Frequently Asked Questions
1. Why is Viento raising funds at this time?
Viento has the option of selling properties, repaying debt and returning any proceeds to investors, however the Viento board does not believe that selling properties at this low point in the property cycle would be in the best interests of investors in the Fund. The capital raised will be applied to reduce debt, complete capital works at the properties, reduce vacancies and expand or convert suitable centres (see pages 3, 6 and 10 of the PDS).
2. The PDS notes that Viento Property Limited (Viento) may either return capital at the end of year 2 or the end of year 3 to CPU holders (see pages 4 and 5 of the PDS). Why would Viento redeem capital at the end of year 2?
Viento took advice from investors and financial advisers on the CPU product design.
These discussions indicated that investors wanted a fixed distribution investment. If market conditions improve there may be scope for Viento to redeem CPUs at the end of year 2. This would reduce the Fund’s outgoings and bring forward the reinstatement of redemptions for ordinary unit holders.
3. What is the maximum investment an investor can make?
Existing unit holders have an entitlement to apply for 1 CPU for every 11 ordinary units held. A minimum investment of $1,000 applies. If an ordinary unit holder’s entitlement equates to less than $1,000, they will be required to invest a minimum of $1,000. There is no maximum investment but investors may be scaled back if Viento is unable to satisfy all the Applications (see page 4 of the PDS).
4. When will the first distributions be paid?
CPU distributions will be paid quarterly. The distribution amount for the September 2010 quarter will be paid in October 2010 (see page 5 of the PDS for distribution payment dates).
5. What is the maximum and minimum amount to be raised?
The minimum subscription level is $5.5 million and Viento has the discretion to vary this amount (see page 4 of the PDS).
6. What happens if Viento is unable to raise the required funds?
If Viento is unable to raise the $7 million it:
• may be unable to reduce the LVR so its financiers will continue to seek extra loan repayments;
• may be unable to carry out necessary capital works and pay lease incentives to prospective tenants; and
• may be unable to recommence distributions to ordinary unit holders.
The combined effect of these factors may be to reduce the Fund’s available income, restrict Viento’s ability to pay distributions and reduce the likelihood of reopening the Fund to new investment. The longer term impact may be reduced cash flow, further pressure on LVRs and the forced sale of properties in an unfavourable market (see page 6 of the PDS).
7. What is the likely NTA of the time of CPU conversion in June 2013?
It is not possible to predict the likely NTA and unit price for the Fund at June 2013. If the unit price is, for example, $0.65 a 40% discount to this would mean a conversion cost of $0.39 per unit (see page 8 of the PDS).
8. Why has net property income increased 25% in 2011-2012?
Viento anticipates increasing occupancies, particularly in Blacktown and Campbelltown. The PDS noted that Blacktown currently has a low occupancy rate of only 26.3% and Campbelltown is noted at 86.2%, so there is room for improvement in occupancy rates. Capital improvements will give Viento a greater ability to attract new tenants (see page 9 of the PDS).
9. How up to date are the valuations?
All properties, except Elermore and Campbelltown, have been independently valued since September 2009 (see page 10 of the PDS).
10. The average WALE is very low at 2.4 – isn’t this a risk?
The low WALE of some of the commercial assets is partly due to government or local tenants requiring shorter term leases and to allow for redevelopment. For example, at Oxley Mall, Viento has kept tenants on short leases to permit the expansion of the centre (see page 10 of the PDS).
11. After the capital raising the LVR is forecast to be 64.1%, leaving only a small buffer between the Fund’s position and the financiers’ loan requirements. Why doesn’t Viento raise more funds so that this buffer can be improved?
Viento has based its projections on conservative estimates but expects the LVRs to decrease as it makes capital improvements to Fund properties. Viento has allocated $6.2 million to capital expenditure from June 2010 to June 2013 (see pages 10, 11 and 14 of the PDS). This expenditure will increase the value of the Fund properties.
Viento is also conscious of what is achievable in the current difficult market conditions and believes that
$7 million is an achievable goal.
12. Scenario in year 3 – what if Viento is unable to return capital to CPU holders who elect for a return of capital at the end of year 3?
As an active fund manager, Viento will monitor the Fund’s cash flow to ensure that it is able to meet its commitment to return capital in year 3. Viento’s ability to return capital to CPU holders who elect for a return of capital at the end of year 3 depends on its successful re-drawing of funds from its financiers or another financier. This in turn depends on, among other matters, Fund property values at the time, meeting LVR covenants and broader financial conditions. If the Fund is unable to refinance, Viento may be required to sell additional properties (see page 20 of the PDS).
Viento has prepared calculations to estimate the likely value of the Fund at that time and believes that it will be able to redraw funds to return capital to CPU holders (see page 11 of the PDS).
Viento’s calculations include forecast distributions to ordinary unit holders (see table under 5.4 on page 13) and it has the ability to adjust these to allow cash flow to be applied to the return of capital if the need arises.
If Viento is required to sell additional properties, the proposed capital enhancement will ensure that properties are more likely to achieve more favourable sale prices (see page 12 of PDS).
13. Interest Fixed: which loans have interest fixed?
Viento has negotiated fixed rates for some of the debt (see page 11 of the PDS and “Interest Fixed” line on each loan). As that debt expires, Viento has made assumptions on interest rates out to 3 years (see page 12 of the PDS).
14. Why has net property income dropped from June 2010-June 2011?
The sale of Elermore Shopping Centre will be completed in June 2010. Viento has forecast the sale of a further property so the Fund will no longer receive income from these properties (see page 12 of the PDS).
15. Tax issues – what is meant by tax advantaged?
The term “tax advantaged” means not taxed in your hands. Generally Viento expects that Fund distributions to CPU holders will be 100% tax deferred and therefore quarterly CPU distributions should not be required to be included in your assessable income.
However, tax deferred distributions would reduce the tax cost base of your CPUs and so the receipt of tax deferred distributions would increase any potential future capital gain that would apply on the redemption of the units. Viento cautions that this is generally the position for Australian investors who hold their CPUs on capital account. Each investor should seek their own independent tax advice prior to investing in CPUs to satisfy themselves of the taxation implications that apply to their own situation (see page 15 of the PDS).
16. What are the special rights under the CPU?
The CPUs have the right to be paid their distributions and have their capital returned ahead of ordinary unit holders. CPU holders also have the right to convert their CPUs into ordinary units at a discount (see pages 4, 5, 6, 7, 8, 13, 15 and 27 of the PDS).
17. How will the value of the units be calculated in three years.
All properties will be independently valued in the three months prior to the election date for the year 3 conversion of CPUs or return of capital.