income                   9.00%          9.00%             n/a
  change in unit prices since inception.                                    Capital                  4.59%          1.50%             n/a
                                                                            Total                    13.59%         10.50%          12.58%
As at                                      Unit Price                                     One Year Return to 1 Sept 2005
31 Dec 03                                   $1.0000                         Income                   9.00%          9.00%             n/a
1 Jan 05                                    $1.0284                         Capital                  8.04%          2.64%             n/a
1 Apr 05                                    $1.0385
                                                                            Total                    17.04%         11.64%          13.14%
1 June 05                                   $1.0712
1 July 05                                   $1.0662
1 Sept 05                                   $1.0804




            This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document            8
5.     Properties
5.1 Property Portfolio                                                    • ABC has a market capitalisation of $1.6b (@
                                                                            $6.57 per share) and has net assets of $845m
               Value Centres Rent                   Yield*
                                                                            (as at June 2005). Total assets are $1165m,
                 $m                  $m                                     includes intangibles of $170m and childcare
NSW             22.6        31       2.126          9.35%                   licenses of $773m.
Qld             54.1        49       5.014          9.18%                 5.6 Location
Tas              3.2        4        0.286          9.06%                 • It is difficult to rate all the properties (even as a
Vic             29.2        41       2.616          8.97%                   portfolio) on their locational attributes. However
WA              13.9        13       1.326          9.51%                   as childcare centres, the location is not as vital
               123.0       138       11.367         9.20%                   as a retail or office building, given that there are
(Note*: Current rent on value of property).                                 usually limited competitive businesses in the
                                                                            same area.
• The portfolio consists of 138 primarily purpose-                        • In purchasing the portfolio, the Manager would
  built childcare centres. All current properties                           undertake due diligence that should highlight
  are leased to the ABC Learning Centres Ltd                                any problems with the property location.
  (ABC) group or are subject to leases, which are
                                                                          • Given that these centres are usually on
  fully guaranteed by ABC.
                                                                            residential blocks, should the location turn out
• Occupancy levels vary and only one (Deception                             to be an impediment to the operation,
  Bay, Qld) has been unsatisfactory. This was                               alternative sites would not be difficult to find.
  sold back to ABC and subsequently shut down.                              Location near existing schools would be an
  Occupancy levels however, do not impact on                                advantage.
  the amount of rent paid on each centre.
                                                                          • Public transport and other infrastructure is also
5.2 Background                                                              less important as many childcare clients use
• The Fund was formed out of proposals derived                              cars, but “ease of access to potential
  from Heritage Properties subsidiary Australian                            customers’ place of work and residence
  Childcare Developments (ACD). This group                                  providing a distinct advantage.” “Demand for
  has a Master Acquisition Agreement with SAI to                            child care centres is traditionally greatest in
  source operating properties or development                                expanding low to medium socio economic
  sites. ACD has an established relationship with                           suburbs” (Source: Valuation report)
  ABC Learning and has been able to procure                               5.7 Leases
  the portfolio for SAI. ACD also oversees
                                                                          • All but one lease is guaranteed by ABC
  developments and manages the properties.
                                                                            Learning Centres Ltd (parent company).
5.3 Master Acquisition Agreement – Criteria                               • At present all leases have been re-set to a ten
• ABC Developmental Learning Centres or other                               year lease from the date of purchase of the
  reputable operator is to be the lessee.                                   property by the Fund. The portfolio to date has
• ABC has a formula that a centre must adhere                               the following lease expiry profile:
  to and its own construction arm brings a centre
  up to a certain standard. SAI is satisfied that                                        SAI Childcare Fund - Lease Expiry Profile
  the criteria this stipulates (location, signage,
                                                                           35%
  layout, equipment etc) will meet its
  requirements – subject to doing its own due                              30%


  diligence.                                                               25%

                                                                           20%
5.4 Capital Expenditure
• Once a centre has been purchased or
                                                                           15%


  developed by the Fund, the tenant (ABC) is                               10%

  responsible for all maintenance and capital                               5%

  expenditure.                                                              0%
                                                                                   1H FY14          2H FY14          1H FY15         2H FY15
5.5 Tenant – ABC Learning Group
• ABC Learning listed on the ASX in 2001 and                              • The average unexpired lease term on the
  after merging with the Peppercorn group has                               portfolio as at June 2005 is 9.2 years. At the
  expanded to operate more than 640 centres,                                moment, the expiry profile is quite bunched in
  making it one of the world’s leading childcare                            FY2014 and FY2015, but will be less so as
  businesses.                                                               more centres are added. As each early option




          This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document                9
  is taken up, the expiries will extend out a further
  five years. As discussed earlier, the leases
  build in an increase of 4% pa, until the lessee
  takes an early lease renewal option extending
  the lease for another 5-10 years (total 15-20),
  thereby gaining a lower annual increase in rent.
• All leases are effectively on a triple net basis as
  all out-goings, including capital expenditure, are
  paid by the lessee.
• In Lonsec’s view this is an extremely strong
  lease profile.
5.8 Building Condition/Facilities
• Lonsec undertook an inspection of a sample of
  three centres in Melbourne’s newer western
  suburbs (Point Cook, Tarneit - Morris, Tarneit -
  Rose Grange). These centres are all recently
  built and are in excellent condition, constructed
  to the ABC formulae. Being in new areas, they
  are well located at prominent intersections and
  close to the sites of proposed new schools. The
  property at Tarneit (Morris) is opposite a large
  new shopping centre.
• It would be impractical for Lonsec to inspect a
  large number of properties, however the above
  inspections have satisfied us that the general
  standard of buildings would be good to
  excellent. The standard of facilities and
  surroundings is an important factor in attracting
  placements. The purpose-built ABC centres are
  often well in excess of regulatory standards.
• Operations will vary depending on the local
  management, which is an important factor in
  retaining staff and therefore maintaining good
  occupancy levels. Occupancy levels at two of
  the centres is building up and they are getting
  referrals from nearby ABC centres that are full.
• Anecdotal evidence of the ABC model is that it
  is a very good service, although being run as a
  corporation leads to a focus on profitability and
  measures to reduce expenses. However, there
  are some areas (eg: supply of nappies) which
  ABC sees as a point of difference in attracting
  patronage.
• From a Valuation Report, the comment was
  made of a purpose built centre “it is effectively
  a ‘commercial style’ building, which if vacant
  may suit various forms of community based
  purposes, churches, councils or registered
  clubs or may even adopt for professional
  purposes”. However, “Any use outside the
  intended use as a childcare centre is likely to
  endure significant costs of conversion”.
• Zoning may determine alternative use and may
  need council approval to change use.




          This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document   10
6.    Market Analysis
                                                                          • Major competitor childcare groups include:
• Over the last decade or so, the childcare
  industry has seen a proliferation in demand for                          Operator              State                        Centres
  places at centres as the number of households                            Hutchisons            Qld, NSW, Vic, SA            81-85
  with both parents working has increased. This                            Kids Campus           Qld, Vic                     72
  can be attributed to the strong economy over                             Childs Family         NSW                          37 (+11)
  this period and to changes in government
                                                                           Kindergartens
  policies for the industry.
                                                                           Sunland               Qld, NSW, Vic                2 (+14)
  Ø In 1992 the Federal Government allowed
     private ‘for-profit’ childcare centres to be                          (Sunkids)
     eligible for (means-tested) childcare
     subsidy.                                                             • ABC is the largest private operator with 640
  Ø July 2000 Child Care Benefit (CCB)                                      centres, although this is still only a 20% market
     Scheme.                                                                share as there is a large government/ council
  Ø Federal Government also provides                                        proportion and many smaller operators.
     operational and capital funding.
• CCB reduces the cost of child care for eligible
  families that use “approved” providers. The
  payment is made by Centrelink to the provider
  or a lump-sum to the family at the end of the
  financial year. CCB has increased to $140 (July
  2004) or $28/day for one child ($294 for 2;
  $458 for 3). There is also a Childcare Tax
  Rebate of 30% of out-of-pocket childcare
  expenses (max $4,000 pa per child).
• Since 2000 there has been a rapid expansion
  of supply with a rise in both the construction of
  new centres and refurbishment programs to
  existing centres. So far this additional supply
  has been met by demand. There is anecdotal
  evidence suggesting a shortage of childcare
  places, especially in inner city locations and in
  new growth areas like southern Queensland or
  south of Perth WA. Inner city locations are
  under-supplied because of low yields to
  purchase (high property prices). There may be
  leasehold deals introduced to overcome this
  problem.
• Currently demand for centres from large
  childcare operators and other investors remains
  high. Although we noted in a Landmark White
  Valuation Report (Rothwell Qld) – “In general,
  the market for child care is considered to be at
  the top of the current property cycle”
• The National Childcare Accreditation Council
  oversees the industry. This should not be a
  major risk as ABC has a successful formulae
  and a lot to lose if this is not up to industry
  standards.
• Family Day Care is where family homes are
  adapted for use as a day care facility on small
  scale. This is another option, being lower cost
  but escalating compliance/insurance costs may
  be a disincentive to operators.
• State legislation specifies maximum numbers of
  children per centre (Qld 75; Vic 90).




          This information must be read in conjunction with the Warning, Disclaimer, and Disclosure at the end of this document          11
7.    Information Used in the Review Process
This report has been prepared by Lonsec Property Research (a division of Lonsec Limited) for the Directors
of SAITeysMcMahon Investments Ltd, the Responsible Entity.
Lonsec has relied on information supplied by and obtained from discussions with employees of
SAITeysMcMahon Property Ltd
We have reviewed or relied upon the following documents in the course of our research process:
1. SAITeysMcMahon The Childcare Property Fund - Product Disclosure Statement (27 Nov 2003).
2. SAITeysMcMahon The Childcare Property Fund - Product Disclosure Statement (15 August 2005).
3. SAITeysMcMahon The Childcare Property Fund – Annual Report (June 2004).
4. SAITeysMcMahon The Childcare Property Fund – Interim Report (Dec 2004).
5. LandmarkWhite Valuation Report – 4 McGahey St, Rothwell Qld (Feb 2005)
6. Mercer Index of Unlisted Property Performance (to August 2005)

IMPORTANT NOTICES:
The following Warning, Disclaimer and Disclosure relate to all material presented in this document and should
be read before making any investment decision.

  Analyst Interests:
  The Analyst(s) may hold the product(s) referred to in this document, but Lonsec considers such holdings not to be
  sufficiently material to compromise the rating or advice. Analyst(s)’ holdings may change during the life of this
  document.
  Analyst Certification:
  The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion
  about the financial product(s) to which this document refers.
  Warning (General Advice Only):
  Any advice is General Advice based on the investment merits of the financial product or issuer alone without taking
  into account any person's investment objectives, financial situation and particular needs. Before making an
  investment decision based on such advice, the recipient must either decide whether it is appropriate to his/her
  investment objectives, financial situation and particular needs or seek specific professional advice. The recipient
  should consider whether to seek advice on comparable or alternative investments. Offers in relation to the financial
  product will be made in, or accompanied by a copy of the Product Disclosure Statement (“PDS”) and anyone wishing
  to acquire the financial product will need to complete the application form that accompanies the PDS.
  Disclaimer
  This document is for the exclusive use of the person to whom it is provided by Lonsec Limited ABN 56 061 751 102
  ("Lonsec"), an Australian Financial Services Licensee and Participant of ASX Group, and must not be used or relied
  upon by any other person. No warranty is given regarding accuracy or completeness of the information contained in
  this document, which is based on public information not verified by Lonsec. SAITeysMcMahon Investments Ltd (ACN
  077 235 879) has indemnified Lonsec against any liability arising from errors in or omissions from information
  provided to it about SAITeysMcMahon, the responsible entity, or The Childcare Property Fund. Any opinions,
  conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change
  without notice and Lonsec assumes no obligation to update this document after it has been issued. Actual results
  may differ significantly from projections and estimations, and nothing in the report should be treated as a guarantee,
  promise or representation as to the future. Except for any liability which by law cannot be excluded, Lonsec, its
  directors, employees and agents disclaim all liability (whether in negligence or otherwise) for any error, inaccuracy in,
  or omission from the information contained in this document or any loss or damage suffered by the recipient or any
  other person directly or indirectly through relying upon the information.
  Disclosure
  Lonsec received a fee for compiling this report following a review of the investment project described in this document
  against accepted criteria considered comprehensive and objective. Costs incurred during the rating process,
  including travel and accommodation expenses, are paid for by SAITeysMcMahon Investments Ltd to enable on-site
  reviews. Lonsec’s fee and Analyst remuneration are not linked to the rating outcome. Lonsec, its representatives, and
  their associates may hold or apply for a holding of financial product issued by SAITeysMcMahon, its associates or the
  responsible entity.

Report Prepared: October 2005
Analyst: Kevin Prosser
Report Authorised by: Grant Kennaway




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