Product Disclosure Statement

Transcription

1 Product Disclosure Statement In relation to the proposed Restructure of Heathley Healthcare REIT Issued by: Heathley Asset Management Limited ACN in its capacity as the responsible entity of Heathley Direct Medical Fund No. 1 (ARSN ); Heathley Direct Medical Fund No. 2 (ARSN ); Heathley Keystone Property Fund No. 32 (ARSN ); and Healthley Aged Care Property Fund No. 1 (ARSN )

2 Important Information Purpose of this document This is an important document and requires your immediate attention. This document should be read in full before you decide how to vote. If you are in doubt as to what you should do, you should consult your financial, taxation or other professional adviser. Existing Unitholders currently hold units in one or more of Heathley Direct Medical Fund No 1 (ARSN ) ( HDMF1 ), Heathley Direct Medical Fund No.2 (ARSN ( HDMF2 ), Heathley Keystone Property Fund No.32 (ARSN ) ( HKPF32 ) and Heathley Aged Care Property Fund No.1 (ARSN ) ( HACPF1 ). The Restructure will result in units in HKPF32 and Heathley Healthcare Property Fund being acquired by HDMF1 and units in HDMF1 being stapled to units in HDMF2, HACPF1 and Heathley Development and Finance Trust ARSN ( ) ( HDFT ) to form the Stapled Securities, which are proposed to be traded on the ASX with the name Heathley Healthcare REIT and with the code HHR. This PDS has been prepared for the purpose of giving Existing Unitholders information in relation to the Restructure and has not been prepared for any other purpose, including the Offer. A separate product disclosure statement will be prepared in connection with the Offer ( Offer PDS ). Please read this document carefully before deciding whether to participate in the Restructure. Regulatory Information This PDS is dated 4 October 2018 and is issued by Heathley Asset Management Limited ACN , Australian Financial Services Licence Number ( HAML ) as responsible entity of HDMF1, HDMF2, HACPF1 and HKPF32. This PDS was lodged with ASIC on 4 October Neither ASIC nor its officers takes any responsibility for the contents of this PDS. If the Restructure is implemented, the Stapled Securities will be officially quoted on the ASX. HAML will apply to the ASX for admission of HDMF1, HDMF2, HACPF1 and HDFT to the official list of the ASX and quotation of the Stapled Securities on the ASX within seven days of lodgement of the Offer PDS with ASIC. The fact that the ASX may agree to have the Stapled Securities quoted is not to be taken in any way as an indication of the merits of the REIT or any of its constituent entities. Neither the ASX nor its officers takes any responsibility for the contents of the Offer PDS. Cooling-off rights do not apply to an investment in the Stapled Securities pursuant to the Restructure. Updated Information Information regarding the Restructure may need to be updated from time to time. Any updated information about the Restructure that is considered not material to members will be made available on the Heathley website at and HAML will provide a copy of the updated information free of charge to any Existing Unitholder who requests a copy by contacting HAML during business hours on from 8:30am and 5:30pm (Sydney time) Monday to Friday. In accordance with HAML s obligations under the Corporations Act, HAML may issue a supplementary PDS to supplement any relevant information not disclosed in this PDS. You should read any supplementary disclosures made in conjunction with this PDS prior to making any decision as to how to vote. Not Investment Advice The information contained in this PDS should not be taken as financial product advice and has been prepared as general information only, without consideration for your particular investment objectives, financial circumstances or particular needs. It is important that you read this PDS carefully and in its entirety prior to making your investment decision with respect to the Restructure. In particular you should pay careful consideration to the risk factors outlined in Section 7 of the PDS in light of your personal circumstances, recognising that other risk factors may exist in addition to those identified and these other risk factors should also be considered before deciding how to vote. You should also pay careful consideration to the tax implications in Section 10 of this PDS, noting that the potential tax 2

3 effects of the Restructure will vary between investors. If you have any queries or uncertainties relating to aspects of this PDS, the Restructure or the Offer, please consult your broker, accountant or other independent financial adviser before deciding how to vote. Forward-Looking Statements Certain forward-looking statements have been provided in this PDS. These statements can be identified by the use of words such as anticipate, believe, expect, project, forecast, estimate, likely, intend, should, could, may, target, predict, guidance, plan and other similar expressions. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Preparation of these forward-looking statements was undertaken with due care and attention. However, forward-looking statements remain subject to known and unknown risks, uncertainties and other factors, many of which are beyond the control of HAML and its officers, employees, agents and advisers. Consequently, such factors may impact the performance of the REIT and cause actual performance to differ materially from any performance indicated in the forward-looking statements. Some of the risk factors that impact on forward-looking statements in this PDS are set out in Section 7 of this PDS. No assurance can be provided that actual performance will mirror the guidance provided. Other than as required by law, none of HAML nor its directors, officers, employees or advisers nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this PDS will actually occur. You are cautioned not to place undue reliance on those statements. The forwardlooking statements in this PDS reflect the views held only immediately before the date of this PDS, unless otherwise stated. Subject to the Corporations Act and any other applicable law, each of HAML, its directors, officers, employees and advisers disclaims any duty to disseminate after the date of this PDS, any updates or revisions to any such statements to reflect any change in expectations in relation to such statements or any change in events, conditions or circumstances on which any such statement is based. Financial Information Unless otherwise specified, all financial and operational information contained in this PDS is believed to be current as at the date of this PDS. All currency amounts are in Australian dollars unless otherwise specified. The forecast financial information presented in this PDS is unaudited and is based on the best estimate assumptions of the directors of HAML. See forward-looking statements above. Foreign Jurisdictions This PDS has been prepared to comply with the requirements of Australian law. This PDS does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. Distribution of this PDS outside of Australia (whether electronically or otherwise) may be restricted by law. Persons who receive this PDS outside of Australia are required to observe any such restrictions. Failure to comply with such restrictions may find you in violation of applicable securities laws. HAML and its respective directors, officers, employees, consultants, agents, partners or advisers do not accept any liability or responsibility to determine whether a person is able to participate in the Restructure. The Stapled Securities referred in this PDS have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended ( US Securities Act ), or the securities laws of any state or other jurisdiction of the United States and may not be offered or sold, pledged or transferred directly or indirectly, in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and any applicable securities laws of any state or other jurisdiction of the United States. New Zealand The Stapled Securities are not being offered to the public within New Zealand. In New Zealand, the Stapled Securities are being issued to Existing Unitholders who are wholesale investors as such term is defined in clause 3(2) and clause 3(3)(a) of Schedule 1 (provided the eligible investor has provided the necessary certification under the Financial Markets Conduct Act 2013 ( FMC Act )) of the FMC Act. This PDS has been prepared in compliance with Australian law. This document is not a product disclosure statement under the FMC Act or other similar offering or disclosure document under New Zealand law and has not been registered, filed with, or approved by any New Zealand regulatory 3

4 authority or under or in accordance with the FMC Act or any other relevant law in New Zealand. It does not contain all the information that a product disclosure document, under New Zealand law, is required to contain. Disclaimer No person is authorised to give any information, or to make any representation, in connection with the Restructure that is not contained in this PDS. Any information or representation that is not in this PDS may not be relied on as having been authorised by HAML in connection with the Restructure. Except as required by law, and only to the extent so required, neither HAML nor any other person, warrants or guarantees the future performance of the REIT, the repayment of capital, or any return on any investment made pursuant to this information. Past performance is no guarantee of future performance. Photographs and Diagrams Photographs, diagrams and artists renderings contained in this PDS that do not have accompanying descriptions are intended for illustrative purposes only. They should not be interpreted as an endorsement of this PDS or its contents by any person shown in these images. Furthermore, assets not accompanied by a description should not be interpreted as being owned by the REIT. Diagrams used in this PDS are also intended for illustrative purposes only and may not be drawn to scale. 4

5 Contents Important Information Investment overview Overview of the REIT Portfolio overview Australian healthcare and healthcare property market overview Overview of the Heathley Group Financial information Risks Investigating Accountant s Report Summary of Valuation Reports Taxation Fees and other costs Summary of Important Documents Additional Information Glossary Corporate Directory

6 1. Investment overview 1.1. Introduction Topic Summary Reference What is the Heathley Healthcare REIT? Heathley Healthcare REIT will be an Australian Real Estate Investment Trust ("REIT") listed on the ASX and will own interests in a portfolio of quality healthcare property assets throughout Australia. The REIT will comprise an Initial Portfolio of 42 properties, including day hospitals and specialist centres, medical centres, residential aged care facilities, medical offices and private hospitals. Section 2 What are the key themes of the healthcare property sector? What is the REIT s investment objective and strategy? The healthcare property sector offers an attractive investment opportunity supported by the following key themes: The healthcare property sector is underpinned by a significant increase in the demand for healthcare services, which is driven by strong demographic fundamentals in the healthcare sector including a growing and ageing population, and an increased prevalence of chronic disease; The healthcare property sector is expected to grow in response to increasing demand for primary and secondary healthcare services, reflecting a Federal and State Government focus on preventative care as they seek to implement strategies aimed at reducing the overall costs of the healthcare system. The Government focus on cost-effective models of care is also expected to drive increased securitisation of property that has historically been owned by healthcare operators seeking to implement capital efficient operating models; and Healthcare property returns have historically outperformed other property classes such as office, retail and industrial, and have experienced lower volatility, resulting in attractive risk-adjusted returns. The REIT s objective is to provide investors with stable, secure returns and the potential for capital growth by investing in properties in the healthcare sector underpinned by leases to a range of reputable healthcare operators. To achieve its objective, the REIT s strategy is to: Invest in a quality portfolio of strategically located Australian healthcare properties; Diversify the Portfolio by location, property type, tenant and healthcare use; Own properties that have a stable, secure earnings profile, with rental income underpinned by long-term leases with experienced and stable healthcare operators; Adhere to a prudent capital structure and capital management strategy, with target Gearing between 25% to 40%; Pursue acquisition, divestment and investment opportunities, utilising Heathley Group s healthcare sector relationships and expertise; and Continue to assess and, where appropriate, undertake the development of the Portfolio. Section Section 2.2 What is the REIT s policy for acquiring and divesting properties? Heathley Group intends to actively manage the Portfolio, including through acquiring and divesting assets from time to time, to maintain and enhance the quality of the Portfolio. The REIT intends to acquire additional assets in the healthcare sector in the future that satisfy its investment objectives and strategy. Future acquisitions may be sourced from Heathley Group or third parties and may be acquired directly by the REIT or in partnership with other investors. Heathley Group is currently exploring a number of potential acquisition opportunities which will be offered to the REIT in the event that a compelling proposal materialises and is consistent with the REIT s acquisition strategy. Section

7 Topic Summary Reference Will the REIT take on material development risk? The REIT will not undertake speculative development. The strategy of the REIT is to minimise development risk, with a focus on sustainable income returns. The REIT may undertake development where the risk can be materially mitigated and will seek to minimise such development risk via a combination of the following: Planning approvals; Lease pre-commitments; and Rental Guarantees. The REIT may undertake developments on a fund-through basis as a means of accessing newly built, modern properties in a capital efficient manner. The REIT may also undertake development on existing properties to maintain and enhance the quality of the Portfolio. Section Benefits and risks Topic Summary Reference What are the benefits associated with an investment in the REIT? The healthcare property sector is underpinned by a significant increase in the demand for healthcare services, which is driven by: An ageing population; Increasing life expectancy; and An increased prevalence of chronic disease. The REIT has a differentiated healthcare property portfolio focused on cost effective models of care: The REIT will have an Initial Portfolio diversified across the healthcare chain, with a focus on preventative care categories. Demand for these types of healthcare services is expected to increase, reflecting the Federal and State Government focus on preventative care as they seek to implement strategies aimed at reducing the overall costs of the healthcare system; and The shift towards more cost effective, preventative care models is expected to increase demand for primary and secondary healthcare services, which in turn is expected to increase the demand for properties where such services are provided. Healthcare property has demonstrated strong risk-adjusted returns relative to other property sectors: From , the healthcare property total return index increased by 14% per annum 1, which outperformed the office (11%), retail (10%) and industrial (10%) property sectors over the same period. Portfolio diversified by location and healthcare service: The Initial Portfolio is diversified by geography, with properties located in five Australian states, as well as by healthcare property type, comprising day hospitals and specialist centres, medical centres, residential aged care facilities, medical offices and private hospitals. Stable, secure income stream supported by high occupancy and long leases to quality healthcare tenants with transparent rental review structures. Key features of the REIT s leasing profile include: Occupancy of 98.2% 2 ; Weighted Average Lease Expiry ( WALE ) of years; Weighted Average Rental Review ( WARR ) of 2.7% 4 ; A broad distribution of lease expiry dates, diversifying future lease expiries over time; Section MSCI as at June 2018 (compound annual growth rate). 2 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. 3 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 4 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. CPI assumed at 2.0%. Refer to Section 6 for more information on CPI. 7

8 Topic Summary Reference Structured rental growth, with 61% 1 of gross passing income is subject to fixed rental reviews; and 82% of gross passing income is derived from net lease structures, where all or most of the operating costs on the property are borne by the lessee. Growth supported by targeted acquisitions in a fragmented industry and risk-mitigated development opportunities: In addition to income generated from existing tenancies, the REIT has the potential for additional earnings and capital growth by executing future development projects, participating in sector consolidation through acquisitions, and acquiring properties from healthcare operators who are seeking capital efficient operating models. Attractive financial metrics with a conservative capital structure: The REIT will maintain a conservative capital structure and will have a Gearing of 30.0% and Look Through Gearing of 32.4% at Allotment, which is well within the target Gearing range of 25% to 40% to provide capacity to fund potential future acquisitions; Forecast Funds From Operations ( FFO ) Yield of 6.0% annualised for the period from Allotment to 30 June 2019, growing to 6.3% annualised for 1H FY20 representing growth of 4.8%; Forecast Distribution Yield of 5.75% annualised for the period from Allotment to 30 June 2019, growing to 6.00% annualised for 1H FY20 representing growth of 4.5%; Quarterly Distributions with a target range for Distributions of between 90% and 100% of FFO; and Offer Price of $2.00 per Stapled Security represents a premium to NTA of 11.3% as at Allotment, or 10.1% based on the Pro Forma Consolidated Statement of Financial Position at Allotment pro forma for the REIT s Post Completion Developments 2. Managed by a specialised healthcare property funds manager with an experienced team and strong established relationships with sector participants: Heathley Group is a specialist healthcare property funds manager with deep experience, relationships, skills and track record in the healthcare property sector; and The management team has track record in active portfolio management, having completed 47 healthcare property transactions since 2013 with a total acquisition value of $601 million. Experienced, majority independent board with an independent Chairman: The Board is highly capable with significant business, industry and corporate governance experience. What are the key risks associated with an investment in the REIT? Operator risk While the REIT is not an operator of any healthcare assets, the value of the Portfolio and the financial performance of the REIT could be materially adversely affected by a number of operational risks of the tenants of those properties. The majority of the REIT s tenants operate in the highly regulated healthcare sector and a failure by tenants to comply with regulatory requirements could impact these tenants financially. Any reputational damage experienced by the REIT s tenants may materially adversely affect the financial performance of these tenants. Furthermore, the Royal Commission announced by the Australian Government into the aged care sector ( Royal Commission ) could adversely impact aged care operators, both financially and reputationally. Any negative impact on the financial performance of a tenant could materially adversely affect the financial performance of the REIT and Distributions. Rental income The REIT s income is largely generated through leasing arrangements across the Initial Portfolio. Any negative impact on rental income (including a failure of existing tenants to perform existing leases in accordance with their terms) has the potential to decrease the value of the REIT and could materially adversely affect the REIT s financial performance and Distributions. Section 7 1 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes fixed review structures as well as variable review structures with a minimum rental review of 2.5%. 2 The REIT is undertaking six development projects (Maroochydore, Concord West, Hunters Hill, Turramurra, Caringbah and Albany), which are expected to be completed by July

9 Topic Summary Reference Re-leasing and vacancy The Portfolio s leases come up for renewal on a periodic basis and there is a risk that the REIT may not be able to negotiate suitable lease renewals with existing tenants, maintain existing lease terms, or replace outgoing tenants with new tenants. Should the REIT be unable to secure a replacement tenant for a period of time or if replacement tenants lease the property on less favourable terms than existing lease terms, this will result in a lower rental return to the REIT, which could materially adversely affect the financial performance of the REIT and Distributions. Risks associated with existing agreements There are a number of risks associated with the REIT s existing agreements and arrangements, including those related to its relationship agreements with operators, joint venture arrangements and property leases. There is a risk that existing material contracts may be terminated, lost, impaired or renewed on less favourable terms. Some of the REIT s material agreements can be terminated without cause or on short notice periods. The REIT is subject to a number of on-going obligations and is subject to various levels of liability under a number of its material contracts and leases, some of which may contain unusual or otherwise onerous provisions. The properties leased to aged care operators (including Infinite Care and Hall and Prior) are subject to buyback rights in respect of those properties. A loss of any of the REIT s existing agreements and arrangements could materially adversely affect the financial performance of the REIT and Distributions. Tenant concentration In aggregate, approximately 64% of gross passing income of the REIT is generated from the top ten tenants. There is a risk that if one or more of the major tenants ceases to be a tenant, the REIT may not be able to find a suitable replacement tenant or may not be able to secure lease terms that are as favourable as current terms. Should the REIT be unable to secure a replacement tenant for a major tenant for a period of time or if replacement tenants lease the property on less favourable terms, this will result in a lower rental return to the REIT, which could materially adversely affect the financial performance of the REIT and Distributions. Sector concentration It is intended that the REIT will predominantly invest in healthcare properties in the Australian market. Any downturn in activity in the Australian healthcare market could materially adversely affect the financial performance of the REIT and Distributions. Property valuation risk The value of each property held directly or indirectly by the REIT may fluctuate due to various factors that affect the property market generally or individual properties in the REIT. Property valuations represent only the analysis and opinion of qualified experts at a certain point in time. There is no guarantee that a property will achieve a capital gain on its sale or that the value of the property will not fall if the assumptions on which the relevant valuations are based are proven to be incorrect. Acquisition risk There is a risk that the REIT will be unable to identify future properties that meet the REIT s investment objectives, or if such properties are identified, that they cannot be acquired on appropriate terms, thereby potentially limiting the growth of the REIT. Any failure to identify appropriate properties or successfully acquire such properties could materially adversely affect the growth prospects and the financial performance of the REIT and Distributions. Further, if the properties have not been managed consistently with expectations, there is a risk that the financial performance of the REIT may differ from expectations, potentially adversely including writing down the carrying value of assets. Development risk While the strategy of the REIT is to minimise development risk by acquiring properties which have been materially de-risked by having agreements for lease or leasing arrangements in place with tenants, or having received development and regulatory approvals, there are typically higher risks associated with development activities than acquiring and holding completed assets. Reliance on Heathley The Responsible Entity has engaged the Manager to manage the Initial Portfolio on the basis of a long-term Fund Management Agreement as further described in Section 12. The Responsible Entity has also engaged the Property Manager to manage some of the properties in the Initial Portfolio on the basis of a Property Management Agreement as described in Section 12. Any failure of the Manager or the Property Manager to discharge its responsibilities in relation to the management of the Initial Portfolio could materially adversely affect the financial performance of the REIT and Distributions. Each of the Fund Management Agreement and the Property Management Agreement may only be terminated without cause on 9

10 Topic Summary Reference substantial periods of notice or payment in lieu of notice. Investors should note the entrenched position that the Heathley Group will have in the REIT. Funding As part of the overall capital structure, Heathley Finance Company Pty Ltd and National Australia Bank have entered into a binding commitment letter in relation to a syndicated, secured facility, details of which are set out in Section If the REIT is unable to repay or refinance the Proposed Debt Facility upon maturity or in the event of a breach of covenant, the Responsible Entity may have to seek further equity, dispose of assets or enter into new debt facilities on less favourable terms. These factors could materially adversely affect the REIT s ability to operate its business, acquire new properties and fund capital expenditure, and could materially adversely affect the financial performance of the REIT and Distributions. Interest Rates Interest payable on the Debt Facilities will reflect a base interest rate plus interest rate margin and commitment fee. To seek to mitigate the potential impact of interest rate movements, the Responsible Entity will use derivative instruments to hedge the REIT s exposure to interest rates. The mark-to-market valuation of derivative instruments could change quickly and significantly. Such movements could materially adversely affect the financial performance of the REIT and Distributions. For further detail around hedging policy refer to Section Rental Guarantees Under the sale contracts and / or development management agreements for the Maroochydore, Taringa, Cleveland and Yarrabilba, vendors have provided Rental Guarantees which cover nominated vacancies, rental being less than anticipated, existing and new tenant commissions, tenant incentives as well as other leasing and property costs incurred to secure a new tenant for nominated vacancies. If the period to secure a new tenant for any of those vacancies in these properties is longer than anticipated, the rental under a new lease is less than anticipated, or the leasing commissions and incentives are higher than anticipated, the cash held on trust may not be sufficient to fully recompense the REIT. In these circumstances, rental income could be negatively impacted which could materially adversely affect the REIT s financial performance and Distributions. Capital expenditure risk The forecast capital expenditure represents the Responsible Entity s current best estimate of the associated costs of maintaining the Portfolio over the Forecast Period. There is a risk that the required capital expenditure exceeds the current forecasts, which could lead to increased funding costs. Some examples of these circumstances could include changes to laws or council requirements such as environmental, building or safety regulations, property defects or environmental issues, which become apparent in the future or where the damage is not covered by insurance. Any requirement for unforeseen material capital expenditure on the properties could materially adversely affect the financial performance of the REIT and Distributions. Other A number of other key risks relating specifically to an investment in the REIT and generally to an investment in the Stapled Securities are included in Section 7, including risks associated with property liquidity, reliance on third parties, compliance, interest rates, leasehold title, insurance, financial forecasts, changes in law and government policy, occupational health and safety, environmental issues and litigation and disputes. 10

11 1.3. Initial Portfolio Topic Summary Reference What are the key metrics of the Initial Portfolio? Key Initial Portfolio statistics Number of Properties 42 Section 2.1 Independent Valuation 1 $528.4 million Weighted Average Capitalisation Rate ( WACR ) 2 6.5% Occupancy % WALE years Proportion of income subject to fixed rental increases 5 61% WARR 6 2.7% Which healthcare property types will comprise the Initial Portfolio? A summary of the assets in the Initial Portfolio by asset type is set out below, with further detail of each property provided in Section 3. Property type 7 Number of properties Independent Valuation Capitalisation Rate Occupancy WALE (#) ($m) (%) (%) (years) Section 3.1 Day hospitals & specialist centres 11 $ % 100.0% 9.7 Medical centres 13 $ % 96.9% 4.6 Residential aged care facilities 12 $ % 100.0% 17.4 Medical offices 3 $ % 92.7% 4.2 Private hospitals 3 $ % 99.5% 9.5 Total / Weighted average 42 $ % 98.2% Based on Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assume completion of the REIT s Post Completion Developments. Refer to Section 9 for further details. The valuation of the Initial Portfolio on an as is basis as at 1 September 2018 is $458.7 million (excluding HHPF). Adjusting for any pro forma development costs to Allotment results in a valuation of $468.4m (excluding HHPF). 2 Weighted by Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assume completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. 3 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. 4 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 5 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes fixed review structures as well as variable review structures with a minimum rental review of 2.5%. 6 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. CPI assumed at 2.0%. Refer to Section 6 for more information on CPI. 7 Property type based on primary use for each property. 11

12 Topic Summary Reference Who are the top tenants of the Initial Portfolio of the REIT by gross passing income? What is the REIT's valuation policy? Name % of total Gross Passing Income 1 (per annum) Infinite Care 12.8% Primary Health Care Limited % Sonic Healthcare Limited 3 7.2% Queensland Health 6.7% Mater 4 5.1% Montserrat Day Hospitals 5 4.6% Healthe Care 6 4.3% Vision Eye Institute 4.0% Hall and Prior 3.9% GenesisCare 7 3.7% Top 10 tenants 63.9% The Manager expects to conduct an investment property valuation process on a semi-annual basis by either professionally qualified independent valuers or by the Manager. An Independent Valuation is required at a minimum of every 12 months. Section 3.1 Section Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. 2 Includes tenancies of subsidiaries: QML Pathology and Queensland Diagnostic Imaging. 3 Includes tenancies of subsidiaries: IPN Medical Centres and Queensland X-Ray. 4 Mater relates to: Mater Health Services North Queensland and Mater Misericordiae Health Services Brisbane Limited. 5 Includes tenancies of subsidiaries: Western Haematology and Oncology Clinics and Montserrat Healthcare. On 10 September 2018, Primary Health Care Limited announced that it had signed a binding agreement to acquire Montserrat Day Hospitals. 6 Includes tenancies of subsidiary: Pulse Health. 7 Includes tenancies of subsidiary: Queensland Respiratory Services. 12

13 1.4. Responsible entity, governance, Board and management Topic Summary Reference How will the REIT be structured? The REIT is a stapled property group comprising 4 Stapled Trusts and their wholly owned entities. The Initial Portfolio will comprise 42 properties. Figure 1.1 Structure of the REIT Who will be the Responsible Entity, Manager and Property Manager of the REIT? What are the management arrangements of the REIT? Key: HDMF1: HDMF2: HACPF1: HHPF: SPUT: HKPF32: HDFT: Heathley Direct Medical Fund No.1 Heathley Direct Medical Fund No.2 Heathley Aged Care Property Fund No.1 Heathley Healthcare Property Fund Stetson Property Unit Trust Heathley Keystone Property Fund No.32 Heathley Development and Finance Trust HJVPF: Heathley Joint Venture Property Fund 1 The Responsible Entity of the REIT is HAML, a wholly owned subsidiary of Heathley Limited ( Heathley ). The Manager of the REIT is Heathley Funds Management Pty Ltd ( HFM ), a wholly owned subsidiary of Heathley. Property management services will be provided by Heathley Property Services Pty Ltd ( HPS or the Property Manager ), a wholly owned subsidiary of Heathley. Heathley, HAML, HFM and HPS are members of the Heathley Group. The Heathley Group is a healthcare real estate funds manager whose experience, relationships, skills and track record have created value for investors and positioned it for future growth in the sector. The Heathley Group has over 28 years of property funds management experience and has specialised in healthcare property since The Heathley Group saw an opportunity in the healthcare property sector s attractive fundamentals relative to other property sectors, where in-depth knowledge and long-term relationships can add value for investors and create an enduring competitive advantage as a manager. Heathley Group will provide fund and property management services in respect of the Portfolio. Under the Fund Management Agreement, the Manager will provide investment management services including marketing, acquisitions, developments and day-to-day management of the REIT s assets. Property management services will be provided by the Property Manager in respect of the Initial Portfolio. The Property Manager may outsource property management services to third parties, and has sub-contracted Cushman and Wakefield to provide property management services at 30 properties in the Initial Portfolio. While the Heathley Group outsources day-today property management of certain properties to Cushman and Wakefield, it controls leasing activities, the execution of capital projects, and relationships with tenants. Section 2.4 Section % co-owned by Grosvenor Australasia Investments Pty Ltd, a privately owned property company. 13

14 Topic Summary Reference Who are the Directors of the Responsible Entity? The Directors of the Responsible Entity are: Peter Barnes (Independent Chairman) Over 40 years' experience in the property Industry, including executive roles at Lend Lease, Ernst & Young, Commonwealth Bank Institutional Bank and CRI Australia Limited; Current directorships include Non-Executive Chairman of Domus Multi Family REIT, Charter Hall Investment Management Limited, and Capstone Recruitment Pty Limited and Non-Executive Director of V-Plus Fund and Richard Crookes Constructions Pty Limited; and Past directorships include Chairman Advisory Committee of Taylor Constructions Pty Limited, Chairman Real Estate of PPB Advisory Pty Limited and Non-Executive Director of Goodman Australia Industrial Fund and FKP Funds Management Pty Limited. Eve Crestani (Independent Non-Executive Director) Qualified in law, with 28 years experience as a non-executive; Currently a director of Australian Unity Investment Real Estate Limited, booking.com, and Chairman of Seres (Hong Kong); Former director of the Zurich Group and Australian Unity, and Chairman of Mercer Super; and Sits on the ASX Disciplinary Tribunal and has been a Fellow of AICD since its inception. Pro bono activities include Director of Soils For Life and judge of the Ethnic Business Awards. Gary Barnier (Independent Non-Executive Director) Over 15 years' experience as a senior leader in the healthcare sector, including Managing Director of Opal Aged Care, CFO of DCA Group Limited, and CEO of the I-Med Network Limited; Currently Managing Director of Cooperage Capital, member of the Aged Care Financing Authority and Board Member on the NHMRC s National Institute for Dementia Research; Previously sat on the Aged Care Sector Committee, Strategic Workforce Advisory Group for Aged Care and was a founding Director of the Aged Care Guild; and Previous senior management roles in marketing and strategy with companies such as Boral and George Weston Foods. Alison Harrop (Non-Executive Director) Chief Financial Officer at Dexus responsible for the overall finance function, including taxation, treasury, management accounting, corporate accounting and planning and analysis. Alison is also responsible for technology, people & communities and business improvement; Has over 25 years experience in finance management in Australia and overseas; She has worked across multi-disciplinary finance, risk and assurance teams for organisations including Westpac, Australia Post, Macquarie Group and Deutsche Bank; and She is a Fellow of the Institute of Chartered Accountants in Australia, a Graduate of the Australian Institute of Company Directors and holds a Bachelor of Science (Mathematics) degree from Loughborough University in England. Andrew Hemming (Executive Director) Appointed Managing Director in August 2013 and is responsible for the day-to-day leadership and management of the Heathley Group; Previously Investment Specialist Real Estate Funds with Folkestone Limited; Worked at Heathley Group from 2007 to 2011; and 17 years experience in investment markets with leading international financial institutions including HSBC, Merrill Lynch and BNP Paribas. Section

15 Topic Summary Reference Who are the key members of management? The Heathley Group is providing the services of Heathley, HAML, HFM and HPS, which will in turn provide access to key executives, including the following individuals dedicated to the management of the REIT: Section 5.7 Name Toby Kreis Vijitha Yogavaran Camilla Brown Belinda Carter Jordan Luong Role Fund Manager Over 10 years experience in funds management having held roles at listed A-REIT s prior to joining Heathley Portfolio Manager Over 10 years experience in property funds management and corporate finance, having held roles at Investa Property Group prior to joining Heathley Investment Manager Aged Care Experience with investment management and capital markets, having previously held roles at Macquarie Bank and Legal and General prior to joining Heathley Asset Manager Over 13 years experience in property management having held roles at Australian Unity and Teska & Carson prior to joining Heathley Property Analyst Experience as an analyst at PricewaterhouseCoopers focusing on the property and real estate industry The REIT will be the primary focus for the Heathley Group and assets owned by the REIT will represent 93% of the Heathley Group s funds under management pro forma for the REIT s Post Completion Developments 1. The REIT s management team is able to draw on the broader resources of the Heathley Group, which comprises a total of 16 staff, including key individuals such as Andrew Hemming, George Websdale, Geoff Bryant and Mark Howard. Name Andrew Hemming George Websdale Geoff Bryant Mark Howard Role Managing Director Refer to previous question Executive Director Property Over 26 years experience across all aspects of property and previously the General Manager for Office and Industrial at Stockland Property Group Chief Financial Officer Over 26 years experience in senior finance roles and was previously General Manager of IR and M&A at Spotless and General Manager Finance at Woolworths and P&O Group Investment Director Over 14 years experience across property analytics and investment appraisal What is the relationship between the REIT and the Heathley Group going forward? Heathley Group will maintain an ongoing relationship with the REIT with regard to the following: The Responsible Entity is a member of the Heathley Group; The Manager and the Property Manager are members of the Heathley Group; and Dexus, which has a 28.5% ownership in Heathley, will maintain an investment in the REIT and at Completion will have an investment of 10% of Stapled Securities on issue. The Heathley Group will also maintain an ongoing relationship with the REIT via Heathley s assessment of future acquisitions and targeted development opportunities. Section Based on Independent Valuations on an as if complete basis and assume completion of the REIT s Post Completion Developments. 15

16 Topic Summary Reference Will Securityholders be able to appoint the Directors of the Board? No. As the Responsible Entity is a wholly-owned subsidiary of Heathley, the Directors are appointed by Heathley. What will be the governance arrangements for the REIT? Will annual and half-yearly financial reports be provided to Securityholders? The Board has established governance arrangements to ensure that the REIT will be effectively managed in a manner that is properly focused on its investment objectives and the interests of the Securityholders, as well as conforming to regulatory and ethical requirements. The REIT will report on a 30 June financial year basis. Formal reporting will be provided to Securityholders as at 30 June (full year) and 31 December (interim) each year. Section 5.8 Section 2.9 Will the REIT hold annual general meetings? The Responsible Entity may convene and arrange general meetings whenever it thinks fit and must do so if required under the Corporations Act. Each Securityholder will receive notice of general meetings and be entitled to attend and vote at any general meeting in accordance with the Corporations Act. Can the Responsible Entity be removed? Yes, by an ordinary resolution of Securityholders once listed. Section and What would be the consequences of removing the Responsible Entity? If HAML is removed or retires as Responsible Entity of the REIT: The REIT will cease to have full access to the expertise and resources of the Heathley Group to manage the operations of the REIT and the Directors will no longer be involved in the management of the REIT; and Where the replacement responsible entity is not a member of the Heathley Group, it will be able to terminate the Fund Management Agreement and the Property Management Agreement and the REIT will cease to have access to the services, expertise and resources of the Manager and the Property Manager under those agreements. Section Financial information Topic Summary Reference What is the REIT's expected FFO and Distribution Yield? What is the REIT's Distribution policy? The REIT is forecast to have a FFO Yield (based on the Offer Price) of: 6.0% (annualised) for the period from Allotment to 30 June 2019; and 6.3% (annualised) for 1H FY20, representing growth of 4.8%. The REIT is forecast to have a Distribution Yield (based on the Offer Price) of: 5.75% (annualised) for the period from Allotment to 30 June 2019; and 6.00% (annualised) for 1H FY20, representing growth of 4.5%. The Manager intends to distribute 90 to 100% of the REIT s FFO, however the Board of the Responsible Entity retains the discretion to amend the Distribution policy. The Responsible Entity intends to pay Distributions quarterly, with Securityholders receiving Distributions within two months following the end of each Distribution period, being the periods ending 30 September, 31 December, 31 March and 30 June each year. The first distribution is expected to be paid for the period between Allotment and 31 March Section Sections 2.7 and Are Distributions guaranteed? No, Distributions are not guaranteed. What portion of the Distributions will be tax deferred for Australian tax purposes? Approximately 47% of the Distributions for the period from Allotment to 30 June 2019 are expected to be tax deferred. Approximately 40% of the Distributions for 1H FY20 are expected to be tax deferred. Section

17 Topic Summary Reference What is the pro forma NTA per Stapled Security? What will be the Gearing of the REIT? The REIT is expected to have an NTA of $1.80 per Stapled Security at Allotment. The REIT s NTA is expected to increase to $1.82 per Stapled Security pro forma for the REIT s Post Completion Developments. At Allotment, the REIT is expected to have Gearing of 30.0% and Look Through Gearing of 32.4%. Gearing and Look Through Gearing will increase to 32.3% and 34.5% respectively, assuming completion of the REIT s Post Completion Developments. Section 6.4 Section 6.4 What is the REIT s hedging policy? The Manager intends to have a hedging policy to fix interest rates in respect of 50% to 100% of drawn debt over a range of maturity dates. Section Transaction costs Topic Summary Reference What are the Transaction costs are expected to be approximately $16.5 million. Transaction costs transaction will be paid by the REIT from the proceeds of the Offer. costs associated with the Offer? Sections

18 2. Overview of the REIT 2.1. Introduction Heathley Healthcare REIT will be an Australian Real Estate Investment Trust listed on the ASX and will own interests in quality healthcare property assets throughout Australia. The REIT will comprise an Initial Portfolio of 42 properties, including day hospitals and specialist centres, medical centres, residential aged care facilities, medical offices and private hospitals. A summary of the Initial Portfolio key statistics is below, with further detail of each property provided in Section 3. Key Initial Portfolio statistics Number of Properties 42 Independent Valuation 1 $528.4 million WACR 2 6.5% Occupancy % WALE years Proportion of income subject to fixed rental increases 5 61% WARR 6 2.7% The REIT will be externally managed by members of the Heathley Group. The Responsible Entity of the REIT is HAML, a wholly owned subsidiary of Heathley. Funds management services will be provided by the Manager, HFM, a wholly owned subsidiary of Heathley. Refer to Section 5 for further details on the Heathley Group. 1 Based on Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assume completion of the REIT s Post Completion Developments. Refer to Section 9 for further details. The valuation of the Initial Portfolio on an as is basis as at 1 September 2018 is $458.7 million (excluding HHPF). Adjusting for any pro forma development costs to Allotment results in a valuation of $468.4m (excluding HHPF). 2 Weighted by Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assume completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. 3 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. 4 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 5 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes fixed review structures as well as variable review structures with a minimum rental review of 2.5%. 6 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. CPI assumed at 2.0%. Refer to Section 6 for more information on CPI. 18

19 2.2. Objectives and strategy of the REIT The REIT s objective is to provide investors with stable, secure income returns and the potential for capital growth by investing in properties in the healthcare sector underpinned by leases to a range of reputable healthcare operators. The REIT targets properties in the healthcare sector because it is a sector that benefits from growing non-discretionary demand and has outperformed other property sectors such as retail, office and industrial in the period from 2004 to To achieve its objective, the REIT s strategy is to: Invest in a quality portfolio of strategically located Australian healthcare properties; Diversify the Portfolio by location, property type, tenant and healthcare use; Own properties that have a stable, secure earnings profile, with rental income underpinned by long-term leases with experienced and reputable healthcare operators; Adhere to a prudent capital structure and capital management strategy, with target Gearing between 25% to 40%; Pursue acquisition, divestment and investment opportunities, utilising the Heathley Group s healthcare sector relationships and expertise; and Continue to assess and, where appropriate, undertake the development potential of the Portfolio. Through Heathley Group s in-depth healthcare property sector knowledge and operator relationships, it has access to investment opportunities which are expected to assist the REIT in targeting superior risk-adjusted returns for investors. Heathley Group intends to actively manage the Portfolio to maintain and enhance its quality through: Undertaking active asset management initiatives in respect of each asset within the Portfolio; and Acquiring and divesting assets in the Portfolio from time to time Active asset management initiatives Heathley Group creates and maintains an asset management plan for each asset within the Portfolio which focuses on maximising the value of that asset through the following initiatives: Asset refurbishment and lease structuring; and Asset development and expansion. Asset refurbishment and lease structuring Heathley Group will continually assess the Portfolio to drive growth within the current Portfolio. Heathley Group seeks to maintain and enhance the quality of the assets in the Portfolio through asset refurbishment programmes. When refurbishing assets, Heathley Group undertakes capital expenditure programs designed to achieve an optimal yield on cost. Heathley Group uses a collaborative and integrated approach in undertaking capital works for their tenants, ensuring the space requirements are efficient and cost effective. Heathley Group prides itself on partnering prudently with its healthcare tenants. This is demonstrated in how it thinks through negotiating and structuring the leases within the Portfolio. Given the complexities and specialised nature of these assets and the businesses which occupy them, Heathley Group focuses on setting rents at a conservative level where it believes the earnings of the business are stable. Heathley Group believes that this approach assists in retaining tenants and maximises tenant renewals on lease expiry. Asset development and expansion Understanding, identifying and executing asset development and expansion opportunities within the Portfolio is also an important focus of the REIT in driving value and growth. The REIT s property development strategy will focus on partnering with tenants to deliver brownfield and greenfield development and expansion projects, and will assist the REIT in executing on its asset repositioning 19

20 strategies that are designed to maintain and enhance the quality of the Portfolio. Undertaking such brownfield and greenfield development is important in ensuring that the Portfolio caters for the business needs of its tenants and is able to respond to the changing dynamics of the healthcare sector. The REIT has determined that it will progressively roll out solar energy infrastructure at suitable properties within the Portfolio, including at properties where the tenant requests the installation of such infrastructure. To facilitate the installation and management of solar energy infrastructure at properties within the Portfolio, the Responsible Entity has intends to enter into an exclusive agreement with Energy Bay Pty Ltd to provide such services, details of which are set out in Section 12. The strategy of the REIT is to minimise development risk, with a focus on sustainable income returns. The REIT will not undertake speculative development. The REIT may undertake development where the risk can be materially mitigated and will seek to minimise such development risk via a combination of the following: Planning approvals; Lease pre-commitments; and Rental Guarantees. The REIT may undertake greenfield developments, brownfield developments and fund-through developments. Greenfield development is the development of new building for a higher and better use on previously underdeveloped land. Brownfield development is the expansion, redevelopment or refurbishment of a property for its existing use. Both greenfield and brownfield development require the developer to take on varying development risks, including but limited to; planning approvals, leasing risks, construction pricing and other delivery risks. Fund-through developments are acquisitions of development properties that have had major development risks removed. The REIT may undertake fund-through developments as a means of accessing newly built, modern properties in a capital efficient manner. Generally, fund-through developments involve the purchaser agreeing the fully developed property value prior to construction, acquiring the land with planning approvals, leasing and a construction contract in place, and funding the construction of the development until completion. Typically the purchaser is entitled to interest for funding the costs of the development which is generally capitalised throughout the development period and removed from the agreed property value or purchase price. The REIT is undertaking six development projects (Maroochydore, Concord West, Hunters Hill, Turramurra, Caringbah and Albany), which are expected to be completed by July 2019 ( Post Completion Developments ) Acquisition and divestment strategy Heathley Group intends to actively manage the Portfolio, including through acquiring and divesting assets from time to time, to maintain and enhance the quality of the Portfolio. The REIT intends to acquire additional assets in the healthcare sector in the future that satisfy its investment objectives and strategy. Future acquisitions may be sourced from Heathley Group or third parties and may be acquired directly by the REIT or in partnership with other investors. Heathley Group will look to assess potential acquisitions against the following criteria (subject to the REIT s investment objectives): Strategic location in areas with demographics supporting the demand for the healthcare services; Anchor tenant with strong covenant, sustainable healthcare operating model and a long term requirement to remain at the property; Opportunity to add value through active asset management such as development or expansion potential; and Co-location of medical and ancillary services creating a sustainable health ecosystem. 20

21 Heathley Group is currently exploring a number of potential acquisition opportunities which (subject to compliance with its obligations to third parties) will be offered to the REIT in the event that a compelling proposal materialises and is consistent with the REIT s acquisition strategy. These opportunities relate to properties located in multiple states including New South Wales, Tasmania, Queensland and Western Australia. No decision has been made as to whether any properties currently being evaluated by the Manager will be acquired by the REIT and any such decision will be subject to due diligence, the REIT s objectives and relevant approvals. Heathley Group will seek to capitalise on the growth in the value of the assets in the Portfolio after it has successfully executed its asset management plan. Through progressive asset divestment, Heathley Group will maintain a focus on adding value and driving capital returns. Proceeds from divesting assets are reinvested into targeted acquisition opportunities, where the assets can benefit significantly from a more active management style. This capital recycling program seeks to ensure that the Portfolio property value is maximised Benefits of an investment in the REIT The healthcare property sector is underpinned by a significant increase in the demand for healthcare services The healthcare property sector is underpinned by a significant increase in demand for healthcare services, which is being driven by: An ageing population: Elderly age groups tend to suffer from greater incidence of illness/disease and have a greater need for healthcare services. As the proportion of the population in these elderly age groups increases, so does the demand for healthcare services; Increasing life expectancy: Scientific and technological advancements have resulted in patients living longer. As noted above, elderly age groups have a greater demand for healthcare services. As they live longer, it is expected they will need to be treated for more illnesses and for a longer period of time, further increasing the demand for healthcare services; and An increased prevalence of chronic disease: Improvements in detection and treatment, as well as lifestyle factors (e.g. poor diet and limited exercise) are increasing the incidence of chronic disease. It is estimated that approximately 80% of Australians are living with longterm health conditions 1, which require a higher level of ongoing care than the general population. Increased demand for healthcare services has increased the demand for healthcare professionals and properties from which they can provide their services, which has in turn increased the demand for high quality healthcare property assets. Refer to Section 4.5 for further details on the above demand drivers. 1 ABS, Gender Indicators, Australia, September Long-term conditions are defined as medical conditions (illnesses, injuries or disabilities) which were current at the time of the survey and which had lasted at least six months, or which the respondent expected to last for six months or more. 21

22 Figure 2.1 Figure 2.2 Figure 2.3 Australian population growth ( CAGR) 1 Projected life expectancy at birth (years) 2 Proportion of population with one or more long-term health conditions 3 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1.5% Total population 3.1% 65+ years Male Female % 80.0% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% 77.0% 72.7% Male FY % 76.3% Female FY The REIT has a differentiated healthcare property portfolio focused on cost effective models of care The REIT will have an Initial Portfolio diversified across the healthcare chain, with a focus on preventative care categories. Preventative care is generally considered to be a more cost effective model of care as it focuses on providing services to outpatients (i.e. not requiring hospital admission) rather than inpatients (requiring hospital admission). Demand for these types of healthcare services is expected to increase reflecting the current Federal and State Government focus on preventative care as they seek to implement strategies aimed at reducing the overall costs of the healthcare system. In February 2018, the Federal and State Governments signed a Heads of Agreement 4 that outlined a new five-year national health agreement commencing in This agreement included reforms to decrease avoidable demand for public hospital services by continuing to focus on preventative care. The shift towards more cost-effective preventative care models is expected to increase demand for primary and secondary healthcare services (i.e. general medical and dental practitioners and specialist services requiring a referral from a general medical and dental practitioner), which in turn is expected to increase the demand for properties where such services are provided. Refer to Section for further information on primary and secondary healthcare. 1 ABS, Population Projections. 2 Department of Treasury Treasury projections from 2015 Intergenerational Report: Australia in ABS, Gender Indicators, Australia, September Council of Australian Governments Heads of Agreement on public hospital funding and health reform, February

23 Figure 2.4 Relative costs across the healthcare chain 1234 General medical healthcare chain Primary Secondary Tertiary Medical centres Specialist facilities & day hospitals Overnight hospitals & acute care Average cost per event Strategic focus $303 $1,070 $5,012 Senior living healthcare chain Tertiary Retirement village Home care Residential aged care Overnight hospitals & acute care Average cost per resident day Strategic focus n/a n/a $254 $5, Healthcare property has demonstrated strong risk-adjusted returns relative to other property sectors The Australian healthcare property sector has exhibited strong total returns over the past decade when compared to office, industrial and retail property sectors. In the period from 2004 to 2018, the healthcare property sector total return index increased by 14% per annum 5 compared with 11% for office property, 10% for retail property and 10% for industrial property. Refer to Section for further details on past performance of the healthcare property sector. 1 ACFA Fifth Report on the Funding and Financing of the Aged Care Sector August Independent Hospital Pricing Authority National Hospital Cost Data Collection Cost Report Retirement village and residential aged care costs only include government expenditure and not resident contributions. 4 Average cost per event is based on average cost per non admitted service event for medical centres, average cost per subacute care separation for day hospitals and average cost per admitted acute separation for overnight hospitals year compound annual growth rate. 23

24 Annualised total return since 2004 Figure 2.5 Australian direct property total return indices since (rebased to 100) CAGR 14.2% 12.8% 10.7% 10.3% 9.9% Retail Office Industrial Hotel Healthcare Furthermore, the healthcare property sector has experienced relatively low volatility compared to other real estate asset classes, exhibited by a lower standard deviation of total returns, when compared to office, industrial and retail property sectors, over the past decade. As a result, healthcare property has demonstrated strong risk-adjusted returns relative to other property sectors. Healthcare property returns have historically been less susceptible to macro-economic factors impacting the broader market, as evidenced by the low correlations of healthcare property in the table below, as compared to other property sectors, further demonstrating its defensive non-cyclical characteristics. Figure 2.6 Standard deviation and total return per sector % 14.0% Healthcare Hotel 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Retail Industrial Office % 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Annualised standard deviation since Portfolio diversified by location and healthcare service The Initial Portfolio is diversified by geography, with properties located in five Australian states. The Initial Portfolio is also diversified by healthcare property type, comprising day hospitals and specialist centres, medical centres, residential aged care facilities, medical offices and private hospitals. Refer to Section 3 for further details on the Initial Portfolio. 1 MSCI, as at June The Healthcare category is based on the IPD Australia Quarterly Healthcare Index, which provides a broad measure of investment returns for the healthcare property market in Australia and tracks the investment performance of 92 healthcare assets totalling $2.6 billion. 2 MSCI, as at June

25 Figure 2.7 Initial Portfolio geographic split by state 1 Figure 2.8 Initial Portfolio split by healthcare service 2 WA 9% SA NSW Medical 13% 14% Office Day 9% VIC 3% Aged Care 20% Hospitals & Specialist Centres 37% QLD 61% Private Hospitals 6% Medical Centres 28% Stable, secure income stream supported by high occupancy and long leases to quality healthcare tenants with transparent rental review structures The REIT has long-term leases with quality healthcare operators including Infinite Care (13% of 1 September 2018 gross passing income), subsidiaries of ASX-listed Primary Health Care Limited (12% 3 ), subsidiaries of ASX-listed Sonic Healthcare Limited (7% 4 ) and Queensland Health (7%). Key features of the REIT s leasing profile include: Occupancy of 98.2% 5 ; WALE of years; WARR of 2.7% 7 ; Diversified tenant base with 64% of gross passing income represented by the top 10 tenants; A broad distribution of lease expiry dates, diversifying future lease expiries over time; Structured rental growth, with 61% of gross passing income subject to fixed rental reviews 8 ; and 82% of gross passing income derived from net lease structures where all or most of the operating costs on the property are borne by the lessee. Refer to Section 3 for further details on tenant diversification. 1 Weighted by Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. 2 Weighted by Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. 3 Includes tenancies of subsidiaries: QML Pathology and Queensland Diagnostic Imaging. 4 Includes tenancies of subsidiaries: IPN Medical Centres and Queensland X-Ray. 5 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. 6 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 7 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. CPI assumed at 2.0%. Refer to Section 6 for more information on CPI. 8 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes fixed review structures as well as variable review structures with a minimum rental review of 2.5%. 25

26 Figure % of gross passing income is subject to fixed rent reviews 12 Figure 2.10 A broad distribution of lease expiry dates, diversifying future lease expiries over time 3 CPI linked 31% Nil / Expiry 8% 38% Fixed 61% 2% 4% 6% 10% 6% 4% 5% 1% 11% 11% VacantJun 19 Jun 20 Jun 21 Jun 22 Jun 23 Jun 24 Jun 25 Jun 26 Jun 27 Jun 28 3% Jun Growth supported by targeted acquisitions in a fragmented industry and riskmitigated development opportunities In addition to income generated from existing tenancies, the REIT has the potential for additional earnings and capital growth from: Executing future development projects in the Portfolio A number of development opportunities have been identified within the portfolio. The REIT will seek to continue the identify development opportunities in order to enhance the quality of the assets within the Portfolio and will apply a disciplined approach and will continue to take reasonable steps to mitigate development and delivery risk; and Development is currently being undertaken at a number of properties within the Portfolio, including Maroochydore, Concord West, Hunters Hill, Turramurra, Caringbah and Albany. Development activities at these properties are being funded either on the basis of fund throughs or on the basis of fully funding the capital project. Participating in sector consolidation through acquisitions of additional healthcare properties Most properties in the healthcare sector are held in smaller portfolios or by single-asset ownership (e.g. operators), which provides an opportunity for the REIT to grow in scale through consolidation. Larger scale could contribute to enhanced leasing outcomes through access to deeper relationships with tenants as well as cost efficiencies with service providers; Heathley Group s specialist healthcare property sector expertise and relationships with healthcare operators positions the REIT to take advantage of potential consolidation opportunities within the healthcare property sector; Heathley Group is currently exploring a number of potential acquisitions opportunities which (subject to compliance with its obligations to third parties) will be offered to the REIT in the event that a compelling proposal materialises; and Furthermore, part of the proceeds of the Offer will be used to fund the acquisition of the Acquisition Portfolio, comprising five assets (Taringa, Wagga Wagga, Hurstville, West Albury and Chermside (lots 7-8)). 1 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Fixed category includes variable review structures with a minimum rental review of 2.5%. 2 CPI linked 31% includes: CPI and CPI with a minimum of 1.25% and of maximum 5% (approximately 20%), CPI plus 0.75%/1.00% (approximately 5%) and CPI with a cap of 3.00% % (approximately 6%). 3 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 26

27 Acquiring properties from healthcare operators who are seeking more capital efficient operating models There is currently a low level of securitisation in the Australian healthcare property sector. It is estimated that in 2016 only $5.2 1 billion of healthcare property was securitised (the total Australian securitised property market is $197 2 billion). This is significantly lower than the rates of securitisation of healthcare property assets in other developed countries, such as the United States and Canada; and Moving forward, to meet increasing demand for lower cost healthcare, operators are expected to consider capital efficient operating models where the real estate is owned and managed by third party operators with specialist skills. Given Heathley Group s specialist healthcare property sector expertise and relationships with healthcare sector operators, the REIT is positioned to benefit from the expected securitisation of assets in the healthcare property sector Attractive financial metrics with a conservative capital structure The REIT will maintain a conservative capital structure and will have a Gearing of 30.0% and Look Through Gearing of 32.4% at Allotment. Gearing and Look Through Gearing will increase to 32.3% and 34.5% respectively, pro forma for the REIT s Post Completion Developments as at July The initial capital structure has been set within the target Gearing range of 25% to 40% in order to provide capacity to fund potential acquisitions that are consistent with the strategy of the REIT. Gearing may be higher if the Responsible Entity considers that circumstances warrant a short-term increase beyond the targeted range and that it is prudent to do so. The REIT is forecast to have an FFO Yield of: 6.0% annualised for the period from Allotment to 30 June 2019; and 6.3% annualised for 1H FY20, representing growth of 4.8%. The REIT expects to pay quarterly Distributions to Securityholders and will target a range for Distributions of between 90% and 100% of FFO. The REIT is forecast to have a Distribution Yield of: 5.75% annualised for the period from Allotment to 30 June 2019; and 6.00% annualised for 1H FY20, representing growth of 4.5%. FFO and Distribution growth is underpinned by the REIT s Initial Portfolio WARR of 2.7% 3, executing future development projects across the Portfolio and acquisitions of additional healthcare properties Managed by a specialised healthcare property funds manager with an experienced team and strong established relationships with sector participants Heathley Group is a specialist healthcare property funds manager with deep property sector experience, relationships, skills and track record in the healthcare property sector. Founded in 1977, Heathley Group has over 28 years of property funds management experience and has successfully established 42 investment funds. The management team has track record in active portfolio management, having completed 47 healthcare property transactions since specialising in the healthcare property sector in 2013, with total acquisition value of $601 million. The Heathley Group saw an opportunity in the healthcare property sector s attractive fundamentals relative to other property sectors. The Heathley Group has developed in-depth knowledge of the sector s fundamentals and its strategic opportunities as well as deep, long-term relationships with a network of medical professionals, healthcare operators, land owners, developers and investors which it leverages to identify and pursue acquisition, development and investment opportunities. Heathley Group has adopted a partnership model with these participants in the healthcare property sector. 1 Estimate based on publicly available information released by the following healthcare property managers (in addition to Heathley): Australian Unity, Dexus, Barwon, Northwest Healthcare and Arena REIT. 2 MSCI, as at June Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. CPI assumed at 2.0%. Refer to Section 6 for more information on CPI. 27

28 Furthermore, the Heathley Group has entered into a strategic partnership with Dexus, a leading Australian property group listed on the ASX with a $27.2 billion in assets under management 1. In conjunction with the Offer and the Restructure, Dexus has agreed to subscribe for 28.5% of the shares in Heathley Limited and subscribe for 10% of Stapled Securities in the REIT. Heathley Group s strategic partnership with Dexus is expected to offer the REIT access to additional healthcare partnerships. Heathley Group s interests are strongly aligned with the REIT s performance via the following: The performance fee structure; The 10% ownership in the REIT by Dexus at Completion; and The REIT will be the primary focus for the Heathley Group given the REIT s assets (including 2 partly owned assets) represent 93% of the Manager s funds under management 2. Refer to Section 5 for further information on the Heathley Group Experienced, majority independent board with an independent Chairman The Board is comprised of five members, the majority of whom are independent of Heathley Group, being the Chairman, Peter Barnes and two non-executive directors, Eve Crestani and Gary Barnier. The Board is highly capable with significant business, industry and corporate governance experience. For further detail refer to Section Structure of the REIT The REIT is a stapled property group comprising 4 Stapled Trusts and their wholly owned entities. The REIT will be externally managed and the responsible entity of the REIT is HAML, a wholly owned subsidiary of Heathley. Funds management services will be provided by the Manager, a wholly owned subsidiary of Heathley. Property management services will be provided by HPS, a wholly owned subsidiary of Heathley in respect of the Initial Portfolio. The Property Manager may outsource property management services to third parties, and has sub-contracted with Cushman and Wakefield to provide property management services at 30 properties in the Initial Portfolio. While the Heathley Group outsources the day to day management of certain properties to Cushman and Wakefield, it controls the relationships with tenants, leasing and capital projects. Heathley, HAML, HFM and HPS are members of the Heathley Group. For information regarding the establishment of the REIT, refer to Section As at 30 June Based on Independent Valuations on an as if complete basis, assuming completion of the REIT s Post Completion Developments. 28

29 Figure 2.11 Structure of the REIT Key: HDMF1: Heathley Direct Medical Fund No.1 HDMF2: Heathley Direct Medical Fund No.2 HACPF1: Heathley Aged Care Property Fund No.1 HHPF: Heathley Healthcare Property Fund SPUT: Stetson Property Unit Trust HKPF32: Heathley Keystone Property Fund No.32 HDFT: Heathley Development and Finance Trust HJVPF: Heathley Joint Venture Property Fund Management agreements Relationship The intended relationship between the REIT and the Heathley Group is set out in Section 12. The principal agreements dealing with the relationship are the Fund Management Agreement and the Property Management Agreement. The duration of the initial term and successive terms, and the structure and amount of the termination payment in lieu of notice, are currently being negotiated. The current proposal is set out below. It is proposed that both of these agreements are for terms of 7 years and cannot be terminated by the Responsible Entity in the first 7 years other than for cause and then (in some circumstances) on substantial periods of notice or payment in lieu of that notice. Further details are contained in Section 12. Investors should note the entrenched position that the Heathley Group will have in the REIT. Each of the Fund Management Agreement and the Property Management Agreement will contain similar provisions in relation to the term of the agreement and rights of termination. It is proposed that each can only be terminated by the Responsible Entity without cause with effect from the last day of 1 50% co-owned by Grosvenor Australasia Investments Pty Ltd, a privately owned property company. 29

30 the initial 7 year term provided that the notice of termination has been given at least 2 years prior to the expiration of that 7 year term. If notice is not given by the Responsible Entity by that time, it is proposed that each agreement continues for a further term of 7 years commencing at the end of the 5th year of the current term on the same terms and again may only be terminated, without cause, at the expiration of that extended 7 year period by the Responsible Entity providing a notice at least 2 years prior to the expiration of that 7 year period. If notice is not given prior to the end of the 5th year of the extended term, the agreements automatically extend for further 7 year periods on the same basis. Other termination rights of the Responsible Entity and the Heathley Group are described in Section 12 and investors should note the limited circumstances in which each of the Fund Management Agreement and the Property Management Agreement can be terminated or otherwise the period of notice or payment in lieu of notice that will be needed in certain circumstances. The duration of the initial term and successive terms, and the structure and amount of the termination payment in lieu of notice will be confirmed to investors once negotiations have been finalised Fund Management Agreement The Responsible Entity has appointed HFM to act as the manager of the REIT under the Fund Management Agreement which is summarised in Section 12. From Completion, HFM will provide fund management services in respect of the REIT Property Management Agreement The Responsible Entity has appointed HPS to act as the property manager and provide property management services for the Initial Portfolio under the Property Management Agreement which is summarised in Section 12. HPS may outsource property management services to third parties, and has sub-contracted with Cushman and Wakefield to provide property management services for 30 properties under a separate property management agreement Financing arrangements Debt policy The REIT will have a target Gearing ratio of 25% to 40%. The REIT will have Gearing of 30.0% and Look Through Gearing of 32.4% at Allotment. Gearing and Look Through Gearing will increase to 32.3% and 34.5% respectively, pro forma for the REIT s Post Completion Developments as at July The Manager intends to manage the REIT s debt by securing a mixture of debt maturities and hedging strategies. It is intended that all debt will be denominated in Australian dollars Proposed Debt Facility Heathley Finance Company Pty Ltd (the Proposed Debt Facility Borrower ), the Stapled Trusts, National Australia Bank Limited ( NAB ) and others, have entered into a commitment letter attaching a credit approved term sheet for underwritten syndicated, secured debt facilities amounting to, in aggregate, $195 million ( Proposed Debt Facility ). The Proposed Debt Facility will be provided by NAB and possibly certain other lenders and have two tranches of debt of three and five year debt maturities (being Facility A and Facility B respectively), with the ability for commitments under these tranches to be allocated to a third tranche ( Facility C ) capable of being used for bank guarantees and documentary or standby letters of credit (and similar). The Proposed Debt Facility is contingent on the finalisation and execution of long-form facility documentation (the Debt Facility Documents ) and the utilisation of the Proposed Debt Facility at the allotment date is subject to the satisfaction of a number of other conditions including (but not limited to) listing of the REIT and: 30

31 Delivery of customary verification, authorised officer and compliance certificates and legal opinion; This PDS being in form and substance satisfactory to NAB (acting reasonably); Confirmation that the insurance required under the Debt Facility Documents is in place; Delivery of a valuation of each secured property in form and substance satisfactory to NAB dated no earlier than 3 months prior to the date of financial close (or a letter confirming that any relevant existing valuation remains current as at such date); and Completion of necessary know your customer checks by the finance parties. As set out in more detail in Section the utilisation of the Proposed Debt Facility at the allotment date will be provided on a certain funds basis. The Proposed Debt Facility has a number of financial covenants including: Loan to value ratio (total debt under the Proposed Debt Facility divided by the market value (exclusive of GST) of the secured properties determined by the most recent independent valuations accepted by the financiers) no greater than 50%; and Interest cover ratio (total net operating income divided by total interest expense) of no less than 2.00 times. HHPF is an Excluded Subsidiary for the purposes of the Proposed Debt Facility. The effect of this is that HHPF s earnings and assets (or liabilities) will not be recognised for the purposes of the financial covenants under the Proposed Debt Facility. A summary of the key terms of the Proposed Debt Facility is outlined in Section The REIT will use the Proposed Debt Facility to assist with its ongoing activities, including: To refinance existing financial indebtedness of the Stapled Trusts and HHPF; To fund acquisitions permitted under the Debt Facility Documents; To fund capital expenditure in respect of any secured property; For general corporate purposes; and Such other purposes as the agent for the Proposed Debt Facility (acting on the instructions of the relevant financiers) may agree. The Proposed Debt Facility will be cross-guaranteed by, among others, the Proposed Debt Facility Borrower, HDFT, HDMF1, HDMF2, HACPF1, HKPF32, Heathley Energy Company Pty Ltd and the Stetson Property Unit Trust, such that the guarantees are given by entities that represent at least 90% of the assets and the net operating income of the Group (excluding HHPF and its subsidiaries) (the Proposed Debt Facility Guarantors ). The Proposed Debt Facility Borrower and each Proposed Debt Facility Guarantor will provide security over all its assets (other than agreed exceptions), including first ranking freehold and (subject to landlord consent) leasehold mortgages over their interest in any real property, in each case as security for all moneys owing and their obligations under the Proposed Debt Facility and the Debt Facility Documents Interest rate hedging policy The Manager intends to use financial instruments to manage the REIT s exposure to fluctuations in interest rates. The Manager will manage this exposure by: Hedging 50% to 100% of drawn debt under the Proposed Debt Facility, through the use of derivatives and other agreements and contracts that fix interest payment obligations of the REIT; and Having a staggered hedging maturity profile. 31

32 2.7. Distribution policy The Responsible Entity intends to distribute 90% to 100% of the REIT s FFO. FFO is a financial measure which represents the profit / (loss) under Australian Accounting Standards adjusted for net fair value movements, non-cash accounting adjustments such as straight lining of rental income, amortisation and other unrealised or one-off items. FFO will be used by the Responsible Entity to make strategic decisions and represents the Responsible Entity s view of cash generally available for distribution. The Responsible Entity intends to pay Distributions quarterly, with Securityholders receiving Distributions within two months following the end of each Distribution period, being the periods ending 30 September, 31 December, 31 March and 30 June each year Valuation policy The Manager expects to conduct an investment property valuation process on a semi-annual basis by either professionally qualified independent valuers or by the Manager. The Manager maintains and complies with a written Direct Property Valuation Policy which is summarised below: Before a Property is funded-through and/or acquired, it is independently valued on an as is basis (or on an as if complete and as is basis for fund-through and development properties, if any); An independent valuation is required: At a minimum every 12 months; Before the Properties are sold (if the Board of the Manager determines that the most recent valuation is not current); Within two months if the Manager believes a Property is likely to be subject to a material increase or decrease in value (i.e. greater than 10%); Independent property valuations are undertaken by a Certified Practicing Valuer registered with the Australian Property Institute; If there is a conflict of interest, the Manager will comply with its Conflicts of Interests and Related Party Transaction Policy; and The Manager will rotate independent valuers, with a valuer or valuation company only able to value the property for the REIT on two consecutive occasions. A Directors valuation of a direct property is carried out at 31 December and 30 June to determine the appropriate carrying value of the interest when the REIT s financial reports are prepared Reporting For accounting and reporting purposes the REIT will report on a 30 June financial year basis. Formal reporting will be provided to Securityholders as at 30 June (full year) and 31 December (interim) each year. These reports will include: A statement of comprehensive income, statement of financial position, statement of changes in equity and a statement of cash flow; A reconciliation of net profit to FFO; The amount of Distributions paid and payable for the period; Significant activities undertaken for the period; and Any portfolio updates the Responsible Entity deems relevant. An annual financial report will be provided to Securityholders in accordance with the Corporations Act. The annual report will be audited whilst the interim financial report will be subject to review by the 32

33 auditor. The Manager will establish a website that will provide information on the REIT, including access to half-yearly and annual report, and Distributions information. 33

34 3. Portfolio overview 3.1. Introduction The Initial Portfolio has been independently valued at $ million as at 1 September 2018, reflecting a WACR of 6.5% 2. It has a WALE of 9.1 years 3, occupancy of 98.2% 4 and is diversified into hospital and medical properties, as well as residential aged care facilities. A summary of the Initial Portfolio by property type is included below: Property type 5 Number of properties Independent Valuation Capitalisation rate Occupancy WALE (#) ($m) (%) (%) (years) Day hospitals & specialist centres 11 $ % 100.0% 9.7 Medical centres 13 $ % 96.9% 4.6 Residential aged care facilities 12 $ % 100.0% 17.4 Medical offices 3 $ % 92.7% 4.2 Private hospitals 3 $ % 99.5% 9.5 Total / Weighted average 42 $ % 98.2% 9.1 The portfolio is diversified by geography, with properties located in five Australian states and a focus on metropolitan locations. The Initial Portfolio is also diversified by healthcare property type, comprising day hospitals and specialist centres, medical centres, residential aged care facilities, medical offices and private hospitals. The top 10 tenants represent 64% of September 2018 gross passing income. 82% of September 2018 gross passing income is derived from net lease structures and 61% of gross passing income is subject to fixed rent reviews or a fixed minimum increase of 2.5%, underpinning future rental growth. Refer to Section and Section for further detail on location and tenant diversification for the Initial Portfolio. 1 Based on Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. The valuation of the Initial Portfolio on an as is basis as at 1 September 2018 is $458.7 million (excluding HHPF). Adjusting for any pro forma development costs to Allotment results in a valuation of $468.4m (excluding HHPF). 2 Weighted by Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. 3 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 4 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. 5 Property type based on primary use for each property. 34

35 Figure 3.1 Tenant concentration 1 Figure 3.2 Lease structure 2 Tenants % Rent guarantee 4% Top 5 tenants 43% Gross 18% Tenants % Tenants % Net 82% Figure 3.3 Portfolio lease expiries over time 3 38% 2% 4% 6% 10% 6% 4% 5% 1% 11% 11% 3% Vacant Jun 19 Jun 20 Jun 21 Jun 22 Jun 23 Jun 24 Jun 25 Jun 26 Jun 27 Jun 28 Jun 28+ Table 3.1 Overview of major tenants Tenant group Infinite Care Primary Health Care Limited 5 Sonic Healthcare Limited 6 Queensland Health Mater 7 % of portfolio 4 Description 12.8% A residential aged care provider, with five aged care facilities in Adelaide (all owned by the REIT), and two greenfield sites under development in Queensland. 11.7% ASX listed company with an extensive network of multi-disciplinary medical centres, pathology laboratories and diagnostic imaging centres across Australia. 7.2% Global healthcare company operating in laboratory medicine/pathology, radiology/diagnostic imaging and primary care medical services. 6.7% A department of the Queensland Government which operates and administers the state s public health system. 5.1% Not-for-profit healthcare operator with a network of hospitals, health centres, a medical research institute, and pathology and pharmacy businesses. 1 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. 2 Gross lease is a lease where all operating costs on the property are included in the rental charged to the tenant and not charged as a separate amount. A Net lease is a lease where all or most of the operating costs on the property are borne by the lessee. These amounts are charged to the tenant as a separate recoverable amount in addition to the rental income. 3 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12.5 for further detail. 4 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. 5 Includes tenancies of subsidiaries: QML Pathology and Queensland Diagnostic Imaging. 6 Includes tenancies of subsidiaries: IPN Medical Centres and Queensland X-Ray. 7 Mater relates to: Mater Health Services North Queensland and Mater Misericordiae Health Services Brisbane Limited. 35

36 Tenant group Montserrat Day Hospitals 1 Healthe Care 2 Vision Eye Institute Hall and Prior GenesisCare 3 % of portfolio 4 Description 4.6% Privately owned day hospital operator with hospitals located in Queensland, Western Australia and New South Wales. 4.3% Third largest corporate private hospital operator in Australia operating a portfolio of 37 medical/surgical, rehabilitation and mental health hospitals and day surgeries. 4.0% Leading provider of ophthalmology clinics and day surgeries across Victoria, New South Wales and Queensland. 3.9% Large for-profit aged care operator with 24 residential aged care homes across Western Australia and New South Wales. 3.7% A leading provider of oncology and cardiology, designing and delivering care experiences in 130 locations across Australia, the UK and Spain. Top % Figure 3.4 Location of the Initial Portfolio 1 QLD 1 WA 5 properties / $47.8m Independent Valuation 17 properties / $322.3m Independent Valuation SA 1 5 properties / $67.2m Independent Valuation NSW properties / $73.6m Independent Valuation 1 1 Day hospitals & specialist centres Medical centres Residential aged care facilities Medical offices Private hospitals VIC 3 properties / $17.6m Independent Valuation TAS 1 Includes tenancies of subsidiaries: Western Haematology and Oncology Clinics and Montserrat Healthcare. On 10 September 2018, Primary Health Care Limited announced that it had signed a binding agreement to acquire Montserrat Day Hospitals. 2 Includes tenancies of subsidiary: Pulse Health. 3 Includes tenancies of subsidiary: Queensland Respiratory Service. 36

37 3.2. Portfolio summary statistics Asset 1 State REIT Independent Capitalisation Valuation 2 Rate 3 WALE (by income) 4 Occupancy 5 NLA WARR 6 ($m) (%) (years) (%) (sqm) (%) Day hospitals and specialist centres Murarrie QLD % % 10, % Auchenflower QLD % % 3, % Chermside QLD % % 3, % Taringa QLD % % 8 8, % Concord West NSW % % % Kogarah NSW % % % Wagga Wagga NSW % % 1, % West Perth WA % % 1, % West Albury NSW % % 1, % Albany WA % % % Wollongong NSW % % % Total / Weighted Average % % 32, % Medical centres Cleveland QLD % % 8 5, % Coorparoo QLD % % 1, % Rockingham WA % % 3, % Yarrabilba QLD % % 8 1, % Logan Central QLD % % 1, % Forest Lake QLD % % 1, % Spotswood VIC % % 1, % Secret Harbour WA % % 1, % Highland Park QLD % % % 1 Includes the Acquisition Portfolio (Taringa, Wagga Wagga, Hurstville, West Albury and Chermside (Lots 7-8)) which will be acquired by the REIT upon Completion. 2 Based on Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. Refer to Section 9 for further details. The valuation of the Initial Portfolio on an as is basis as at 1 September 2018 is $458.7 million (excluding HHPF). Adjusting for any pro forma development costs to Allotment results in a valuation of $468.4m (excluding HHPF). 3 Weighted by Independent Valuations as at 1 September 2018, adjusted for the REIT s ownership interest in each property. Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. Refer to Section 9 for further detail. 4 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. Assumes that the buyback rights granted to certain aged care operators are not exercised prior to the expiry of the relevant lease term. Refer to Section 12 for further detail. 5 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. Includes Rental Guarantees. 6 Weighted by gross passing income as at 1 September 2018, adjusted for the REIT s ownership interest. CPI assumed at 2.0%. Refer to Section 6 for more information on CPI. 7 The REIT has a 44% interest in the property via the joint venture. 100% property Independent Valuation equates to $59.6 million. 8 Recognised as 100% Occupancy, as nominated vacancies are covered by vendor signed Rental Guarantees. 37

38 Asset State REIT Independent Capitalisation Valuation Rate WALE (by income) Occupancy NLA WARR ($m) (%) (years) (%) (sqm) (%) Parkwood QLD % % % Nundah QLD % % 1, % Mildura VIC % % 1, % Sydenham VIC % % % Total / Weighted Average Residential aged care facilities % % 23, % No. of beds Christies Beach SA % % % Klemzig SA % % % Hahndorf SA % % % Midland WA % % % Kilburn SA % % % Gilles Plains SA % % % Hurstville NSW % % % Waverley NSW % % % Hunter's Hill NSW % % % Turramurra NSW % % % Caringbah NSW % % % Warriewood NSW % % 8 2.0% Total / Weighted Average % % % Medical office Maroochydore QLD % % 2 6, % Bundaberg QLD % % 2, % Cardiff NSW % % 1, % Total / Weighted Average % % 10, % Private hospitals North Mackay QLD % % 3, % Townsville QLD % % 6, % Gympie QLD % % 2, % Total / Weighted Average % % 11, % 1 Independent Valuation is presented net of tenant incentives payable by the developer of the property. 2 Recognised as 100% Occupancy, as nominated vacancies are covered by vendor signed Rental Guarantees. 3 The REIT has a 44% interest in the property via the joint venture. 100% property Independent Valuation equates to $26.0 million. 38

39 Asset State REIT Independent Capitalisation Valuation Rate WALE (by income) Occupancy NLA WARR ($m) (%) (years) (%) (sqm) (%) Portfolio Total / Weighted Average Less: Pro forma development costs and uplift Less: Townsville and Taringa equity accounted investments Reconciliation to balance sheet investment properties % % 2.7% (22.4) (37.7) Selected asset overviews Hospitals, day hospitals and specialist centres Townsville Independent Valuation $26.0m Ownership interest 44.0% Valuation (REIT Interest) $11.4m Capitalisation rate 6.5% WALE (years) 9.6 Occupancy 100.0% NLA (sqm) 6,151 Location Overview Asset strategy Key tenants Oxford Street & 9-13 Bayswater Road, Hyde Park, Townsville, QLD The Mater Women s and Children s Hospital is a substantial landmark hospital underpinned by major healthcare service providers Centrally located within the health precinct of Townsville, which is the largest city in Northern Australia and a gateway to mining and agricultural regions The property contains 4 theatres, 34 beds and a 146 space car park with development potential The original building is set across a single level with numerous wings. Lister House, constructed in 2011, is a modern structure over two levels Investigate expansion options with Mater over existing carpark Capital works in short term to upgrade fire safety of the property Mater 1 Queensland XRay (subsidiary of ASX-listed Sonic Healthcare Limited) Icon Cancer Care 1 Mater Health Services North Queensland. 39

40 Murarrie Independent Valuation $43.3m Capitalisation rate 5.5% WALE (years) 17.3 Occupancy 100.0% NLA (sqm) 10,005 Auchenflower Independent Valuation $40.5.m Capitalisation rate 6.0% WALE (years) 7.6 Occupancy 100.0% NLA (sqm) 3,648 Location Overview Asset strategy Key tenants Location Overview Asset strategy Key tenants Riverview Place, Murarrie, QLD 100% leased to blue chip tenant (QML Pathology is a wholly owned subsidiary of ASX listed Primary Health Care Limited) The QML Central Laboratory is a purpose-built facility fitted to include significant infrastructure to facilitate QML Pathology s full range of services including laboratory facilities, a cafeteria, archiving facility, an engineering and a maintenance facility Centrally located within 7km of Brisbane s CBD and Brisbane Airport, with immediate access to Brisbane s major arterial road systems Site has 800 staff and is administrative headquarters and primary laboratory for QML Significant land holding with expansion potential (combined site area of 23,826 sqm including 280 car parking spaces) Installation of solar to reduce building and tenant energy costs QML pathology (subsidiary of ASX-listed Primary Health Care Limited) Milton Road, Auchenflower, QLD RiverCity Private hospital comprises a 4-level allied health and special consulting medical facility which has two operating theatres and an existing hospital licence Located in Auchenflower, approximately 3km from the Brisbane CBD The main building was built in 1999 and was recently significantly extended to include a new building, additional medical accommodation and car parking through an expansion Obtain anchor tenant commitment and build over the current car park through and expansion of two floors in the existing facility, adding up to 1,800 square metres of additional net lettable area Actively manage the property to maintain occupancy and increase the WALE Queensland Diagnostic Imaging (subsidiary of ASXlisted Primary Health Care Limited) Vision Eye Institute 40

41 Chermside Independent Valuation $30.1m Capitalisation rate 6.4% WALE (years) 4.5 Occupancy 100.0% NLA (sqm) 3,523 Taringa Location Overview Asset strategy Key tenants Location Overview Lots 2 10, 956 Gympie Road, Chermside, QLD Chermside Medical Centre is a purpose built strata titled, five storey day hospital, oncology services and specialist suite facility which was constructed in 2008 Property is directly adjacent Westfield Chermside Shopping complex in Brisbane s northern suburbs, the second largest shopping mall in Australia Positioned within a dedicated medical development Purchase additional strata lots in line with the REIT s investment objectives Grow existing tenant relationships and extend WALE Cura Day Hospitals Group Sonic Healthcare Limited Icon Cancer Care 32 Morrow Street, Taringa, QLD Westside Private Hospital is a new 11 storey integrated health facility including oncology services, consulting suites, retail outlets, a childcare centre and a 63-bed medical-hotel Strategically located within 5km of the Wesley Hospital and in close proximity to residential, medical, education and retail centre Anchor tenant Montserrat Day Hospital has relocated its Indooroopilly Day Hospital to the property Independent Valuation $59.6m Ownership interest 44.0% Valuation (REIT Interest) $26.2m Capitalisation rate 6.3% WALE (years) 9.7 Occupancy 100.0% 1 NLA (sqm) 8,296 Asset strategy Key tenants Secure complementary tenants to either lease or own the consulting suites during the Rental Guarantee period (e.g. align individual specialists with day hospital) Maximise income generation from the property via alternate revenue sources Queensland XRay (subsidiary of ASX-listed Sonic Healthcare Limited) Monserrat Day Hospitals 2 1 Recognised as 100% Occupancy, as nominated vacancies are covered by vendor signed Rental Guarantees. 2 On 10 September 2018, Primary Health Care Limited announced that it had signed a binding agreement to acquire Montserrat Day Hospitals. 41

42 Concord West Independent Valuation $15.5m Capitalisation rate 5.8% WALE (years) 10.8 Occupancy 100.0% NLA (sqm) 985 Location Overview Asset strategy Key tenant 375A-377 Concord Road, Concord West, NSW Development of a purpose built radiation oncology and medical oncology centre for GenesisCare to include a radiation oncology bunker, specialist medical fit out and a 10 space car park Located in Concord West, approximately 15km west of the Sydney CBD and in close proximity to the public Concord Repatriation Hospital, which is undergoing major redevelopment Oversee the delivery of the development until practical completion Minimised development risk the property was secured with a 100% leasing commitment to GenesisCare, and is therefore expected to deliver attractive development returns without exposure to speculative leasing risk Grow existing relationship with GenesisCare GenesisCare Medical centres and medical offices Cleveland Independent Valuation $38.0m Capitalisation rate 6.0% WALE (years) 3.3 Occupancy 100.0% 1 NLA (sqm) 5,585 Location Overview Asset strategy Key tenants Bayside Business Park Weippin Street, Cleveland, QLD Bayside Business Park is a four building campus style primary medical and allied health facility located in Cleveland, approximately 25km South- East of Brisbane The property is adjacent to Redlands Public Hospital and The Mater Private Redlands Hospital, which houses specialist services, Mater Pharmacy, Mater Pathology and general practitioners Three of the buildings are predominantly medical, of which one has been purpose built for childcare Extend Mater (Queensland) lease for a further term Actively manage the property to maintain occupancy and increase the WALE Mater 2 Radiation Oncology Centres 1 Recognised as 100% Occupancy, as nominated vacancies are covered by vendor signed Rental Guarantees. 2 Mater Misericordiae Health Services Brisbane. 42

43 Coorparoo Location Old Cleveland Road, Coorparoo, QLD Coorparoo Medical Centre comprises two independent buildings fitted out to a high standard Overview Located in the heart of Coorparoo s retail and residential precinct with significant exposure to Old Cleveland Road Large undercover 65 space car park Independent Valuation $18.2m Asset strategy Targeted capital works to improve the quality of the property Grow existing tenant relationships and extend WALE Capitalisation rate 6.0% WALE (years) 5.9 Occupancy 97.4% NLA (sqm) 1,608 Maroochydore Independent Valuation $ Capitalisation rate 6.5% WALE (years) 5.4 Occupancy 100.0% 2 NLA (sqm) 6,742 Key tenants Location Overview Asset strategy Key tenant Queensland XRay (subsidiary of ASX-listed Sonic Healthcare Limited) Terry White branded pharmacy Dalton Drive, Maroochydore, QLD Mixed-use medical office building comprising three storeys of medical office and retail space as well as a basement car park Property is located in Maroochydore, Queensland, approximately 100km north of Brisbane Located in close proximity to SunCentral, the planned new city centre of the Sunshine Coast Majority of the property leased to Queensland Health, a State Government agency Work with the developer to secure complementary tenants to unlet spaces Installation of solar to reduce building and tenant energy costs Queensland Health 1 Independent Valuation is presented net of tenant incentives payable by the developer of the property. Refer to Section 9. 2 Recognised as 100% Occupancy, as nominated vacancies are covered by vendor signed Rental Guarantees. 43

44 Residential aged care facilities Christies Beach Independent Valuation $20.0m Capitalisation rate 7.5% WALE (years) 17.1 Occupancy 100.0% No. of beds 98 Midland Location Overview Asset strategy Key tenant Location 50 Gulfview Road, Christies Beach, SA 98 bed aged care facility, refurbished in 2017 Located in Christies Beach, an established beachside suburb, approximately 32km south west of the Adelaide CBD The building contains four main sections each of a racecourse configuration internally Property includes a secure and modern dementia specific unit with 18 resident rooms, which has its own dining area and activity day room Significant refurbishment works were undertaken in 2017 including upgrades to bedrooms, bathrooms, common areas and systems Infinite Care 22 Morrison Road and surrounding land, WA Overview The Tuohy Aged Care and Nursing Home is located approximately 16km north east of the Perth CBD A 49 bed single-storey dementia and high care specialist nursing home Ownership consists of the Tuohy Nursing Home plus six surrounding lots of land Independent Valuation $12.5m Capitalisation rate 7.8% WALE (years) 19.6 Occupancy 100.0% No. of beds 49 Asset strategy Key tenant Undertake strategy to redevelop it into a new approximately 140-bed aged care facility Hall and Prior 44

45 Waverley Location Carrington Road, Waverley, NSW 10-room group home Overview Located in the affluent eastern Sydney suburb of Waverley with high median residential house prices The property was refurbished in 2016 to cater for residents living with a care need Independent Valuation $5.3m Asset strategy Grow relationship with Group Homes Australia Capitalisation rate 5.8% WALE (years) 13.4 Occupancy 100.0% No. of beds 10 Key tenant Group Homes Australia 3.4. Brief summaries of other assets Day hospitals & specialist centres Location Description Key Tenant Kogarah Strata suite in a two level commercial/medical building Titled two level commercial/medical building with 14 secure semi-basement car parks Nexus Hospitals Location Description Key Tenant Wagga Wagga Modern purpose built, single level private day surgery with an adjoining car park The day surgery offers a wide range of specialist surgical services, including ENT, ophthalmology, plastic & reconstructive, orthopaedic, maxillofacial surgery and IVF Riverina Day Surgery (Cura Day Hospitals Group) Location Description West Perth West Perth is a major fringe location bordering the Perth CBD A modern two level day hospital refurbished in 2018 Key Tenant Montserrat Day Hospitals 1 1 On 10 September 2018, Primary Health Care Limited announced that it had signed a binding agreement to acquire Montserrat Day Hospitals. 45

46 Location Description Key Tenant West Albury 3 theatre private day surgery with 55 car parking spaces that was extensively refurbished in 2006 The day surgery offers a wide range of specialist surgical services including ophthalmology, plastic surgery, orthopaedic, maxillofacial surgery and IVF Albury Day Surgery Location Description Albany Fund-through acquisition of a day hospital Currently being developed with one operating theatre and consulting suites Key Tenant Montserrat Day Hospitals 1 Location Description Wollongong Centrally located single level endoscopy clinic Has development potential on adjoining land which is currently used as a car park Key Tenant Montserrat Day Hospitals 1 Medical centres Location Description Key Tenants Rockingham Two storey medical centre and office fronting Civic Boulevard in Rockingham, one of Perth s rapidly growing beach suburbs Centrelink, Primary Health Care Limited Location Description Key Tenant Yarrabilba Medical centre recently developed and anchored by a GP clinic, pharmacy and allied health services ANA Ventures (A Terry White branded pharmacy) Location Description Key Tenant Logan Central The property is located on a prominent corner in Logan Central commercial precinct with ample parking Mix of primary and allied health services IPN Medical Centres (Subsidiary of ASX listed Sonic Healthcare Limited) Location Description Key Tenant Forest Lake Single storey medical centre refurbished in 2017 Occupies a prominent 6,194 sqm corner site, adjacent to Forest Lake Shopping Village IPN Medical Centres (Subsidiary of ASX listed Sonic Healthcare Limited) Location Description Spotswood Spotswood is a purpose built 1,135 sqm medical facility which is located 7km from the Melbourne CBD 1 On 10 September 2018, Primary Health Care Limited announced that it had signed a binding agreement to acquire Montserrat Day Hospitals. 46

47 Key Tenant Modern Medical Group Location Description Key Tenants Secret Harbour Directly opposite the Secret Harbour Shopping Centre Comprises a standalone, two level premise with a medical centre, physiotherapist and pharmacy on the ground floor Care Medical Group, Anytime Fitness Location Description Key Tenants Highland Park Medical centre comprising a large GP clinic, skin clinic, physio and specialist consulting suites IPN Medical Centres (Subsidiary of ASX listed Sonic Healthcare Limited) Location Description Key Tenants Parkwood Close proximity to Griffith University Campus, and the Gold Coast University Hospital Offers a range of primary and ancillary medical services IPN Medical Centres (Subsidiary of ASX listed Sonic Healthcare Limited) Location Description Key Tenants Nundah Located 10km from the Brisbane CBD The property is a prominent corner site improved with a modern two story medical and retail centre Specialist Diagnostic Services (QML) (Subsidiary of ASX listed Sonic Healthcare Limited), Outfit 24 Location Description Key Tenants Mildura The property is located in the retail heart of Mildura Comprises a modern two level commercial building providing GP and ancillary medical services TriStar Medical, Mildura Optical Location Description Key Tenant Sydenham A modern and securely leased medical centre, purpose built to accommodate a high grade fit-out Features high exposure to Melton Highway and Calder Park Drive with on grade parking for 30 vehicles St Vincent s Hospital Residential aged care Location Description Key Tenant Klemzig 90 bed facility located approximately 9km from the CBD Significantly refurbished in 2016, including a full upgrade to the dementia wing Infinite Care 47

48 Location Description Key Tenant Hahndorf 101 bed aged care facility set on 12,800 sqm in Hahndorf, a small town approximately 26km South East of Adelaide Significant refurbishments were completed in 2016, including upgrades to bedrooms, kitchen and systems, and the creation of a dementia-specific wing Infinite Care Location Description Key Tenant Kilburn 54 bed aged care facility with a secure dementia unit, located 9km north of the Adelaide CBD Significantly refurbished in 2017, including upgrades to bedrooms, common areas and systems Infinite Care Location Description Key Tenant Gilles Plains 54 bed aged care facility located approximately 12km north of the Adelaide CBD In 2017, significant refurbishments were completed including construction of two new premium single bedrooms and upgrades to the courtyard Infinite Care Location Description Key Tenant Hurstville 46 bed traditional aged care facility Located approximately 17km southwest of the Sydney CBD, close to Hurstville Private Hospital and Hurstville train station Agreement with Hall and Prior to work together to redevelop the property over the next 5 years Hall and Prior (Under construction) Location Description Key Tenant Hunters Hill Located approximately 9km North West of the Sydney CBD Group Homes Australia is currently constructing a new two level, 10 bedroom dementia care home at the property Group Homes Australia (Under construction) Location Description Key Tenant Turramurra Residential property located in Sydney s upper north shore Group Homes Australia is currently constructing a new 10 bedroom dementia care home expected to be completed in the next 12 months Group Homes Australia (Under construction) Location Description Key Tenant Caringbah Residential property located approximately 23 km south of the Sydney CBD Group Homes Australia will construct a new two level, 10 bedroom dementia care home at the property Group Homes Australia 48

49 Location Warriewood Description Residential property built in circa 1990s and refurbished in 2015 to create a dementia care home Features 8 single bedrooms, 4 bathrooms, multiple living spaces and a swimming pool Key Tenant Group Homes Australia Medical offices Location Description Key Tenant Bundaberg West Integrated health facility in close proximity to Bundaberg s public and private hospitals Queensland Health Location Description Key Tenant Cardiff Located in Cardiff, a suburb approximately 15km from Newcastle s CBD Two level medical office building with 52 car parking spaces Healthe Care Group Private hospitals Location Description Key Tenant North Mackay 34 Bed specialist rehabilitation hospital Fully refurbished and commissioned in February 2014 Pulse Health (Healthe Care Group) Location Description Key Tenant Gympie Gympie Private Hospital currently has 28 beds for general hospital use and 12 utilised for day surgical procedures Surgeons use the centre as their consulting room base Pulse Health (Healthe Care Group) 49

50 4. Australian healthcare and healthcare property market overview 4.1. Introduction The REIT will own interests in a Portfolio of quality healthcare property sector assets in Australia. The Australian healthcare property sector offers an attractive investment opportunity, supported by three key themes: The healthcare property sector is underpinned by a significant increase in demand for healthcare services. Demand for healthcare services is being driven by strong demographic fundamentals including a growing and ageing population and an increased prevalence of chronic disease; The healthcare property sector is expected to grow in response to increasing demand for primary and secondary healthcare services, reflecting a Federal and State Government focus on preventative care as they seek to implement strategies aimed at reducing the overall costs of the healthcare system. The Government focus on cost-effective models of care is also expected to drive increased securitisation of property that has historically been owned by healthcare operators seeking to implement capital efficient operating models; and Healthcare property returns have historically outperformed other property classes such as office, retail and industrial, and have experienced lower volatility, resulting in attractive riskadjusted returns Services provided by the healthcare system Services provided by the healthcare system can be divided into two sectors; being the hospital and medical sector and the aged care sector. The Initial Portfolio includes properties from both of these sectors of the healthcare system Hospital and medical sector The hospital and medical sector can be classified into three main segments; primary care, secondary care and hospital care. The REIT invests in properties in each of these three main segments: Primary care Primary care is typically provided by general medical and dental practitioners, nurses, pharmacists and other allied health professionals such as physiotherapists, dieticians and chiropractors. Primary care is considered the first point of contact between patients and the healthcare system and is typically provided outside of the hospital system. Secondary care Secondary care is typically provided by a specialist after having received a referral from a primary care provider such as a general medical or dental practitioner. It includes day hospitals (which do not require an overnight stay), outsourced public services and diagnostic facilities, including imaging and pathology services. Primary and secondary care services are typically aimed at treating medical conditions that, if left untreated, could result in hospitalisation. They typically have lower operating costs relative to hospitals. As such, demand for primary and secondary healthcare services is expected to increase in response to the Government focus on preventative care and reducing the overall costs of the healthcare system. Hospital care In Australia, hospital services are provided by both public and private hospitals. Hospital care is the largest healthcare segment of the hospital and medical sub-sector by expenditure, with expenditure estimated to be $66.1 billion by public and private facilities in , which equated to 39% of all 50

51 healthcare sector expenditure in Australia 1 and 4% of GDP during that period. There were 695 public hospitals and 630 private hospitals in Australia as of Aged care sector The Australian aged care sector is a significant part of the Australian health system, providing care options for elderly Australians who can no longer live independently. There are three types of aged care services in Australia: Home and community care: providing services and clinical care in a person s home to those who need assistance to continue living independently (including community and home support, and home care packages); Residential aged care: providing accommodation and care for those who have greater care needs and are cared for in an aged care home. Care can be provided on either a temporary (respite) or permanent basis; and Acute hospital care managed by registered medical practitioners. Figure 4.1 Lifetime accommodation spectrum Continuum of care services Resident family home Retirement village living Home and community care Residential aged care Acute hospital care The REIT invests in residential aged care properties which are leased to operators who provide care to their residents. Residential aged care is delivered by a range of provider-types, including not-forprofit, private and public sector organisations. There are currently 902 providers delivering care to approximately 201,000 beds in 2,672 residential aged care facilities across Australia 3. The number of aged care beds is projected to increase to approximately 250,000 by 2023, representing a compound annual growth rate of 3.7% Healthcare expenditure Total healthcare expenditure in Australia was $170.4 billion in , increasing from $107.2 billion in , reflecting a compound annual growth rate of 4.7% 1. Hospitals represent 39% of the total expenditure, followed by primary healthcare services at 35%. Figure 4.2 Australian healthcare expenditure ( to ) $153 $155 $160 $164 $170 $145 $130 $135 $121 $107 $ % 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% Healthcare expenditure (A$ billion) % of GDP 1 Australian Institute of Health and Welfare Health Expenditure Australia Figure excludes aged care. 2 Australian Institute of Health and Welfare Hospitals at a glance 2016/17. 3 Aged Care Financial Authority Sixth report on the Funding and Financing of the Aged Care Sector July

52 Relative costs across the healthcare chain 1234 Figure 4.3 Components of health expenditure ( ) 5 $ billion % Hospitals $ % Primary healthcare $ % Referred medical services $ % Other services $11.9 7% Research and capital expenditure $15.4 9% Total health expenditure $ % 4.4. Healthcare sector regulation and funding Hospital and medical sector The hospital and medical sector is regulated and majority funded by Federal and State Governments. Figure 4.4 Main roles of government in the Australian healthcare system 6 Australian Government State and Territory Governments Local Governments Sets national policies; Responsible for Medicare (including subsidising medical services and joint funding, with states and territories, of public hospital services); Funds pharmaceuticals through the Pharmaceuticals Benefits Scheme; Supports access to and regulates private health insurance; and Major funder of health and medical research, including through the National Health and Medical Research Council. Manage public hospitals, license private hospitals; Responsible for public communitybased and primary health services (including mental health, dental health, alcohol and drug services); Deliver preventive services such as cancer screening and immunisation programs; Responsible for ambulance services; and Responsible for handling health complaints. Provide environmental health-related services (for example, waste disposal, water fluoridation, water supply, food safety monitoring); Deliver some community- and homebased health and support services; and Deliver some public health and health promotion activities. Shared Regulation of health workforce; Education and training of health professionals; Regulation of pharmaceuticals and pharmacies; Support improvements in safety and quality of health care; Funding of public health programs and services; and Funding of Aboriginal and Torres Strait Islander health services. 1 ACFA Fifth Report on the Funding and Financing of the Aged Care Sector August Independent Hospital Pricing Authority National Hospital Cost Data Collection Cost Report Retirement village and residential aged care costs only include government expenditure and not resident contributions. 4 Average cost per event is based on average cost per non admitted service event for medical centres, average cost per subacute care separation for day hospitals and average cost per admitted acute separation for overnight hospitals. 5 Australian Institute of Health and Welfare Health Expenditure Australia Figure excludes aged care. 6 Australian Institute of Health and Welfare Australia s Health

53 Sources of funding for the hospital and medical sector comprise the Federal Government (41%), State/Territory and local Governments (26%), and individuals (17%) 1. Figure 4.5 Healthcare expenditure by source of funding ( ) 1 $ billion % Federal Government $ % State/Territory and local Governments $ % Total Government funding $ % Health Insurance Funds $14.9 9% Individuals $ % Other $11.5 7% Total Non-Government $ % Total expenditure $ % Medicare is Australia s Federal Government funded universal health insurance scheme that provides free or subsidised healthcare services to the Australian population. Medicare is partly funded by a 2% levy on personal income (with exemptions for low income earners), with the Government contributing any shortfall funding Aged Care Sector The residential aged care industry is highly regulated, with regulations governing facility accreditation, building certification, reporting requirements, and accommodation. The Department of Health administers the Aged Care Act 1997, and regulates the aged care industry on behalf of the Commonwealth. As such, residential aged care operators have high levels of ongoing regulatory compliance. The Australian Government regulates the supply of subsidised residential aged care and home care packages by specifying a national provision target of subsidised operational aged care places for every 1,000 people aged 70 years or over. Additionally, the number of subsidised aged care beds that an approved provider can deliver depends on the number of aged care places (or bed licenses) allocated to it by the Federal Government. The residential aged care industry features two distinctive sources of funding in addition to the debt and equity funding that comprises a traditional company s capital structure. These include operational funding from the Federal Government and capital funding in the form of Refundable Accommodation Deposits ( RADs ) from residents. In the Australian aged care sector generated revenues of approximately $22 billion, of which $17.1 billion was funded by the Federal Government and the remaining $4.8 billion was contributed by aged care residents 2. Government funding for aged care in was comprised of: $11.9 billion for residential care (70% of Federal Government funding); $2.4 billion for home support (14%); $1.6 billion for home care (9%); and $1.3 billion for flexible and other aged care (8%). 1 Australian Institute of Health and Welfare Health Expenditure Australia Aged Care Financial Authority Sixth report on the Funding and Financing of the Aged Care Sector July

54 Operational funding Residential aged care facilities that have been deemed Approved Providers are eligible to receive payments from the Federal Government to subside their operations 1. Federal Government payments for basic residential aged care services are calculated in accordance with the Aged Care Funding Instrument ( ACFI ), and are primarily based on the level of care required to be provided to the resident and the resident s income or ability to pay for such care. Under the Residential Care Subsidy Principles 1997, additional subsidies are provided for supplements provided by aged care operators to residents with special medical needs. Capital Funding RADs are a significant source of funding for residential aged care operators. When entering an aged care facility, residents have the option to pay for their accommodation via a RAD. A RAD takes the form of an interest free loan to an aged care facility from an aged care resident who decides to pay for the full cost of their accommodation as a lump sum. This deposit is refunded when the resident leaves the aged care facility and is guaranteed by the Federal Government in the event the operator defaults. Regulation restricts the permitted uses of RAD proceeds to activities related to capital expenditure and expansion 1, in an effort by the Federal Government to improve the quantity and quality of aged care services. Aged Care Royal Commission On 16 September 2018, the Hon Scott Morrison MP announced the Australian Government will establish a Royal Commission into the aged care sector. While the terms of reference for the Royal Commission are currently being finalised, it is anticipated that the Royal Commission will cover: The quality of care provided to older Australians, and the extent of substandard care; The challenge of providing care to Australians with disabilities living in residential aged care, particularly younger people with disabilities; The challenge of supporting the increasing number of Australians suffering dementia and addressing their care needs as they age; The future challenges and opportunities for delivering aged care services in the context of changing demographics, including in remote, rural and regional Australia; and Other matters that the Royal Commission considers necessary Key healthcare system themes The healthcare property sector is supported by a significant increase in demand for healthcare services. This section sets out the key themes driving increases in healthcare demand. Growing and ageing population The Australian population is forecast to grow at 1.5% per annum from 2018 to However, the population of the 65+ years age group is forecast to grow at 3.1% over the same period. This growth primarily reflects the ageing of what is known as the baby boomer generation 2. 1 Aged Care Act Baby Boomers are typically defined as the generation born between 1946 and 1965, following the end of the Second World War. 54

55 Separations per 1,000 population Figure 4.6 Australian population growth forecasts by age group 1 CAGR (10yr periods) 65+ years 3.1% 2.1% 1.4% 1.6% All 1.5% 1.2% 1.1% 1.6% 29.1m 13% 87% 49.4m 44.5m 39.8m 18% 34.6m 17% 17% 15% 85% 83% 83% 82% The increase in the number of Australians aged 65 years and over is expected to continue to drive higher healthcare spending. On average, this age group tends to suffer from greater incidences of chronic illness and disabilities which in turn result in a significantly higher demand for healthcare services relative to other age groups. The increase in the proportion of the population in these elderly age groups will continue to drive further increases in the demand for healthcare services. Figure 4.7 Separations by age group (in ) ,000 4,000 3,000 2,000 1,000-4,405 2,923 1,358 1, < Males Females Average life expectancy at birth is increasing with the benefit of scientific advancements and, by 2055, is predicted to exceed 88 years and 90 years for males and females respectively. Therapeutic innovations, including advances in surgical techniques, medical devices and pharmaceuticals, are facilitating improved outcomes for various medical conditions. As noted above, elderly age groups have a greater demand for healthcare services. As elderly age groups live longer, it is expected that they will need to be treated for more illnesses and for longer periods of time, further increasing the demand for healthcare services. Furthermore, residents entering aged care facilities at an older age are typically in need of greater care, further increasing the demand for healthcare. 1 ABS, Population Projections. 2 Australian Institute of Health and Welfare Admitted patient care

56 Disease prevalence CAGR ( ) Figure 4.8 Projected life expectancy at birth (years) Male life expectancy Female life expectancy Increased occurrence of chronic disease The prevalence of chronic diseases is increasing in Australia. It is estimated that approximately 80% of Australians are living with long-term health conditions 2. This trend is driven by a number of factors including: An ageing population: a higher proportion of older people who are more likely to have multiple long-term conditions; Improvements in detection and treatment; and Lifestyle factors, such as diet and exercise, which are increasing the incidence of obesity and, in turn, chronic diseases such as cardiovascular disease, cancer and diabetes. Furthermore, rates of inappropriate care for chronic disease (e.g. approximately 80% of encounters for those suffering from obesity) indicate that the healthcare system is capacity restrained and unable to provide an appropriate quality of service for all patients. Figure 4.9 Rates of inappropriate care of high prevalence chronic disease 3 10% 8% 6% 4% 11% Rising healthcare costs leading to increased focus on preventative care 5% 17% 2% Coronary health disease & chronic heart failure 0% 5% 5% -2% 0% 20% 40% 60% 80% 100% % of encounters with inappropriate care Note: Size indicates disease prevalence The high level of reliance on Federal Government funding for the delivery of healthcare services continues to be a key area of focus by policy makers. The Australian Government health expenditure is projected to increase as a proportion of GDP from 4.2% in to 5.5% of GDP in % Obesity Depression Diabetes Hypertension 1 Department of Treasury Treasury projections from 2015 Intergenerational Report: Australia in ABS, Gender Indicators, Australia, September Long-term conditions are defined as medical conditions (illnesses, injuries or disabilities) which were current at the time of the survey and which had lasted at least six months, or which the respondent expected to last for six months or more. 3 Medical Journal of Australia: CareTrack Study - assessing the appropriateness of healthcare delivery in Australia, Australian Bureau of Statistics, World Bank. 56

57 The real health spending per person was $2,800 in and is expected to reach $6,600 in Historically, the Federal Government has introduced several initiatives to reduce the burden of funding on the public system. Given the higher cost per visit of inpatient hospital services, Federal and State Governments have continued to focus on preventative care models as they seek to implement strategies aimed at reducing overall costs of the healthcare system. In February 2018, the Federal and State Governments signed a Heads of Agreement that outlined a new five-year national health agreement commencing in This agreement included reforms to decrease avoidable demand for public hospital services by continuing to focus on primary care designed to improve patient outcomes. As a result, Governments are placing a greater emphasis on primary and secondary healthcare services, such as diagnositic and preventative medicine and this is expected to increase demand for such primary and secondary healthcare services. Over the past decade, there has been a steady increase in the use of primary healthcare services such as general practitioners, allied health professionals, dentists, nurses and community health workers. In , primary healthcare services accounted for 35% of Australia s total healthcare system expenditure. Figure 4.10 Use of primary healthcare (and related non-hospital service) 2 Type of Service Number of services, (million) Services per 100 people, (rate) Change in rate since (%) Primary Healthcare services General Practitioners Allied health type services Dental Non-referred practice nurse Indigenous-specific primary healthcare services Prescriptions dispensed (PBS and RPBS) ,191.5 Non-hospital referred services Pathology Diagnostic imaging Specialists The Australian healthcare property sector represents an attractive investment opportunity The healthcare property sector has delivered strong returns and experienced relatively low volatility since 2004, when compared to office, industrial and retail property sectors Healthcare property characteristics Healthcare property has a number of distinguishing qualities that separate it from other property types. Stable revenue streams (backed by government funding) allow tenants to commit to longer term leases, which in turn creates greater revenue stability for property owners compared to other property types. The non-discretionary nature of healthcare expenditure limits exposure to economic downturns. Due to the specialised nature of the buildings, the properties also tend to have higher rental returns, as there are limited alternative spaces for rent. 1 Department of Treasury Treasury projections from 2015 Intergenerational Report: Australia in Australian Institute of Health and Welfare Australia s Health Pharmaceutical Benefits Scheme (PBS) and Repatriation Pharmaceutical Benefits Scheme (RPBS). 57

58 There are a number of different types of healthcare properties and the Initial Portfolio will include properties from each of the property types. Figure 4.11 Types of healthcare property Medical centres Day hospitals Private hospitals Medical offices Residential aged care Overview Centres Outpatient containing a number of medical services such as a general practitioner clinic, pharmacy, pathologist, radiographer and allied health. facilities that provide surgical or other prescribed treatments; and Operator funding primarily sourced from private health insurers, reducing the cost burden on the public system. Inpatient and outpatient facilities that provide surgical or other prescribed treatments; and Operator funding primarily sourced from private health insurers, reducing the cost burden on the public system. Office buildings dedicated to healthcare administration services; and Generally located in close proximity to major hospitals. Provides accommodation to elderly people who can no longer live independently. Current themes and expected trends Increased Government focus on primary care to lower rates of avoidable hospital admissions and reduce cost to healthcare system; and Corporatisation of allied health operators. Elimination of low value care and unnecessary patient utilisation and cost; Increased referral to outpatient rehabilitation; and Increased pressure by the payers (i.e. private health insurers) for effective, conservative treatments. Increased amalgamation of Government health administrative services to central locations; and Hospitals relocating administrative services off-site to improve effectiveness. Greater shift to palliative and dementia care; Deregulation resulting in a market based, consumer driven industry; and Increased costs and capital requirements driving real estate securitisation Healthcare property investment well positioned to grow Healthcare property is well positioned to benefit from a significant increase in demand for healthcare services and is being driven by a number of factors including a growing and ageing population, and an increased prevalence of chronic disease. Refer to Section 4.5 for further detail. Healthcare properties are often purpose built, typically including specialised design and technological features required by healthcare operators in an evolving environment. Due to such specialised requirements and the need for sector specific management and development skills, healthcare property has historically had high barriers to entry. Barriers to entry are increased by the need for real estate owners and managers to have strong relationships with operators across the entire healthcare chain including hospitals, consultants, pharmacists and other associated healthcare services. Furthermore, the specialised nature of healthcare property assets allows real estate owners and managers to attract tenants seeking stability through entering into long-term leases. Investor demand for healthcare property is strong, however investment opportunities remain limited. Healthcare assets are tightly held, especially hospitals located in prime positions with expansion potential. A number of investors have progressed to invest in medical centres given the strength of the covenant, cash-flow and the lack of opportunities in the wider sector. Institutional and overseas investors have shown interest in the Australian private hospital sector in recent years, however the inability to gain immediate scale, normally achieved through inorganic portfolio acquisitions, has presented challenges Healthcare property investment performance low volatility and uncorrelated returns The healthcare property sector has experienced relatively low volatility compared to office, industrial and retail property sectors since 2004, and offers an attractive risk-reward trade-off. 58

59 Annualised total return since 2004 Figure 4.12 Standard deviation and total return by sector % 14.0% Healthcare Hotel 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Retail Industrial Office % 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Annualised standard deviation since 2004 Tightly held ownership of primary assets, in combination with strong sources of demand has seen a long period of capitalisation rate compression. Whilst the capitalisation rates have compressed, they remain above those of retail, office and industrial assets. Figure 4.13 Trends in direct property sector capitalisation rates since % 8.0% 6.0% 4.0% 6.6% 6.3% 5.5% 5.5% 5.3% 2.0% - Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Retail Office Industrial Hotel Healthcare The healthcare property sector has produced a CAGR of 14.2% since 2004, outperforming office, hotel, retail and industrial asset classes. Figure 4.14 Australian direct property total returns since CAGR 14.2% 12.8% 10.7% 10.3% 9.9% Retail Office Industrial Hotel Healthcare The sector s outperformance was particularly strong during the global financial crisis, reflecting investor demand for healthcare property as a defensive asset class. The nature of the sector makes it highly attractive during periods of elevated political and economic uncertainty. Healthcare property returns have historically been less susceptible to macro-economic factors impacting the broader 1 MSCI, as at June

60 market, as evidenced by the low correlations of healthcare property in the table below, as compared to other property sectors, further demonstrating its defensive non-cyclical characteristics. Figure 4.15 Correlation of healthcare property returns against other property asset classes 12 Retail Office Industrial Office 0.94 Industrial Healthcare Healthcare Property outlook Increased securitisation The healthcare property sector is expected to undergo change in the future given the current low level of securitisation in the sector. Historically, large healthcare real estate property portfolios have been held by major hospital operators. It is estimated that in 2016 only $5.2 3 billion of healthcare property was securitised (the total Australian securitised property market is $197 4 billion). Moving forward, to meet increasing demand for healthcare and aged care service offerings, operators are expected to more closely consider capital efficient operating models where the real estate is owned and managed by third party operators with specialist skills. Securitisation is further supported by growing interest from institutional investors in alternative real estate asset classes. Ongoing sector consolidation The healthcare property sector is highly fragmented and most properties are owned by single asset owners. A significant consolidation opportunity exists for early movers in the healthcare property sector, where property managers can achieve scale efficiencies and enhance diversification benefits via targeted acquisitions. Undersupply of aged care facilities The residential aged care sector is expected to require an additional 88,110 places over the next decade in order to meet the Federal Government s provision target for the same period of 78 operational places per 1000 people aged 70 and over 5. This compares with 33,667 new places provided for over the previous decade 6. The average occupancy of residential aged care facilities is 91.8%, and occupancy rates have been stable in recent years. The estimated investment requirement of the sector over the next decade is in the order of $54 billion 5. The current undersupply of aged care places is expected to drive opportunities to build new aged care facilities as well as opportunities to refurbish and expand existing facilities. 1 The Healthcare category is based on the IPD Australia Quarterly Healthcare Index, which provides a broad measure of investment returns for the healthcare property market in Australia and tracks the investment performance of 92 healthcare assets representing $2.6 billion. 2 Calculated based on annual total returns on a quarterly basis from December 2004 to June 2018 for the particular property sector as compared to each of the respective asset classes. 3 Estimate based on publicly available information released by the following healthcare property managers (in addition to Heathley): Australian Unity, Dexus, Barwon, Northwest Healthcare and Arena REIT. 4 MSCI, as at June Aged Care Financial Authority Sixth report on the Funding and Financing of the Aged Care Sector July Aged Care Financial Authority Fifth report on the Funding and Financing of the Aged Care Sector July

61 Number of operational residential aged care places Figure 4.16 Number of operational residential aged care places required in the next decade 1 (000 s) Existing stock Replaced stock New stock Aged Care Financial Authority Sixth report on the Funding and Financing of the Aged Care Sector July

62 5. Overview of the Heathley Group 5.1. Introduction Heathley Group is a specialist healthcare property fund manager with deep experience, relationships, skills and track record in the healthcare property sector. Founded in 1977, Heathley Group has successfully established 42 investment funds. The management team has track record in active portfolio management, having completed 47 healthcare property transactions since 2013 with total acquisition value of $601 million. Since 2013, Heathley Group has transitioned to a specialist focus in the healthcare property sector. Heathley Group saw an opportunity in the healthcare property sector s attractive fundamentals relative to other property sectors, and has developed an in-depth knowledge of the sector s fundamentals and its strategic opportunities. This knowledge, coupled with Heathley Group s longterm relationships, has positioned it to be able to take advantage of the positive trends in the healthcare property sector. Assuming completion of the acquisition of the Acquisition Portfolio, Heathley Group will have grown its healthcare real estate funds under management to $620 million 1. Furthermore, Heathley Group has gradually considered larger transactions over time, with the maximum acquisition size increasing in each year since , as maturing and deepening relationships with healthcare sector participants has provided Heathley Group with opportunities to acquire or participate in the acquisition of larger assets. In October 2017, Heathley Group successfully closed its first healthcare property fund, a single-asset fund owning a medical office property in Westmead. The Heathley management team was able to deliver strong returns for its investors by running a successful leasing campaign, which resulted in the introduction of both Ramsay Healthcare and Sydney Children s Hospital Network as tenants. At the time of closure, based on an initial investment of $1.00 per unit, investors in the fund received total income and capital distributions over the three year investment term of $1.51 per unit. Figure 5.1 The healthcare sector opportunity The REIT will be the primary focus for the Heathley Group and assets owned by the REIT will represent 93% of the Heathley Group s funds under management at Completion 1. 1 Based on Independent Valuations as at 1 September Assumes REIT Independent Valuations are on an as if complete basis and assumes completion of the REIT s Post Completion Developments. 62

63 Figure 5.2 Heathley Group funds under management 5.2. Dexus strategic partnership Heathley Group has entered into a strategic partnership with Dexus. In conjunction with the Offer and the Restructure, Dexus has agreed to subscribe for 28.5% of the shares in Heathley Limited and subscribe for 10% of the Stapled Securities in the REIT. Dexus is one of Australia s leading real estate groups, with $27.2 billion of assets under management. Listed on the ASX, Dexus manages and directly invests in high quality Australian office and industrial properties, and also actively manages office, industrial, retail and healthcare properties across Australia on behalf of third party capital partners. Dexus s total property portfolio as at 30 June 2018 includes: $13.3 billion of owned property, with an additional $2.2 billion development pipeline; and $13.9 billion of property managed for third party clients, with an additional $2.0 billion development pipeline. The partnership with Heathley Group is aligned with Dexus s objective to continue to build scale in the growing healthcare property sector which will benefit from the underlying trends of strong population growth and an ageing demographic. Dexus has previously commented that the Australia healthcare property sector is under-invested and offers a significant long term opportunity. Demand for health care services is being driven by favourable population demographics, and due to its nondiscretionary nature, the sector is less exposed to cyclical impacts than other property asset classes. Heathley Group s strategic partnership with Dexus is expected to offer the REIT access to additional healthcare partnerships Partnership Model Heathley Group is a specialist healthcare property manager with in-depth knowledge of the healthcare property sector and deep, long term relationships with a network of medical professionals, healthcare operators, land owners, developers and investors which it leverages to identify and pursue acquisition, development and investment opportunities. Heathley Group has adopted a partnership model with these participants in the healthcare sector. Heathley Group has been strategic in the way it thinks about acquiring healthcare properties and growing its portfolio. Heathley Group s first priority is understanding whether the tenants at the property are delivering a sustainable model of care and ensuring that the model of care is robust enough to withstand industry forces (namely, changes in policy, affordability, private health insurance, demographics and competition). It is for this reason the Heathley Group places significant attention to the businesses which tenant its properties. 63

64 Heathley Group offers healthcare sector tenants the opportunity to partner with an experienced manager who has the expertise and a clear understanding of their infrastructure requirements. It has a number of strategic relationships with specialist healthcare operators in place, and is well placed to support a number of operators in their nationwide expansion plans Case study: Relationship with the Grosvenor Group In 2018, International property company Grosvenor Group s Indirect Investment team, through Grosvenor Australasia Investments Pty Ltd ( Grosvenor ), has partnered with Heathley and HAML to form a joint venture to acquire well leased and strategically located private medical properties in Australia. The joint venture s initial investments are the Mater Women s and Children s' Hospital (Townsville), and the Westside Private Hospital (Taringa), having a combined value of $86 million. This is the first time that Grosvenor s Indirect Investment team has invested in the healthcare sector Case study: Relationship with Nexus Hospitals In 2017, Nexus Day Hospitals Holding Pty Ltd ( Nexus ) appointed Heathley Group as its preferential property partner, and entered into a relationship agreement with HAML. HAML subsequently established and acts as responsible entity and manager for the Nexus Property Unit Trust ( NPUT ), a dedicated property trust that will acquire and develop hospital sites which are consistent with Nexus business (including sites owned or associated with specialist medical practitioners who partner with Nexus), and then hold properties with Nexus as the long term anchor tenant. The objective of NPUT is to provide alignment between Nexus and the specialist medical practitioners who partner with Nexus, with a dedicated property trust in which they can invest. Heathley Group is currently working with Nexus on a number of opportunities for NPUT Case study: Relationship with Hall and Prior In December 2017, HAML entered into a non-binding commercial relationship deed with Hall and Prior outlining the basis on which the parties agreed to explore opportunities to acquire, develop and operate residential aged care facilities. Under the deed, the parties proposed to invest approximately $50 million in the acquisition, development and operation of residential aged care facilities over a 5-7 year period. The investment model proposed by the parties includes HAML acquiring existing facilities or developing new facilities, and leasing those assets to Hall and Prior on a long term basis. The following residential aged care facilities have been acquired in the first stage of the relationship: Midland WA (Tuohy Nursing Home) and surrounding land, purchased for $12.5 million, which is planned for redevelopment into an approximately 140 bed residential aged care facility; and Hurstville NSW (Shangri La Nursing Home), purchased for $7.5 million, with the intention to redevelop into a new residential aged care facility 1. Hall and Prior and Heathley Group are exploring additional opportunities to continue to build the relationship Case study: Relationship with Montserrat Day Hospitals Heathley Group is Montserrat Day Hospital's primary property partner 2. Since 2015, Heathley Group has worked alongside Montserrat Day Hospitals on the $60 million acquisition of Westside Private Hospital (Taringa), which is expected to settle in December Heathley Group's proactive strategic partnership style has led to a number of other opportunities with Montserrat Day Hospitals. These include: West Perth, Western Australia: Fund-through acquisition of a specialist oncology centre that is 100% leased to Montserrat Day Hospitals; 1 The REIT is scheduled to complete the acquisition of Hurstville on or around the Allotment date. 2 On 10 September 2018, Primary Health Care Limited announced that it had signed a binding agreement to acquire Montserrat Day Hospitals. 64

65 Albany, Western Australia: Fund-through acquisition of a single-theatre day hospital that is 100% leased to Montserrat Day Hospitals; and Wollongong, New South Wales: Passive acquisition of an endoscopy clinic that is 100% leased to Montserrat Day Hospitals. Montserrat Day Hospitals and Heathley Group continue to have ongoing discussions on how strategic partnership can deliver further mutually beneficial opportunities Case study: Relationship with GenesisCare Heathley Group has become a property and development partner of GenesisCare by demonstrating an understanding of its specific operational and location requirements. In 2017, GenesisCare identified Concord West as a target area for a new integrated oncology centre. Heathley identified a potential site and is now developing a specialist centre and an integrated fitout with a long term lease to GenesisCare. GenesisCare continues to pursue its growth via a capital light model and has engaged with Heathley on a pipeline of further development opportunities Structure of Heathley Group Heathley is the ultimate holding company of the Heathley Group. HAML, HFM and HPS are wholly owned subsidiaries of Heathley. Investment management services will be provided by members of Heathley Group, including but not limited to property management, leasing, marketing, acquisitions, development and day-to-day management of the REIT s assets. Heathley is currently privately owned, including by some members of the Heathley Board and Management team. Heathley is currently undertaking a selective capital reduction in order to reduce the number of shareholders in Heathley. In conjunction with the Completion of the Offer, Dexus will subscribe for 28.5% of the shares in Heathley Limited. Following completion of the capital reduction and the investment by Dexus, Heathley will be owned as follows: Dexus 28.5%; and Board and management of Heathley Limited 71.5%. Investors will own Stapled Securities in the REIT. Securityholders will not own Heathley Limited, the Responsible Entity or the management entities (which will form part of Heathley Group) The Heathley Group management strategy The Heathley Group team consists of 16 staff. The REIT will benefit from the management team s knowledge and specialist expertise in acquiring, developing and managing healthcare property sector assets. Heathley Group will utilise an integrated approach to provide property funds and asset management services to the REIT as well as other management activities such as development management and leasing Investment approach Philosophy and focus Heathley Group combines clear and decisive investment strategies, practical financial management and deep healthcare property knowledge to aim to achieve strong risk adjusted returns. The Group s investment management philosophy is based around enhancing returns on all Portfolio properties through active management. Decision making An investment decision making process is in place to assess acquisition opportunities for the REIT from time to time. The process leverages Heathley Group s in depth industry knowledge and management experience to provide a framework for decision making. Acquisition opportunities will only by pursued when management expects the property to increase the overall quality of the Portfolio and enhance returns to Securityholders. 65

66 Management of conflicts Heathley Group will seek to minimise time periods within which multiple funds have investment criteria overlaps. Heathley Group will review the policy relating to conflicts of interest and adjust if necessary. Existing mandates As noted in Section 5.3.1, Heathley Limited and HAML as responsible entity of HHPF have entered into a joint venture with Grosvenor to acquire healthcare properties in Australia. The joint venture, HJVPF, is owned 50% by Grosvenor, 6% by Heathley Limited and 44% by HAML as responsible entity of HHPF. Under the joint venture, HJVPF has a right of first refusal until June 2019 to consider any investment opportunities sourced by Heathley Group that meet the joint venture s investment criteria. Heathley Group has further obligations to use all commercially reasonable endeavours to source opportunities that meet the joint venture s investment criteria for a further one year period. There are a number of investment criteria in the REIT which are similar to the joint venture s investment criteria. To the extent that the joint venture decides to proceed with an investment opportunity, the REIT will have a 44% interest in that property through HHPF. In the event the joint venture does not wish to proceed with an investment opportunity, the REIT will be able to consider the opportunity, and if it decides to proceed will acquire a 100% interest in that property. As noted in Section 5.3.2, HAML has an existing relationship agreement with Nexus. HAML is Responsible Entity and Manager of NPUT, a dedicated property trust that will acquire and develop hospital sites which are consistent with Nexus business (including sites owned or associated with specialist medical practitioners who partner with Nexus). Under the relationship agreement, HAML will use all reasonable endeavours to appraise Nexus of opportunities to develop, acquire and operate Australian day only and short stay surgical hospitals, and must not notify any competitors of Nexus of such opportunities (subject to certain exceptions). Where Nexus decides to proceed with an opportunity, the specialist medical practitioners who partner with Nexus have the first right to invest into acquisitions and developments in NPUT. In the event NPUT requires equity greater than the amount able to be invested by Nexus or its specialists, HAML may offer this residual equity to other investors. HAML will offer the REIT the first right to invest any residual equity required by NPUT in the event the acquisition and or development in NPUT meet s the REIT s investment objective and strategy. If Nexus decides not to proceed with an opportunity, HAML may offer the opportunity to other investors who are not competitors of Nexus (including the REIT). HAML is the Responsible Entity and Manager of a number of existing unlisted investment trusts which will not be included in the REIT. In the event of the sale of a property held by an unlisted investment trust, the REIT may be provided with the opportunity to acquire the property if such property falls within the REIT s investment criteria. However, in order to comply with its obligations as trustee of that fund, HAML will manage the sale or disposal of any such properties held by existing unlisted investment trusts in a manner that is in the best interests of the unitholders of in that trust. Future mandates Post Completion, HAML may become the Responsible Entity and Manager of other unlisted investment trusts. Subject to compliance with its existing obligations to existing investors and third parties (including those mentioned above), Heathley Group will seek to provide the REIT with the right consider any opportunity that meets the REIT s investment objective and strategy. If the REIT does not proceed with such opportunity or the opportunity does not meet the REIT s investment objective and strategy (i.e. a speculative development or risky property acquisition), Heathley Group may offer the opportunity to one of its unlisted investment trusts. In the event of a conflict between a Director and the REIT in relation to an investment opportunity, that director will remove themselves from any decision relating to the investment opportunity. 66

67 5.6. Directors of the Responsible Entity Position Peter Barnes Independent Chairman Eve Crestani Non-executive Director Gary Barnier Non-executive Director Alison Harrop Non-executive Director Andrew Hemming Executive Director Experience, qualifications and expertise Over 40 years' experience in the property Industry, including executive roles at Lend Lease, Ernst & Young, Commonwealth Bank Institutional Bank and CRI Australia Limited; Current directorships include Non-Executive Chairman of Domus Multi Family REIT, Charter Hall Investment Management Limited, and Capstone Recruitment Pty Limited and Non- Executive Director of V-Plus Fund and Richard Crookes Constructions Pty Limited; and Past directorships include Chairman Advisory Committee of Taylor Constructions Pty Limited, Chairman Real Estate of PPB Advisory Pty Limited and Non-Executive Director of Goodman Australia Industrial Fund and FKP Funds Management Pty Limited. Qualified in law, with 28 years' experience as a non-executive; Currently a director of Australian Unity Investment Real Estate Limited, booking.com, and Chairman of Seres (Hong Kong); Former director of the Zurich Group and Australian Unity, and Chairman of Mercer Super; and Sits on the ASX Disciplinary Tribunal and has been a Fellow of AICD since its inception. Pro bono activities include Director of Soils For Life and judge of the Ethnic Business Awards. Over 15 years' experience as a senior leader in the healthcare sector, including Managing Director of Opal Aged Care, CFO of DCA Group Limited, and CEO of the I-Med Network Limited; Currently Managing Director of Cooperage Capital, member of the Aged Care Financing Authority and Board Member on the NHMRC's National Institute for Dementia Research; Previously sat on the Aged Care Sector Committee, Strategic Workforce Advisory Group for Aged Care and was a founding Director of the Aged Care Guild; and Previous senior management roles in marketing and strategy with companies such as Boral and George Weston Foods. Chief Financial Officer at Dexus responsible for the overall finance function, including taxation, treasury, management accounting, corporate accounting and planning and analysis. Alison is also responsible for technology, people & communities and business improvement; Has over 25 years' experience in finance management in Australia and overseas; She has worked across multi-disciplinary finance, risk and assurance teams for organisations including Westpac, Australia Post, Macquarie Group and Deutsche Bank; and She is a Fellow of the Institute of Chartered Accountants in Australia, a Graduate of the Australian Institute of Company Directors and holds a Bachelor of Science (Mathematics) degree from Loughborough University in England. Appointed Managing Director in August 2013 and is responsible for the day-to-day leadership and management of the Heathley Group; Previously Investment Specialist - Real Estate Funds with Folkestone Limited; Worked at Heathley Group from 2007 to 2011; and 17 years' experience in investment markets with leading international financial institutions including HSBC, Merrill Lynch and BNP Paribas Heathley Healthcare REIT management team The Heathley Group is providing the services of Heathley, HAML, HFM and HPS, which will in turn provide access to key executives, including the following individuals dedicated to the management of the REIT: Name Toby Kreis Role / Background Fund Manager Over 10 years experience in funds management having held roles at listed A-REIT s prior to joining Heathley 67

68 Vijitha Yogavaran Camilla Brown Belinda Carter Jordan Luong Portfolio Manager Over 10 years experience in property funds management and corporate finance, having held roles at Investa Property Group prior to joining Heathley Investment Manager Aged Care Experience with investment management and capital markets, having previously held roles at Macquarie Bank and Legal and General prior to joining Heathley Asset Manager Over 13 years experience in property management having held roles at Australian Unity and Teska & Carson prior to joining Heathley Property Analyst Experience as an analyst at PricewaterhouseCoopers focusing on the property and real estate industry The REIT will be the primary focus for the Heathley Group and assets owned by the REIT will represent 93% of the Heathley Group s funds under management at pro forma for the REIT s Post Completion Developments. The REIT s management team is able to draw on the broader resources of the Heathley Group, which comprises a total of 16 staff, including key individuals such as Andrew Hemming, George Websdale, Geoff Bryant and Mark Howard. Name Andrew Hemming George Websdale Geoff Bryant Mark Howard Role / Background Managing Director Refer to Section 5.6 Executive Director Property Over 26 years experience across all aspects of property and previously the General Manager for Office and Industrial at Stockland Property Group Chief Financial Officer Over 26 years experience in senior finance roles and was previously General Manager of IR and M&A at Spotless and General Manager Finance at Woolworths and P&O Group Investment Director Over 14 years experience across property analytics and investment appraisal 5.8. Corporate governance General The Responsible Entity is committed to good corporate governance and a high level of transparency, disclosure and interaction with the Securityholders. The Board seeks to ensure that the REIT is properly managed to protect and enhance Securityholder interests, and that the Responsible Entity, its Directors, officers and personnel operate in an appropriate environment of corporate governance. Accordingly, the Board has created a framework for managing the REIT, including adopting relevant corporate governance policies and practices, risk management processes and internal controls which it believes are appropriate for the operation of the REIT and which are designed to promote the responsible management and conduct of the REIT. Section 5.8 summarises the key elements of the Responsible Entity s and the REIT s governance framework and policies that will apply from listing. Copies of the Board and Committee Charters and other governance policies will be available on the REIT s website at from listing. 68

69 ASX Corporate Governance Principles and Recommendations The ASX Corporate Governance Council has developed and released its Corporate Governance Principles and Recommendations (3rd edition) ( ASX Recommendations ) for ASX listed entities in order to promote investor confidence and to assist companies in meeting stakeholder expectations. The ASX Recommendations are not prescriptions, but guidelines against which listed entities have to report on an if not, why not basis if they do not comply with them. The Board of the Responsible Entity has adopted policies recommended by the ASX Recommendations, to the extent that they are applicable to an externally managed listed entity. Under the ASX Listing Rules, the Responsible Entity will be required to prepare a corporate governance statement for the REIT that discloses the extent to which it has followed the ASX Recommendations in the reporting period. Where a recommendation is not followed, the Responsible Entity must identify the recommendation and give reasons for not following it. The Responsible Entity must also explain what (if any) alternative governance practices it has adopted in lieu of the recommendation. The Board does not anticipate that it will depart from the ASX Recommendations Board composition and independence The Board Charter sets out guidelines for the purpose of determining the independence of Directors that is based on that set out in the ASX Recommendations. The Board is comprised of five members, the majority of whom are independent of Heathley Group. The Board considers that the Chairman, Peter Barnes and two Non-executive Directors, Eve Crestani and Gary Barnier, are free from any interest, position or relationship that might influence, or might reasonably be perceived to influence in a material respect, each Directors ability to bring independent judgement to bear on issues before the Board and to act in the best interests of Securityholders generally. Detailed biographies of the Directors are provided in Section 5.6. Alison Harrop and Andrew Hemming are not currently considered by the Board to be independent Directors because: Alison Harrop is the Chief Financial Officer of Dexus, which will become a substantial Securityholder of the REIT on Completion pursuant to the subscription agreement; and Andrew Hemming is the Managing Director of Heathley. The Board of the Responsible Entity has adopted a Board Charter which sets out guidelines for the purpose of determining the independence of Directors that is based on that set out in the ASX Recommendations. The Board will regularly review the independence of each Director in light of information relevant to this assessment as disclosed by each Director to the Board Board role and responsibilities The Board Charter provides an overview of the Board s structure, composition and responsibilities, and the relationship and interaction between the Board, Board Committees and management. The Board s role is to: Oversee the arrangements for managing the affairs of the REIT; Approving the funding strategy and borrowing limits for the REIT; Monitor the operational and financial position and performance of the REIT; and Oversee compliance of the Responsible Entity with its obligations. Under the Board Charter, the Board s responsibilities include: Contributing to and approving management s development of strategy of the REIT; Monitoring performance and implementation of strategy and policy for the REIT; Reviewing, ratifying and monitoring systems and policies of risk management, internal control and legal compliance; 69

70 Developing and reviewing the Responsible Entity s corporate governance policies and practices; Approving operating budgets, major capital expenditure, new development proposals, acquisitions and divestitures; Reviewing and approving the Responsible Entity s crisis management plan; Monitoring the performance of management of the REIT and the performance by management of obligations under any management agreements for the REIT; Monitoring and reviewing management processes aimed at ensuring the integrity of financial and other reporting; Approving financial reports, profit forecasts and other reports for the REIT; Overseeing capital management and approving distribution payments to Securityholders in accordance with the constitutions of the REIT; Approving the appointment of the external auditor for the REIT, the terms of the appointment and the scope of external audit activities; Ensuring Securityholders are kept informed of the REIT s performance and major developments affecting its state of affairs; and Reviewing, at least annually, the Responsible Entity s risk management framework for the REIT to satisfy itself that it continues to be sound and effectively identifies areas of potential risk. The Board collectively, and each Director individually, has the right to seek independent professional advice, subject to the approval of the Chair Delegation to management While the Board retains ultimate responsibility for the strategy and performance of the REIT, it may delegate its powers as it considers appropriate. The Board has appointed the Manager to provide investment management services, including marketing, acquisitions, developments and day-to-day operation of the REIT s assets in accordance with the Fund Management Agreement between the Responsible Entity and the Manager. The Board has appointed the Property Manager to manage the properties in the Portfolio in accordance with the Property Management Agreement between the Responsible Entity and the Property Manager. Further details of the Fund Management Agreement and Property Management Agreements are set out in Section 12. Management must supply the Board with information in a form, timeframe and quality that will enable the Board to discharge its duties effectively. Directors are entitled to request additional information at any time they consider it appropriate Board committees The Board from time to time establishes committees to streamline the discharge of its responsibilities. The Board has established an Audit and Risk Committee and a Remuneration Committee. Other committees may be established by the Board as and when required Audit and Risk Committee The Audit and Risk Committee s key responsibilities and functions are to oversee the Responsible Entity s: Financial reporting processes for the REIT; Relationship with the external auditor of the REIT and the external audit function generally; 70

71 Financial controls and systems for the REIT; Processes for monitoring compliance with laws and regulations for the REIT; and Processes of identification and management of risk for the REIT. Under its charter, the Audit and Risk Committee must consist of only Non-executive Directors, a majority of independent Directors, an independent chair (who is not the chair of the Board) and a minimum of three members. The Audit and Risk Committee will comprise of the following members: Eve Crestani (chair); Gary Barnier; and Peter Barnes. Non-Committee members, including members of management and the external auditor, may attend meetings of the Committee by invitation of the Committee chair Remuneration Committee The responsibilities of the Remuneration Committee include: Reviewing and recommending to the Board remuneration arrangements and level of remuneration for The fund and property managers and senior management of the REIT; Reviewing and approving major changes and developments in the Responsible Entity s policies and procedures related to remuneration, recruitment, retention, termination and performance assessment for the Responsible Entity and the REIT; Reviewing and recommending to the Board the remuneration arrangements for the Chairman and the Non-executive Directors of the Board, including fees, travel and other benefits. Reviewing and facilitating stakeholder engagement in relation to the Responsible Entity s remuneration policies and practices, including for the fund and property manager/s. Under its charter, the Remuneration Committee must consist of only Non-executive Directors and should have a minimum of three members, a majority of independent Directors and an independent Director as chair. The Remuneration Committee will comprise of the following members: Gary Barnier (chair); Eve Crestani; and Peter Barnes. Non-committee members, including members of management, may attend all or part of a meeting of the Committee at the invitation of the Committee chair Constitutions and compliance plans The Constitutions of HDMF1, HDMF2, HACPF1, HDFT ( REIT Constitutions ) and the Responsible Entity set out the rights and obligations of the Securityholders and Responsible Entity, respectively. A summary of the Constitutions is set out in Section In order to ensure compliance with the REIT Constitutions, the Corporations Act and the ASX Listing Rules, the Responsible Entity has adopted a compliance plan which sets out the key processes the Responsible Entity will apply in operating the REIT. You can request a copy of the REIT Constitutions and compliance plan or view these on the REIT s website. Refer to Section for further details Risk management framework and policy The Board is ultimately accountable for corporate governance and the appropriate management of risk. The Board oversees the establishment and implementation of the REIT s risk management framework and annually reviews the effectiveness of the risk management framework. 71

72 The Board is assisted by the Audit and Risk Committee in developing, and reviewing the effectiveness of, the risk management framework for the REITs. The Audit and Risk Committee oversees the operation of the risk management system and monitors the internal policies for identifying and determining key risks to which the Responsible Entity is exposed. The Responsible Entity has adopted a risk management framework that provides guidance on how to apply consistent and comprehensive risk management systems. The framework has been prepared with reference to International Standard ISO 31000:2009 Risk management - Principles and guidelines Continuous disclosure and keeping Securityholders informed Disclosure Policy Once the REIT is listed, the Responsible Entity (on behalf of the REIT) will be required to comply with the continuous disclosure requirements of the ASX Listing Rules and Corporations Act. Subject to the exceptions contained in the ASX Listing Rules, the Responsible Entity will be required to immediately notify ASX of any information the Responsible Entity becomes aware of concerning the REIT which is not generally available and which a reasonable person would expect to have a material effect on the price or value of the REIT s securities. The Responsible Entity has adopted a Disclosure Policy that will take effect from listing, which reinforces the Responsible Entity s commitment to its continuous disclosure obligations and describes the processes in place that enable the Responsible Entity to provide Securityholders with timely disclosure in accordance with those obligations. Information will be communicated to Securityholders through the lodgement of all relevant financial and other information with ASX, and copies of the announcements made to the ASX will be available on the REIT s website Communications Strategy The Responsible Entity has adopted a Communications Strategy that outlines its approach to communication with Securityholders. In addition to the Responsible Entity s continuous disclosure obligations, the Responsible Entity will communicate openly and honestly with Securityholders and aims to keep them informed of all major developments affecting the state of affairs of the REIT. Additionally, the Responsible Entity recognises that potential investors and other interested stakeholders may wish to obtain information about the REIT from time to time. To achieve this, the Responsible Entity will communicate information regularly to Securityholders and other stakeholders through a range of forums and publications, including the REIT s website, the REIT s Annual Report and ASX announcements Securities Dealing Policy The Responsible Entity has adopted a Securities Dealing Policy that explains the types of conduct in relation to dealings in REIT securities (including Stapled Securities) that are prohibited by law and establish procedures for the buying and selling of REIT securities to ensure that public confidence is maintained in the reputation of the REIT, Heathley Group, Directors and employees of Heathley Group and in the trading of REIT securities. The Policy provides that Directors and employees of Heathley Group must not deal in the REIT securities (including Stapled Securities) when they are aware of inside information or during any of the following blackout periods: The period from the close of trading on the ASX on the day that is 2 weeks before 30 June each year (or if that day is not a trading day, the last trading day before that date) until the day following the announcement to ASX of the full-year results; The period from the close of trading on the ASX on the day that is 2 weeks before 31 December each year (or if that day is not a trading day, the last trading day before that date) until the day following the announcement to ASX of the half-year results; and Any other period that the Board specifies from time to time. 72

73 Directors and certain restricted employees must receive prior approval for any proposed dealing in REIT securities outside of the above blackout periods (including any proposed dealing by one of their connected persons) Conflicts and related party transactions The Responsible Entity has adopted a Conflicts of Interest Policy to ensure there are adequate arrangements to identify and manage conflicts of interest or duty and related party transactions and the Responsible Entity s legal obligations Code of Conduct Heathley Group is committed to a high level of integrity and ethical standards in all business practices. Accordingly, the Board has adopted a formal Code of Conduct that outlines how Heathley Group expects its representatives to behave and conduct business in the workplace and includes legal compliance and guidelines on appropriate ethical standards. The objective of the Code is to: Provide a benchmark for professional behaviour throughout Heathley Group; Support Heathley Group s business reputation and corporate image within the community; and Make Directors and employees aware of the consequences if they breach the policy. 73

74 6. Financial information 6.1. Introduction The summary financial information for the REIT contained in this Section has been prepared by the Responsible Entity and comprises: The pro forma forecast consolidated income statements for the period from Allotment to 30 June 2019 and for the six month period ending 31 December 2019 ( 1H FY20 ) (together the Forecast Period ) as set out in (the Pro Forma Forecast Consolidated Income Statements ); The statutory forecast consolidated income statements for the year ending 30 June 2019 ( FY19 ) and for 1H FY20 as set out in Section (the Statutory Forecast Consolidated Income Statements ); (together the Forecast Financial Information ); and The pro forma consolidated balance sheet at Allotment as set out in Section 6.4 (the Pro Forma Consolidated Statement of Financial Position ). The Forecast Financial Information and Pro Forma Consolidated Statement of Financial Position together constitute the Financial Information. Also summarised in this section are: The basis of preparation and presentation of the Financial Information including a description of non-ifrs financial measures and disclosure used in the PDS, as set out in Section 6.2; The pro forma forecast consolidated distribution statements for the period from Allotment to 30 June 2019 and 1H FY20 as set out in Section (the Pro Forma Forecast Consolidated Distribution Statements ); The Directors' best estimate assumptions underlying the Forecast Financial Information, as set out in Section 6.5; The key sensitivities in respect of the Forecast Financial Information, as set out in Section 6.6; A reconciliation between the consolidated statement of financial position of HDMF2 as at 30 June 2018 and the Pro Forma Consolidated Statement of Financial Position as set out in Section 6.7; A description of the significant accounting policies of the REIT as set out in Section 6.8; and Information on the REIT's working capital, as set out in Section 6.9. The Financial Information has been reviewed by PricewaterhouseCoopers Securities Ltd ( PwCS ) in accordance with the Australian Standard on Assurance Engagements ( ASAE ) 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information, as stated in its Investigating Accountant's Report in Section 8. Investors should note the scope and limitations of the Investigating Accountant's Report in Section 8. The REIT will operate on a financial year ending 30 June. All amounts disclosed in Section 6 are presented in Australian dollars, and unless otherwise noted are rounded to the nearest $0.1 million. Rounding in the Financial Information may result in some discrepancies between the sum of components and the totals outlined within the tables and percentage calculations. The Financial Information provided in this Section should also be read in conjunction with the sensitivity analysis set out in Section 6.6, the risk factors set out in Section 7 and the other information provided in this PDS. 74

75 6.2. Basis of preparation and presentation of the Financial Information The following sub-sections outline the basis of preparation and presentation of the Pro Forma Consolidated Statement of Financial Position, the Forecast Financial Information and an explanation of the non-ifrs financial measures and disclosure included in this PDS Overview The Directors are responsible for the preparation and presentation of the Financial Information. The Financial Information in this PDS is intended to present Investors with information to assist them in understanding the Pro Forma Consolidated Statement of Financial Position together with the Forecast Financial Information. The Financial Information has been prepared and presented in accordance with the recognition and measurement principles prescribed in the Australian Accounting Standards ( AAS ) adopted by the Australian Accounting Standards Board ( AASB ) and the significant accounting policies adopted by the REIT as set out in Section 6.8. The Financial Information is presented in an abbreviated form and does not contain all of the presentation and disclosures, statements or comparative information as required by AAS applicable to annual financial reports prepared in accordance with the Corporations Act Preparation of the Pro Forma Consolidated Statement of Financial Position The Pro Forma Consolidated Statement of Financial Position has been prepared solely for inclusion in this PDS. The Pro Forma Consolidated Statement of Financial Position as at Allotment is based on the historical financial information of HDMF2, the other Existing Trusts (being, HDMF1, HKPF32, HACPF1, HDFT and HHPF) and the pro forma transactions and adjustments to reflect the pro forma consolidation of the Existing Trusts, the impact of the Offer and acquisition of the Acquisition Portfolio. The pro forma consolidation and other pro forma adjustments include: The stapling of the Stapled Trusts; The acquisition of all of the units in HHPF and HKPF32 by HDFM1; The acquisition of certain properties after 30 June 2018 but prior to Allotment (refer to Section 6.7 for further detail); The acquisition of the Acquisition Portfolio; and The Offer, including payment of cash consideration to Existing Unitholders who have elected to redeem their units in the Stapled Trusts (or in the case of HHPF or HKPF32 elected to receive cash for units in the relevant trust), the refinancing of existing bank debt in the Existing Trusts, drawdown of debt under the Proposed Debt Facility and payment of Offer costs. Refer to Section 6.5 for details of the pro forma adjustments. To account for the stapling of the Stapled Trusts, AAS requires an acquirer to be identified and for the stapling to be accounted for as a business combination. HDMF2 has been identified by the Directors to be the acquirer of the other Stapled Trusts for accounting purposes and therefore the other Stapled Trusts are consolidated into HDMF2 s financial report. No consolidated historical financial statements for the REIT exist as the Stapled Trusts will only be Stapled to form the REIT on Allotment Date. The consolidated statements of financial position of HDMF2, HDMF1, HKPF32 and HACPF1 as at 30 June 2018 have been extracted from the respective financial statements for the year ended 30 June These statements have been audited in accordance with AAS by the Existing Trusts external auditor, with an unqualified audit opinion issued. HHPF was incorporated in June 2018 and financial statements were not prepared as at 30 June The balance sheet from HHPF at 30 June 2018 has been extracted from the management accounts. HDFT was established on 10 September HDFT currently has no material assets or liabilities. 75

76 The Pro Forma Consolidated Statement of Financial Position is provided for illustrative purposes only and is not represented as being necessarily indicative of the REIT s future financial position Preparation of the Forecast Financial Information The Forecast Financial Information has been prepared solely for inclusion in this PDS on the basis that Allotment occurs on 13 December The Forecast Financial Information has been prepared by the Directors with due care and attention, having regard to best estimate assumptions regarding future events as set out in Section 6.5, and an assessment of present economic and operating conditions. The Directors consider the best estimate assumptions, when taken as a whole, to be reasonable at the time of preparing this PDS. However, this information is not fact and Investors are cautioned not to place undue reliance on the Forecast Financial Information. The Forecast Financial Information is intended to assist investors in assessing the reasonableness and likelihood of the assumptions occurring and is not intended to be a representation that the assumptions will in fact occur. Investors should be aware that the timing of actual events and the magnitude of their impact may differ from the assumptions on which the Forecast Financial Information is premised, and that any deviation from these assumptions may have a material positive or negative effect on the REIT s actual financial performance or financial position. The forecast consolidated income statements have been presented on both a pro forma and statutory basis. The Pro Forma Forecast Consolidated Income Statements reflect operations of the REIT for the period from Allotment to 30 June 2019 and 1H FY20. The Statutory Forecast Consolidated Income Statements reflect FY19 and 1H FY20. The principal differences between the Pro Forma Forecast Consolidated Income Statement for the period from Allotment to 30 June 2019 and the Statutory Forecast Consolidated Income Statement for FY19 relate to the earnings for the period from 1 July 2018 to Allotment, during which the standalone statutory results of HDMF2 will be reported prior to the stapling of the other Stapled Trusts (as outlined above), and one-off transaction costs associated with the Offer which are not reflected in the Pro Forma Forecast Consolidated Income Statement. The Statutory Forecast Consolidated Income Statement for FY19 presented in Section is the best estimate of the financial performance that the Directors expect to report in the REIT s first statutory consolidated financial report following Allotment. There are no differences between the pro forma and statutory forecasts for 1H FY20. Investors are advised to review the best estimate assumptions set out in Section 6.5 in conjunction with the sensitivity analysis set out in Section 6.7, the risk factors set out in Section 7 and other information included in this PDS. The Forecast Financial Information does not account for any potential fair value adjustments to investment property, derivative financial instruments or other financial assets which may be recognised in the income statement. The exclusion of such adjustments is on the basis that such adjustments cannot be reliably determined in the Forecast Period. The Pro Forma Forecast Distribution Statements have been derived by adjusting the Pro Forma Forecast Consolidated Income Statement net profit for: Non-cash items including: straight lining of rental income, the amortisation of lease incentives and upfront debt costs; Cash amounts received and elected to be distributed in relation to rental guarantees and coupon income; and Non-recurring items including: transaction costs and other one off items. The resulting measure is termed FFO, being the Directors measure of the periodic amount available for distribution, which differs from net profit as determined in accordance with AAS. 76

77 Non-IFRS financial measures and disclosure Certain financial measures included in this PDS are not recognised under AAS. These measures are collectively referred to as non-ifrs financial measures and are intended to supplement the measures calculated in accordance with AAS, not to act as a substitute for those measures. The principal non-ifrs financial measures that are referred to in this PDS are discussed below: FFO which represents net profit (before transaction costs) adjusted for net fair value movements, non-cash accounting adjustments such as straightlining of rental income, amortisation of lease incentives, cash amounts received and elected to be distributed, and other unrealised and one-off items; Distribution which represents the amount of FFO forecast by the Directors to be available for distribution to Securityholders in the period from Allotment to 30 June 2019 and 1H FY20; FFO Yield which represents the rate of return derived by dividing the FFO per Stapled Security by the Offer Price of $2.00; and Distribution Yield which represents the rate of return derived by dividing the Distribution per Stapled Security by the Offer Price of $2.00. Although the Directors believe these non-ifrs measures and disclosure provide useful information about the future financial performance of the REIT, they should be considered as a supplementary measure of operating performance to that included in the income statements that have been presented in Section and not as a replacement for them. Because these non-ifrs financial measures and disclosure are not based on AAS, they do not have standard definitions and the way that the REIT calculates these measures may differ from similarly titled measures by other reporting entities. Investors should therefore not place undue reliance on these non-ifrs financial measures and disclosures Forecast Financial Information Section 6.3 contains the Pro Forma Forecast Consolidated Income Statements, Pro Forma Forecast Consolidated Distribution Statements and the Statutory Forecast Consolidated Income Statements of the REIT. Section 6.3 should be considered in conjunction with the basis of preparation and presentation of the Financial Information set out in Section Pro Forma Forecast Consolidated Income Statements The table below sets out the Pro Forma Forecast Consolidated Income Statements of the REIT. ($m) Pro Forma - Allotment to 30 June Pro Forma - Six months ending 31 December 2019 Property rental income Share of net profit from equity accounted investments Straight lining of rental income Interest income Total revenue Property expenses (2.5) (2.4) Management fees (1.6) (1.5) 1 The Pro Forma Forecast Consolidated Income Statements have been prepared on the basis that Allotment occurs on 13 December Share of net profit from equity accounted investments relates to the REIT s 44.0% interest in HJVPF held through HHPF. The share of net profit from equity accounted investments is represented on a pro forma basis and excludes fair value adjustments. 3 A straight line lease adjustment is provided in relation to future fixed rental increases to reflect rental income on a straight line basis over the term of the lease. This is presented net of amortisation of leasing commissions and tenant incentives. 77

78 The table below sets out the Pro Forma Forecast Consolidated Income Statements of the REIT. ($m) Pro Forma - Allotment to 30 June Pro Forma - Six months ending 31 December 2019 Operating expenses (0.7) (0.6) Interest expense 1 (3.7) (3.7) Total expenses (8.5) (8.2) Net profit Pro Forma Forecast Consolidated Distribution Statements The Pro Forma Forecast Consolidated Distribution Statements have been derived by adjusting net profit (before transaction costs) from the Pro Forma Forecast Consolidated Income Statements for non-cash accounting adjustments such as straightlining of rental income, amortisation and other income. The Pro Forma Forecast Consolidated Distribution Statements present the FFO and Distributions of the REIT, being the Directors measure of the cash available for distribution during the year and providing Investors with the same basis that is used internally for evaluating performance, making strategic decisions and determining Distributions during the year. Distributions are intended to be paid on a quarterly basis. The first Distribution will be for the period from Allotment to 31 March 2019, and is expected to be paid within two months from 31 March The REIT intends to distribute 90% to 100% of its FFO. The Directors of the Responsible Entity retain the discretion to amend the Distribution policy. The table below provides a reconciliation from the pro forma forecast consolidated net profit (excluding Transaction Costs) to FFO for the period from Allotment to 30 June 2019 and 1H FY20. As outlined in the table below, the REIT forecasts: FFO of 6.5 cents per Stapled Security and Distributions of 6.3 cents per Stapled Security for the period from Allotment to 30 June 2019; and FFO of 6.3 cents per Stapled Security and Distributions of 6.1 cents per Stapled Security for 1H FY20. ($m) Pro Forma - Allotment to 30 June Pro Forma - 1H FY20 (six months) Net profit (before transaction costs) Coupon income Rental guarantee income Straight lining of rental income 5 (0.8) (0.5) Amortisation of borrowing costs Funds from operations (FFO) Distribution Includes margin on drawn amounts, line fees and amortisation of capitalised borrowing costs. 2 Net profit excludes fair value adjustments in respect of investment properties and other financial assets, such as interest rate swaps, as the Directors do not believe that they can be reliably estimated. 3 The Pro Forma Forecast Consolidated Income Statements have been prepared on the basis that Allotment occurs on 13 December Transaction costs will be funded by the proceeds of the Offer and do not affect the FFO of the REIT. 5 As rental income has been recorded in the Pro Forma Consolidated Income Statement on a straight line basis, the non-cash portion is reflected as a reconciling item from net profit to FFO. This is presented net of amortisation of leasing commissions and tenant incentives. 6 The REIT has a distribution policy of paying out % of FFO. Refer to Section 2.7 for further information on the REIT s distribution policy. 78

79 Stapled Securities on issue (millions) FFO per Stapled Security (cents) Distribution per Stapled Security (cents) Annualised FFO Yield (%) 1 6.0% 6.3% Annualised Distribution Yield (%) % 6.00% Payout ratio (Distribution / FFO) % 95.8% Tax deferred component of Distribution (%) 2 47% 40% Statutory Forecast Consolidated Income Statements The table below sets out the Statutory Forecast Consolidated Income Statements of the REIT. Column A presents the statutory forecast income statement from the period 1 July 2018 to Allotment, reflecting the standalone forecast results of HDMF2 for the period prior to Allotment. Column B represents the statutory forecast income statement of the REIT for the period from Allotment to 30 June 2019 which consists of all properties in the Initial Portfolio and the new corporate and capital structures in effect post Allotment. This information is provided to give an estimate of the financial performance that the Directors expect to report in the REIT s first annual statutory consolidated financial report for FY19. However, given the differences in asset composition, capital structure and management arrangements, column A and column A+B are not considered meaningful in assessing an incoming Securityholder s entitlement to income of the REIT in FY19. There are no differences between the pro forma and statutory forecasts for 1H FY20. 1 Annualised Funds from Operation and Distribution Yields are calculated by grossing up FFO yields and Distribution yields for the period from Allotment to 30 June 2019 for 12 months and grossing up 1H FY20 for 12 months. 2 Tax deferred component of forecast Distributions is determined in accordance with prevailing tax legislation as at the time of preparing the PDS. The actual tax deferred component may differ from the estimate above due to the timing of revenue, expenses and post IPO acquisition activity. 79

80 ($m) 1 July 2018 to Allotment 1 (A) Allotment to 30 June (B) FY19 (12 months) (A+B) 1H FY20 (six months) Property rental income Share of net profit from equity accounted investments Straight lining of rental income Interest income Total revenue Property expenses (0.7) (2.5) (3.2) (2.4) Management fees (0.5) (1.6) (2.2) (1.5) Operating expenses (0.1) (0.7) (0.8) (0.6) Interest expense 4 (1.9) (3.7) (5.6) (3.7) Total expenses (3.2) (8.5) (11.7) (8.2) Net profit (before transaction costs) Investment properties revaluation gain / (loss) Transaction costs 6 (9.1) (9.1) Net profit (after transaction costs) Pro Forma Consolidated Statement of Financial Position The table below sets out the Pro Forma Consolidated Statement of Financial Position at Allotment and should be considered in conjunction with the basis of preparation and presentation of the Financial Information set out in Section 6.2. Refer to Section 6.7 for a reconciliation of the statement of financial position of HDMF2 as at 30 June 2018 to the Pro Forma Consolidated Statement of Financial Position of the REIT, including disclosure of the assumptions and pro forma adjustments. 1 The Pro Forma Forecast Consolidated Income Statements have been prepared on the basis that Allotment occurs on 13 December Share of net profit from equity accounted investments relates to the REIT s 44.0% interest in HJVPF held through HHPF. The share of net profit from equity accounted investments is represented on a pro forma basis and excludes fair value adjustments. 3 A straight line lease adjustment is provided in relation to future fixed rental increases to reflect rental income on a straight line basis over the term of the lease. This is presented net of amortisation of leasing commissions and tenant incentives. 4 Interest expense in Column A relates to interest expense and line fees arising from HDMF2 s existing financing arrangements, including interest rate swaps. As part of the Restructure and the Offer, these existing financing arrangements will be fully repaid from the proceeds of the Offer and closed. Interest expenses in Column B comprise interest expenses and fees arising from the REIT s financing arrangements (and amortisation of capitalised borrowing costs). Refer to Section 2.6 for further details regarding the REIT s financing arrangements. 5 Fair value gain in relation to movements in the valuations of the Portfolio between 30 June 2018 and 1 September Transaction costs of $9.1 million in Column B relate to stamp duty on the acquisition of HKPF32 and HHPF by HDMF1, stamp duty and due diligence costs in relation to the acquisition of the Acquisition Portfolio and other costs of the Offer to be expensed through the statutory income statement. 80

81 ($m) At Allotment ASSETS Cash and cash equivalents 2.5 Investment properties Equity accounted investments Other assets 3.5 Total assets LIABILITIES Borrowings Other liabilities 12.7 Total liabilities Net assets Total equity Securities on issue (m) NTA per Stapled Security ($) Gearing (%) % Look Through Gearing (%) % Post completion of the Post Completion Developments (refer to Section for further detail on the Post Completion Developments), the REIT is expected to have Gearing of 32.3% and Look Through Gearing of 34.5%. Based on the independent valuations received on an as if complete basis, the REIT expects to recognise a fair value uplift of approximately $3.6 million, increasing NTA per Stapled Security to $ Forecast assumptions The Directors key best estimate general and specific assumptions relating to the preparation of the Forecast Financial Information are set out below. 1 Investment properties are based on the Independent Valuations described in Section 9 adjusted for $9.1 million of development capital expenditure spent by HDMF2 between the 1 September 2018 independent valuation date and Allotment and a fair value uplift based upon the as if complete valuation of one property expected to be complete prior to Allotment of $0.6 million. The REIT has committed to spend $18.7 million (funded by borrowings) in development capital expenditure post the Allotment Date to complete the Post Completion Developments. Based on the independent valuations received on an as if complete basis, the REIT expects to recognise a fair value uplift of $3.6 million on completion of the Post Completion Developments. Investment properties excludes the value of Townsville and Taringa which are accounted for within equity accounted investments, with the REIT s share of these properties independently valued at $37.7 million. The addition of the value of Investment properties as at Allotment, the committed capital expenditure, the expected fair value uplift on completion of the Post Completion Developments and the value of Townsville and Taringa equates to an Investment Property valuation of $528.4 million. 2 Equity accounted investments have been valued based on their fair value, and relates to the REIT s 44% interest in the properties owned in HJVPF. 3 Borrowings represent $150.6 million of drawn debt net of $2.1 million capitalised debt establishment costs relating to the REIT s financing arrangements. Post completion of the Post Completion Developments, the REIT is expected to have $28.2 million of combined debt facilities and cash reserves to draw down upon. Refer to section 2.6 for further details regarding the REIT s financing arrangements. 4 Post completion of the Post Completion Developments, the REIT is expected to recognise a fair value uplift of approximately $3.6 million increasing NTA per Stapled Security to $ Gearing is calculated as borrowings (net of capitalised debt establishment costs) less cash, divided by total tangible assets less cash. Post completion of the Post Completion Developments, the REIT is expected to have Gearing of 32.3%. 6 Look Though Gearing is calculated as borrowings (net of capitalised debt establishment costs) less cash, divided by total tangible assets less cash, adjusted for the REIT s share of the debt, assets and cash held in equity accounted investments. Post completion of the Post Completion Developments, the REIT is expected to have Look Through Gearing of 34.5%. 81

82 General assumptions In preparing the Forecast Financial Information, the key best estimate general assumptions include: The Restructure and the Offer are completed on the Allotment date, expected to be on 13 December 2018; No significant change in the economic conditions (including property market and financial market stability) or the competitive environment in which the REIT operates; No significant changes to the statutory, legal or regulatory environment which would be detrimental to the REIT in any of the jurisdictions in which it operates; No material changes in credit markets; No material changes in current Australian tax legislation; Average CPI rate of 2.0% in the Forecast Period; No significant change in the REIT s capital structure, other than as disclosed in the PDS; No material litigation or dispute to which the REIT is a party; No acquisitions or disposals of investment properties other than those as described in this PDS; No significant amendment to any material contract relating to the REIT s business; All leases are enforceable and are performed in accordance with their terms; No material change in capital expenditure requirements from those included in the Forecast Financial Information and described in the specific assumptions detailed in Section caused by factors outside the REIT s control; No material changes in applicable AAS, other mandatory professional reporting requirements or the Corporations Act 2001 (Cth) that would have a material impact on the REIT s consolidated financial performance, cash flows, financial position, accounting policies, financial reporting or disclosures; and No underlying movement in the fair value of the investment properties or other financial assets including any mark-to-market movements in relation to the interest rate swaps, as the Directors do not believe such movements can be reliably estimated Specific assumptions The key best estimate specific assumptions applied in preparing the Forecast Financial Information are described below. Rollover and Cash Out or Redemption of Existing Unitholders The Forecast Financial Information and the Pro Forma Consolidated Statement of Financial Position have been prepared on the basis that 43% of Existing Unitholders participate in the Cash Offer or Redemption Offer (as applicable). Property rental income Property rental income (rental income and recoverable property expenses) has been forecast on an individual property basis based on the terms of the existing leases and management s best estimate assumptions for future occupancy rates, tenant retention and market rentals. Property rental income represents income earned from the rental of properties (inclusive of outgoings recovered from tenants) and is recognised on a straight-line basis over the lease term. Lease incentives and the portion of rental income relating to fixed increases in operating lease rentals in future years are recognised as a separate component of investment properties. Property rental income will be received by the REIT from the date the acquisition of each property completes. It is anticipated, and the Forecast Financial Information assumes, the acquisitions will be made pursuant to the schedule set out below and that all other properties are acquired on or prior to Allotment. 82

83 Property expenses Property expenses (including non-recoverable property outgoings) have been forecast on an individual property basis based on the terms of the existing leases. Property expenses typically include land tax, council rates, building insurance, property management costs, water rates and repairs and maintenance. Property expenses are forecast to increase in line with known increases (for agreed contracts) or CPI. Acquisition Portfolio The REIT has contracted to acquire additional properties that are not currently held within the Existing Trusts. These properties are set out below and are scheduled to complete on the Allotment Date: Wagga Wagga, NSW: 100% acquired by the REIT, acquisition price of $9.50 million, independent valuation of $9.55 million; Hurstville, NSW: 100% acquired by the REIT, acquisition price of $7.50 million (HACPF1 has paid a $2.4 million deposit, with the remaining $5.1 million to be paid at the time of completion of the acquisition, independent valuation of $7.50 million); West Albury, NSW: 100% acquired by the REIT, acquisition price of $5.425 million, independent valuation of $5.450 million; Lots 7 & 8, Chermside, QLD: 100% acquired by the REIT, acquisition price of $10.8 million, independent valuation of $10.8 million; and Taringa, QLD: Acquired by HJVPF, of which the REIT has a 44% interest, acquisition price of $26.2 million, independent valuation of $26.2 million (REIT s ownership proportion). HDMF1 has also contracted to acquire 100% of lots 9 & 10, Chermside, QLD for an acquisition price of $5.07 million with an independent valuation of $5.07 million. This property is scheduled to complete prior to Allotment on 5 October Straight line lease adjustment of rental income A straight line lease adjustment is provided in relation to future fixed rental increases to ensure rental income has been recognised on a straight line basis over the lease term in accordance with AAS. Share of net profit from equity accounted investments The REIT s share of net profit from equity accounted investments is the net profit from the REIT s 44% interest in the properties owned in HJVPF. Post Completion Developments and Coupon income A number of the REIT s properties are classified as investment properties under development at Allotment and receive coupon income up until the date of practical completion. As part of an agreement for the REIT to finance the development of the property, the developer enters into a contract to pay the REIT coupon income. This coupon income is usually received at the end of the development, and reduces the amount the REIT owes the developer for hand-over of the completed property. Under IAS 40 Investment Property, coupon income received from developers arising from forward funding arrangement are to be treated as a reduction of purchase price of the relevant Investment Property. Coupon income is not classified as income in accordance with AAS and is not included as revenue in the Pro Forma and Statutory Forecast Consolidated Income Statement. Investment property under development is fair valued at each reporting date taking into account the cost of development works not yet complete and residual risks in completing the development. Any change in the fair value is recognised as a fair value gain recognised in the statement of comprehensive income for the period Dalton Drive, Maroochydore is expected to reach practical completion by 31 January 2019 and under the development agreement the REIT is entitled to receive coupon income equal to 8.0% per annum (accrued monthly) of the cumulative total amount outlaid by the REIT for the property up until the date of practical completion. Albany Day Hospital, Albany is expected to reach practical completion by 30 April Under the development agreement the REIT is entitled to receive coupon income equal to 8.0% per annum 83

84 (accrued monthly) of the cumulative total amount outlaid by the REIT for the property up until the date of practical completion. 81 Fairlawn Avenue, Turramurra is expected to reach practical completion by 30 April Under the lease agreement the REIT is entitled to receive coupon income equal to 3.125% per annum (accrued monthly) of the cumulative total amount outlaid by the REIT for the property up until the date of practical completion. 29 Earl Street, Hunters Hill is expected to reach practical completion by 30 April Under the lease agreement the REIT is entitled to receive coupon income equal to 3.125% per annum (accrued monthly) of the cumulative total amount outlaid by the REIT for the property up until the date of practical completion. 28 Irrubel Road, Caringbah is expected to reach practical completion by 31 May Under the lease agreement the REIT is entitled to receive coupon income equal to 3.125% per annum (accrued monthly) of the cumulative total amount outlaid by the REIT for the property up until the date of practical completion. Concord West is classified as an asset under development and is expected to reach practical completion by 31 July There is no coupon payable on the cumulative total amount outlaid by the REIT for the property up until the date of practical completion. For the purposes of this PDS, the six assets identified above have been defined as the Post Completion Developments. Rental Guarantee income Upon purchase of a property, in some instances the vendor provides the REIT with a rental guarantee. Following the Restructure and the Offer, the REIT will have 4 properties with a rental guarantee for potential vacancy, leasing expense and tenant incentives incurred to secure new tenants at the relevant properties. The Forecast Financial Information assumes that for these properties cash will be received and tenant incentives reimbursed in accordance with the rental guarantees as described in Section The fair value of a rental guarantee is separated from the purchase price upon initial recognition of the property. Subsequently this rental guarantee asset is measured at fair value at reporting date. Any changes in amounts recognised as part of amortised cost are recognised in profit or loss. Interest income The REIT is assumed to earn interest income of 1.5% per annum on any cash balances during the Forecast Period. Management fees Management fees are recognised as property and fund management services are rendered by the Manager. The services relate to property and fund management roles provided by the Manager. Management fees are charged in accordance with the management fee arrangements agreed with the REIT. Under the Fund Management Agreement, the Manager is entitled to receive a management fee of 0.60% per annum of the REIT's gross asset value. Management fees under the Fund Management Agreement will be paid monthly. See Section 11 for further detail. Operating expenses Operating expenses include ASX listing fees, custodian costs, legal, accounting, audit, tax, valuation and compliance fees, investor reporting costs and other costs. These expenses have been forecast based on relevant agreements and quotes from external parties. Interest expense The REIT's borrowings under the Proposed Debt Facility will incur an average interest rate of 3.9% for the period from Allotment to 30 June 2019 and 4.0% for 1H FY20. This is inclusive of margin, line fees and forecast hedging arrangements. It is expected that the REIT will enter into hedging arrangements for % of drawn debt at Allotment. 84

85 The establishment cost of the Proposed Debt Facility is expected to be $2.1 million, which will be capitalised against the debt balance at Allotment and amortised over the term of the Proposed Debt Facility. Tax expense The REIT is treated as a trust for Australian tax purposes. Each entity that comprises the REIT (other than HDFT) is expected to be treated as a "flow-through" entity for Australian income tax purposes. Under current Australian income tax legislation, the REIT is not expected to be liable for income tax, including capital gains tax, provided its income for the year, as determined in accordance with the REIT's constitution, is attributed to Securityholders. Accordingly, no allowance for income tax has been made for by the REIT. Expected goods and services tax recoveries in respect of transaction costs and ongoing operations which are appropriate to the activities of the REIT have been forecast. Transaction costs Transaction costs include stamp duty, offer management fees, advisers fees, legal fees, ASX listing fees and other expenses associated with the Restructure and the Offer. At the date of this PDS, cash transaction costs have been estimated at $16.5 million based on existing agreements and quotes, and applicable stamp duty rates. Of the $16.5 million transaction costs, $9.1m is expensed in the Statutory Forecast Consolidated Income Statement, $2.1 million will be offset against borrowings and $5.4 million is recorded directly to contributed equity. Distributions Forecast Distributions are based on the REIT s target Distribution policy of 90% to 100% of FFO. Distributions are to be made quarterly with the first Distribution for the period from Allotment to 31 March 2019, expected to be paid within two months from 31 March The Directors of the Responsible Entity will review and assess the appropriateness of the REIT s Distribution policy on a quarterly basis. Distribution reinvestment policy The Financial Information has been prepared on the basis that there will be no Distribution reinvestment plan (DRP) in operation. Capital expenditure Allowances have been made for refurbishment and maintenance capital expenditure of $0.9 million in the period from Allotment to 30 June 2019 and $0.6 million for 1H FY Sensitivity analysis The Forecast Financial Information set out in this Section is based on a number of key best estimate assumptions which have been outlined above. These best estimates are based upon assumptions relating to future business decisions or actions which are subject to change and are additionally subject to business, economic and competitive uncertainties, many of which are beyond the control of the REIT and the Directors. The Forecast Financial Information is also subject to a number of risks as outlined in Section 7. Investors should be aware that future events cannot be predicted with certainty and as a result, deviations from the figures forecast in this PDS are to be expected. To assist Investors in assessing the impact of these assumptions on the Forecast Financial Information, the table below outlines the sensitivity of the REIT s FFO forecasts, NTA per Stapled Security and the gross amount of new equity raised to changes in certain key best estimate assumptions. The sensitivity analysis is intended to provide a guide only and variations in actual performance could exceed the ranges shown. Care should be taken in interpreting these sensitivities. The analysis set out below is not intended to be indicative of the complete range of possible variations that may arise. The estimated impact of changes in each of the variables has been calculated in isolation in order to illustrate the impact on the FFO forecasts. In practice, changes in variables may offset each other or may be cumulative. 85

86 FFO NTA per Stapled Security Allotment to 30 June H FY20 (6 months) Gross new equity raised Cents per Stapled Security $m Cents per Stapled Security $m Cents per Stapled Security FFO Incremental impact of change from assumption 0% of Existing Securityholders in the Existing Trusts (excluding HHPF) elect to redeem all of their units under the Cash Offer or Redemption Offer (as applicable) 100% of Existing Securityholders in the Existing Trusts (excluding HHPF) elect to redeem all of their units under the Cash Offer or Redemption Offer (as applicable) 25 basis point change in average annual interest rate (prior to hedging) (+ / -) ($115m) $150m (0.02) (0.00) (0.09) (0.00) (0.09) n.a. n.a. (0.22) (0.12) (0.22) (0.12) 25 basis point change in CPI (+ / -) n.a. n.a % change in the REIT s other operating expenses (+ / -) n.a. n.a. (0.03) (0.02) (0.03) (0.02) 6.7. Reconciliation between the statement of financial position of HDMF2 at 30 June 2018 to the Pro Forma Consolidated Statement of Financial Position of the REIT The table below represents the reconciliation between the consolidated statement of financial position of HDMF2 as at 30 June 2018 and the Pro Forma Consolidated Statement of Financial Position of the REIT as at Allotment. The Pro Forma Consolidated Statement of Financial Position is prepared in accordance with the basis of preparation set out in Section 6.2. The Pro Forma Consolidated Statement of Financial Position reflects the provisional accounting permitted for business combinations in accordance with AASB 3 Business Combinations. The Pro Forma Consolidated Statement of Financial Position is provided for illustrative purposes only and is not intended to be necessarily indicative of the REIT s actual or future financial position. ($m) HDMF2 Other Existing Trusts Total of Existing Trusts Pro forma adjustments between 1 July 2018 and Allotment (A) Offer and other adjustments (B) Allotment ASSETS Cash and cash equivalents (14.1) 2.5 Investment properties Equity accounted investments Other assets (0.3) Total assets

87 ($m) HDMF2 Other Existing Trusts Total of Existing Trusts Pro forma adjustments between 1 July 2018 and Allotment (A) Offer and other adjustments (B) Allotment LIABILITIES Borrowings (60.6) Derivatives (0.0) (0.1) - Other liabilities Total liabilities (60.7) NET ASSETS TOTAL EQUITY The financial information presented in the column titled Total of Existing Trusts comprises the pro forma consolidation of the consolidated statements of financial position of HDMF2 and the other Existing Trusts as at 30 June 2018, all of which are currently managed by Heathley Asset Management Limited. A. Pro forma adjustments between 1 July 2018 and Allotment Subscriptions for units in HDMF2 and HACPF1 for $3.5 million and $0.1 million respectively; Sale of 9 Ashgrove Road for $3.3 million (book value of $2.6 million) and write off of coupon income asset of $0.3 million; Positive revaluation adjustment of $3.5 million reflecting the movement in HDMF2 valuations between 30 June 2018 and 1 September 2018 of $3.6m and a negative revaluation adjustment of $0.1m for HDMF1 and HACPF; Acquisition of 956 Gympie Road (lots 9 and 10) for $5.1 million, Albany Day Hospital for $1.3 million and initial deposit paid for Hurstville for $2.4 million; Funding of developments at Maroochydore ($11.1 million), West Perth ($3.0 million) and Concord West ($2.1 million); Funding of costs associated with the acquisition of 956 Gympie Road (lots 9 and 10) prior to Allotment of $0.5 million; and Movement in the mark-to-market of derivative financial assets. B. Offer and other adjustments Reduction in cash and cash equivalents to maintain $2.5 million to fund working capital for liquidity; Acquisition of Wagga Wagga, West Albury, lots 7 and 8 Chermside and the remaining payment for Hurstville for a total of $30.8 million. The Acquisitions have been included in the Pro Forma Consolidated Statement of Financial Position at their independent valuation which reflects a $0.1 million premium to their purchase price; The acquisition of a 44% interest in the HJVPF for $24.5 million (fair value recorded of $21.6 million), the difference relating to the acquisition costs written off; $60.6 million to refund the repayment of existing debt facilities. The balance of which will be refinanced with new drawn debt; and An equity raising of $228.0 million and payment of $111.0 million to Existing Unitholders participating in the Cash Offer or Redemption Offer (as applicable). 87

88 6.8. Significant accounting policies The principal accounting policies adopted in the preparation and presentation of the Financial Information are set out below. The preparation of the Financial Information requires estimates and judgements and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Revisions to estimates are recognises in the period in which the estimate is revised and in any future period affected. The significant accounting policies below apply estimates, judgements and assumptions which could materially affect the financial results or financial positon reported in future periods. The AASB has recently issued revised AAS in relation to revenue recognition, leases and financial instruments. The revised standards will become effective for reporting periods commencing on or after 1 January 2018 and therefore are applicable for the REIT for the reporting period ending 30 June The Directors note that the Forecast Financial Information does not consider the effect of the new standards as the new standards are not yet effective. Furthermore, the potential effects of the revised standards have not been disclosed in this PDS as the Responsible Entity has not yet completed its assessment of the impact on the REIT. Consolidation and group accounting The REIT is a Stapled consolidated group comprising HDMF2 and the other Stapled Trusts. The Stapled Trusts remain separate legal entities in accordance with the Corporations Act 2001 (Cth) and are each required to comply with the reporting and disclosure requirements of the Corporations Act 2001 (Cth). Under AAS, the REIT is required to identify an acquirer at the date of the Stapling. HDMF2 has been identified by the Directors of the Responsible Entity to be the acquirer of the other Stapled Trusts for accounting purposes and therefore the other Stapled Trusts are consolidated into HDMF s financial report. The Consolidated Financial Report of the REIT will comprise HDMF2, the Stapled Trusts and their respective controlled entities. The results and equity, not directly owned by HDMF2, of the Stapled Trusts will be treated and disclosed as non-controlling interests in the consolidated financial statements of the REIT. Whilst the results and equity of the Stapled Trusts are disclosed as noncontrolling interests, the Securityholders of HDMF2 are the same as the securityholders of the Stapled Trusts. A controlled entity is any entity over which HDMF2 or the Stapled Trusts have the power to control the financial and operating policies so as to obtain benefits from its activities. All controlled entities have a 30 June balance date. All inter-entity balances and transactions between entities in the REIT, including any unrealised profits or losses, are eliminated on consolidation. Accounting policies of the controlled entities have been changed where necessary to ensure consistency with those policies adopted by the REIT Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date control is attained, whereby the fair value of the identifiable assets acquired and liabilities assumed is recognised (subject to certain limited exceptions). All transaction costs incurred in relation to a business combination, other than those associated with the issue of a financial instrument, are recognised as an expense in the income statement when incurred. The acquisition of a business may result in the recognition of goodwill. Goodwill is carried at cost less accumulated impairment losses. Property rental income Property rental income represents income earned from the rental of properties (inclusive of outgoings recovered from tenants) and is recognised on a straight-line basis over the lease term. The portion of rental income relating to fixed increases in operating lease rentals in future years is recognised as a separate component of investment properties. 88

89 Lease incentives granted are recognised as an integral part of the net consideration agreed for the use of the leased premises, irrespective of the incentive's nature or form or the timing of payments. The aggregate cost of lease incentives are recognised as a reduction of rental income on a straightline basis over the lease term. Leasing costs that are directly associated with negotiating and arranging an operating lease (including commissions, legal fees and lease documentation preparation fees) are capitalised and amortised on a straight-line basis over the lease term on the same basis as the lease income. Investment properties Investment properties comprise investments interests in land and buildings held either to earn rental income or for capital appreciation or for both, including properties that are under construction for future use as investment properties. Investment properties are initially recorded at cost which includes any directly attributable acquisition costs. Subsequent to initial recognition, the investment properties are measured at fair value. Fair value of investment property is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. The best evidence of fair value is given by current prices in an active market for similar property in the same location and condition. Gains and losses arising from changes in the fair values of investment property are included in the consolidated income statement in the year in which they arise. At each balance date, the fair values of the investment properties are assessed by the Responsible Entity with reference to independent valuation reports or through appropriate valuation techniques adopted by the Responsible Entity. The fair value measurement of investment property takes into account the REIT s ability to generate economic benefits by using the asset in its highest and best use. The use of independent valuers is at least once every 12 months, or earlier, where the Responsible Entity deems it appropriate or believes there may be a material change in the carrying value of the property. The carrying amount of investment properties recorded in the consolidated balance sheet takes into consideration components relating to lease incentives, leasing costs and assets relating to fixed increases in operating lease rentals in future years. Investment property under construction is measured at fair value less costs to complete if the fair value is considered reliably determinable. Investment property under construction for which the fair value cannot be determined reliably, but for which the REIT expects that the fair value of the investment property will be reliably measured when construction is completed, is measured at cost less impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier. As the fair value method has been adopted for investment properties, the buildings and any component (including plant and equipment) thereof are not depreciated. Taxation allowances for the depreciation of buildings and plant and equipment are claimed by the REIT and contribute to the tax deferred component of Distributions. Joint ventures Interests in joint ventures are accounted for using the equity method, with investments initially recognised at cost and adjusted thereafter to recognise the REIT s share of post-acquisition profits or losses of the investee in profit or loss, and the REIT s share of movements in the other comprehensive income of the investee in other comprehensive income. Distributions received or receivable from joint ventures are recognised as a reduction in the carrying amount of the investment. Borrowings Borrowings are initially recognised at fair value, less any directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. Under the effective interest method, any transaction costs, discounts or premiums directly related to a borrowing are recognised systematically in other comprehensive income over the expected term of that borrowing. 89

90 Financial instruments Derivative financial instruments held as financial assets or financial liabilities designated at fair value through profit or loss are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance date. The REIT does not apply hedge accounting therefore changes in the fair value of derivative financial instruments are recorded in the consolidated statement of comprehensive income. Interest expense Interest expenses paid include the interest costs paid to the financier and amortised interest costs. These interest expenses are recognised as an expense as they accrue. Other expenses All other expenses, including management fees, are recognised on an accruals basis. Income taxes Under current Australian income tax legislation the REIT is not liable to pay income tax when its taxable income (including assessable realised capital gains) is attributed to the Securityholders. In accordance with the REIT constitution, the REIT will attribute its taxable income to the Securityholders who are entitled to the income of the REIT under the constitution Working capital The Directors of the Responsible Entity are of the opinion that the REIT will have sufficient working capital to carry out its stated objectives. The REIT is expected to have $2.5 million in cash at bank at Allotment. In addition to this amount, the REIT is expected to have $44.4 million in undrawn debt available under the new financing arrangements, outlined in Section 2.6, at Allotment reducing to $25.7 million pro forma for completion of the Post Completion Developments. Therefore the REIT will have combined debt and cash reserves of $46.9 million as at Allotment, reducing to $28.2 million pro forma for the completion of the Post Completion Developments. 90

91 7. Risks The REIT's business activities are subject to risks that are both specific to its business operations in the property industry and to those of a general nature. Many of these risks are outside the control of the Responsible Entity and if they were to eventuate, may adversely affect the future operating performance of, and the value of an investment in, the REIT. The following Section describes what the Responsible Entity currently believe to be the key risks associated with an investment in the REIT. It does not purport to be an exhaustive list of risks that may be associated with an investment in the REIT now or in the future. Before deciding on whether to make an investment in the REIT, prospective investors should have a sufficient understanding of the risks described in this Section in conjunction with other information provided in this PDS. Investors should carefully consider whether an investment in the REIT is a suitable investment having regard to their own investment objectives, financial circumstance and taxation position. If you do not understand any part of the PDS or are in any doubt as to whether to invest in Securities, you should seek advice from your broker, solicitor, accountant, tax adviser or other independent and qualified professional adviser before deciding whether to invest Risks specific to an investment in the REIT Rental income The REIT s income is largely generated through leasing arrangements across its Initial Portfolio. Therefore, the REIT s financial performance and ability to fund Distributions is largely dependent on rents received from those assets. Rental income in general may be materially adversely affected by a number of factors, including: Overall economic conditions; The financial condition of tenants (including tenant arrears or default); The operations and business model of tenants in a highly regulated sector; Ability to extend leases or replace outgoing tenants with new tenants (including attracting and retaining a minimum number of doctors or specialists); Increase in rental arrears and vacancy periods; Reliance on a tenant which leases a material portion of the Portfolio; An increase in unrecoverable outgoings; and Supply and demand in the property market. Any negative impact on rental income (including a failure of existing tenants to perform existing leases in accordance with their terms) has the potential to decrease the value of the REIT and could materially adversely affect the REIT s financial performance and Distributions. Re-Leasing and vacancy The Portfolio s leases come up for renewal on a periodic basis, as set out in the leases, and there is a risk that the REIT may not be able to negotiate suitable lease renewals with existing tenants, maintain existing lease terms, or replace outgoing tenants with new tenants. The ability to secure lease renewals or to obtain replacement tenants may be influenced by any leasing incentives granted to prospective tenants and the supply of new healthcare and aged care properties in the market, which, in turn, may increase the time required to let vacant space. Certain of the existing leases contain exclusivity provisions which may restrict the REIT s ability to lease premises to prospective tenants that may be deemed competitors of an existing tenant. Generally these exclusivity provisions only apply to leases of anchor tenants at certain individual properties. Technological changes may also result in premises no longer meeting tenants needs. Further, in certain instances, the specialist nature of a property may result in a lower ability to utilise this property for an alternate use. Should the REIT be unable to secure a replacement tenant for a period of time or if replacement tenants lease the property on less favourable terms than existing lease terms, this will result in a lower rental return 91

92 to the REIT, which could materially adversely affect the financial performance of the REIT and Distributions. A number of existing leases have expired, will shortly expire or may be terminated by the tenant for convenience on short notice. There can be no guarantee that the REIT will be successful in the lease renewal processes with each tenant, or that the REIT will be able to renew any lease on similar or not less favourable terms. The REIT could lose key tenants due to a range of events including as a result of failure to renew a lease, the termination of a lease due to change of control, deterioration in the level of service provided to tenants, weakening of tenant relationships or disputes with tenants, consolidation of a tenant s sites or insolvency of tenants. Any of these factors could materially adversely affect the financial performance of the REIT and Distributions. Risks associated with existing agreements There are a number of risks associated with the REIT s existing agreements and arrangements, including those related to its relationship agreements with operators, joint venture arrangements and property leases. There is a risk that existing material contracts may be terminated, lost or impaired or renewed on less favourable terms. Some of the REIT s material agreements can be terminated without cause or on short notice periods (depending on the termination event or circumstances). Following Completion, the REIT will hold a 44% interest in the HJVPF through HHPF. The unitholder agreement in respect of the HJVPF contains a first right of refusal on all properties sourced by Heathley Group for any of its managed clients (including the REIT) if any of those properties fall within HJVPF s investment strategy which is effective until June The right of first refusal applies to properties with a minimum gross value of $20,000,000. Heathley has further obligations to use all commercially reasonable endeavours to continue to source opportunities falling within HJVPF s investment strategy for a further one year period to June Given that the investment strategy of HJVPF is substantially similar to the investment strategy for the REIT, these obligations could limit the ability of Heathley Group to source opportunities solely for investment or acquisition by the REIT rather than through the HJVPF. Similarly, HAML has entered into various exclusivity arrangements with Nexus, which may restrict the ability of the REIT to acquire and develop day hospital sites with competitors of Nexus (subject to carve-outs permitting HAML to provide investment management services to the REIT and to acquire land or properties in any capacity where HAML can demonstrate to the reasonable satisfaction of Nexus that when the opportunity to acquire the particular site arose the competitor was already a material tenant conducting business from that land or has already executed a proposal or binding agreement to enter into a lease as a material tenant on that land from completion of the relevant development). Additionally, the REIT is subject to a number of on-going obligations and is subject to various levels of liability under a number of its material contracts and leases, some of which may contain unusual or otherwise onerous provisions. For example, a number of the leases contain rental incentives, rent reduction mechanisms, obligations on the Responsible Entity to undertake or fund future works at the request of the tenant or higher levels of maintenance obligations on the Responsible Entity, exclusivity provisions restricting the ability of the Responsible Entity to lease other parts of the property to entities who compete with the tenant and first rights of refusal for the tenant to acquire the property in the event that the Responsible Entity wishes to sell. Also, under the HJVPF unitholder agreement the REIT does not have direct voting rights or participation rights in the management committee (despite its 44% interest). The voting rights and participation rights in the management committee are held by Heathley on behalf of the voting block comprising Heathley and HHPF. Heathley is not under any obligation to take into account HHPF s interests in exercising those rights. Furthermore, any default by Heathley under the terms of the unitholder agreement could result in the suspension of HHPF s indirect voting rights and trigger the right of the non-heathley unitholder to conduct a buy-out of HHPF s and Heathley s investment in HJVPF. The properties leased to aged care operators (including Infinite Care and Hall and Prior) are subject to buyback rights in respect of those properties at certain points of time during the lease term for any reason (or at other times where the REIT is unable to fund agreed capital expenditure) at a price determined by reference to either independent valuation or fixed sale price yield. Refer to Section 12.5 for further detail. A loss of any of the REIT s existing agreements and arrangements could materially adversely affect the financial performance of the REIT and Distributions. Acquisition Risk 92

93 As described in Section 6.5.2, in addition to acquiring 5 new assets in connection with the settlement of the Offer, the REIT will continue to seek to identify new properties for acquisition. There is a risk that the REIT will be unable to identify future properties that meet the REIT s investment objectives, or if such properties are identified, that they can be acquired on appropriate terms, thereby potentially limiting the growth of the REIT. Any failure to identify appropriate properties or successfully acquire such properties could materially adversely affect the growth prospects and the financial performance of the REIT and Distributions. The REIT will endeavour to conduct all reasonable and appropriate due diligence on potential acquisition properties. There is a risk that warranties or indemnities cannot be obtained or that acquired properties do not perform as expected due a variety of factors including but not limited to tenants vacating the properties or tenant default. The REIT will seek to obtain customary warranties and indemnities from vendors of the acquired properties, however there is a risk that potential issues are uncovered subsequent to due diligence and that these risks cannot be fully mitigated by the warranties and indemnities in the sale and purchase agreements for those acquisitions. If an unforeseen liability arises in respect of which the REIT is not able to be indemnified, this may materially adversely affect the financial performance of the REIT and Distributions. There can be no assurance that any future acquisitions will enhance the investment returns of Securityholders. In relation to the Initial Portfolio, some of the information regarding the acquisition of the properties has been derived from information made available by or on behalf of the vendors of each property. Although the REIT (and its advisers) have conducted reasonable levels of due diligence, they have not verified the accuracy and completeness of all information provided to it. To the extent that any of this information is incomplete, inaccurate or misleading, there is a risk that the financial performance of the REIT may differ from its expectations, potentially adversely. Further, if the properties have not been managed consistently with expectations, there is a risk that the financial performance of the REIT may differ from expectations, potentially adversely including writing down the carrying value of assets. Development Risk In seeking to maximise returns for investors, the Responsible Entity will consider opportunities to enhance the value of the REIT s existing properties and selectively acquire new properties with development potential. The Responsible Entity does not intend to undertake any development on a speculative basis. While the strategy of the REIT is to minimise development risk by acquiring properties which have been materially de-risked by having agreements for lease or leasing arrangements in place with tenants, or having received development and regulatory approvals, there are typically higher risks associated with development activities than acquiring and holding completed assets. The risks faced by the REIT in relation to existing or future development contractor projects will depend on the terms of the transaction at the time. There is a risk that a contractor engaged on any given project is unable to complete the specified works on time or could default on other obligations under its contract. Completion of construction works may be delayed for a number of reasons, including industrial disputes, inclement weather, permitted variations to the works, changes to legislative requirements, delays in authority inspections or regulatory approvals or a builder experiencing financial difficulties. Even where a development is under a fixed price contract, there is a risk of potential contractor default where actual development costs are materially greater than expected. In those circumstances, the actual development costs may not be able to be funded by the contractor and the development may not complete unless the REIT agrees to bear the excess costs or is able to replace the contractor. However, the REIT may not be able to replace the contractor with another contractor, with similar experience and/or on terms as advantageous to it. In addition, the REIT may suffer loss of rent in respect of a delay in completion. Any of these factors could materially adversely affect the financial performance of the REIT and Distributions. Development works have been underway at certain properties in the Initial Portfolio. The REIT may be exposed to residual defects. In each case, the residual defects risks have been sought to be mitigated through the inclusion of certain contractual protections in relevant construction contracts including the provision of warranties regarding the quality, standards, performance and insurance of the contracted works, and obligations to rectify defects which are backed by unconditional bank guarantees in respect of a small portion of the contract sum for a 12 month period post completion of the relevant development works. Notwithstanding this, the REIT remains exposed to potential liabilities (i) which may not be covered by the provisions of the contract or which exceed the amounts 93

94 set aside in the bank guarantees (or arise after the bank guarantee is released) or (ii) in the event of a counterparty default if a claim were made. This could materially adversely affect the financial performance of the REIT and Distributions Property Valuation Risk The value of each Property held directly or indirectly by the REIT may fluctuate due to various factors that affect the property market generally or individual properties in the REIT. These factors include, but are not limited to: Changes in market rental rates; Changes in market capitalisation rates; Changes in property yields; Fluctuating occupancy levels; Tenants financial performance; Tenants defaulting; Supply and demand in the relevant property market; Increased competition from new or existing properties; A downturn in the property market generally; Changes in government or regulatory funding models; Pricing or competition policies of any competing properties or tenants; and General economic conditions, such as interest rates. These factors may result in negative valuations during the cycle and income produced from individual properties which could materially adversely affect the financial performance of the REIT and Distributions. The REIT will have properties independently revalued regularly in accordance with its valuation policy. The independent valuations of the Properties, including the Independent Valuations included in this PDS, represent only the analysis and opinion of qualified experts at a certain point in time. There is no guarantee that a property will achieve a capital gain on its sale or that the value of the property will not fall as a result of the assumptions on which the relevant valuations are based proving to be incorrect. Funding As part of the overall capital structure, HAML as responsible entity of Heathley Finance Company Pty Ltd and National Australia Bank have entered into a binding commitment letter in relation to a syndicated, services facility, details of which are set out in Section The REIT is expected to have Gearing of approximately 30% following Completion. The REIT will be subject to various financial and non-financial covenants under the Proposed Debt Facilities which could limit its future financial flexibility. If the REIT s financial performance deteriorates, including due to a decline in rental income or the value of the Portfolio, the REIT may be unable to meet the covenants under the Proposed Debt Facilities. This may require the Responsible Entity to seek amendments, waivers of covenant compliance or alternative borrowing arrangements, to reduce debt or raise additional equity. If a breach of covenant under the Proposed Debt Facilities were to occur, there is no assurance that a debt financier would consent to an amendment or waiver, or that debt financiers would not exercise enforcement rights, including requiring immediate repayment. There is a risk that the REIT is unable to refinance the loan, or that the refinance may not be obtained on the same terms (for example, upon the refinance of the loan, interest rates may be higher. If the REIT is unable to repay or refinance the Proposed Debt Facilities upon maturity or in the event of a breach of covenant, the Responsible Entity may have to seek further equity, dispose of assets or enter into new debt facilities on less favourable terms. These factors could materially adversely affect the REIT s ability to operate its business, acquire new properties and to fund capital expenditure and could materially adversely affect the financial performance of the REIT and Distributions. In addition to the Proposed Debt Facilities, the Responsible Entity may fund future refinancing, capital expenditure and acquisitions from either debt or equity markets. Its ability to do so on favourable terms (including fees and interest rate margin payable) will depend on a number of factors including 94

95 general economic conditions prevailing at the time, including interest rates, the state of debt and equity markets, as well as on the reputation, performance and financial strength of the REIT. Changes to any of these underlying factors could lead to an increase in the cost of funding, limit the availability of funding and potentially increase the REIT s refinancing risk for maturing debt facilities. There is no guarantee that the Responsible Entity will be able to refinance the REIT s debt or obtain terms consistent with the Proposed Debt Facilities. Interest Rates Interest payable on the Proposed Debt Facilities will reflect a base interest rate plus interest rate margin and commitment fee. To seek to mitigate the potential impact of interest rate movements, the Responsible Entity will use derivative instruments to hedge the REIT s exposure to interest rates. The mark-to-market valuation of derivative instruments could change quickly and significantly. Such movements could materially adversely affect the financial performance of the REIT and Distributions. For further detail around hedging policy refer to Section Rental Guarantees As described in Section 6.5.2, under the sale contracts and / or development management agreements for the Maroochydore, Taringa, Cleveland and Yarrabilba, vendors have provided Rental Guarantees covering nominated vacancies, rental being less than anticipated, existing and new tenant commissions, tenant incentives as well as other leasing and property costs incurred to secure a new tenant for nominated vacancies. If the period to secure a new tenant for any of those vacancies in these properties is longer than anticipated, the rental under a new lease is less than anticipated, the leasing commissions and incentives are higher than anticipated, the cash held on trust may not be sufficient to fully recompense the REIT. In these circumstances, rental income could be negatively impacted which could materially adversely affect the REIT s financial performance and Distributions. Capital Expenditure Risk The forecast capital expenditure represents the Responsible Entity s current best estimate of the associated costs in maintaining the Portfolio over the Forecast Period. There is a risk that the required capital expenditure exceeds the current forecasts which could lead to increased funding costs. Some examples of these circumstances could include changes to laws or council requirements such as environmental, building or safety regulations, property defects or environmental issues which become apparent in the future or damage not covered by insurance. Unforeseen capital expenditure may also arise in circumstances where additional unforeseen maintenance costs are incurred in connection with solar energy infrastructure installed at properties within the Portfolio. Any requirement for unforeseen material capital expenditure on the properties could materially adversely affect the financial performance of the REIT and Distributions. Sector Concentration The Portfolio consists of Australian healthcare sector properties, and is therefore exposed to the healthcare sector. As a result of this exposure the REIT s performance depends, in part, on the performance of the healthcare sector, and any downturn in that sector could materially adversely affect the financial performance of the REIT and Distributions. It is intended that the REIT will predominantly invest in healthcare and aged care properties in the Australian market. Tenant concentration In aggregate, approximately 64% of gross income of the REIT is generated from the top ten tenants. There is a risk that if one or more of the major tenants ceases to be a tenant, the REIT may not be able to find a suitable replacement tenant or may not be able to secure lease terms that are as favourable as current terms. Should the REIT be unable to secure a replacement tenant for a major tenant for a period of time or if replacement tenants lease the property on less favourable terms, this will result in a lower rental return to the REIT, which could materially adversely affect the financial performance of the REIT and Distributions. Property Liquidity Risk 95

96 Direct property assets are by their very nature illiquid assets. The REIT may not be able to realise the assets within a short period of time or may not be able to realise assets at valuation, which could materially adversely affect the financial performance of the REIT and Distributions. Reliance on Heathley The Responsible Entity has engaged the Manager to manage the Initial Portfolio on the basis of a long term fund management agreement as further described in Section 12. The Responsible Entity has also engaged the Property Manager to manage some of the properties in the Portfolio on the basis of a Property Management Agreement as described in Section 12. Accordingly, the REIT will be reliant on the management expertise, experience, support and strategies of members of the Heathley Group. As a result, the REIT s performance depends largely on the performance of the Manager and the Property Manager. Any failure of the Manager or the Property Manager to discharge its responsibilities in relation to the management of the Initial Portfolio could materially adversely affect the financial performance of the REIT and Distributions. The ability of the Manager and the Property Manager to discharge their responsibilities in terms of managing the Initial Portfolio business model depends to a significant extent, on the experience, knowledge and performance of its key personnel; in particular the senior management of Heathley Group discussed in Section 5.7. The loss of key personnel, a sustained underperformance by key personnel or any delay in the appointment of their suitable replacements may therefore materially adversely affect the financial performance of the REIT and Distributions. Each of the Fund Management Agreement and the Property Management Agreement may only be terminated without cause on substantial periods of notice or payment in lieu of notice. Investors should note the entrenched position that the Heathley Group will have in the REIT. Whilst the REIT will be the primary focus of Heathley Group, and will represent 93% of Heathley Group s funds under management at Completion, Heathley Group will perform investment management services in respect of other funds not included in the REIT. Any failure of Heathley Group to properly discharge its responsibilities to its other funds and clients or to comply with law and regulation, or any disputes with contractual counterparties, could materially adversely affect the financial performance of Heathley Group and its reputation, which in turn could materially adversely affect the financial performance of the REIT and Distributions. In this regard, HAML has received a statement of claim in respect of the non-completion of the acquisition of a parcel of land on the Sunshine Coast. Whilst it does not relate to a property in the Initial Portfolio, such a claim could materially adversely affect the performance of Heathley Group and take up management time that could otherwise be focussed on the REIT. Reliance on third parties The Responsible Entity or the Property Manager may engage third party service providers outside the Heathley Group in respect of a part or the whole of the Portfolio. These services will be subject to contractual arrangements between the Responsible Entity or the Property Manager and the relevant third parties. The Property Manager has engaged Cushman & Wakefield to provide property management services to certain properties within the Initial Portfolio, Colliers International to provide property accounting services and Crofts to provide accounting and taxation services. A failure of third parties to discharge their agreed responsibilities may materially adversely affect the management of the REIT, which in turn could materially adversely affect the financial performance of the REIT and Distributions. Compliance Each stapled scheme comprising the REIT is a registered managed investment scheme, which means that the Responsible Entity is subject to extensive regulatory and compliance requirements under the Corporations Act and its Australian Financial Services Licence. Whilst the Responsible Entity has implemented compliance arrangements to address financial services laws and the conditions of licence, due to the complexity of financial services regulation, there is no guarantee that the Responsible Entity will be able to ensure compliance with financial services laws at all times, and that in common with other Australian Financial Services License holders will from time to time make breach reports to ASIC. If the Responsible Entity fails to comply with financial services laws or the conditions of its Australian Financial Services Licence, then ASIC may take action to suspend or revoke the licence, which in turn could adversely impact the performance of the REIT and Distributions. 96

97 Leasehold Title Risk The REIT may invest into property that is held on leasehold title. Property held on leasehold title can be of significant risk due to diminishing value as the lease term reduces. The Manager will aim to mitigate this risk by obtaining property on significantly long lease terms, or where the lease term is short, ensure that sufficient provisions are in place to enable an extension of the lease at a known cost. There is also a possibility that the vendor may decide to sell the freehold reversion at some point during the lease term to a purchaser with alternative objectives for the long term ownership and tenure. Insurance Risk Any property in the Portfolio may be damaged or destroyed by flood, fire, earthquake or other disaster. The Responsible Entity will seek to ensure that insurance coverage is maintained in respect of each property in the Portfolio (including insurance for destruction or damage to the property and public risk liability) where that coverage is available on commercial terms. Insurance coverage will include differing levels of cover for material loss or damage items such as accidental damage, flood and demolition and removal of debris. Some risks are not able to be insured at acceptable premiums. Examples of losses that are generally not insured against include war or acts of terrorism and natural phenomena such as earthquakes or hurricanes. Any losses incurred due to uninsured risks, or loss in excess of the insured amounts, may materially adversely affect the performance of the REIT and Distributions. Additionally, claims under insurance policies may lead to increases in insurance premiums, which could materially adversely affect the performance of the REIT. Risk Associated with Financial Forecasts The forecasts included in this PDS make a number of assumptions in relation to the level of rental income (refer to Section 6.5). The achievement of forecasts is neither promised nor guaranteed. There is a risk that actual performance of the REIT will fall below the financial forecasts set out in this PDS. This may occur if the assumptions are inaccurate. Further, the acquisition of additional Properties will affect the financial forecasts set out in the PDS. The Manager will aim to regularly monitor the financial forecasts and regularly update the financial forecasts by way of a supplementary PDS as and when required by law. Changes in Law or Government Policy Changes in law, regulation and government policies that could materially adversely affect the value of the Portfolio and financial performance of the REIT. For example, changes in zoning, planning or environmental regulations could adversely impact the ability of the REIT to undertake development activities in respect of the Portfolio, including the time and cost of undertaking such development. Operator Risk While the REIT is not an operator of any healthcare assets, the value of the Portfolio and the financial performance of the REIT could be materially adversely affected by a number of operational risks of the tenants of those properties. The majority of the REIT s tenants operate in the highly regulated healthcare sector. Operators in this sector may require government-issued licences or approvals in order to operate a facility, to attract government rebates and subsidies (such as Medicare rebates and residential care subsidies), or both. Specifically in relation to the REIT s tenants: To attract residential care subsidies under the Aged Care Act, the operator of a residential care service needs to be an approved provider and the residential care service needs to be accredited. Additionally, only allocated places (funded beds) attract a subsidy. If the Department of Health considers that an operator is not complying with its responsibilities under the Aged Care Act, the Department of Health can impose a notice of non-compliance or (for serious risk or repeated non-compliance) a sanction. The Australian Aged Care Quality Agency may refuse to re-accredit a residential service or revoke an accreditation. Sanctions or non-accreditation may threaten the viability of a residential care service, potentially prompting closure or sale to an operator which is capable of remedying the non-compliance. It is an offence under State and Territory legislation to operate a private hospital or day procedure centre unless the hospital or centre holds a licence. Licences and approvals are 97

98 also required to supply and administer medicines. Tenants which use radiation sources or radioactive substances require licences under State legislation. These licences can potentially be revoked for non-compliance. Tenants which provide pathology services or diagnostic imaging services require approvals under the Health Insurance Act in order that the services they provide attract Medicare rebates. Some of these approvals are tied to accreditation by a recognised accreditation body. The loss of a licence which has the result that Medicare rebates do not apply would threaten the viability of these businesses. Private sector businesses in the healthcare sector are affected by changes in government policy and funding, and (particularly in the private hospital and day procedure centre sector) developments which affect the proportion of Australians who hold private health insurance and the willingness of Australians to use private hospital services as compared to public hospital services. Should one or more tenants of the REIT be affected by these issues, there may be an interruption in rental payments or a tenant may default. Increases in the regulatory burden on healthcare businesses, adverse changes in funding policy and general developments which limit or reduce the use of private sector healthcare services by Australians may make tenants and potential tenants of the REIT less likely to renew leases, to expand and improve their rental properties or to seek additional rental properties. Any of these issues could materially adversely the financial performance of the REIT and Distributions. As noted in section 4.4.2, the Australian Government has announced that it will establish a Royal Commission into the aged care sector. A number of the REIT s tenants operate in the highly regulated aged care sector. Such tenants may be adversely impacted, both financially and reputationally, by the findings of the Royal Commission. In particular, it is possible that such findings could increase the regulatory burden on aged care operators, increase their operating costs, or change government funding policy, any of which may adversely affect the business model and financial performance of such aged care operators. Furthermore, information presented to the Royal Commission may lead to a reduction in the demand of private sector residential aged care services if older Australians choose to delay entry into residential aged care facilities or choose alternative care options. Any reduction in such demand may result in residential aged care operators being less likely to renew leases, to expand or to redevelop their properties. Any of these issues could materially adversely the financial performance of the REIT and Distributions. Reputational Risk Any reputational damage experienced by the REIT s tenants may materially adversely affect the financial performance of those tenants. Reputational damage could arise due to a number of circumstances, including poor patient care or a failure to comply with laws and regulations. The reputational damage of a tenant could also impact the reputation of the property itself and could affect the ability of the REIT to re-lease the property. Any of these reputational issues could materially adversely affect the financial performance of the REIT and Distributions. Environmental Risk The value of the properties in the Initial Portfolio may be affected by unforeseen environmental issues. The REIT may be liable to remedy sites affected by environmental issues even in circumstances where the REIT is not responsible for causing the environmental liability. The cost of remediation of sites could be substantial. In addition, if the REIT is not able to remediate the site properly, this may adversely affect its ability to sell the relevant property or to use it as collateral for future borrowings. Further, new or more stringent environmental laws or regulations could be introduced in the future, for example in relation to climate change, which may require the REIT to incur additional material expenditure to ensure that the required compliance is maintained. Any such expenditure on environmental issues could materially adversely affect the financial performance of the REIT and Distributions. In June 2018, an audit for Aluminium Composite Panel ( ACP ) was conducted on the properties in the Initial portfolio, with ACP being identified at 3 properties. ACP is a combustible material used on building sites. Whilst it is expected that the cost of removal and replacement of the panels at the three sites will not be material, it is possible that further remediation maybe needed at these properties and potentially other properties requiring expenditure by the REIT. 98

99 Occupational Health and Safety There is a risk that liability arising from occupational health and safety matters at a property in the Portfolio may be attributable to Responsible Entity as the landlord instead of, or as well as, the tenant. Such liability may include fines and penalties imposed by regulatory authorities as well as claims for compensation from injured parties, and may not be fully covered by insurance policies. Any such liabilities may be incurred by the REIT (which are not covered by insurance policies) could materially adversely affect the financial performance of the REIT and Distributions. Litigation and Disputes The REIT may be subject to litigation and other claims and disputes in the course of its business, including contractual disputes, indemnity claims, occupational health and safety and personal claims and environmental claims. The REIT may also be subject to regulatory investigations by governmental agencies and may be subject to sanctions or fines by those governmental agencies in the event of non-compliance with relevant statutory, regulatory or licensing requirements. Such litigation, claims and disputes, including the costs of settling claims and operational impacts, may materially adversely affect financial performance of the REIT and Distributions General risks of an investment in the REIT Changes in the general economic outlook both in Australia and globally may impact the performance of the REIT and its Portfolio. Examples include (whether individually or in combination): Changes in economic conditions and outlook in Australia and internationally; Changes in Australian government, industrial, fiscal, monetary regulatory policies or changes to laws (e.g. taxation laws); Changes in interest rates, exchange rates or rates of inflation; Investor sentiment for particular sectors and real estate sectors over the economic cycle; The impact of international conflicts or acts of terrorism; Performance of comparable listed entities and projects; Changes in the general level of prices in local and international share markets and general investor sentiment in these markets; and Significant industrial, contractual or political disturbances impacting the REIT or the continuity of its business. Consequently, the trading price of Securities may be influenced by factors non-specific to the REIT and out of the REIT s ability to control. No assurances can be made that the performance of the Securities will not be adversely affected by such market fluctuations or factors. Neither the REIT or the Directors or any other person guarantees the performance of the Securities. Liquidity Risk As the REIT has no trading history on public markets, there can be no assurance that an active trading market will develop for the Securities. Liquidity of the Securities will be dependent on the relative volume of the buyers and sellers in the market at any given time. Changes in liquidity may affect the price at which Securityholders are able to sell their Securities. Significant blocks of Securities held by individual investors may reduce liquidity in the trading of Securities. No guarantee of Distribution of capital return Neither the Responsible Entity nor any other person gives a guarantee as to the amount of any income or capital return from the Securities or the performance of the REIT, nor do they guarantee the repayment of capital from the REIT. Property market fluctuations 99

100 As the REIT is a real estate investment trust, the value of, and returns from, its property assets may fluctuate depending on property market conditions. Rental and occupancy levels may change as a result of changes in the property market and this may affect the Distributions paid by the REIT and the market price of Securities. Further, demand for property and listed property securities may change as investor preferences for particular sectors and asset classes change. The demand for property as an asset class changes over time and can be influenced by general economic factors such as interest rates and share market cycles. Dilution Risk As the REIT issues Securities to new investors, existing Securityholders proportional beneficial ownership in the underlying assets of the REIT may be reduced. For example, if you do not participate in a future entitlement offer or choose not to reinvest your Distributions pursuant to any future distribution reinvestment plan, then your beneficial ownership in the REIT may be diluted. The Responsible Entity will only raise equity if it believes that the benefit of acquiring the relevant assets or reducing Gearing is in the interests of the Securityholders. Pricing Risk Securities may trade on ASX at, above or below the Offer Price or NTA per Security. The price at which Securities trade on ASX may be affected by a range of factors including: movements and volatility in international and local share markets; general economic conditions in Australia and offshore including inflation, interest rates and exchange rates; recommendations by brokers; changes in government, fiscal, monetary and regulatory policies; changes to laws (particularly taxation laws); inclusion or removal from market indices; and changes in the supply and demand of listed property securities. Changes in the stock market rating of Securities relative to other listed securities, especially other listed property trusts, may also affect prices at which Securities trade. Consequently the trading price of Securities may be influenced by factors out of the Responsible Entity s control. These fluctuations could have materially adverse effects on the trading performance of the Securities. No assurances can be made that the performance of the Securities will not be adversely affected by such market fluctuations. Tax Risk There are risks that the tax consequences for an individual Investor, or for the REIT with regard to income tax (including capital gains tax), stamp duty and other taxes may differ from the tax consequences described in the Tax Section in this PDS (refer to Section 10). Investors should seek their own appropriate, independent professional advice in relation to the taxation implications in respect of their own specific investments. Changes in income tax, indirect tax or stamp duty legislation or policy may also affect the REIT s returns. Such changes can result in the distribution policy of the REIT having to change. As changes in revenue law or policy and other legal or regulatory changes often cannot be foreseen, the Manager will attempt to respond to any such changes in whatever manner seems practical and in the best interest of Investors. MIT Risk The REIT may qualify as a MIT where certain conditions are satisfied. The ability to meet these tests is assessed on a yearly basis and depends, in part, on factors outside the control of the Responsible Entity. Where the REIT qualifies as a MIT for an income year, taxable Distributions to non-resident investors broadly comprising of income other than dividends, interest or royalties (e.g. net rental income) should be subject to a final withholding tax of 15% where the non-resident investor is a resident of an information exchange country or 30% for other non-resident investors. If the REIT does not qualify as a MIT for a particular year, taxable Distributions to non-resident investors for a given income year should be subject to a non-final withholding tax, the rate of which will depend on the profile of the investor but is broadly 30% for companies, 47% for trusts and the marginal tax rates for individuals commencing at 32.5%.To the extent that a non-resident individual maintains an interest in the REIT of greater than 10% during an income year (outside of the start-up phase) then the REIT should not be a MIT for that income year. Accounting standards 100

101 The Australian Accounting Standards to which the REIT adheres are set by the Australian Accounting Standards Board. Changes to accounting standards issued by AASB or changes to the commonly held views on the application of those standards could materially adversely affect the financial performance and position reported in the REIT s financial statements. 101

102 8. Investigating Accountant s Report This page intentionally left blank 102

103 The Directors Heathley Asset Management Limited as trustee/responsible entity (as applicable) of the Existing Funds Level 7, 56 Clarence Street Sydney NSW October 2018 Dear Directors Investigating Accountant s Report Independent Limited Assurance Report on Heathley Healthcare REIT pro forma historical and forecast financial information and Financial Services Guide We have been engaged by Heathley Asset Management Limited as trustee/responsible entity of Heathley Keystone Property Fund No.32, Heathley Direct Medical Fund No.1, Heathley Direct Medical Fund No.2, Heathley Aged Care Property Fund No.1 and Heathley Healthcare Property Fund (the Existing Funds) to report on certain financial information for inclusion in the product disclosure statement (PDS), notices of meetings and explanatory memorandum (collectively, the Offer Document) dated on or about 28 November 2018 and relating to the restructure of the Existing Funds to create a real estate investment stapled group (REIT). Expressions and terms defined in the PDS have the same meaning in this report. In this report, each reference to you or the Company is a reference to Heathley Asset Management Limited in its capacity as responsible entity/trustee (as applicable) of each of the Existing Funds. The nature of this report is such that it can only be issued by an entity which holds an Australian financial services license under the Corporations Act PricewaterhouseCoopers Securities Ltd, which is wholly owned by PricewaterhouseCoopers holds the appropriate Australian financial services licence under the Corporations Act This report is both an Investigating Accountant s Report, the scope of which is set out below, and a Financial Services Guide, as attached at Appendix A. Scope You have requested PricewaterhouseCoopers Securities Ltd to review the following pro forma historical financial information, directors pro forma forecast financial information and directors statutory forecast of the REIT included in the Offer Document: Pro Forma Historical Financial Information the pro forma Consolidated Statement of Financial Position as at allotment date; PricewaterhouseCoopers Securities Ltd, ACN , ABN , Holder of Australian Financial Services Licence No One International Towers, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2000 T: , F: ,

104 The Pro Forma Historical Financial Information has been derived from the historical financial information of the REIT, after adjusting for the effects of pro forma adjustments described in section 6 of the PDS. The stated basis of preparation is the recognition and measurement principles contained in Australian Accounting Standards and the REIT s adopted accounting policies applied to the historical financial information and the transactions to which the pro forma adjustments relate, as described in section 6 of the PDS, as if those transactions had occurred as at the date of the historical financial information. Due to its nature, the Pro Forma Historical Financial Information does not represent the REIT s actual or prospective financial position. Statutory Forecast The Statutory Forecast Consolidated Income Statement that the directors of the Company expect to present in the first annual statutory consolidated financial report for the REIT for the financial year ending 30 June 2019, and the six month period to 31 December 2019, as described in section 6 of the PDS. The directors best-estimate assumptions underlying the Statutory Forecast are described in section 6 of the PDS. The stated basis of preparation used in the preparation of the Statutory Forecast is the recognition and measurement principles contained in Australian Accounting Standards and the REIT s adopted accounting policies; Pro Forma Forecast Pro Forma Forecast Consolidated Income Statements for the period from allotment to 30 June 2019 and the six month period to 31 December 2019 which assumes the exclusion of the one-off transaction costs associated with the Offer, described in section 6 of the PDS. The Pro Forma Forecast has been derived from the REIT s Forecast, after adjusting for the effects of the pro forma adjustments described in section 6 of the PDS. The stated basis of preparation used in the preparation of the Pro Forma Forecast is the recognition and measurement principles contained in Australian Accounting Standards applied to the Forecast and the transactions to which the pro forma adjustments relate, as described in section 6 of the PDS, as if those transactions had occurred as at 13 December Due to its nature, the Pro Forma Forecast does not represent the REIT s actual prospective income statement for the period from allotment to 30 June 2019 and the six month period to 31 December Directors responsibility The directors of the Company are responsible for the preparation of the Pro forma Historical Financial Information, including its basis of preparation and the selection and determination of pro forma adjustments made to the historical financial information and included in the Pro Forma Historical Financial Information. The directors of the Company are also responsible for the preparation of the Statutory Forecast, including its basis of preparation and the best-estimate assumptions underlying the Statutory Forecast. They are also responsible for the preparation of the Pro Forma Forecast, including its basis of preparation and the selection and determination of the pro forma adjustments made to the Statutory Forecast and included in the Pro Forma Forecast. This includes responsibility for its compliance with applicable laws and regulations and for such internal controls as the directors determine are necessary 2

105 to enable the preparation of historical financial information, pro forma historical financial information, a forecast and a pro forma forecast that are free from material misstatement. Our responsibility Our responsibility is to express a limited assurance conclusion on the Pro Forma Historical Financial Information, Statutory Forecast and Pro Forma Forecast, the best-estimate assumptions underlying the Statutory Forecast and Pro Forma Forecast, and the reasonableness of the Statutory Forecast and Pro Forma Forecast themselves, based on our review. We have conducted our engagement in accordance with the Standard on Assurance Engagement ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain reasonable assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Our engagement did not involve updating or re-issuing any previously issued audit or review report on any financial information used as a source of the financial information. Conclusions Pro Forma Historical Financial Information Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the Pro Forma Historical Financial Information of the REIT as described in section 6 of the PDS, and comprising: the pro forma Consolidated Statement of Financial Position as at allotment date; is not presented fairly, in all material respects, in accordance with the stated basis of preparation, as described in section 6 of the PDS being the recognition and measurement principles contained in Australian Accounting Standards and the REIT s adopted accounting policies applied to the historical financial information and the transactions to which the pro forma adjustments relate, as described in section 6 of the PDS, as if those transactions had occurred as at the date of the historical financial information. Statutory Forecast Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that: the directors best-estimate assumptions used in the preparation of the forecast statutory consolidated income statement of the REIT for the period from allotment to 30 June 2019 and the six month period to 31 December 2019 do not provide reasonable grounds for the Statutory Forecast; and in all material respects, the Statutory Forecast: 3

106 is not properly prepared on the basis of the directors best-estimate assumptions as described in section 6 of the PDS; and is not presented fairly in accordance with the stated basis of preparation, being the recognition and measurement principles contained in Australian Accounting Standards and the REIT s adopted accounting policies; and the Statutory Forecast itself is unreasonable. Pro Forma Forecast Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that: the directors best-estimate assumptions used in the preparation of the pro forma forecast consolidated income statement of the REIT for the period from allotment to 30 June 2019 and the six month period to 31 December 2019 do not provide reasonable grounds for the Pro Forma Forecast; and in all material respects, the Pro Forma Forecast: is not properly prepared on the basis of the directors best-estimate assumptions, as described in section 6 of the PDS; and is not presented fairly in accordance with the stated basis of preparation, being the recognition and measurement principles contained in Australian Accounting Standards and the REIT s adopted accounting policies, applied to the Forecast and the pro forma adjustments as if those adjustments had occurred as at the date of the Forecast; and the Pro Forma Forecast itself is unreasonable. Statutory Forecast and Pro Forma Forecast The Statutory Forecast and Pro Forma Forecast have been prepared by management and adopted by the directors in order to provide prospective investors with a guide to the potential financial performance of the REIT for the period from allotment to 30 June 2019 and the six month period to 31 December There is a considerable degree of subjective judgment involved in preparing forecasts since they relate to transactions that have not yet occurred and may not occur. Actual results are likely to be different from the Statutory Forecast and Pro Forma Forecast since anticipated transactions frequently do not occur as expected and the variation may be material. The directors best-estimate assumptions on which the Statutory Forecast and Pro Forma Forecast are based relate to future events and/or transactions that management expect to occur and actions that management expect to take and are also subject to uncertainties and contingencies, which are often outside the control of the REIT. Evidence may be available to support the directors best-estimate assumptions on which the Statutory Forecast and Pro Forma Forecast are based however such evidence is generally future-oriented and therefore speculative in nature. We are therefore not in a position to express a reasonable assurance conclusion on those best-estimate assumptions, and accordingly, provide a lesser level of assurance on the reasonableness of the directors best-estimate assumptions. The limited assurance conclusion expressed in this report has been formed on the above basis. 4

107 Prospective investors should be aware of the material risks and uncertainties in relation to an investment in the REIT, which are detailed in the PDS, and the inherent uncertainty relating to the Statutory Forecast and Pro Forma Forecast. Accordingly, prospective investors should have regard to the investment risks and sensitivities as described in section 6 of the PDS. The sensitivity analysis described in section 6 of the PDS demonstrates the impact on the Statutory Forecast and Pro Forma Forecast of changes in key best-estimate assumptions. We express no opinion as to whether the Statutory Forecast and Pro Forma Forecast will be achieved. The Statutory Forecast and Pro Forma Forecast have been prepared by the directors for the purpose of inclusion in Offer Document. We disclaim any assumption of responsibility for any reliance on this report, or on the Statutory Forecast and Pro Forma Forecast to which it relates, for any purpose other than that for which it was prepared. We have assumed, and relied on representations from certain members of management of the REIT, that all material information concerning the prospects and proposed operations of the REIT has been disclosed to us and that the information provided to us for the purpose of our work is true, complete and accurate in all respects. We have no reason to believe that those representations are false. Notice to investors outside Australia Under the terms of our engagement this report has been prepared solely to comply with Australian Auditing Standards applicable to review engagements. This report does not constitute an offer to sell, or a solicitation of an offer to buy, any securities. We do not hold any financial services licence or other licence outside Australia. We are not recommending or making any representation as to suitability of any investment to any person. Restriction on Use Without modifying our conclusions, we draw attention to section 6 of the PDS, which describes the purpose of the financial information, being for inclusion in the Offer Document. As a result, the financial information may not be suitable for use for another purpose. Consent PricewaterhouseCoopers Securities Ltd has consented to the inclusion of this assurance report in the Offer Document in the form and context in which it is included. Liability The liability of PricewaterhouseCoopers Securities Ltd is limited to the inclusion of this report in the Offer Document. PricewaterhouseCoopers Securities Ltd makes no representation regarding, and has no liability for, any other statements or other material in, or omissions from the Offer Document. Independence or Disclosure of Interest PricewaterhouseCoopers Securities Ltd does not have any interest in the outcome of the Offer other than the preparation of this report and participation in due diligence procedures for which normal professional fees will be received. 5

108 Financial Services Guide We have included our Financial Services Guide as Appendix A to our report. The Financial Services Guide is designed to assist retail clients in their use of any general financial product advice in our report. Yours faithfully Andrew Cloke Authorised Representative of PricewaterhouseCoopers Securities Ltd 6

109 PRICEWATERHOUSECOOPERS SECURITIES LTD FINANCIAL SERVICES GUIDE This Financial Services Guide is dated 3 October About us PricewaterhouseCoopers Securities Ltd (ABN , Australian Financial Services Licence no ) (PwC Securities) has been engaged by Heathley Asset Management Limited as trustee/responsible entity (as applicable) of Heathley Keystone Property Fund No.31, Heathley Keystone Property Fund No.32, Heathley Direct Medical Fund No.1, Heathley Direct Medical Fund No.2, Heathley Aged Care Property Fund No.1 and Heathley Healthcare Property Fund (the Company) to provide a report in the form of an Investigating Accountant's Report in relation to the Pro Forma Historical Financial Information, StatutoryForecast and Pro Forma Forecast of the REIT (as defined below) (Report) for inclusion in the product disclosure statement (PDS), notices of meetings and explanatory memorandum dated on or about 3 October 2018 and relating to the restructure of the Existing Funds to create a real estate investment stapled group (REIT). You have not engaged us directly but have been provided with a copy of the Report as a retail client because of your connection to the matters set out in the Report. 2. This Financial Services Guide This Financial Services Guide (FSG) is designed to assist retail clients in their use of any general financial product advice contained in the Report. This FSG contains information about PwC Securities generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the Report, and how complaints against us will be dealt with. 3. Financial services we are licensed to provide Our Australian financial services licence allows us to provide a broad range of services, including providing financial product advice in relation to various financial products such as securities, interests in managed investment schemes, derivatives, superannuation products, foreign exchange contracts, insurance products, life products, managed investment schemes, government debentures, stocks or bonds, and deposit products. 7

110 4. General financial product advice The Report contains only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs. You should consider your own objectives, financial situation and needs when assessing the suitability of the Report to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment. 5. Fees, commissions and other benefits we may receive PwC Securities charges fees to produce reports, including this Report. These fees are negotiated and agreed with the entity who engages PwC Securities to provide a report. Fees are charged on an hourly basis or as a fixed amount depending on the terms of the agreement with the person who engages us. In this instance, the Company has agreed to pay PwC Securities $400,000 for preparing the Report. Directors or employees of PwC Securities, PricewaterhouseCoopers, or other associated entities, may receive partnership distributions, salary or wages from PricewaterhouseCoopers. 6. Associations with issuers of financial products PwC Securities and its authorised representatives, employees and associates may from time to time have relationships with the issuers of financial products. For example, PricewaterhouseCoopers may be the auditor of, or provide financial services to, the issuer of a financial product and PwC Securities may provide financial services to the issuer of a financial product in the ordinary course of its business. 7. Complaints If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner. In addition, a copy of our internal complaints handling procedure is available upon request. If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Ombudsman Service ("FOS"), an external complaints resolution service. FOS can be contacted by calling You will not be charged for using the FOS service. 8

111 8. Contact Details PwC Securities can be contacted by sending a letter to the following address: Andrew Cloke One International Towers Watermans Quay Barangaroo GPO Box 2650 Sydney NSW

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113 Heathley Healthcare REIT 1 September 2018

114 Heathley Healthcare REIT 1 September 2018

115 Heathley Healthcare REIT 1 September 2018

116 Heathley Healthcare REIT 1 September 2018

117 Heathley Healthcare REIT 1 September 2018

118 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

119 Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

120 Executive Summary 100% 80% 60% 40% 20% 0% Passing Income Net Lettable Area This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

121 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

122 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

123 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

124 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

125 Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

126 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

127 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

128 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

129 Executive Summary 100% 80% 60% 40% 20% 0% Passing Income Net Lettable Area This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

130 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

131 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

132 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

133 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

134 Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

135 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

136 Executive Summary 46 Carrington Road, Waverley NSW Valuation This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

137 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

138 Executive Summary 100% 80% 60% 40% 20% 0% Passing Income Net Lettable Area This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

139 Executive Summary 81 Fairlawn Avenue, Turramurra NSW Valuation This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

140 As If Complete Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

141 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

142 Executive Summary 98 Alameda Way, Warriewood NSW Valuation This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

143 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

144 Executive Summary 100% 80% 60% 40% 20% 0% Passing Income Net Lettable Area This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

145 Executive Summary 29 Earl Street, Hunters Hill NSW Valuation This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

146 As If Complete Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

147 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

148 Executive Summary 28 Irrubel Road, Caringbah NSW Valuation This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

149 As If Complete Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

150 100% 80% 60% 40% 20% 0% Passing Income Net Lettable Area This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

151 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

152 Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

153 Executive Summary 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Passing Income Lettable Area This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

154 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

155 This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

156 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

157 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

158 Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

159 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

160 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

161 Executive Summary This is a summary only. It must not be relied on for any purpose. Jones Lang LaSalle s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

162 Executive Summary This is a summary only. It must not be relied on for any purpose. JLL s valuation of this asset is subject to assumptions, conditions and limitations. Those are set out in the full valuation report prepared in relation to the asset. Liability limited by a scheme approved under Professional Standards Legislation.

163 Heathley Healthcare REIT 1 September 2018

164 Summary Letter PDS/IPO Heathley - Project Juice 3 September 2018 Grant.Gilbett@cbre.com.au The Directors Heathley Asset Management Limited Level 7, 56 Clarence Street, Sydney, NSW, 2000 To the Directors Valuation Reports Heathley - Project Juice Thank you for your recent request for a quote to value Heathleys Property Portfolio. INSTRUCTIONS CBRE Valuations Pty Limited ( CBRE ) accepted instructions dated 26 July 2018 to prepare a market Valuation for the properties listed below. The Valuation Reports may be relied upon by Heathley Asset Management Limited for inclusion in the Product Disclosure Statement for an Initial Public Offering of stapled securities in the Heathley Healthcare REIT and by National Australia Bank Limited in its capacity as Facility Agent for and on behalf of the Lenders 1 and Tasovac Pty Limited in its capacity as Security Trustee for and on behalf of the Beneficiaries of the Heathley REIT Security Trust for First Mortgage Security Purposes only. The Valuation is prepared in accordance with the Australian Property Institute Australia and New Zealand Valuation and Property Standards, having regard to ANZVGN 8 Valuations for use in Offer Documents. The instructions specifically request us to provide our opinion of the market value of the properties as at 1 September 2018 on the following basis: 1. Market Value As Is for Part Portfolio 2. Market Value As If Complete (where applicable). CBRE has been instructed to provide full Valuation Reports in addition to this Summary Letter which is included in the Product Disclosure Statement document for information purposes only. In accordance with ANZVGN 8, our Valuation Report draws attention to the key issues and considerations impacting value and provides a detailed Property Risk Assessment and SWOT Analysis, plus the report details our Critical Assumptions, General Assumptions, Disclaimers, Limitations, Qualifications and Recommendations. As commercial investments of this nature are inherently complex and the market conditions have changed and/or have been uncertain in recent times, it is considered prudent to consider the entire contents of our Valuation Report. Therefore, we recommend that this Summary Letter be read and considered together with the Valuation Report. We accept no responsibility for reliance upon the Summary Letter. We refer the reader to Heathley Asset Management Limited to obtain a copy of our Valuation Report. Reliance is not extended to any other party. BRIEF DESCRIPTION OF THE PROPERTY AND TENANCY DETAILS Old Cleveland Road, Coorparoo: A 4,021 square metre amalgamated allotment, situated on the northern side of Old Cleveland Road in Coorparoo. The property is improved with two adjoining buildings known as Coorparoo Health Centre. 332 Old Cleveland Road contains 4 tenancies over a single level providing 834 square metres of lettable area. 334 Old Cleveland Road is situated along the western alignment and configured to provide 773 square metres of lettable area over 3 tenancies. 1 Under, and as defined in the A$185m syndicated facility agreement to be entered into by, among others, Heathley Finance Company Pty Ltd ACN and National Australia Bank Limited Page 1

165 Summary Letter PDS/IPO Heathley - Project Juice Yarrabilba Drive, Yarrabilba: The site forms part of the Coles Development and has been subdivided into a separate allotment for use as a medical centre. Improvements comprise a new single level multi tenancy commercial building featuring a medical centre and pharmacy and two retail tenancies. 18 Prowse Street, West Perth: The subject property comprises a 3 level former office building overlooking Totterdell Park, which was originally constructed circa The property is currently undergoing redevelopment into a day hospital. On an "As If Complete" basis the subject property will comprise the Montserrat Day Hospital, a modern medical facility to be operated as a haematology and oncology clinic. Accommodation will comprise of a reception, 12 treatment chairs, and various consulting and service rooms on the ground floor; and the upper levels comprise 6 consulting rooms, open planned office space, staff room, storage room, training room, and an additional unutilised space. The estimated completion date of the refurbishment and redevelopment is 21 September Milton Road, Auchenflower: The property is located on the northern side of Milton Road, between Wienholt Street and Munro Streets, Auchenflower, approximately 4 kilometres west of the Brisbane CBD. Originally constructed circa 1999 and extended and fully refurbished in 2017, the improvements comprise a modern purpose built medical centre and day surgery providing 4 levels of accommodation extending to 3,648 square metres. Excluding the part level 1 car park which covers the expansion area, currently the building provides a total of 79 car bays (including 51 bays within the patient car parking area). There is an additional 682 square metres of expansion space approved for Level Weippin Street, Cleveland: Bayside Business Park comprises 4 buildings located on a 14,687 square metre allotment adjacent to the Redlands Mater Public and Private Hospitals fronting Weippin Street, Cleveland. Buildings 1, 2 and 4 comprise two levels of modern accommodation and on grade car parking with Building 3 comprising of a single level. Building 1 comprises 634 sqm of retail accommodation and 720 sqm of commercial accommodation, Building 2 comprises 2,091 sqm of commercial accommodation. Building 3 comprises 569 sqm of internal childcare accommodation and an outdoor exclusive use area of 894 sqm. Building 4 comprises 1,571 sqm of commercial accommodation. The anchor tenant, Mater Health Services, occupies a total of 2,670sqm (48% of total area and 54% of gross income). 375A Concord Road, Concord West: A purpose built two level oncology facility with basement bunker and treatment areas, with a lettable area of 968 sqm plus secure car parking for 10 vehicles on the ground floor. The facility will be leased to Radiation Oncology Associates Pty Limited (i.e. GenesisCare) on a 10 year term with 3 x 10 year option periods. Chermside (Lots 2-6), 956 Gympie Road, Chermside: A modern style building known as the Chermside Medical Complex, which is a four level, purpose built strata titled medical centre. The building comprises a total of 17 lots, plus car parking for 206 vehicles, including 171 basement car spaces. Other occupants within the complex include various medical tenants including a medical centre, podiatrist, pathology, radiologist, endoscopy clinic, oncology clinic, in addition to various consulting suites, a pharmacy and café. The subject units comprise Lots 2-6 and are situated on the upper ground floor with direct pedestrian access via Gympie Road and rear access via the on grade parking area. The upper ground floor comprises common area male and female bathroom facilities. Chermside (Lots 7-8), 956 Gympie Road, Chermside: Lots 7 and 8 are located to the northern alignment of the building with a combined total size of 1,157 square metres (Lot 7 1,008sqm, Lot 8 137sqm and storage area 12sqm). The lot is occupied by Haematology & Oncology Clinics of Australasia Pty Ltd and is operating as a cancer care centre. The area is split into a front reception and waiting area, office behind reception, site managers office, consulting rooms, specialist care/therapy rooms, on-site pharmacy, unisex and disabled toilets, medical theatre, staff kitchen, multiple storage areas, nurse managers office, staff meeting room, multiple therapy chairs and medical storage. The site has 62 dedicated parking spaces. Chermside (Lots 9-10), 956 Gympie Road, Chermside: Lots 9 and 10 are located to the southern alignment of the building with a combined total size of 767 square metres (Lot 9 365sqm, Lot sqm). The property is occupied by Cura Newco 4 Pty Ltd and is operating as a day surgery. The day surgery provides a reception with waiting area, administration and various office areas, storage rooms, consultation and interview rooms, preoperative waiting area, a number of procedure rooms, three operating theatres, recovery areas (9 beds and recovery chair room), sterilisation areas, a staff room, changing areas and associated medical facilities. 52 Pendlebury Road, Cardiff: A 2 level building constructed circa 1980, originally as an administration building and subsequently converted for medical use. The building is divided into 3 suites with currently only 1 suite tenanted and utilised for office space. Other improvements include a storage shed, generator shed and on grade bitumen sealed car parking. The building is relatively dated and would require significant capital works to bring up to a modern standard Page 2

166 Summary Letter PDS/IPO Heathley - Project Juice 78 Channon Street and 50 Lawrence Street, Gympie: The property is improved with three buildings providing a total lettable area of 2,271 square metres. Gympie Private Hospital comprises 2,176 square metres of lettable area (Building A comprises 1,555 sqm & Building B comprises 621 sqm) with an additional 70 on grade car parking bays. Building C is a residential property and fronts Lawrence Street. 2 Clarkshill Road, Secret Harbour: The property comprises a two level modern medical centre comprising one ground floor tenancy and two first floor tenancies. The complex is situated on the north western corner of Clarkshill Road and Oasis Drive, with additional frontage to Ortona Crescent on the northern boundary and Caddo Lane on the western boundary. 95 Alexander Drive, Highland Park: The subject comprises a single level commercial building with undercroft car parking, located within Highland Park in the Gold Coast Local Government Area, some 74 kilometres south of the Brisbane CBD. The building is currently leased to IPN Medical Centres QLD who hold a number of sub-leases, the total lettable area is 932 square metres. 295 Kingston Road, Logan Central: The property provides approximately 1,850 sqm of net lettable area incorporating 11 tenancies of which 1 is currently vacant. The tenancies are a mix of medical and retail tenancies with some professional and a food services tenancy. The property has approximately 44 car spaces. 306 Olsen Avenue, Parkwood: The property comprises a predominately single storey medical centre, constructed circa 1990's, with four tenancies including a family practice, pharmacy, physiotherapist and pathologist centre. There is undercroft car parking providing accommodation for 10 vehicles and a visitor car park providing 26 car spaces. The buildings total lettable area is 856 sqm. 1 Derby Street, Kogarah: A single level strata unit within a two (2) level building plus basement car parking. The property is situated within Georges River Council and located on the fringe of the medical precinct which includes St George Hospital. The subject unit has a total area of about 1,302 sq. metres including car parking and a net lettable area of about 992 sq. metres. 312 Bourbong Street, Bundaberg West: A modern purpose built medical centre which was constructed circa 2009 and is a 4-star Green Star designed office building. The medical centre comprises a two level building, plus basement car parking, which currently accommodates five tenancies including Queensland Health, an Ophthalmology Clinic, café and a vacancy. Ground and basement car parking is provided for a total of approximately 78 vehicles. MARKET MOVEMENT The valuations referred to, represents the value of each property as at the date of valuation only. The value assessed may change significantly and unexpectedly over a relatively short period of time (including as a result of general market movements or factors specific to the particular property or particular property sector). CBRE is not liable for losses arising from any subsequent changes in value. CRITICAL ASSUMPTIONS AND RELIANCE ON INFORMATION PROVIDED A summary of Critical Assumptions noted in the full Valuation Reports are noted as follows: Common Points Financial Reporting There is no material change in the property market or the property between inspection and valuation dates. Outstanding Debts We assume there are no outstanding or major repair orders for any property Old Cleveland Road, Coorparoo Capital Expenditure We have adopted general capital expenditure totalling $377,676 over the cash flow horizon within the valuation. Profit Rent Passing rental is considered above market, therefore $445,823 of the property s value is attributable to profit rent. It is important to note that the profit rent will continue to diminish until the lease expires, resulting in the value of the asset declining by the amount of profit rent during this timeframe. We recommend the Reliant Party has regard to this aspect as part of their considerations. Page 3

167 Summary Letter PDS/IPO Heathley - Project Juice Waldron Street, Yarrabilba Capital Expenditure We have adopted general capital expenditure totalling $219,346 over the cash flow horizon within the valuation. Lease Registration We assume that the leases within the subject property will be registered on title. Rental Guarantee The valuation incorporates a rental guarantee over the vacant retail space for a term of 2 years, expiring 21/12/2019 at a gross rent of $42,900 per annum or $858 psm Prowse Street, West Perth As If Complete Valuation We have provided an assessment of value subject to the completion of the proposed improvements as described herein. Our assessment on an As If Complete basis assumes the building is complete with no further works required. Cost to Complete We have been provided with a cost to complete by the Owner of $1,255,815. We note that this amount indicates a discrepancy between the Progress Valuation Report which was prepared by Quantity Surveyors, WT Partnership. This is however due to works which have not yet been billed but have already been completed. We recommend the reliant party confirm this discrepancy, by sighting proof of the works which have not yet been invoiced. The Licensing and Accreditation Regulatory Unit (LARU) With respect to LARU approval, we have been provided with a letter from the Government of Western Australia Department of Health, dated 5 October 2017, which has granted the Lessee approval in principle. Our valuation assessment critically assumes that the LARU is granted by the Department of Health. Termination We note that there is a condition in the executed agreement for lease (AFL) which states that if the development does not reach practical completion by 30 June 2018 then the lessor (Heathley) may give notice to terminate the agreement. Discussions with the Heathley has indicated that whilst the development is not due for completion until 21 September 2018, and hence past the required date of 30 June 2018, have not chosen to terminate the agreement. We have been provided written confirmation of this. We critically assume that Heathley have not and will not terminate the AFL. Incentive An incentive of 3 months net rent free, with the first rental payment to be made on the date that is 3 months after the commencement date. Discussions with the Owner, Heathley, has indicated that the incentive is to be paid by the Vendor. We critically assume that Heathley are not required to pay this incentive, and instead, the original Vendor is required to make this payment. Heathley has indicated that the incentive is to be paid by the Vendor by way of a reduction in the sale price Milton Road, Auchenflower Expansion Space The expansion space on Level 1 is approved and available to fit out for a further 682 square metres of accommodation and has been incorporated within the valuation. We have incorporated the value of this additional area as a residual below the line adjustment in the calculations in which we have incorporated the potential market rental rate of the space, the cost to construct, downtime, letting up and incentive allowances, interest and a profit percentage on the project. Rental Guarantee The valuation incorporates a rental guarantee over 4 of the vacant car parking bays at a rate of $250 per bay per calendar month for a period of 24 months. We have incorporated the full letting up allowance for the total 7 vacant bays, however included a below the line adjustment for the rental guarantee over the agreed 4 bays. Page 4

168 Summary Letter PDS/IPO Heathley - Project Juice Our assessment has been undertaken on the critical assumption of the guarantee being in place and available to a hypothetical purchaser. A reduced value would be assessed if these guarantees were not in place. Outgoings The outgoings incorporated within this valuation have been assessed based on the information provided by Heathley Asset Management Limited and we highlight that the actual outgoings for the premises are higher than reported. This is due to some direct tenant recoveries Weippin Street, Cleveland Survey Plans We have not been provided with current survey plans of the vacant area within Building 4. The area of 138 square metres has been confirmed by the marketing agent and Heathley Asset Management Limited. Should formal survey plans identify varying areas to what has been adopted, CBRE reserve the right to review and possibly amend the valuation. Outgoings Estimates We have been provided with an estimate of the annual costs for the running of the Body Corporate and have adopted these figures as accurate within the valuation. Should these vary we reserve the right to review and amend the valuation. This is due to some direct tenant recoveries. Rental Guarantees The valuation incorporates a Rental Guarantee over the vacant accommodation (Tenancy 1C and 4G,H,I,N) within the subject buildings for an 18-month term (commenced 22/12/2017 expires 21/06/2019) at an average of $468 psm. A pylon signage guarantee at a rate of $6,035 pa has also been incorporated within the valuation. In addition, there is a Vendor Guarantee over the accommodation occupied by the Mater Health Services (Medical Centre & Queensland Xray Tenancy 1A and 2A) reflecting security for 4 years (adopted from the date of valuation) over the current rent, car parking rent and recoverable outgoings, payable should the Mater not exercise their options. Our assessment has been undertaken on the critical assumption of these guarantees being in place and available to a hypothetical purchaser. A reduced value would be assessed if these guarantees were not in place. Capital Expenditure We have adopted general capital expenditure totalling $1,593,430 over the cash flow horizon within the valuation A-377 Concord Road, Concord West Agreement for Lease We have been provided with a partially signed Agreement for Lease between Perpetual Corporate Trustee Limited as custodian for the Heathley Direct Medical Fund No.2, Heathley Asset Management Limited as responsible entity for the Heathley Direct Medical Fund No.2 and Radiation Oncology Associates Pty Limited. Under the Agreement for Lease the Landlord has entered into a Contract For Sale to acquire the land; will procure the carrying out of the Base Building Works; if agreed with the tenant, procure the carrying out of the integrated tenant fit out works; the tenant will carry out the Fit out Works; on the commencement date the Landlord will grant and the tenant will take the lease in accordance with the Agreement For Lease. Our valuation has been prepared on the assumption that the final executed lease will be generally in accordance with the terms of the Agreement For Lease provided. If the terms and conditions (including rent amount and lease term) are found to be significantly different, then we reserve the right to review and possibly amend our valuation. The value of this proposed property lies in the executed agreement for lease. If the proposed lessee was to vacate the premises and use as an oncology facility was no longer a viable use, the value of the property would be significantly affected. As If Complete Assessment Our As If Complete assessment assumes that all construction works have been completed to a highquality standard, with both internal and external presentation of the complex being commensurate with other recently constructed specialist medical centres. Page 5

169 Summary Letter PDS/IPO Heathley - Project Juice Our valuation is provided on the basis that the proposed development will be constructed in a tradesman like manner using new, quality materials and having regard to modern building techniques. Our valuation assumes that a detailed report of the structure and service installations of the buildings once completed would not reveal any defects requiring significant expenditure; and that the buildings will comply with all relevant statutory requirements in respect of matters such as health, building and fire safety regulations, and will be built in accordance with the provisions of the Building Code of Australia. We have been provided with plans and specifications for the proposed development which form the basis of this report. Should the final construction or design specification change from those provided, the valuation is to be returned to CBRE for comment and possible re-assessment of value. Survey Areas Our As If Complete assessment assumes that the final survey areas for the property will be in accordance with the proposed areas adopted within the valuation calculations. Should actual areas differ from those adopted within this report, the valuation is to be returned to CBRE for comment and possible re-assessment of value. Development Approval Our As If Complete assessment assumes the final development will be completed in accordance with all development approvals received from the relevant authority. Development Land Value We have considered and have relied upon assumptions regarding the status of approvals, civil construction costs, associated development costs, interest (borrowing) rate, assessed value of the completed units, assumed pre-sales achieved prior to construction, sale rate for completed stock, and acceptable performance margins. Development Costs We have been provided with a draft cost estimate summary only. This valuation should be re-visited once formal approvals are granted and a final Quantity Surveyor s report has been undertaken, as any variance in construction costs may have a bearing on the project s viability and underlying site value. Construction Timeframe We have assumed that the project will be constructed in a single stage over a rolling construction period spanning 16 months with a 4 month lead-in period for site preliminaries. We have assumed a total development horizon of 20 months. Construction Quality & Compliance The As If Complete assessment is provided on the basis that the proposed improvements will be constructed in a tradesman-like manner using new, quality materials and having regard to modern building techniques. Our valuation assumes that: A detailed report of the structure and service installations of the building once completed would not reveal any defects requiring significant expenditure. The building will comply with all relevant statutory requirements in respect of matters such as health, building and fire safety regulations, and will be built in accordance with the provisions of the Building Code of Australia. Bunker The proposed purpose-built building includes a Bunker for radiotherapy treatment. Design and construction of bunkers must meet State and Federal regulations relating to the safe operation of equipment producing Ionising Radiation. Our assessment assumes that the design and construction of the subject proposed building will be in accordance with all legislated requirements, in particular NSW Environmental Protection Authority Radiation Guideline 7 and National Council on Radiation Protection and Measurement Report 151. Contamination We have been provided with an Environmental Site Investigation report prepared by geo-environmental engineering. The report indicates that there exists some localised TRH contaminated fill material and natural clay soil which is consistent with the past land-use activities, particularly the former service/petrol station. The report suggests a remedial action plan, with excavation and off site disposal. In our As If Complete assessment we assume that full remediation of the site will be completed in accordance with the recommendations provided by geo-environmental engineering. In our As Is Residual Land assessment we have adopted removal and remediation costs provided within the estimate summary provided. If the costs exceed those provided, this report should be returned to the valuer for further comment and amendment if required. Page 6

170 Summary Letter PDS/IPO Heathley - Project Juice 12.a. Lots 2-6, 956 Gympie Road, Chermside Lettable Areas Lot 3 has been split into dual tenancies and the area varies from the survey plan by. For the purpose of this valuation we have assessed the tenancy areas in line with the survey plans attached to the leases provided. 12.b. Lots 7-8, 956 Gympie Road, Chermside Contract of Sale The property will be sold as to the terms of the put and call options prepared by Clarke Kann Lawyers. Combined Unit value Given the current lease encapsulates both Lot 7 and Lot 8 these two lots currently cannot be sold separately. We have therefore not provided an individual value on the basis of separate sale of Lot 7 and Lot 8 Body Corporate Records We have not made enquiry with the Body Corporate and assume there are no outstanding debts or major repair orders. We recommend the Reliant Party make its own enquiry in this regard. Should such enquiry reveal our assumptions to be incorrect, then this valuation must not be relied upon before first consulting CBRE to reassess any effect on the valuation Profit Rent Passing rental is considered above market, therefore $1,019,178 of the property s value is attributable to profit rent. It is important to note that the profit rent will continue to diminish until such lease expires, resulting in the value of the asset declining by the amount of profit rent during this timeframe. We recommend the Reliant Party has regard to this aspect as part of their considerations. 12.c. Lots 9-10, 956 Gympie Road, Chermside Outgoings The outgoings incorporated within this valuation have been assessed based on the information provided by Heathley Asset Management Limited and we highlight that the actual outgoings for the premises are higher than reported. This is due to some direct tenant recoveries. Contract of Sale We have sighted a draft unsigned and undated contract detailing a purchase price of $5,070,000. The purchase price is considered to be within market parameters. Combined Unit value Given the current lease encapsulates both Lot 9 and Lot 10 these two lots currently cannot be sold separately. We have therefore not provided an individual value on the basis of separate sale of Lot 7 and Lot 8 Body Corporate Records We have not made enquiry with the Body Corporate and assume there are no outstanding debts or major repair orders. We recommend the Reliant Party make its own enquiry in this regard. Should such enquiry reveal our assumptions to be incorrect, then this valuation must not be relied upon before first consulting CBRE to reassess any effect on the valuation Rent Shortfall Passing rental is considered below market, therefore a capital adjustment of $ (167,403) has been made to account for the difference between passing and market rent. It is important to note that the rental shortfall will continue to diminish until such lease expires Pendlebury Rd, Cardiff Lease The lease to Healthe Care Pendlebury Clinic Pty Limited (ACN ) is between the previous owner of the property and the lessee. We have assumed that this lease and all conditions, including the rent is being transferred to the current owner (The Trust Company (Australia) Limited). Approvals Our valuation assumes the subject property complies with all approvals and there are no outstanding Council notices/orders. Page 7

171 Summary Letter PDS/IPO Heathley - Project Juice Channon Street & 50 Lawrence St, Gympie Outgoings The Gympie Private Hospital tenant pays most the building outgoings directly. The outgoings incorporated within this valuation have been assessed based on the information provided by Heathley Asset Management Limited and we highlight that the actual outgoings for the premises are higher than reported. This is due to some direct tenant recoveries Clarkshill Road, Secret Harbour Financial Reporting There is no material change in the property market or the property between inspection and valuation dates Alexander Drive, Highland Park Capital Expenditure We have adopted general capital expenditure totalling $378,949 over the cash flow horizon within the valuation Kingston Road, Logan Central Outgoings The outgoings incorporated within this valuation have been assessed based on the information provided by Heathley Asset Management Limited. Pizza Hut Lease That this lease is currently executed Olsen Avenue, Parkwood Outgoings The outgoings incorporated within this valuation have been assessed based on the information provided by Heathley Asset Management Limited. Capital Expenditure We have adopted general capital expenditure totalling $457,370 over the cash flow horizon within the valuation Derby Street, Kogarah Lease We have sighted a signed and dated lease between Bowler Pty Limited (Lessor) and National Day Surgery Sydney Pty Limited (Lessee). The lease commenced 30 April 2016 and is set to expire 29 April 2028 with a 10 year option. We have assumed that all information within this document is true and correct. Goods Lift We note there is an easement for a goods lift within the subject unit. The easement grants the right to use the goods lift within the easement area in Lot 1. Lot 1 is situated on the ground floor and is not owned by the same owner as the subject property. The goods lift is an important part of the operation of the lessee, we note there is a current lease over Lot 1 and assume that this will run concurrently with the lease of the subject property. We reserve the right to review our valuation and amend if the above situation changes. Profit Rent Passing rental is considered above market, therefore $211,428 of the property s value is attributable to profit rent. It is important to note that the profit rent will continue to diminish until such lease expires, resulting in the value of the asset declining by the amount of profit rent during this timeframe. We recommend the Reliant Party has regard to this aspect as part of their considerations. Capital Expenditure We have adopted general capital expenditure totalling $571,292 over the cash flow horizon within the valuation Bourbong St, Bundaberg Capital Expenditure We have adopted general capital expenditure totalling $510,164 over the cash flow horizon within the valuation. Page 8

172 Summary Letter PDS/IPO Heathley - Project Juice Our valuation calculations include rental growth assumptions throughout a defined cash flow period. These assumptions have been based on prevailing economic and market conditions as at the date of valuation. Market conditions will change over time influenced by internal and external factors against which a review of the assumptions may be warranted. Therefore reliance upon these projections must be made with full acceptance of their limited reliability and with due consideration of the commercial risks related to such forecasts. The Discounted Cash Flow method of valuation referred to in the Valuation Report has been undertaken for the purpose of assisting in the determination of the current market value of the interest in the property and we make no guarantees or warranty as to the accuracy of future rental income stream projections, as these can be impacted by a combination of unforeseen circumstances. We have relied upon information provided by Heathley Asset Management Limited. Our valuations are based upon the most current information available at the time the valuation was prepared. CBRE accepts no responsibility for subsequent changes in information as to income, expenses or market conditions. Any subsequent change in lease terms may also have a corresponding change to the value. In the current market, it is our view that a 6-12 month marketing period may be required to effect a disposal of the interest in the various assets assuming a professional marketing campaign. REPORT CONTENT Our Valuation Reports, in addition to the content noted earlier, contains detailed information and descriptions pertaining to: Instructions; Use and Reliance; Site Details including Location, Legal, Environmental and Town Planning; and Building Improvements along with analysis of the asset s Occupational and Financial attributes. This is followed by a comprehensive Economic, Investment Market and QLD, NSW and WA Commercial Office Market Overview and details of the sales evidence regarded, along with our Investment Considerations. Finally, the report considers the value and marketability of the property. We again refer the reader of this letter to the individual Valuation Reports for detail in respect of the above items. VALUATION METHODOLOGY In arriving at our opinion of market value in accordance with the instructions, we have placed primary emphasis on the capitalisation of market net income approach and where appropriate have also adopted discounted cash flow analysis. A detailed explanation of the asset s investment credentials and the application of the discounted cash flow and capitalisation of market and/or passing income methodology are provided in each Valuation Report. VALUATION SUMMARY In accordance with the instructions, we summarise our valuation conclusions for Properties as at 1 September 2018 as follows: Page 9

173 Summary Letter PDS/IPO Heathley - Project Juice VALUATION SUMMARY No. Address Values Old Cleveland Road As Is Subject to existing occupancy arrangements. Coorparoo $18,150, Yarrabilba Drive As Is Subject to existing occupancy arrangements. Yarrabilba $11,500, Prowse Street As Is (Net of Incentive). West Perth $5,600,000 As If Complete Subject to proposed development (Net of Incentive). $8,640,000 As Is (Inclusive of Incentive). $5,450,000 As If Complete Subject to proposed development (Inclusive of Incentive). $8,500, Milton Road As Is Subject to existing occupancy arrangements. Auchenflower $40,500, Weippin Street As Is Subject to existing occupancy arrangements. Cleveland $38,000, A-377 Concord Road As If Complete Subject to proposed lease(s) executed. Concord West $15,500,000 As If Complete Vacant possession. $12,500,000 As Is Residual Land Value Subject to proposed lease(s) executed. $4,350,000 As Is Residual Land Value Vacant possession. $3,500, a Lots 2-6, 956 Gympie Road As Is In One Line Subject to existing occupancy arrangements. Chermside $14,200, b Lots 7-8, 956 Gympie Road As Is Subject to existing occupancy arrangements. Chermside $10,805, c Lots 9-10, 956 Gympie Road As Is Subject to existing occupancy arrangements. Chermside $5,070, Pendlebury Rd As Is Subject to existing occupancy arrangements. Cardiff $1,900, Channon St & 50 Lawrence St As Is Subject to existing occupancy arrangements. Gympie $7,750, Clarkshill Road As Is Subject to existing occupancy arrangements. Secret Harbour $8,350, Alexander Drive As Is Subject to existing occupancy arrangements. Highland Park $8,200, Kingston Road As Is Subject to existing occupancy arrangements. Logan Central $10,000, Olsen Avenue As Is Subject to existing occupancy arrangements. Parkwood $6,600, Derby Street As Is Subject to existing occupancy arrangements. Kogarah $12,200, Bourbong St As Is Subject to existing occupancy arrangements. Bundaberg $8,500,000 The following tables outline our Valuation Conclusions, Assumptions and Tenancy Profiles as at 1 September Page 10

174 Summary Letter PDS/IPO Heathley - Project Juice Old Cleveland Road, Coorparoo VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Ca 1,608.0 Site Area (sqm) 4,021.0 Market Value $18,150,000 Net Passing Income Fully Leased $1,180,262 $734 psm Net Passing Income $1,143,862 $711 psm Net Market Income $1,067,913 $664 psm Average Gross Market Rent (Office) $680 psm Average Gross Market Rent (Retail) $1,118 psm Weighted Average Lease Term (by income/by area) on occupied areas 6.0 years 5.8 years Outgoings (Adopted) $135 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.00% Terminal Yield 6.25% Target IRR (Discount Rate) 7.25% Ten Year IRR (Indicated) 7.23% Passing Initial Yield 6.30% Passing Initial Yield plus vacancies 6.50% Equivalent Yield 6.00% Reversionary (Market) Yield 5.88% Value psm of NLA $11,287 psm Current Vacancy Rate 3.23% 52 sqm Terry White Chemist 22% Queensland X-Ray 45% Lettable Area Analysis Coorparoo Clinic 22% Coorparoo Podiatry 7% QML Coorparoo 2% Retail Tenancies 2% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Office Market Rent Growth (gross) 3.39% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.47% Retail Market Rent Growth (gross) 3.39% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.47% Office Effective Rent Growth(gross) 3.39% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.47% Car Parking Growth 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Sundry Growth 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Outgoing Escalation 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Incentives Yr 1 (Office) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Incentives Yr 1 (Retail) 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 9 mths 12 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 3.00% 3.00% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 11) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $580,162 $361 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Queensland X-Ray $463,198 $416,400 Aug-23 Terry White Chemist $402,249 $379,500 Jun-27 Coorparoo Clinic $213,700 $210,000 Jun-24 Coorparoo Podiatry $88,547 $86,250 Jul-24 QML Coorparoo 39.0 $128,455 $91,650 Aug-20 Other Office Tenants Other Retail Tenants 27.0 $36,400 $36, yrs Car Parking $28,800 $28,800 Total (Gross Passing Fully leased) 1,608.0 $1,397,749 $1,285,400 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies QML Coorparoo Coorparoo Podiatry Coorparoo Clinic Queensland X-Ray Lease Expiry Analysis by area (sqm) Major Tenant Lease Expiry Profile Terry White Lease Term Option Period Page 11

175 Summary Letter PDS/IPO Heathley - Project Juice Yarrabilba Drive, Yarrabilba VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash Flow 1,079.0 Site Area (sqm) 2,566.0 Market Value $11,500,000 Net Passing Income Fully Leased $690,963 $640 psm Net Passing Income $648,063 $601 psm Net Market Income $690,963 $640 psm Average Gross Market Rent (Medical) $744 psm Weighted Average Lease Term (by income/by area) on occupied areas 12.7 years 12.2 years Outgoings (Adopted) $108 psm PV of Outstanding Tenant Incentives $3,608 Capitalisation Rate 6.00% Terminal Yield 6.25% Target IRR (Discount Rate) 8.00% Ten Year IRR (Indicated) 8.25% Passing Initial Yield 5.59% Passing Initial Yield plus vacancies 5.96% Equivalent Yield 6.00% Reversionary (Market) Yield 5.96% Value psm of NLA $10,658 psm Current Vacancy Rate 4.63% 50 sqm ANA Ventures Pty Ltd 80% Lettable Area Analysis Monthly 0% Vacant 5% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Office Market Rent Growth (gross) 3.47% (10 yr avg) 3.35% 3.33% 3.47% 3.43% 3.58% 3.48% 3.60% 3.51% 3.47% 3.50% Retail Market Rent Growth (gross) 3.47% (10 yr avg) 3.35% 3.33% 3.47% 3.43% 3.58% 3.48% 3.60% 3.51% 3.47% 3.50% Car Parking Growth 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Sundry Growth 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Outgoing Escalation 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Incentives Yr 1 (Office) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Incentives Yr 1 (Retail) 9 mths 9 mths 9 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 9 mths Major Tenant Lease Expiry Profile Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 3.00% 3.00% Assumed Leasing Commissions (new/renew 15% 8% Javadar Pty Ltd Refurbishment Allowance (Yr 5/ Yr 10) $150 psm Total Capital Expenditure (Yrs 1 to 11) * $343,836 $319 psm * Includes Refurbishment and Lessors Make Good allowances. Stellarossa TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry ANA Ventures Pty Ltd $577,168 $577,168 Nov-32 Stellarossa $122,147 $122,147 Nov-27 Javadar Pty Ltd 75.0 $60,270 $60,270 Jun-23 Total (Gross Passing) 1,029.0 $759,585 $759,585 Vacant 50.0 $42,900 $42,900 Total (Gross Passing Fully leased) 1,079.0 $802,485 $802,485 ANA Ventures Pty Ltd Lease Term Option Period Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. Page 12

176 Summary Letter PDS/IPO Heathley - Project Juice Prowse Street, West Perth VALUATION SUMMARY - AS IF COMPLETE (INCLUSIVE OF INCENTIVE) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash Flow 1,226.0 Site Area (sqm) 1,165.0 Date of Valuation Market Value 1 September 2018 $8,500,000 Net Passing Income Fully Leased $540,000 $440 psm Net Passing Income $540,000 $440 psm Net Market Income $540,000 $440 psm Average Gross Market Rent (Office) $502 psm Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies Outgoings (Adopted) 10.0 years $110 psm PV of Outstanding Tenant Incentives $130,509 Capitalisation Rate 6.25% Terminal Yield 6.75% Target IRR (Discount Rate) 7.00% Ten Year IRR (Indicated) 6.89% Passing Initial Yield 6.35% Passing Initial Yield plus vacancies 6.35% Equivalent Yield 6.26% Reversionary (Market) Yield 6.35% Value psm of NLA $6,933 psm Current Vacancy Rate Nil Montserrat Day Hospital 100% Lettable Area Analysis Vacant Monthly Retail Other Office Tenancies Tenancies 0% 0% 0% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.32% (10 yr avg) 2.00% 2.26% 2.41% 2.52% 2.29% 2.12% 2.35% 2.53% 2.47% 2.25% Market Rent Growth (gross) 2.75% (10 yr avg) 2.50% 2.75% 2.75% 3.00% 2.75% 2.50% 2.75% 3.00% 2.75% 2.75% Market Rent Growth (net) 2.82% (10 yr avg) 2.50% 2.76% 2.91% 3.02% 2.79% 2.62% 2.85% 3.03% 2.97% 2.75% Car Parking Growth 2.82% (10 yr avg) 2.50% 2.76% 2.91% 3.02% 2.79% 2.62% 2.85% 3.03% 2.97% 2.75% Outgoing Escalation 2.32% (10 yr avg) 2.00% 2.26% 2.41% 2.52% 2.29% 2.12% 2.35% 2.53% 2.47% 2.25% Incentives Yr % 20.0% 20.0% 20.0% 20.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Renewal Probability 60% 75% Leasing Up Period Yr 1 12 mths 3 mths Assumed New Lease Term 5 years 5 years Assumed New Lease Reviews 3.50% 3.50% Assumed Leasing Commissions (new/renew 10.50% 6.50% Lessors Works/Make Good ($psm) (Office/Retail) $100 psm $80 psm Refurbishment Allowance (Yr ) Total Capital Expenditure (Yrs 1 to 11) * $142,739 $116 psm * Includes Refurbishment and Lessors Make Good allowances. 1,500 1, Lease Expiry Analysis by area (sqm) TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Montserrat Day Hospital 1,226.0 $614,860 $614, yrs Car Parking $60,000 $60,000 Total (Gross Passing) 1,226.0 $674,860 $674,860 Total (Gross Passing Fully leased) 1,226.0 $674,860 $674,860 Montserrat Day Hospital Major Tenant Lease Expiry Profile Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. Lease Term Option Period Page 13

177 Summary Letter PDS/IPO Heathley - Project Juice VALUATION SUMMARY - AS IF COMPLETE (NET OF INCENTIVE) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash Flow 1,226.0 Site Area (sqm) 1,165.0 Date of Valuation Market Value 1 September 2018 $8,640,000 Net Passing Income Fully Leased $540,000 $440 psm Net Passing Income $540,000 $440 psm Net Market Income $540,000 $440 psm Average Gross Market Rent (Office) $502 psm Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies Outgoings (Adopted) 10.0 years $110 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.25% Terminal Yield 6.75% Target IRR (Discount Rate) 7.00% Ten Year IRR (Indicated) 6.86% Passing Initial Yield 6.25% Passing Initial Yield plus vacancies 6.25% Equivalent Yield 6.25% Reversionary (Market) Yield 6.25% Value psm of NLA $7,047 psm Current Vacancy Rate Nil Montserrat Day Hospital 100% Lettable Area Analysis Vacant Monthly Retail Other Office Tenancies Tenancies 0% 0% 0% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.32% (10 yr avg) 2.00% 2.26% 2.41% 2.52% 2.29% 2.12% 2.35% 2.53% 2.47% 2.25% Market Rent Growth (gross) 2.75% (10 yr avg) 2.50% 2.75% 2.75% 3.00% 2.75% 2.50% 2.75% 3.00% 2.75% 2.75% Market Rent Growth (net) 2.82% (10 yr avg) 2.50% 2.76% 2.91% 3.02% 2.79% 2.62% 2.85% 3.03% 2.97% 2.75% Car Parking Growth 2.82% (10 yr avg) 2.50% 2.76% 2.91% 3.02% 2.79% 2.62% 2.85% 3.03% 2.97% 2.75% Outgoing Escalation 2.32% (10 yr avg) 2.00% 2.26% 2.41% 2.52% 2.29% 2.12% 2.35% 2.53% 2.47% 2.25% Incentives Yr % 20.0% 20.0% 20.0% 20.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Renewal Probability 60% 75% Leasing Up Period Yr 1 12 mths 3 mths Assumed New Lease Term 5 years 5 years Assumed New Lease Reviews 3.50% 3.50% Assumed Leasing Commissions (new/renew 10.50% 6.50% Lessors Works/Make Good ($psm) (Office/Retail) $100 psm $80 psm Refurbishment Allowance (Yr ) Total Capital Expenditure (Yrs 1 to 11) * $142,739 $116 psm * Includes Refurbishment and Lessors Make Good allowances. 1,500 1, Lease Expiry Analysis by area (sqm) TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Montserrat Day Hospital 1,226.0 $614,860 $614, yrs Car Parking $60,000 $60,000 Total (Gross Passing) 1,226.0 $674,860 $674,860 Total (Gross Passing Fully leased) 1,226.0 $674,860 $674,860 Montserrat Day Hospital Major Tenant Lease Expiry Profile Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. Lease Term Option Period Page 14

178 Summary Letter PDS/IPO Heathley - Project Juice Milton Road, Auchenflower VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash Flow 3,648.0 Site Area (sqm) 3,628.0 Date of Valuation Market Value 1 September 2018 $40,500,000 Net Passing Income Fully Leased $2,195,901 $602 psm Net Passing Income $2,195,901 $602 psm Net Market Income $2,195,901 $602 psm Average Gross Market Rent (Office) $662 psm Average Gross Market Rent (Retail) psm Weighted Average Lease Term (by income/by area) on occupied areas 7.6 years 7.6 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 7.6 years Outgoings (Adopted) $127 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.00% Terminal Yield 6.25% Target IRR (Discount Rate) 7.00% Ten Year IRR (Indicated) 7.32% Passing Initial Yield 5.42% Passing Initial Yield plus vacancies 5.42% Equivalent Yield 6.01% Reversionary (Market) Yield 5.42% Value psm of NLA $11,102 psm Current Vacancy Rate Nil VEI Services (Sublease to Okko) 60% Lettable Area Analysis Queensland Diagnostic Imaging 29% Queensland Respiratory Service 9% Specialist Diagnostic Services (QML) 2% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Office Market Rent Growth (gross) 3.14% (10 yr avg) 3.11% 2.99% 3.19% 3.31% 3.04% 2.90% 3.11% 3.30% 3.22% 3.22% Retail Market Rent Growth (gross) 3.89% (10 yr avg) 3.86% 3.74% 3.94% 4.06% 3.79% 3.65% 3.86% 4.05% 3.97% 3.97% Office Effective Rent Growth(gross) 3.14% (10 yr avg) 3.11% 2.99% 3.19% 3.31% 3.04% 2.90% 3.11% 3.30% 3.22% 3.22% Car Parking Growth 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Sundry Growth 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Outgoing Escalation 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Incentives Yr 1 (Office) 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 10 years 5 years Assumed New Lease Reviews (Office/Retail) 3.00% 3.00% Assumed Leasing Commissions (new/renewal) 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $788,792 $216 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry VEI Services (Sublease to Okko) 2,209.0 $1,437,837 $1,437,837 Aug-26 Queensland Diagnostic Imaging 1,052.0 $714,360 $714,360 Aug-26 Queensland Respiratory Service $213,312 $213,312 Aug-22 Specialist Diagnostic Services (QML) 68.0 $50,227 $50,227 Aug-26 Other Office Tenants 2.7 yrs Retail Tenants Monthly Car Parking $76,139 $76,139 Sundry $168,469 $168,469 Total (Gross Passing) 3,648.0 $2,660,345 $2,660,345 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 3,648.0 $2,660,345 $2,660,345 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 3,500 3,000 2,500 2,000 1,500 1, Lease Expiry Analysis by area (sqm) 0 Vacant Specialist Diagnostic Queensland Respiratory Service Queensland Diagnostic Imaging VEI Services (Sublease to Okko) Major Tenant Lease Expiry Profile Lease Term Option Period Page 15

179 Summary Letter PDS/IPO Heathley - Project Juice Weippin Street, Cleveland VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash Flow 5,586.0 Site Area (sqm) (Parent Parcel) 14,647.0 Date of Valuation Market Value 1 September 2018 $38,000,000 Net Passing Income Fully Leased $2,358,665 $422 psm Net Passing Income $2,358,665 $422 psm Net Market Income $2,358,651 $422 psm Average Gross Market Rent (Office) $475 psm Average Gross Market Rent (Retail) $410 psm Weighted Average Lease Term (by income/by area) on occupied areas 1.9 years 2.0 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 1.9 years Outgoings (Adopted) $46 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.00% Terminal Yield 6.25% Target IRR (Discount Rate) 7.00% Ten Year IRR (Indicated) 6.92% Passing Initial Yield 6.21% Passing Initial Yield plus vacancies 6.21% Equivalent Yield 6.02% Reversionary (Market) Yield 6.21% Value psm of NLA $6,803 psm Current Vacancy Rate Nil Mater Health Services (Queensland X Ray) 10% ROQ (Oncology) 12% Lettable Area Analysis Cleveland 24/7 T/A Snap Fitness 9% Other Office Tenancies Lily Hilda P/L 27% (Childcare) 10% Retail Tenancies 3% Mater Health Services (Medical Centre) 29% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Office Market Rent Growth (gross) 3.07% (10 yr avg) 1.00% 1.00% 1.50% 2.50% 3.50% 4.25% 4.25% 4.25% 4.25% 4.25% Retail Market Rent Growth (gross) 3.07% (10 yr avg) 1.00% 1.00% 1.50% 2.50% 3.50% 4.25% 4.25% 4.25% 4.25% 4.25% Office Effective Rent Growth(gross) 3.07% (10 yr avg) 1.00% 1.00% 1.50% 2.50% 3.50% 4.25% 4.25% 4.25% 4.25% 4.25% Car Parking Growth 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Sundry Growth 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Outgoing Escalation 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Incentives Yr 1 (Office) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 6 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 4.00% 4.00% Major Tenant Lease Expiry Profile Assumed Leasing Commissions (new/renewal) 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Cleveland Lily Hilda P/L Total Capital Expenditure (Yrs 1 to 11) * $1,591,954 $285 psm Mater Health * Includes Refurbishment and Lessors Make Good allowances. ROQ (Oncology) TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Mater Health Services (Medical Centre) 1,621.0 $882,512 $882,512 Aug-19 ROQ (Oncology) $298,891 $298,891 Oct-26 Mater Health Services (Queensland X Ray) $330,432 $330,432 Jan-20 Lily Hilda P/L (Childcare) $173,492 $173,492 Feb-20 Cleveland 24/7 T/A Snap Fitness $206,831 $206,831 May-19 Other Office Tenants 1,530.0 $666,279 $666, yrs Other Retail Tenants $53,200 $53, yrs Sundry $6,035 $6,035 Total (Gross Passing) 5,586.0 $2,617,672 $2,617,658 Vacant Total (Gross Passing Fully leased) 5,586.0 $2,617,672 $2,617,658 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. Mater Health Lease Term Option Period Page 16

180 Summary Letter PDS/IPO Heathley - Project Juice A-377 Concord Road, Concord West VALUATION SUMMARY (100% Freehold) - Subject to Proposed Lease(s) Valuation Approaches Capitalisation & Discounted Cash Flow Net Lettable Area (sqm) Site Area (sqm) Date of Valuation Market Value - Subject to Proposed Lease(s) 1 September 2018 $15,500,000 Net Passing Income Fully Leased $847,960 $860 psm Net Passing Income $847,960 $860 psm Net Market Income $847,960 $860 psm Average Gross Market Rent (Office) $930 psm Weighted Average Lease Term (by income/by area) on occupied areas 10.0 years 10.0 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 10.0 years Outgoings (Adopted) $70 psm PV of Outstanding Tenant Incentives $1,143,546 Capitalisation Rate 5.75% Terminal Yield 6.25% Target IRR (Discount Rate) 7.25% Ten Year IRR (Indicated) 7.02% Passing Initial Yield 5.47% Passing Initial Yield plus vacancies 5.47% Equivalent Yield 5.86% Reversionary (Market) Yield 5.47% Value psm of NLA $15,720 psm Percentage Over/Under Rented (Total/On Occupied) Current Vacancy Rate 0.00% -7.53% Nil Radiation Oncology Associates Pty Limited 100% Lettable Area Analysis No data yet 0% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.36% (10 yr avg) 2.23% 2.49% 2.52% 2.27% 2.24% 2.14% 2.36% 2.56% 2.48% 2.27% Office Market Rent Growth (gross) 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Retail Market Rent Growth (gross) 3.86% (10 yr avg) 3.73% 3.99% 4.02% 3.77% 3.74% 3.64% 3.86% 4.06% 3.98% 3.77% Office Effective Rent Growth(gross) 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Car Parking Growth 3.99% (10 yr avg) 2.00% 3.00% 4.00% 5.00% 6.00% 2.00% 4.00% 5.00% 5.00% 4.00% Sundry Growth 2.36% (10 yr avg) 2.23% 2.49% 2.52% 2.27% 2.24% 2.14% 2.36% 2.56% 2.48% 2.27% Outgoing Escalation 2.36% (10 yr avg) 2.23% 2.49% 2.52% 2.27% 2.24% 2.14% 2.36% 2.56% 2.48% 2.27% Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 9 mths 3 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 4.00% 3.00% Assumed Leasing Commissions (new/renewal) 12% 6% Lessors Works/Make Good ($psm) (Office/Retail) $50 psm $50 psm Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $430,174 $436 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Radiation Oncology Associates Pty Limited $916,980 $916,980 Aug-28 Total (Gross Passing) $916,980 $916,980 Total (Gross Passing Fully leased) $916,980 $916,980 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 1,200 1, Lease Expiry Analysis by area (sqm) Page 17

181 Summary Letter PDS/IPO Heathley - Project Juice 12.a Lots Gympie Road, Chermside VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash 1,599.0 Site Area (sqm) 5,672.0 Date of Valuation Market Value 1 September 2018 $14,200,000 Net Passing Income Fully Leased $933,739 $584 psm Net Passing Income $933,739 $584 psm Net Market Income $933,739 $584 psm Average Gross Market Rent (Office) $659 psm Average Gross Market Rent (Retail) $849 psm Weighted Average Lease Term (by income/by area) on occupied areas 3.0 years 3.1 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 3.0 years Outgoings (Adopted) $131 psm Capitalisation Rate 6.50% Terminal Yield 6.75% Target IRR (Discount Rate) 7.50% Ten Year IRR (Indicated) 7.50% Passing Initial Yield 6.58% Passing Initial Yield plus vacancies 6.58% Equivalent Yield 6.45% Reversionary (Market) Yield 6.58% Value psm of NLA $8,881 psm Percentage Over/Under Rented (Total/On Occupied) 0.00% % Current Vacancy Rate Nil Southernex Imaging Group Ltd Lettable Area Analysis Horsburgh, Sullivan, Forrest & Hilford Sonic Healthcare Ltd Healthscope Medical Centres Pty Ltd Think Pharmacy Retail Tenancies 5% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Office Market Rent Growth (gross) 3.39% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.47% Retail Market Rent Growth (gross) 3.16% (10 yr avg) 0.75% 1.00% 1.50% 2.50% 3.50% 4.50% 4.50% 4.50% 4.50% 4.50% Office Effective Rent Growth(gross) 3.39% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.47% Car Parking Growth 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Sundry Growth 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Outgoing Escalation 2.39% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.47% Incentives Yr 1 (Office) 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 6 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 4.00% 4.00% Assumed Leasing Commissions (new/renewal) 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $50 psm $100 psm Total Capital Expenditure (Yrs 1 to 11) * $581,014 $363 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Healthscope Medical Centres Pty Ltd $340,445 $340,445 Mar-22 Southernex Imaging Group Ltd $272,397 $272,397 Apr-22 Horsburgh, Sullivan, Forrest & Hilford $158,327 $158,327 Feb-20 Sonic Healthcare Ltd $153,180 $153,180 Apr-23 Think Pharmacy $95,493 $95,493 Feb-20 Other Office Tenants -0.1 yrs Other Retail Tenants 86.0 $71,740 $71, yrs Monthly Car Parking $46,729 $46,729 Sundry $5,111 $5,111 Total (Gross Passing) 1,599.0 $1,143,422 $1,143,422 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 1,599.0 $1,143,422 $1,143,422 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 1,200 1, Think Pharmacy Lease Expiry Analysis by area (sqm) Healthscope Major Tenant Lease Expiry Profile Sonic Horsburgh, Southernex Lease Term Option Period Page 18

182 Summary Letter PDS/IPO Heathley - Project Juice 12.b Lots 7-8, 956 Gympie Road, Chermside VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Ca 1,157.0 Site Area (sqm) 5,672.0 Date of Valuation Market Value 1 September 2018 $10,805,000 Net Passing Income Fully Leased $880,484 $761 psm Net Passing Income $880,484 $761 psm Net Market Income $620,128 $536 psm Average Gross Market Rent (Office) $658 psm Average Gross Market Rent (Retail) psm Weighted Average Lease Term (by income/by area) on occupied areas 4.7 years 4.7 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 4.7 years Outgoings (Adopted) $122 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.25% Terminal Yield 6.50% Target IRR (Discount Rate) 8.00% Ten Year IRR (Indicated) 7.73% Passing Initial Yield 8.15% Passing Initial Yield plus vacancies 8.15% Equivalent Yield 6.33% Reversionary (Market) Yield 5.74% Value psm of NLA $9,339 psm Percentage Over/Under Rented (Total/On Occupied) 41.98% 15.64% Current Vacancy Rate Nil Haematology & Oncology Clinics of Australasia Pty Ltd 100% Lettable Area Analysis VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Office Market Rent Growth (gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Retail Market Rent Growth (gross) 3.87% (10 yr avg) 3.86% 3.74% 3.94% 4.06% 3.79% 3.65% 3.86% 4.05% 3.97% 3.76% Office Effective Rent Growth(gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Car Parking Growth 3.00% (10 yr avg) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Sundry Growth 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Outgoing Escalation 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Incentives Yr 1 (Office) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 4.00% 4.00% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $50 psm $100 psm Total Capital Expenditure (Yrs 1 to 11) * $320,227 $277 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Haematology & Oncology Clinics of Austra 1,157.0 $1,021,786 $761,430 May-23 No data yet #N/A No data yet #N/A No data yet #N/A No data yet #N/A Other Office Tenants Retail Tenants Monthly Car Parking Sundry Total (Gross Passing) 1,157.0 $1,021,786 $761,430 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 1,157.0 $1,021,786 $761,430 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 1,400 1,200 1, Haematology & Oncology Clinics of Australasia Pty Ltd Lease Expiry Analysis by area (sqm) Major Tenant Lease Expiry Profile Lease Term Option Period Page 19

183 Summary Letter PDS/IPO Heathley - Project Juice 12.c Lots 9-10, 956 Gympie Road, Chermside VALUATION SUMMARY (100% Freehold) Valuation Approaches Capitalisation & Discounted Cash Flow Net Lettable Area (sqm) Site Area (sqm) 5,672.0 Date of Valuation Market Value 1 September 2018 $5,070,000 Net Passing Income Fully Leased $314,089 $410 psm Net Passing Income $314,089 $410 psm Net Market Income $345,025 $450 psm Average Gross Market Rent (Office) $590 psm Average Gross Market Rent (Retail) psm Weighted Average Lease Term (by income/by area) on occupied areas 6.9 years 6.9 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 6.9 years Outgoings (Adopted) $140 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.50% Terminal Yield 6.75% Target IRR (Discount Rate) 8.00% Ten Year IRR (Indicated) 8.04% Passing Initial Yield 6.20% Passing Initial Yield plus vacancies 6.20% Equivalent Yield 6.57% Reversionary (Market) Yield 6.81% Value psm of NLA $6,610 psm Percentage Over/Under Rented (Total/On Occupied) -8.97% % Current Vacancy Rate Nil Cura Newco 4 Pty Ltd 100% Lettable Area Analysis VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Office Market Rent Growth (gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Retail Market Rent Growth (gross) 3.87% (10 yr avg) 3.86% 3.74% 3.94% 4.06% 3.79% 3.65% 3.86% 4.05% 3.97% 3.76% Office Effective Rent Growth(gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Car Parking Growth 3.99% (10 yr avg) 2.00% 3.00% 4.00% 5.00% 6.00% 2.00% 4.00% 5.00% 5.00% 4.00% Sundry Growth 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Outgoing Escalation 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Incentives Yr 1 (Office) 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 4.00% 4.00% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $205,368 $268 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Cura Newco 4 Pty Ltd $421,239 $452,175 Jul-25 No data yet #N/A No data yet #N/A No data yet #N/A No data yet #N/A Other Office Tenants Retail Tenants Monthly Car Parking Sundry Total (Gross Passing) $421,239 $452,175 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) $421,239 $452,175 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies Cura Newco 4 Pty Ltd Lease Expiry Analysis by area (sqm) Major Tenant Lease Expiry Profile Lease Term Option Period Page 20

184 Summary Letter PDS/IPO Heathley - Project Juice Pendlebury Rd, Cardiff VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Direct Comparison 1,601.0 Site Area (sqm) 8,369.0 Date of Valuation Market Value 1 September 2018 $1,900,000 Net Passing Income Fully Leased $293,473 $183 psm Net Passing Income $69,598 $43 psm Net Market Income $230,836 $144 psm Average Gross Market Rent (Office) $244 psm Weighted Average Lease Term (by income/by area) on occupied areas 0.2 years 0.1 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 0.1 years Outgoings (Adopted) $100 psm Capitalisation Rate 8.50% Passing Initial Yield 3.66% Passing Initial Yield plus vacancies 15.45% Equivalent Yield 8.31% Reversionary (Market) Yield 12.15% Value psm of NLA $1,187 psm Percentage Over/Under Rented (Total/On Occupied) % % Current Vacancy Rate 62.15% 995 sqm TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Healthe Care Pendlebury Clinic $229,287 $166,650 Nov-18 No data yet #N/A No data yet #N/A No data yet #N/A No data yet #N/A Other Office Tenants Retail Tenants Monthly Car Parking Sundry Total (Gross Passing) $229,287 $166,650 Vacant $223,875 $223,875 Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 1,601.0 $453,162 $390,525 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. Vacant 62% Lettable Area Analysis Healthe Care Pendlebury Clinic 38% Page 21

185 Summary Letter PDS/IPO Heathley - Project Juice Channon St & 50 Lawrence St, Gympie VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cas 2,271.0 Site Area (sqm) 7,871 sqm Date of Valuation Market Value 1 September 2018 $7,750,000 Net Passing Income Fully Leased $578,783 $255 psm Net Passing Income $578,783 $255 psm Net Market Income $578,783 $255 psm Average Gross Market Rent (Office) $275 psm Average Gross Market Rent (Retail) $145 psm Weighted Average Lease Term (by income/by area) on occupied areas 11.6 years 11.3 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 11.6 years Outgoings (Adopted) $15 PV of Outstanding Tenant Incentives $0 Capitalisation Rate 7.25% Terminal Yield 7.50% Target IRR (Discount Rate) 8.25% Ten Year IRR (Indicated) 8.16% Passing Initial Yield 7.47% Passing Initial Yield plus vacancies 7.47% Equivalent Yield 7.42% Reversionary (Market) Yield 7.47% Value psm of NLA $3,413 psm Percentage Over/Under Rented (Total/On Occupied) 0.00% -5.43% Current Vacancy Rate Nil Gympie Private Hospital Pty Ltd 96% Lettable Area Analysis Residential - Jenna DeMartini 4% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.34% (10 yr avg) 2.33% 2.07% 2.25% 2.44% 2.54% 2.28% 2.15% 2.36% 2.55% 2.45% Office Market Rent Growth (gross) 3.10% (10 yr avg) 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% Retail Market Rent Growth (gross) 3.10% (10 yr avg) 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% Office Effective Rent Growth(gross) 3.10% (10 yr avg) 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% Car Parking Growth 3.10% (10 yr avg) 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% Sundry Growth 2.34% (10 yr avg) 2.33% 2.07% 2.25% 2.44% 2.54% 2.28% 2.15% 2.36% 2.55% 2.45% Outgoing Escalation 2.34% (10 yr avg) 2.33% 2.07% 2.25% 2.44% 2.54% 2.28% 2.15% 2.36% 2.55% 2.45% Incentives Yr 1 (Office) 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Incentives Yr 1 (Retail) 1 mths 1 mths 1 mths 1 mths 1 mths 1 mths 1 mths 1 mths 1 mths 1 mths 1 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 1 mths Assumed New Lease Term (Office/Retail) 10 years 1 years Assumed New Lease Reviews (Office/Retail) 3.50% 3.50% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $479,820 $211 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Gympie Private Hospital Pty Ltd 2,176.0 $598,239 $598,239 Jul-30 Residential - Jenna DeMartini 95.0 $13,780 $13,780 Sep-18 Total (Gross Passing) 2,271.0 $612,019 $612,019 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 2,271.0 $612,019 $612,019 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 2,500 2,000 1,500 1, Residential - Jenna DeMartini Gympie Private Hospital Pty Ltd Lease Expiry Analysis by area (sqm) Major Tenant Lease Expiry Profile Lease Term Option Period Page 22

186 Summary Letter PDS/IPO Heathley - Project Juice Clarkshill Road, Secret Harbour VALUATION SUMMARY Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash Flow 1,614.0 Site Area (sqm) 1,887.0 Date of Valuation Market Value 1 September 2018 $8,350,000 Net Passing Income Fully Leased $574,884 $356 psm Net Passing Income $574,884 $356 psm Net Market Income $574,884 $356 psm Average Gross Market Rent $432 psm Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 7.5 years Outgoings (Adopted) $88 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.75% Terminal Yield 7.00% Target IRR (Discount Rate) 8.75% Ten Year IRR (Indicated) 8.85% Passing Initial Yield 6.88% Passing Initial Yield plus vacancies 6.88% Equivalent Yield 6.75% Reversionary (Market) Yield 6.88% Value psm of NLA $5,173 psm Current Vacancy Rate Nil Care Medical Group Ranger Secret Harbour Anytime Fitness GLA Analysis VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.32% (10 yr avg) 2.00% 2.26% 2.41% 2.52% 2.29% 2.12% 2.35% 2.53% 2.47% 2.25% Market Rent Growth (gross) 2.82% (10 yr avg) 2.50% 2.76% 2.91% 3.02% 2.79% 2.62% 2.85% 3.03% 2.97% 2.75% Outgoing Escalation 2.32% (10 yr avg) 2.00% 2.26% 2.41% 2.52% 2.29% 2.12% 2.35% 2.53% 2.47% 2.25% Incentives Yr % 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Renewal Probability 60% 75% Leasing Up Period Yr 1 6 mths 3 mths Assumed New Lease Term 5 years 5 years Assumed New Lease Reviews 3.50% 3.50% Assumed Leasing Commissions (new/renewal) 10.50% 5.00% Total Capital Expenditure (Yrs 1 to 11) * $63,343 $39 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Care Medical Group $388,058 $388, yrs Ranger Secret Harbour $93,724 $93, yrs Anytime Fitness $235,656 $235, yrs Total (Gross Passing) 1,614.0 $717,438 $717,438 Total (Gross Passing Fully leased) 1,614.0 $717,438 $717,438 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 60% 55% 50% 45% 40% 35% 30% 25% 20% Tenant Lease Expiry Analysis Vacant Monthly % Specialty GLA Page 23

187 Summary Letter PDS/IPO Heathley - Project Juice Alexander Drive, Highland Park VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Ca Site Area (sqm) 2,316.0 Date of Valuation Market Value 1 September 2018 $8,200,000 Net Passing Income Fully Leased $528,322 $567 psm Net Passing Income $528,322 $567 psm Net Market Income $528,322 $567 psm Average Gross Market Rent (Office) $653 psm Weighted Average Lease Term (by income/by area) on occupied areas 2.2 years 2.2 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 2.2 years Outgoings (Adopted) $86 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.50% Terminal Yield 6.75% Target IRR (Discount Rate) 7.50% Ten Year IRR (Indicated) 7.54% Passing Initial Yield 6.44% Passing Initial Yield plus vacancies 6.44% Equivalent Yield 6.43% Reversionary (Market) Yield 6.44% Value psm of NLA $8,798 psm Percentage Over/Under Rented (Total/On Occupied) 0.00% % Current Vacancy Rate Nil IPN Medical Centres (QLD) Pty Ltd 100% Lettable Area Analysis VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Office Market Rent Growth (gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Retail Market Rent Growth (gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Office Effective Rent Growth(gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Car Parking Growth 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Sundry Growth 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Outgoing Escalation 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Incentives Yr 1 (Office) 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 85% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) CPI 3.00% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) $100 psm $50 psm Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $327,716 $352 psm * Includes Refurbishment and Lessors Make Good allowances. 1, Lease Expiry Analysis by area (sqm) TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry IPN Medical Centres (QLD) Pty Ltd $608,135 $608,135 Nov-20 No data yet #N/A No data yet #N/A No data yet #N/A No data yet #N/A Other Office Tenants Retail Tenants Monthly Car Parking Sundry Total (Gross Passing) $608,135 $608,135 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) $608,135 $608,135 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies IPN Medical Centres (QLD) Pty Ltd Vacant Monthly 2020 Major Tenant Lease Expiry Profile Lease Term Option Period Page 24

188 Summary Letter PDS/IPO Heathley - Project Juice Kingston Road, Logan Central VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cas 1,850.0 Site Area (sqm) 6,130.0 Date of Valuation Market Value 1 September 2018 $10,000,000 Net Passing Income Fully Leased $740,684 $400 psm Net Passing Income $699,104 $378 psm Net Market Income $740,684 $400 psm Average Gross Market Rent (Office) $493 psm Average Gross Market Rent (Retail) $531 psm Weighted Average Lease Term (by income/by area) on occupied areas 1.1 years 1.0 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 1.0 years Outgoings (Adopted) $98 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 7.00% Terminal Yield 7.25% Target IRR (Discount Rate) 7.50% Ten Year IRR (Indicated) 7.60% Passing Initial Yield 6.99% Passing Initial Yield plus vacancies 7.41% Equivalent Yield 6.93% Reversionary (Market) Yield 7.41% Value psm of NLA $5,405 psm Percentage Over/Under Rented (Total/On Occupied) -5.61% % Current Vacancy Rate 5.35% 99 sqm Turner Freeman Lawyers 11% Logan Medical Centre Pharmacy 8% Blink Property 8% Queensland Xray 22% Lettable Area Analysis Other Office Tenancies 17% Retail Tenancies 6% Vacant 5% Logan Medical Centre 23% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Office Market Rent Growth (gross) 3.12% (10 yr avg) 3.11% 2.99% 3.19% 3.31% 3.04% 2.90% 3.11% 3.30% 3.22% 3.01% Retail Market Rent Growth (gross) 3.37% (10 yr avg) 3.36% 3.24% 3.44% 3.56% 3.29% 3.15% 3.36% 3.55% 3.47% 3.26% Office Effective Rent Growth(gross) 3.12% (10 yr avg) 3.11% 2.99% 3.19% 3.31% 3.04% 2.90% 3.11% 3.30% 3.22% 3.01% Car Parking Growth 3.99% (10 yr avg) 2.00% 3.00% 4.00% 5.00% 6.00% 2.00% 4.00% 5.00% 5.00% 4.00% Sundry Growth 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Outgoing Escalation 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Incentives Yr 1 (Office) 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 3.00% 3.00% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) $100 psm $50 psm Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $670,011 $362 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Logan Medical Centre $226,383 $226,383 Sep-19 Queensland Xray $214,896 $214,896 Sep-19 Turner Freeman Lawyers $77,999 $77,999 Oct-18 Blink Property $71,982 $71,982 Aug-18 Logan Medical Centre Pharmacy $85,191 $85,191 Sep-20 Other Medical Tenants $154,009 $154, yrs Other Retail Tenants $50,208 $50, yrs Monthly Car Parking Sundry Total (Gross Passing) 1,751.0 $880,669 $880,669 Vacant 99.0 $41,580 $41,580 Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 1,850.0 $922,249 $922,249 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 1,200 1, Vacant Monthly Logan Medical Blink Property Turner Queensland Xray Logan Medical Lease Expiry Analysis by area (sqm) Major Tenant Lease Expiry Profile Lease Term Option Period Page 25

189 Summary Letter PDS/IPO Heathley - Project Juice Olsen Avenue, Parkwood VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cas Site Area (sqm) 2,048.0 Date of Valuation Market Value 1 September 2018 $6,600,000 Net Passing Income Fully Leased $426,209 $498 psm Net Passing Income $426,209 $498 psm Net Market Income $426,209 $498 psm Average Gross Market Rent (Office) $601 psm Average Gross Market Rent (Retail) psm Weighted Average Lease Term (by income/by area) on occupied areas 2.2 years 2.2 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 2.2 years Outgoings (Adopted) $103 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 6.50% Terminal Yield 6.75% Target IRR (Discount Rate) 7.00% Ten Year IRR (Indicated) 7.19% Passing Initial Yield 6.46% Passing Initial Yield plus vacancies 6.46% Equivalent Yield 6.40% Reversionary (Market) Yield 6.46% Value psm of NLA $7,710 psm Percentage Over/Under Rented (Total/On Occupied) 0.00% % Current Vacancy Rate Nil IPN Medical Centres QLD 100% Lettable Area Analysis Vacant 0% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Office Market Rent Growth (gross) 3.12% (10 yr avg) 3.11% 2.99% 3.19% 3.31% 3.04% 2.90% 3.11% 3.30% 3.22% 3.01% Retail Market Rent Growth (gross) 3.87% (10 yr avg) 3.86% 3.74% 3.94% 4.06% 3.79% 3.65% 3.86% 4.05% 3.97% 3.76% Office Effective Rent Growth(gross) 3.12% (10 yr avg) 3.11% 2.99% 3.19% 3.31% 3.04% 2.90% 3.11% 3.30% 3.22% 3.01% Car Parking Growth 3.99% (10 yr avg) 2.00% 3.00% 4.00% 5.00% 6.00% 2.00% 4.00% 5.00% 5.00% 4.00% Sundry Growth 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Outgoing Escalation 2.37% (10 yr avg) 2.36% 2.24% 2.44% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Incentives Yr 1 (Office) 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 5 years 5 years Assumed New Lease Reviews (Office/Retail) 4.00% 3.00% Assumed Leasing Commissions (new/renew 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) $130 psm $80 psm Refurbishment Allowance (Yr 5/ Yr 10) $70 psm $125 psm Total Capital Expenditure (Yrs 1 to 11) * $425,547 $497 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry IPN Medical Centres QLD $514,633 $514,633 Nov-20 No data yet #N/A No data yet #N/A No data yet #N/A No data yet #N/A Other Office Tenants Retail Tenants Monthly Car Parking Sundry Total (Gross Passing) $514,633 $514,633 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) $514,633 $514,633 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies IPN Medical Centres QLD Lease Expiry Analysis by area (sqm) Major Tenant Lease Expiry Profile Lease Term Option Period Page 26

190 Summary Letter PDS/IPO Heathley - Project Juice Derby Street, Kogarah VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Ca Site Area (sqm) 1,302.0 Date of Valuation Market Value 1 September 2018 $12,200,000 Net Passing Income Fully Leased $874,047 $881 psm Net Passing Income $874,047 $881 psm Net Market Income $843,200 $850 psm Average Gross Market Rent (Office) $993 psm Weighted Average Lease Term (by income/by area) on occupied areas 9.7 years 9.7 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 9.7 years Outgoings (Adopted) $143 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 7.00% Terminal Yield 7.25% Target IRR (Discount Rate) 7.75% Ten Year IRR (Indicated) 7.80% Passing Initial Yield 7.16% Passing Initial Yield plus vacancies 7.16% Equivalent Yield 7.01% Reversionary (Market) Yield 6.91% Value psm of NLA $12,298 psm Percentage Over/Under Rented (Total/On Occupied) 3.66% % Current Vacancy Rate Nil National Day Surgery - Sydney Pty Ltd 100% Lettable Area Analysis VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.36% (10 yr avg) 2.23% 2.49% 2.52% 2.27% 2.24% 2.14% 2.36% 2.56% 2.48% 2.27% Office Market Rent Growth (gross) 3.10% (10 yr avg) 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Retail Market Rent Growth (gross) 3.10% (10 yr avg) 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Office Effective Rent Growth(gross) 3.10% (10 yr avg) 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Car Parking Growth 3.10% (10 yr avg) 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Sundry Growth 2.36% (10 yr avg) 2.23% 2.49% 2.52% 2.27% 2.24% 2.14% 2.36% 2.56% 2.48% 2.27% Outgoing Escalation 2.36% (10 yr avg) 2.23% 2.49% 2.52% 2.27% 2.24% 2.14% 2.36% 2.56% 2.48% 2.27% Incentives Yr 1 (Office) 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Incentives Yr 1 (Retail) 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths 2 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 6 mths 3 mths Assumed New Lease Term (Office/Retail) 3 years 5 years Assumed New Lease Reviews (Office/Retail) 3.00% 3.00% Assumed Leasing Commissions (new/renew 13% 7% Lessors Works/Make Good ($psm) (Office/Retail) $50 psm Refurbishment Allowance (Yr 5/ Yr 10) $150 psm Total Capital Expenditure (Yrs 1 to 11) * $571,292 $576 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry National Day Surgery - Sydney Pty Ltd $1,015,678 $984,831 Apr-28 No data yet #N/A No data yet #N/A No data yet #N/A No data yet #N/A Other Office Tenants Retail Tenants Monthly Car Parking Sundry Total (Gross Passing) $1,015,678 $984,831 Vacant Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) $1,015,678 $984,831 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 1,200 1, National Day Surgery - Sydney Pty Ltd Lease Expiry Analysis by area (sqm) 2028 Major Tenant Lease Expiry Profile Lease Term Option Period Page 27

191 Summary Letter PDS/IPO Heathley - Project Juice Bourbong St, Bundaberg VALUATION SUMMARY (100% Freehold) Valuation Approaches Net Lettable Area (sqm) Capitalisation & Discounted Cash 2,024.0 Site Area (sqm) 2,023.0 Date of Valuation Market Value 1 September 2018 $8,500,000 Net Passing Income Fully Leased $916,255 $453 psm Net Passing Income $810,340 $400 psm Net Market Income $615,762 $304 psm Average Gross Market Rent (Office) $355 psm Average Gross Market Rent (Retail) $545 psm Weighted Average Lease Term (by income/by area) on occupied areas 1.5 years 1.3 years Weighted Average Lease Term (by Income) incl. cars, sundry and vacancies 1.4 years Outgoings (Adopted) $81 psm PV of Outstanding Tenant Incentives $0 Capitalisation Rate 7.50% Terminal Yield 7.75% Target IRR (Discount Rate) 7.75% Ten Year IRR (Indicated) 7.80% Passing Initial Yield 9.53% Passing Initial Yield plus vacancies 10.78% Equivalent Yield 7.30% Reversionary (Market) Yield 7.24% Value psm of NLA $4,200 psm Percentage Over/Under Rented (Total/On Occupied) 31.60% 20.12% Current Vacancy Rate 15.17% 307 sqm Queensland Health % Lettable Area Analysis Wilson Eye Centre 10% Queensland Health 7% Glen Oswald Windsor 2% Vacant 15% VALUATION ASSUMPTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 CPI (Deloitte Access Economics) 2.37% (10 yr avg) 2.33% 2.28% 2.45% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Office Market Rent Growth (gross) 3.10% (10 yr avg) 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Retail Market Rent Growth (gross) 3.10% (10 yr avg) 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Office Effective Rent Growth(gross) 3.10% (10 yr avg) 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Car Parking Growth 3.10% (10 yr avg) 3.00% 3.00% 3.25% 3.25% 3.00% 3.00% 3.00% 3.25% 3.25% 3.00% Sundry Growth 2.37% (10 yr avg) 2.33% 2.28% 2.45% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Outgoing Escalation 2.37% (10 yr avg) 2.33% 2.28% 2.45% 2.56% 2.29% 2.15% 2.36% 2.55% 2.47% 2.26% Incentives Yr 1 (Office) 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Incentives Yr 1 (Retail) 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths Renewal Probability (Office/Retail) 75% 75% Leasing Up Period Yr 1 (Office/Retail) 3 mths 6 mths Assumed New Lease Term (Office/Retail) 3 years 5 years Assumed New Lease Reviews (Office/Retail) 3.00% 3.00% Assumed Leasing Commissions (new/renewal) 15% 8% Lessors Works/Make Good ($psm) (Office/Retail) Refurbishment Allowance (Yr 5/ Yr 10) $100 psm Total Capital Expenditure (Yrs 1 to 11) * $510,164 $252 psm * Includes Refurbishment and Lessors Make Good allowances. TENANT PROFILE Area (sqm) Passing Gross Rent Market Gross Rent Expiry Queensland Health - 1 1,339.0 $726,854 $475,345 Dec-19 Wilson Eye Centre $99,190 $75,750 Jun-21 Queensland Health $45,287 $45,540 Feb-20 Glen Oswald Windsor 44.0 $23,980 $23,980 Feb-21 Other Office Tenants 1.3 yrs Other Retail Tenants Monthly Car Parking $69,797 $54,000 Sundry $10,000 Total (Gross Passing) 1,717.0 $975,108 $674,615 Vacant $105,915 $105,915 Vacant Cars Vacant Sundry Total (Gross Passing Fully leased) 2,024.0 $1,081,023 $780,530 Note: Gross rents include outgoings recovery (where applicable). Market rent shown for vacancies. 1,600 1,400 1,200 1, Glen Oswald Windsor Queensland Health Wilson Eye Centre Queensland Health - 1 Vacant Lease Expiry Analysis by area (sqm) Monthly Major Tenant Lease Expiry Profile Lease Term Option Period Page 28

192 Summary Letter PDS/IPO Heathley - Project Juice CONSENT CBRE provides its consent for the inclusion of this Summary Letter within the Product Disclosure Statement for Heathley Asset Management Limited for information purposes only subject to Heathley Asset Management Limited making recipients of the Product Disclosure Statement aware of the following liability disclaimers. LIABILITY DISCLAIMER (a) CBRE is not operating under an Australian Financial Services Licence when providing the full Valuation Report or this Product Disclosure Statement and those documents do not constitute financial product advice. Investors should consider obtaining independent advice from their financial advisor before making any decision to invest in/with Heathley Asset Management Limited. (b) CBRE disclaims any liability to any person in the event of an omission from, or false and misleading statements included in the Product Disclosure Statement, other than in respect to this Summary Letter and the full Valuation Report. (c) The Valuation Report and this Summary Letter are strictly limited to the matters contained within those documents, and are not to be read as extending, by implication or otherwise, to any other matter in the Product Disclosure Statement. Without limitation to the above, no liability is accepted for any loss, harm, cost or damage (including special, consequential or economic harm or loss) suffered as a consequence of fluctuations in the real estate market subsequent to the date of valuation. (d) CBRE has prepared the full Valuation Report and this Product Disclosure Statement relying on and referring to information provided by third parties in including financial and market information ( Information ). CBRE assumes that the Information is accurate, reliable and complete and it has not tested the information in that respect. (e) References to the Property s value within this Summary Letter or the Product Disclosure Statement have been extracted from CBRE s Valuation Reports. The Valuation Reports draw attention to the key issues and considerations impacting value and provides a detailed assessment and analysis as well as key critical assumptions, general assumptions, disclaimers, limitations, qualifications and recommendations. As commercial investments of this nature are inherently complex and the market conditions have changed and/or have been uncertain in recent times, CBRE recommends that this Summary Letter and any references to value within the Product Disclosure Statement must be read and considered together with the Valuation Reports. This Summary Letter is to be read in conjunction with our full Valuation Reports dated 1 September 2018 and is subject to the Assumptions, Limitations, Disclaimers and Qualifications contained therein. We refer the reader to Heathley Asset Management Limited to obtain a copy of the Full Valuation Report. (f) No responsibility is accepted for any loss or damage arising as a result of reliance upon this Summary Letter and the Full Valuation Reports. (g) Neither this Summary Letter nor the full Valuation Reports may be reproduced in whole or in part without prior written approval of CBRE. (h) CBRE charges a professional fee for producing valuation reports, and the fee paid by Heathley Asset Management Limited for the Valuation Reports and this Product Disclosure Statement was $115,500 inclusive of GST. Page 29

193 Summary Letter PDS/IPO Heathley - Project Juice (i) We confirm that the valuer does not have a pecuniary interest that would conflict with a proper valuation of the interest in the property. (j) This document is for the sole use of persons directly provided with it by CBRE. Use by, or reliance upon this document by anyone other than Heathley Asset Management Limited is not authorised by CBRE and CBRE is not liable for any loss arising from such unauthorised use or reliance. Yours sincerely CBRE Valuations Pty Limited Grant Gilbett National Director Valuation & Advisory Services Liability limited by a scheme approved under Professional Standards Legislation. Page 30

194 LB:MW / September 2018 The Directors Heathley Asset Management Limited (HAML) Suite 7 56 Clarence Street SYDNEY NSW 2000 Dear Directors, RE: SUMMARY OF VALUATIONS FOR PRODUCT DISCLOSURE STATEMENT AND PROSPECTUS INSTRUCTIONS We refer to your instructions requesting m3property to prepare market valuations of the freehold interest of the abovementioned properties (collectively referred to as the Properties ) on behalf of HAML to advise the Market Value of the Properties for inclusion in a Product Disclosure Statement ( PDS ) for an Initial Public Offering ( IPO ) of units in the Fund. This summary letter is subject to the comments within our respective full valuation reports dated 1 September 2018, which contain details of the considerations and assumptions/conditions/qualifications impacting on value and referenced as: Property Address State Reference 87 Langtree Avenue, Mildura VIC / Melton Highway, Sydenham VIC / Hall Street, Spotswood VIC / Riverview Place, Murarrie QLD 5177:(RP) 32 Morrow Street, Taringa QLD 5143:(RP) 50 Gulfview Road, Christies Beach SA Churchill Road, Kilburn SA A Main Street, Hahndorf SA Fox Avenue, Klemzig SA Grant Avenue, Gilles Plains SA Shangri-La, 134 Carrington Avenue, Hurstville NSW / Morrison Road, Midland WA / Total (exclusive of GST) The respective valuation reports can be inspected at the office of Heathley Asset Management Limited during normal business hours. This correspondence is subject to and should be read in conjunction with all qualifications, assumptions, conditions and disclaimers contained within the valuation reports. Liability limited by a scheme approved under Professional Standards Legislation. m3property (Vic) Pty Ltd ABN Level 29, 600 Bourke Street MELBOURNE VIC 3000 Telephone info@m3property.com.au

195 MARKET VALUE The respective valuations of each property have been completed under the Market Value definition as follows: Market Value as defined by the International Valuations Standards Committee (IVSC) and endorsed by the Australian Property Institute (API) and embodied within the current corporations Law, is as follows: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. BRIEF DESCRIPTION OF THE PROPERTIES Langtree Avenue, Mildura VIC The subject is located on the north-western side of Langtree Avenue, approximately 10 metres southwest of the Ninth Street intersection, within the regional city of Mildura, which is approximately 470 radial kilometres north-west of the Melbourne Central Business District Langtree Avenue, Mildura Description An Alucobond cladded two storey medical centre. Constructed Significantly refurbished in circa 2006 Major Lessee Tristar Medical Group Lettable Area 1,608m 2 Land Area 950m 2 Parking 3 spaces Comprises a two-storey Alucobond cladded medical centre that was significantly refurbished in circa The ground floor comprises a separately accessed and leased optical tenancy, whilst the primary medical centre features a large open plan reception/waiting room area, twelve consulting rooms, a procedure room with three beds, sterilisation room, nurse s room, audiology room, medication room, teleconference room, administration areas, staff tea room with kitchenette facilities and amenities. The first floor comprises a second reception area, eleven consulting rooms that are being utilised as office space, two pathology collection rooms, two training/conference rooms, CEO office, boardroom, two staff meeting rooms, administration areas, printer room, cleaner s room, a second staff tea room with kitchenette facilities and amenities. Other features of the building include ducted reverse cycle split system air conditioning, granite reception desks and three under-croft car spaces located to the rear of the building. The rear of the building also provides a reserved parking space utilised as an ambulance bay, in addition to providing a bin storage area. Page 2

196 547 Melton Highway, Sydenham VIC The subject is located on the north-eastern corner of Melton Highway and Albert Road, in the outer north-western suburb of Sydenham, which is approximately 22 radial kilometres from the Melbourne CBD. Sydenham is a relatively new residential area of Melbourne, with its residential population having dramatically increased over the past 20 years due to a number of large residential estates having been developed. Melton Highway is a major arterial that carries a high volume of vehicular traffic on a daily basis, thereby providing the subject with a good level of exposure. 547 Melton Highway, Sydenham Description A modern two storey purpose built medical centre. Constructed Circa 2001 Head/Sole Lessee St Vincent s Hospital (Melbourne) Limited Lettable Area 639m 2 Land Area 1,519m 2 Parking 30 at-grade off street car spaces Comprises a circa 2012 built concrete panel and Alucobond two storey purpose built medical centre, with a lettable area of 639 square metres. The ground floor comprises a reception/waiting room area, five consulting rooms, one pathology collection suite, a dentist area with two chairs, a staff tea room and amenities. The second floor comprises a second reception/waiting room area, a dedicated speech pathology area, a dedicated sleep apnoea area, a second staff tea room and additional amenities. The building is serviced by a single passenger lift, features ducted reverse cycle split system air conditioning and an alarm system. Externally there are 30 at grade car spaces located on-site, with security boom-gate entry. Overall, the property presented in a well maintained condition with a reasonable quality of internal fitout. Page 3

197 196 Hall Street, Spotswood VIC The subject is located on the south-eastern corner of Hudsons Road and Hall Street, in the inner suburb of Spotswood, which is approximately seven (7) radial kilometres west of Melbourne s CBD. Spotswood is a diverse suburb containing various property types including retail, residential and industrial premises. Once regarded as a working class area of Melbourne, the suburb has been significantly gentrified over recent years, with its proximity to Melbourne s CBD and its public transport infrastructure driving buyer demand. 196 Hall Street, Spotswood Description A modern two storey purpose built medical centre. Constructed Circa 2015 Head/Sole Lessee Modern Medical Pty Ltd Lettable Area 1,136m 2 Land Area 1,247m 2 Parking 19 spaces Comprises a 2015 concrete panel two storey purpose built medical centre, with a lettable area of 1,136 square metres. The ground floor comprises a pharmacy, pathology collection centre, customer toilets and an after-hour s medical area which includes a reception area, five consulting rooms, treatment room, store room, staff kitchenette and a staff toilet. The after hours clinic was not being utilised as at the date of inspection. We note that a portion of the pharmacy s lettable area (which is occupied on a sub-lease arrangement) is surplus to their needs and is subsequently being offered to the market for lease, which would subsequently represent a Sub-Sub-Lease if a tenant was to be secured. As we understand it no agreements have been formalised for this Sub-Sub-Lease area. The first floor comprises a medical centre featuring a reception/waiting area, nine consulting rooms, treatment room, office, staff toilet, store room and customer toilets. There is also an allied health area with reception/waiting room, six consulting rooms and customer toilets. We also note the existence of approximately five other consulting rooms and a store room, although these areas are not heavily utilised. Features of the building include ducted heating and individual split system air conditioners throughout, a single passenger lift and a rear concrete car parking area providing a total of 19 open and under-croft spaces. Overall, the property presented in a well maintained condition with a good level of internal fitout. Page 4

198 11-19 Riverview Place, Murarrie QLD The property is located within Metroplex on Gateway in the established suburb of Suburb, approximately 10 kilometres by road east of the Brisbane Central Business District and approximately 13 kilometres by road south of the Brisbane Airport. Development within Murarrie is characterised by modern and semi-modern industrial warehouse and office complexes. Located on the western side of the Gateway Motorway is the Metroplex on Gateway industrial estate, catering for users required an extensive office component and corporate appearance. Significant occupiers of space within the area include Queensland Newspapers, Samsung and Spotless Services. The property has frontage to Metroplex Avenue and Riverview Place. Both streets are local roads within Metroplex on Gateway Estate, carrying a single lane of traffic in each direction and ending in a cul-desac. Access to the property is via three entry/exit points one on Metroplex Avenue and two on Riverview Place. Murarrie is proximate to the Gateway arterial system which allows easy vehicular passage throughout the greater Brisbane area and throughout South-East Queensland in general. Property 1 Description Constructed Circa Head/Sole Lessee A modern, purpose-built corporate facility with two primary buildings. QML Pathology. Lettable Area 10,005m 2 Land Area 23,826m 2 Parking 280 ground level car spaces. The improvements comprise a modern, purpose-built corporate facility with two primary buildings constructed circa-2005 occupying two adjoining sites. The facility is used for laboratory, office, and engineering/maintenance purposes, as well as a distribution and collection centre. A total of 280 atgrade car parks are provided. Page 5

199 32 Morrow Street, Taringa QLD The property is located within the established suburb of Taringa approximately 6.5 kilometres by road west of the Brisbane Central Business District and approximately 180 metres by road south of the Taringa train Station. Development within Taringa is characterised by a mix of low, medium and high-density residential accommodation, with retail and/or commercial uses restricted to being along major roads. The property sits opposite the Taringa Medical Centre and a sizeable student accommodation building known as Altitude at Taringa. The Taringa train station is adjacent to the south. Significant landmarks within the general area include The University of Queensland (3.1 radial kilometres east) and Indooroopilly Shopping Centre (1.3 radial kilometres south-west of the property). The property has frontage to Morrow Street and Harrys Road. Morrow Street is a local road carrying one lane of traffic to the east. Harrys road is a local cul-de-sac running perpendicular to, and intersecting with, Morrow Street and running the length of the subject parcel before terminating, offering pedestrian access to Taringa train station, as well as limited on-street parking. 32 Morrow Street, Taringa Description Constructed A modern purpose-built, mix use medical and short stay accommodation facility. Head/Sole Lessee Westside Private Pty Ltd. Lettable Area 8,336m 2 Land Area 3,008m 2 Parking 179 car spaces. The proposed development will provide a mix of accommodation including healthcare, child care and residential uses. It will include a day hospital, medical suites, café, child care centre, short-stay accommodation, sky homes and car parking for 179 vehicles. Page 6

200 Christies Beach Residential Care Services, SA The property is located within the suburb of Christies Beach, approximately 30 kilometres south of the Adelaide GPO. The surrounding development comprises a combination of residential and commercial uses. Directly opposite the property comprises a strip retail facility, with other commercial uses along Gulfview Road including the Christies Beach Hotel, a gym and a petrol station. Other surroundings are predominately residential. Gulfview Road is a two lane medium connector leading to the beach carrying low to medium levels of vehicular traffic. Christies Beach Residential Care Services Description Constructed Circa 1980 Head/Sole Lessee Building Area 3,120m 2 Land Area 7,680m 2 Approved Places 98 Partly refurbished (2016) residential aged care facility, comprising a single storey building with a total of 98 operational beds. Infinite Aged Care (Christies Beach) Pty Limited Comprises a circa 1980 recently refurbished purpose built residential aged care facility of masonry walls and tiled roof. The building is of an irregular shaped single storey structure comprising residential wings with an entry foyer, dining/lounge, administrative offices, commercial kitchen, laundry and services area. There are 71 resident rooms, 27 of which provide double room accommodation and the balance single rooms. Of the 71 Rooms 2 are provided with ensuite facilities with the balance having shared or common amenities. Overall, the improvements appear to be in reasonable condition with part of the facility having had extensive upgrading works completed in 2016, including the provision of LED lighting, new flooring, redecoration, replacement of some wet areas, sluice room upgrades, refurbishment of outdoor areas and refurbishment of resident rooms. Page 7

201 The Churchill Retreat, 470 Churchill Road, Kilburn, SA The property is located within the suburb of Kilburn, approximately 9 kilometres north of the Adelaide GPO. The property is afforded two street frontages to both Churchill Road and Bank Street. Surrounding development comprises a combination of residential and commercial uses. To the north is a large industrial site, with some retail properties located approximately 100 metres south. The immediate boundaries and remaining surrounding area comprises low density residential properties constructed circa 1970s of modest quality with some urban renewal occurring. The Churchill Retreat, 470 Churchill Road, Kilburn Description Constructed Circa 1990 Head/Sole Lessee Building Area Land Area Approved Places 54 Refurbished (2017) residential aged care facility comprising a single storey building originally constructed circa 1990s with an extension and refurbishment completed in Infinite Aged Care (Christies Beach) Pty Limited 2,380m² 5,892m² Comprises a circa 1990 recently refurbished purpose built residential aged care facility of masonry walls and corrugated steel roof of an irregular shaped single storey structure effectively comprising five wings consisting of residential rooms, and service areas that comprise a dining/lounge, administrative offices, commercial kitchen and services area. There are 53 resident rooms each comprising a single bed plus one room providing two beds. Each room has ensuite amenities, the latter of which provides a shower, toilet and hand basin facilities with non-slip vinyl flooring, grab rails, overhead combined light/fan/heat lamp and nurse call facilities. As part of the 2017 upgrade works an additional residential rear wing was constructed, now joining the north and south wing with five single bed rooms added. Other works included replacement of floor coverings throughout, LED lighting, redecoration, replacement of joinery, refurbishment of wet areas, upgrade to the hot water system and a large portal frame pergola constructed in one of the central courtyards. Page 8

202 Hahndorf Residential Care Services, SA The property east of the main commercial centre of Hahndorf is located within the suburb of Hahndorf approximately 26 kilometres south east of the Adelaide GPO. The surrounding development comprises a mix of low density residential living together with rural living properties. To the southern boundary of the property is a vacant paddock, with residential properties surrounding the other boundaries. Hahndorf Residential Care Services Description Constructed Circa 1985 Head/Sole Lessee Building Area Land Area Approved Places 101 The property comprises a partly refurbished (2016) residential aged care facility comprising a single storey building. Infinite Aged Care (Christies Beach) Pty Limited 3,603m² 12,800m² Hahndorf Residential Care Services is an L shaped single storey structure effectively comprising two residential wings with a central services area comprising entry foyer, dining/lounge, administrative offices, kitchen and services area. There are 69 resident rooms 32 of which provide double bed accommodation and the balance single beds. Of the 69 rooms 4 are provided with ensuite facilities with the balance having shared or common amenities. The property comprises three dining/lounge areas, two in southern corners of the building and one located centrally, together with a café/lounge providing an outdoor dining area. The commercial kitchen is located next to the Laundry and equipped with cool room and dry store. The building appears to be in good condition with part of the facility having had extensive upgrading works completed in 2016, including the provision of LED lighting, new flooring, redecoration, replacement of some wet areas, sluice room upgrades, refurbishment of outdoor areas and refurbishment of resident rooms.. Page 9

203 Klemzig Residential Care Services, SA The property is located within the suburb of Klemzig, approximately 12 kilometres north east of the Adelaide GPO. The property is afforded two street frontages to both Fox Avenue and Leighton Avenue. More particularly, the subject is positioned approximately 165 metres east of its intersection with OG Road. The surrounding development comprises a combination of residential and commercial uses. To the immediate east south and west boundaries comprise low density residential properties constructed circa 1970s-2000s. The northern boundary of the property is met by a number of commercial uses including office buildings and an integrated medical centre under construction. Klemzig Residential Care Services Description Constructed Circa 1980 Head/Sole Lessee Building Area Land Area Approved Places 86 Comprises a partly refurbished (2016) residential aged care facility of single storey, originally constructed circa 1980 with later extensions. Infinite Aged Care (Christies Beach) Pty Limited 3,300m² 8,171m² Klemzig Residential Care Services is an irregular shaped single storey structure effectively comprising north east and west residential wings with a central services area comprising entry foyer, dining/lounge, and administrative offices, kitchen and services area. There are 63 resident rooms 27 of which provide double bed accommodation and the balance single beds. Of the 63 rooms residents typically have shared or common amenities. There are two main accommodation wings each comprising a nurse s station with office, storage and lounge areas. As part of the 2016 upgrade works a memory support unit has been created, comprising 15 rooms and shared bathrooms which have been fully refurbished. The main dining/lounge area is located adjacent to the main commercial kitchen the latter of which is equipped with cool/freezer rooms and dry store. The improvements appear to be in reasonable condition with part of the facility having had extensive upgrading works completed in 2016, including the provision of a memory support unit, new reception, café, provision of LED lighting, new flooring, redecoration, new outdoor areas and replacement of some joinery in the older section. Page 10

204 Rose Court Aged Care Facility, SA The subject property is located in the suburb of Gilles Plains approximately 12 kilometres north east of the Adelaide GPO. The property is afforded two street frontages to both Grant and Burman Avenue. Surrounding development comprises a combination of residential and commercial uses. To the north and east comprise low density modest quality residential properties constructed circa 1970s-2000s. The southern boundary of the property is met by a number of commercial uses that front North East Road. Rose Court Aged Care Facility Description Constructed Circa 1980 Head/Sole Lessee Building Area Comprises a refurbished (2017) residential aged care facility comprising a part two storey building originally constructed circa 1980s with a later refurbishment and an extension completed in Infinite Aged Care (Christies Beach) Pty Limited 2,025m² Land Area 3,835m 2 Approved Places 54 Rose Court Aged Care Facility is an irregular shaped part two storey structure effectively comprising two single level residential wings within one building and a detached southern wing of two levels. The main building comprises a central service area, that include a dining/lounge, administrative offices, commercial kitchen and services area. There are 30 resident rooms, 12 of which provide double bed accommodation and the balance single beds. The majority of resident rooms have shared or common amenities. As part of the 2017 works the main building has been extensively upgraded with replacement of lighting with LEDs, new floor coverings, redecoration throughout and upgrading of the hot water system. The building was also extended with an additional two single rooms with ensuites as well as the shared bathrooms having been fully refurbished. Page 11

205 Shangri-La Nursing Home, 107 Carrington Street, Hurstville, NSW The property is located on the corner of Carrington Avenue and Ruby Street in Hurstville, approximately 17 kilometres south west of the Sydney Central Business District and located approximately one kilometre north west of the Hurstville town centre. Surrounding development includes predominantly single storey residential dwellings. The property is located approximately 400 metres north of Hurstville Private Hospital. Shangri-La Nursing Home, 107 Carrington Street, Hurstville, NSW Description Constructed Head/Sole Lessee Building Area 1,045m 2 Land Area 1,865m 2 Approved Places 46 An older style single level purpose built residential aged care facility, comprising 46 operational beds. Original dwelling Circa 1950 and nursing home circa 1970 Fresh Fields Management (WA) Pty Ltd. The property comprises a former residential dwelling being single storey originally constructed circa 1950 s, which has been extended and converted to an aged care facility circa 1970 s providing a 53 bed Aged Care facility. The number of beds has been reduced and is now operating with 46 beds. The allocated places are provided in 2 x one bed, 11 x two bed, 6 x three bed and one x four bed bedrooms. The facility also has a lounge area, outdoor courtyards, storage and service areas. One of the two bed rooms benefits from a private ensuite with all other rooms with shared facilities only. External improvements include a concrete driveway, on-site car parking, outdoor recreation areas, fencing and landscaped garden. Overall, the property presented in a dated, but well maintained condition with a reasonable quality of internal fitout commensurate with its age and usage. Page 12

206 Tuohy Nursing Home, 22 Morrison Road, Midlands, WA The subject properties are located on the north-eastern corner of Morrison Road and Poynton Avenue, with frontage to Byers Road and William Street, approximately 16 kilometres north east of the Perth Central Business District. Midland is an older established residential area comprising mainly older style residential dwellings. Tuohy Nursing Home, 22 Morrison Road, Midlands Description Constructed Circa 1965 Head/Sole Lessee Building Area 944m 2 Land Area 8,404m 2 Approved Places 48 An older style single level purpose built residential aged care facility, comprising 48 operational beds. There are also five adjoining development sites and one stand-alone future development site. Fresh Fields Management (WA) Pty Ltd. The property comprises a purpose built single storey aged care facility built circa The property is configured to provide 49 beds, however is currently operating as a 48 bed facility incorporating a mix of one, two, three and four bed bedrooms with shared bathrooms. In addition to the aged care facility there are five adjoining properties and one stand alone property for future expansion of the facility. Overall, the property presented in a dated, but well maintained condition with a reasonable quality of internal fitout commensurate with its age and usage. Page 13

207 MARKET COMMENTARY Over the past twelve months there has been a trend of firming market yields across all asset classes including private hospitals, medical centres and aged care facilities, albeit that over the last six months this compression of yields has somewhat stabilised. We believe that Australia s aging demographics, low interest rates, relatively long lease terms of assets and the emergence of new fund managers are underpinning strong investor interest for healthcare assets. Healthcare assets are tightly held especially the well located properties that have expansion potential. The IPD Healthcare Property Investment Index (the Index ) was launched in February 2012 and is designed to provide a measure of investment market performances for the healthcare property sector. It is the first healthcare property specific index in Australia and is comprised of investment data from five property owners Arena Investment Management, Australian Unity, Generation Healthcare REIT, Heathley Limited and Vital Healthcare Property Trust. The index tracks the investment performance of 90 healthcare assets (around $2.7 billion Australian as at June 2017). We believe that healthcare properties provide a compelling investment, noting the increasing demand for medical services, and an increasing reliance on the private sector to provide these services. Investment performance in the health service sector has been resilient to the economic conditions over recent years. The performance correlates with solid revenue growth over this period. On 30 August 2017, it was announced that the IPD Index average annualised total return for health care assets for the financial year ending June 2017 was 25.1%, which set a new record and is an increase from the June 2016 announcement of 22.9%. This positive healthcare result was in contrast to the overall property market, which suffered a slight decline to 11.9% in June 2017, from its previous return of 13.4% in June The following graphs and table demonstrates the various returns of each sector, with the healthcare property sector included within the Other category. (Source: Property Council of Australia website (September 2017)) Page 14

208 (Source: The Property Council / IPD Australian Property Index (AUD) document, prepared by MSCI) As stated within The Property Council/IPD Australia Quarterly Healthcare Property Index prepared by MSCI, dated June 2017, The sector delivered annualised income return of 7.2% and capital growth of 16.7%. Hospitals and medical centres returned 26.8% and 20.4% respectively and cap rates continued to firm by 80bps from 7.3% in June 2016 to 6.5% in June Page 15

209 Page 16 VALUATION OVERVIEW

210 Income $Millions Valuation Overview Langtree Avenue, Mildura VIC Key Data Property Langtree Avenue, Mildura VIC Description A modern two-storey medical centre ocupied by two tenants. NLA 1,608.00m² Car Parking 3 Bays Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income, Discounted Cashflow & Direct Comparison Approach Valuation $4,400,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 8.25% Terminal Rate Cash Flow Interval Monthly 7.75% 8.00% 8.25% Residual Sale Date August, 2028 Discount Rate 8.00% $4,495,625 $4,411,603 $4,332,673 Terminal Cap Rate 8.00% 8.25% $4,414,557 $4,344,400 $4,255,329 Adopted Market Rental Growth (pa) 3.00% 8.50% $4,335,355 $4,255,126 $4,179,759 Adopted CPI (avg pa) 2.34% Compound Growth in Terminal Value 2.96% Gross Residual Sale Price $5,818,453 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $4,592,031 Less: Acquisition Costs (5.7% of PV) $247,631 Value Based on DCF Approach $4,344,400 Capitalisation Approach Net Market Income $356,308 Sensitivity Table Capitalisation Rate 7.50% Cap Rate Value $/m² Capitalised Value $4,750, % $4,634,691 $2,882 Adjustments $279, % $4,470,871 $2,780 Valued Based on Market Capitalisatio $4,470, % $4,317,620 $2,685 Valuation Analysis Contract and Market Rental Income Summary Valuation $4,400,000 Contract Market Value Rate $2,736/m² Rental Income $373,213 $373,213 Initial Yield 8.10% Other Income $0 $0 Fully Leased Initial Yield 8.10% Recoverable Outgoings $90,864 $90,864 Equated Market Yield 7.61% Gross Income $464,077 $464,077 IRR 8.07% Total Outgoings $107,769 $107,769 Weighted average lease expiry - by area 2.29 Less Year 1 Incentives $0 $0 Weighted average lease expiry - by inco 2.30 Net Income $356,308 $356,308 Occupancy As Valued % Avg. capex spend over 10 years $73,046 p.a. Income Composition and Running Yield $1 $1 $1 $0 $0 $0 $0 $ Contracted Income Income Composition Speculative Income 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% NOI Total Cash Flow Page 17

211 Income $Millions Valuation Overview 574 Melton Highway, Sydenham VIC Key Data Property 574 Melton Highway, Sydenham VIC Description A modern two-storey single tenated medical centre. NLA m² Car Parking 30 Bays Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income, Discounted Cashflow & Direct Comparison Approach Valuation $3,700,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 7.25% Terminal Rate Cash Flow Interval Monthly 6.50% 6.75% 7.00% Residual Sale Date August, 2028 Discount Rate 7.00% $3,773,609 $3,685,203 $3,603,111 Terminal Cap Rate 6.75% 7.25% $3,702,171 $3,622,894 $3,535,606 Adopted Market Rental Growth (pa) 3.00% 7.50% $3,632,412 $3,548,032 $3,469,680 Adopted CPI (avg pa) 2.34% Compound Growth in Terminal Value 2.89% Gross Residual Sale Price $4,815,305 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $3,829,399 Less: Acquisition Costs (5.7% of PV) $206,505 Value Based on DCF Approach $3,622,894 Capitalisation Approach Net Market Income $242,301 Sensitivity Table Capitalisation Rate 6.25% Cap Rate Value $/m² Capitalised Value $3,876, % $3,876,437 $6,066 Adjustments $161, % $3,714,903 $5,814 Valued Based on Market Capitalisatio $3,714, % $3,565,795 $5,580 Valuation Analysis Contract and Market Rental Income Summary Valuation $3,700,000 Contract Market Value Rate $5,790/m² Rental Income $245,000 $245,000 Initial Yield 6.55% Other Income $0 $0 Fully Leased Initial Yield 6.55% Recoverable Outgoings $44,595 $44,595 Equated Market Yield 6.27% Gross Income $289,595 $289,595 IRR 6.97% Total Outgoings $47,294 $47,294 Weighted average lease expiry - by area 2.79 Less Year 1 Incentives $0 $0 Weighted average lease expiry - by inco 2.79 Net Income $242,301 $242,301 Occupancy As Valued % Avg. capex spend over 10 years $41,752 p.a. Income Composition and Running Yield $0 $0 $0 $0 $0 $0 $0 $0 $ Contracted Income Income Composition Speculative Income 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% NOI Total Cash Flow Page 18

212 Income $Millions Valuation Overview 196 Hall Street, Spotswood VIC Key Data Property 196 Hall Street, Spotswood VIC Description A modern two-storey single tenanted medical centre. NLA 1,136.00m² Car Parking 19 Bays Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income, Discounted Cashflow & Direct Comparison Approach Valuation $9,530,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 7.00% Terminal Rate Cash Flow Interval Monthly 6.50% 6.75% 7.00% Residual Sale Date August, 2028 Discount Rate 6.75% $9,923,648 $9,709,695 $9,511,024 Terminal Cap Rate 6.75% 7.00% $9,746,014 $9,559,679 $9,342,930 Adopted Market Rental Growth (pa) 3.00% 7.25% $9,572,519 $9,368,334 $9,178,734 Adopted CPI (avg pa) 2.34% Compound Growth in Terminal Value 1.75% Gross Residual Sale Price $11,375,190 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $10,104,580 Less: Acquisition Costs (5.7% of PV) $544,902 Value Based on DCF Approach $9,559,679 Capitalisation Approach Net Market Income $571,864 Sensitivity Table Capitalisation Rate 6.00% Cap Rate Value $/m² Capitalised Value $9,531, % $9,920,078 $8,732 Adjustments $25, % $9,505,683 $8,368 Valued Based on Market Capitalisatio $9,505, % $9,124,441 $8,032 Valuation Analysis Contract and Market Rental Income Summary Valuation $9,530,000 Contract Market Value Rate $8,389/m² Rental Income $593,351 $593,351 Initial Yield 6.00% Other Income $0 $0 Fully Leased Initial Yield 6.00% Recoverable Outgoings $126,481 $126,481 Equated Market Yield 5.98% Gross Income $719,832 $719,832 IRR 7.04% Total Outgoings $147,968 $147,968 Weighted average lease expiry - by area 6.84 Less Year 1 Incentives $0 $0 Weighted average lease expiry - by inco 6.84 Net Income $571,864 $571,864 Occupancy As Valued % Avg. capex spend over 10 years $24,382 p.a. Income Composition and Running Yield $1 Income Composition 10.0% $1 $1 $0 $0 $ Contracted Income Speculative Income 8.0% 6.0% 4.0% 2.0% 0.0% NOI Total Cash Flow Page 19

213 Valuation Overview Riverview Place, Murarrie QLD Key Data Property 'QML Head Office and Central Laboratory', Riverview Place, Murarrie QLD Laboratory, office and engineering/maintenance and Description NLA distribution and collection centre 10,005.00m² Car Parking 280 bays Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $43,300,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 7.25% 5.50% 6.00% 6.50% Cash Flow Interval Monthly 6.75% $48,487,912 $45,930,763 $43,767,022 Residual Sale Date August, 2028 Discount Rate 7.25% $46,653,474 $44,213,069 $42,148,112 Terminal Cap Rate 6.00% 7.75% $44,903,934 $42,574,437 $40,603,325 Adopted Rental Growth (pa) 3.00% Adopted CPI (pa) 2.30% Compound Growth in Terminal Value 2.51% Gross Residual Sale Price $56,676,763 (Net of Sales Costs at 0.8%) Total before Acquisition Costs $46,865,853 Less: Acquisition Costs (6% of PV) $2,652,785 Value Based on DCF Approach $44,213,070 Capitalisation Approach Net Market Income $2,652,833 Sensitivity Table Capitalisation Rate 5.50% Cap Rate Value $/m2 Capitalised Value $48,233, % $46,193,946 $4,617 Adjustments $4,336, % $43,897,121 $4,388 Valued Based on Market Capitalisation $43,897, % $41,800,020 $4,178 Valuation Analysis Contract and Market Rental Income Summary Valuation $43,300,000 Contract Market Value Rate $4,328/m² Rental Income $2,587,553 $2,684,586 Initial Yield 5.90% Other Income $0 $0 Fully Leased Initial Yield 5.90% Recoverable Outgoings $316,425 $316,425 Equated Market Yield 5.42% Gross Income $2,903,978 $3,001,011 IRR 7.53% Total Outgoings $348,178 $348,178 Weighted average lease expiry - by area Less Year 1 Incentives $0 $0 Weighted average lease expiry - by incom Net Income $2,555,800 $2,652,833 Occupancy As Valued % Avg. capex spend over 10 years $314,256 p.a. Income Composition and Running Yield $4.5 mil $4.0 mil Speculative Income Contracted Income 9.00% 8.00% $3.5 mil 7.00% $3.0 mil 6.00% $2.5 mil $2.0 mil $1.5 mil $1.0 mil $0.5 mil $0.0 mil % 4.00% 3.00% 2.00% 1.00% 0.00% NOI Page 20

214 Valuation Overview 32 Morrow Street, Taringa QLD Key Data Property 32 Morrow Street, Taringa, Qld Description Day hospital, medical suites, café, child care short-stay accommodation, sky homes NLA 8,336.00m² Car Parking 179 Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation (Adopted Gross) $62,700,000 Exclusive of GS (Incentives paid out) Value of Incentives $3,093,528 Exclusive of GST Valuation (Adopted Net) $59,600,000 Exclusive of GS (Incentives to be paid) DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 7.50% 6.00% 6.50% 7.00% Cash Flow Interval Monthly 7.00% $69,938,149 $66,646,083 $63,824,311 Residual Sale Date August, 2028 Discount Rate 7.50% $67,445,307 $64,303,195 $61,609,955 Terminal Cap Rate 6.50% 8.00% $65,067,223 $62,067,587 $59,496,468 Adopted Rental Growth (pa) 3.32% Adopted CPI (pa) 2.32% Compound Growth in Terminal Value 2.39% Gross Residual Sale Price $81,436,087 (Net of Sales Costs at 1.5%) Total before Acquisition Costs $68,161,387 Less: Acquisition Costs (6% of PV) $3,858,191 Value Based on DCF Approach $64,303,200 Capitalisation Approach Net Market Income $3,859,779 Sensitivity Table Capitalisation Rate 6.25% Cap Rate Value $/m2 Capitalised Value $61,756, % $64,329,650 $7,717 Adjustments $0 6.25% $61,756,460 $7,408 Valued Based on Market Capitalisation $61,756, % $59,381,220 $7,123 Valuation Analysis Contract and Market Rental Income Summary Valuation $62,700,000 Contract Market Value Rate $7,522/m² Rental Income $3,859,779 $3,859,779 Initial Yield 6.16% Other Income $0 $0 Fully Leased Initial Yield 6.16% Recoverable Outgoings $793,280 $793,280 Equated Market Yield 6.16% Gross Income $4,653,059 $4,653,059 IRR 7.86% Total Outgoings $793,280 $793,280 Weighted average lease expiry - by area Less Year 1 Incentives $0 $0 Weighted average lease expiry - by incom Net Income $3,859,779 $3,859,779 Occupancy As Valued % Avg. capex spend over 10 years $34,352 p.a. Income Composition and Running Yield $6.0 mil $5.0 mil Contracted Income Speculative Income 8.00% 7.00% 6.00% $4.0 mil 5.00% $3.0 mil $2.0 mil $1.0 mil $0.0 mil % 3.00% 2.00% 1.00% 0.00% NOI Page 21

215 Valuation Overview Christies Beach Residential Care Services, SA Key Data Property Christies Beach Residential Care Services, Christies Beach, SA Description Residential Aged Care Facility Number Places 98 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $20,000,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 9.00% 7.75% 8.00% 8.25% Cash Flow Interval Monthly 8.75% $20,752,030 $20,426,611 $20,120,915 Residual Sale Date August, 2028 Discount Rate 9.00% $20,407,602 $20,163,929 $19,790,813 Terminal Cap Rate 8.00% 9.25% $20,070,867 $19,760,038 $19,468,048 Adopted Rental Growth (pa) 2.75% Adopted CPI (pa) 2.25% Compound Growth in Terminal Value 1.88% Gross Residual Sale Price $24,282,831 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $20,768,847 Less: Acquisition Costs (3% of PV) $604,918 Value Based on DCF Approach $20,163,929 Capitalisation Approach Net Market Income $1,482,055 Sensitivity Table Capitalisation Rate 7.50% Cap Rate Value $/m 2 Capitalised Value $19,760, % $20,442,145 $208,593 Adjustments $0 7.50% $19,760,740 $201,640 Value Based on Market Capitalisation $19,760, % $19,123,297 $195,136 Valuation Analysis Contract and Market Rental Income Summary Valuation $20,000,000 Contract Market Value Rate $204,082/Bed Rental Income $1,482,055 $1,482,055 Initial Yield 7.41% Other Income $0 $0 Fully Leased Initial Yield 7.41% Recoverable Outgoings $0 $0 Equated Market Yield 7.41% Gross Income $1,482,055 $1,482,055 IRR 9.12% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by income years Net Income $1,482,055 $1,482,055 Occupancy As Valued 100% Avg. capex spend over 10 years $ 111,925 p.a. Income Composition and Running Yield $2.5 mil Contracted Income Speculative Income 12.0% $2.0 mil 10.0% $1.5 mil 8.0% 6.0% $1.0 mil 4.0% $0.5 mil 2.0% NOI Total Cash Flow $0.0 mil % Page 22

216 Valuation Overview The Churchill Retreat, 470 Churchill Road, Kilburn, SA Key Data Property The Churchill Retreat, Kilburn, SA Description Residential Aged Care Facility Number Places 54 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $9,100,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 9.00% 7.75% 8.00% 8.25% Cash Flow Interval Monthly 8.75% $9,421,119 $9,270,735 $9,129,466 Residual Sale Date August, 2028 Discount Rate 9.00% $9,264,083 $9,150,398 $8,979,050 Terminal Cap Rate 8.00% 9.25% $9,110,563 $8,966,921 $8,831,986 Adopted Rental Growth (pa) 2.75% Adopted CPI (pa) 2.25% Compound Growth in Terminal Value 2.03% Gross Residual Sale Price $11,192,040 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $9,424,910 Less: Acquisition Costs (3% of PV) $274,512 Value Based on DCF Approach $9,150,398 Capitalisation Approach Net Market Income $684,922 Sensitivity Table Capitalisation Rate 7.50% Cap Rate Value $/m 2 Capitalised Value $9,132, % $9,447,198 $174,948 Adjustments $0 7.50% $9,132,292 $169,117 Value Based on Market Capitalisation $9,132, % $8,837,702 $163,661 Valuation Analysis Contract and Market Rental Income Summary Valuation $9,100,000 Contract Market Value Rate $168,519/Bed Rental Income $684,922 $684,922 Initial Yield 7.53% Other Income $0 $0 Fully Leased Initial Yield 7.53% Recoverable Outgoings $0 $0 Equated Market Yield 7.53% Gross Income $684,922 $684,922 IRR 9.08% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by income years Net Income $684,922 $684,922 Occupancy As Valued 100% Avg. capex spend over 10 years $ 77,247 p.a. Income Composition and Running Yield $1.0 mil Contracted Income Speculative Income $0.9 mil $0.8 mil $0.7 mil $0.6 mil $0.5 mil $0.4 mil $0.3 mil $0.2 mil $0.1 mil $0.0 mil % 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% NOI Total Cash Flow This information in this summary is derived from and should be read in conjunction with the full text of the accompanying report. Page 23

217 Valuation Overview Hahndorf Residential Care Services, SA Key Data Property Hahndorf Residential Care Services, Hahndorf, SA Description Residential Aged Care Facility Number Places 101 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $14,500,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 9.00% 7.75% 8.00% 8.25% Cash Flow Interval Monthly 8.75% $15,094,766 $14,858,375 $14,636,311 Residual Sale Date August, 2028 Discount Rate 9.00% $14,844,357 $14,667,505 $14,396,309 Terminal Cap Rate 8.00% 9.25% $14,599,539 $14,373,747 $14,161,639 Adopted Rental Growth (pa) 2.75% Adopted CPI (pa) 2.25% Compound Growth in Terminal Value 1.86% Gross Residual Sale Price $17,639,529 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $15,107,531 Less: Acquisition Costs (3% of PV) $440,025 Value Based on DCF Approach $14,667,505 Capitalisation Approach Net Market Income $1,076,594 Sensitivity Table Capitalisation Rate 7.50% Cap Rate Value $/m 2 Capitalised Value $14,354, % $14,849,578 $147,026 Adjustments $0 7.50% $14,354,592 $142,125 Value Based on Market Capitalisation $14,354, % $13,891,541 $137,540 Valuation Analysis Contract and Market Rental Income Summary Valuation $14,500,000 Contract Market Value Rate $143,564/Bed Rental Income $1,076,594 $1,076,594 Initial Yield 7.42% Other Income $0 $0 Fully Leased Initial Yield 7.42% Recoverable Outgoings $0 $0 Equated Market Yield 7.42% Gross Income $1,076,594 $1,076,594 IRR 9.17% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by income years Net Income $1,076,594 $1,076,594 Occupancy As Valued 100% Avg. capex spend over 10 years $ 78,177 p.a. Income Composition and Running Yield $1.6 mil $1.4 mil $1.2 mil Contracted Income Speculative Income 12.0% 10.0% $1.0 mil 8.0% $0.8 mil 6.0% $0.6 mil $0.4 mil 4.0% $0.2 mil 2.0% NOI Total Cash Flow $0.0 mil % This information in this summary is derived from and should be read in conjunction with the full text of the accompanying report. Page 24

218 Valuation Overview Klemzig Residential Care Services, SA Key Data Property Klemzig Residential Care Services, Klemzig, SA Description Residential Aged Care Facility Number Places 90 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $15,300,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 9.25% 8.00% 8.25% 8.50% Cash Flow Interval Monthly 9.00% $15,877,047 $15,640,474 $15,417,817 Residual Sale Date August, 2028 Discount Rate 9.25% $15,616,861 $15,445,843 $15,168,032 Terminal Cap Rate 8.25% 9.50% $15,362,453 $15,136,462 $14,923,766 Adopted Rental Growth (pa) 2.75% Adopted CPI (pa) 2.25% Compound Growth in Terminal Value 1.88% Gross Residual Sale Price $18,610,345 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $15,909,219 Less: Acquisition Costs (3% of PV) $463,375 Value Based on DCF Approach $15,445,843 Capitalisation Approach Net Market Income $1,173,613 Sensitivity Table Capitalisation Rate 7.75% Cap Rate Value $/m 2 Capitalised Value $15,143, % $15,648,176 $173,869 Adjustments $0 7.75% $15,143,396 $168,260 Value Based on Market Capitalisation $15,143, % $14,670,165 $163,002 Valuation Analysis Contract and Market Rental Income Summary Valuation $15,300,000 Contract Market Value Rate $170,000/Bed Rental Income $1,173,613 $1,173,613 Initial Yield 7.67% Other Income $0 $0 Fully Leased Initial Yield 7.67% Recoverable Outgoings $0 $0 Equated Market Yield 7.67% Gross Income $1,173,613 $1,173,613 IRR 9.40% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by income years Net Income $1,173,613 $1,173,613 Occupancy As Valued 100% Avg. capex spend over 10 years $ 92,654 p.a. Income Composition and Running Yield $1.8 mil $1.6 mil $1.4 mil Contracted Income Speculative Income 12.0% 10.0% $1.2 mil 8.0% $1.0 mil $0.8 mil 6.0% $0.6 mil 4.0% $0.4 mil $0.2 mil 2.0% NOI Total Cash Flow $0.0 mil % This information in this summary is derived from and should be read in conjunction with the full text of the accompanying report. Page 25

219 Valuation Overview Rose Court Aged Care Facility, SA Key Data Property Rose Court Aged Care Facility, Gilles Plains, SA Description Residential Aged Care Facility Number Places 54 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $8,250,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 9.00% 7.75% 8.00% 8.25% Cash Flow Interval Monthly 8.75% $8,434,655 $8,298,583 $8,170,760 Residual Sale Date August, 2028 Discount Rate 9.00% $8,294,321 $8,191,354 $8,036,418 Terminal Cap Rate 8.00% 9.25% $8,157,135 $8,027,163 $7,905,072 Adopted Rental Growth (pa) 2.75% Adopted CPI (pa) 2.25% Compound Growth in Terminal Value 2.07% Gross Residual Sale Price $10,057,382 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $8,437,094 Less: Acquisition Costs (3% of PV) $245,741 Value Based on DCF Approach $8,191,354 Capitalisation Approach Net Market Income $619,949 Sensitivity Table Capitalisation Rate 7.50% Cap Rate Value $/m 2 Capitalised Value $8,265, % $8,551,026 $158,352 Adjustments $0 7.50% $8,265,992 $153,074 Value Based on Market Capitalisation $8,265, % $7,999,347 $148,136 Valuation Analysis Contract and Market Rental Income Summary Valuation $8,250,000 Contract Market Value Rate $152,778/Bed Rental Income $619,949 $619,949 Initial Yield 7.51% Other Income $0 $0 Fully Leased Initial Yield 7.51% Recoverable Outgoings $0 $0 Equated Market Yield 7.51% Gross Income $619,949 $619,949 IRR 8.89% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by income years Net Income $619,949 $619,949 Occupancy As Valued 100% Avg. capex spend over 10 years $ 82,091 p.a. Income Composition and Running Yield $0.9 mil $0.8 mil $0.7 mil Contracted Income Speculative Income 12.0% 10.0% $0.6 mil 8.0% $0.5 mil $0.4 mil 6.0% $0.3 mil 4.0% $0.2 mil $0.1 mil 2.0% NOI Total Cash Flow $0.0 mil % This information in this summary is derived from and should be read in conjunction with the full text of the accompanying report. Page 26

220 Valuation Overview Shangri-La Nursing Home, 107 Carrington Street, Hurstville, NSW Key Data Property Shangri-La Nursing Home, 107 Carrington Street, Hurstville, New South Wales Description Residential Aged Care Facility Number Places 46 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $7,500,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 8.50% 7.75% 8.00% 8.25% Cash Flow Interval Monthly 8.25% $7,820,749 $7,688,177 $7,580,420 Residual Sale Date August, 2028 Discount Rate 8.50% $7,688,111 $7,583,672 $7,453,262 Terminal Cap Rate 8.00% 8.75% $7,558,445 $7,431,844 $7,328,940 Adopted Rental Growth (pa) 2.28% Adopted CPI (pa) 2.28% Compound Growth in Terminal Value 1.77% Gross Residual Sale Price $9,041,518 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $8,015,942 Less: Acquisition Costs (5.7% of PV) $432,269 Value Based on DCF Approach $7,583,672 Capitalisation Approach Net Market Income $577,500 Sensitivity Table Capitalisation Rate 7.70% Cap Rate Value $/Bed Capitalised Value $7,500, % $7,545,931 $164,042 Adjustments -$205, % $7,294,253 $158,571 Value Based on Market Capitalisation $7,294, % $7,058,404 $153,444 Valuation Analysis Contract and Market Rental Income Summary Valuation $7,500,000 Contract Market Value Rate $163,043/Bed Rental Income $577,500 $577,500 Initial Yield 7.70% Other Income $0 $0 Fully Leased Initial Yield 7.70% Recoverable Outgoings $0 $0 Equated Market Yield 7.49% Gross Income $577,500 $577,500 IRR 8.67% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by incom years Net Income $577,500 $577,500 Occupancy As Valued 100% Avg. capex spend over 10 years $ 9,287 p.a. Income Composition and Running Yield $0.8 mil $0.7 mil Contracted Income Speculative Income 10.0% $0.6 mil 8.0% $0.5 mil $0.4 mil 6.0% $0.3 mil 4.0% $0.2 mil $0.1 mil 2.0% NOI Total Cash Flow $0.0 mil % Page 27

221 Valuation Overview Tuohy Nursing Home, 22 Morrison Road, Midland, WA Key Data Property Tuohy Nursing Home, 22 Morrison Road, Midland, Western Australia Description Residential Aged Care Facility Number Places 48 Beds Car Parking Not applicable Prepared For Heathley Asset Management Limited Purpose Financial Reporting & First Mortgage Date of Valuation 1 September 2018 Valuation Approach Capitalisation of Net Income and Discounted Cashflow Valuation $12,450,000 Exclusive of GST DCF Approach PV Calculation Date September, 2018 Present Value Matrix Terminal Rate Discount Rate 8.75% 8.00% 8.25% 8.50% Cash Flow Interval Monthly 8.50% $12,270,933 $12,618,721 $11,951,207 Residual Sale Date August, 2028 Discount Rate 8.75% $12,075,835 $12,464,203 $11,763,384 Terminal Cap Rate 8.25% 9.00% $11,885,020 $12,217,180 $11,579,661 Adopted Rental Growth (pa) 2.21% Adopted CPI (pa) 2.21% Compound Growth in Terminal Value 1.11% Gross Residual Sale Price $13,914,248 (Net of Sales Costs at 1.0%) Total before Acquisition Costs $13,131,038 Less: Acquisition Costs (5.35% of PV) $666,835 Value Based on DCF Approach $12,464,203 Capitalisation Approach Net Market Income $834,753 Sensitivity Table Capitalisation Rate 7.75% Cap Rate Value $/bed Capitalised Value $10,771, % $12,743,001 $265,479 Adjustments $1,612, % $12,383,968 $257,999 Value Based on Market Capitalisation $12,383, % $12,047,374 $250,987 Valuation Analysis Contract and Market Rental Income Summary Valuation $12,450,000 Contract Market Value Rate $259,375/Bed Rental Income $554,803 $554,803 Initial Yield 7.75% Other Income $410,072 $279,950 Fully Leased Initial Yield 7.75% Recoverable Outgoings $0 $0 Equated Market Yield 7.70% Gross Income $964,875 $834,753 IRR 8.77% Total Outgoings $0 $0 Weighted average lease expiry - by area years Less Year 1 Incentives $0 $0 Weighted average lease expiry - by incom years Net Income $964,875 $834,753 Occupancy As Valued 100% Avg. capex spend over 10 years $ 18,468 p.a. Income Composition and Running Yield $1.4 mil $1.2 mil $1.0 mil $0.8 mil $0.6 mil Contracted Income Speculative Income 12.0% 10.0% 8.0% 6.0% $0.4 mil 4.0% $0.2 mil 2.0% NOI Total Cash Flow $0.0 mil % Page 28

222 QUALIFICATIONS m3property has been engaged by Heathley Asset Management Limited (HAML) to provide valuations of the properties. We consent to the inclusion of this summary letter in the PDS on the following conditions: This letter is a summary of the valuations only and has not been prepared for the purpose of assessing the Property as an investment opportunity. m3property has not been involved in the preparation of the PDS nor have we had regard to any material contained in the PDS. This letter does not take into account any matters concerning the investment opportunity contained in the PDS. m3property has not operated under an Australian financial services licence in providing this letter and makes no representation or recommendation to a prospective investor in relation to the valuation of the properties or the investment opportunity contained in the PDS. The formal valuations and this letter are strictly limited to the matters contained within them and are not to be read as extending, by implication or otherwise, to any other matter in the PDS. Without limitation to the above, no liability is accepted for any loss, harm, cost or damage (including special, consequential or economic harm or loss) suffered as a consequence of fluctuations in the real estate market subsequent to the date of valuation. Neither this letter nor the full valuation reports may be reproduced in whole or in part without the prior written approval of m3property. m3property has prepared this letter solely in reliance upon the financial and other information (including market information and third party information) provided by the instructing party and has assumed that information is accurate, reliable and complete. We confirm that we have not tested the information in that respect. This summary letter is to be read in conjunction with our formal valuation reports of 1 September 2018 and is subject to the assumptions, limitations and disclaimers contained therein. We refer the reader to HAML to obtain a copy of the full reports. m3property has received a fee from HAML for the preparation of the valuation reports and this summary letter. m3property are participants in the Australian Property Institute (API) limited liability scheme. This scheme has been approved under professional Standards legislation and is compulsory for all API members. Page 29

223 VALUATION SUMMARY Property Address State Adopted Values Valuer 87 Langtree Avenue, Mildura VIC $4,400,000 Julian Gilbert 574 Melton Highway, Sydenham VIC $3,700,000 Julian Gilbert 196 Hall Street, Spotswood VIC $9,530,000 Julian Gilbert Riverview Place, Murarrie QLD $43,300,000 Ross Perkins 32 Morrow Street, Taringa QLD $59,600,000 Ross Perkins 50 Gulfview Road, Christies Beach SA $20,000,000 Simon Hickin 470 Churchill Road, Kilburn SA $9,100,000 Simon Hickin 1A Main Street, Hahndorf SA $14,500,000 Simon Hickin Fox Avenue, Klemzig SA $15,300,000 Simon Hickin 3-5 Grant Avenue, Gilles Plains SA $8,250,000 Simon Hickin Shangri-La, 134 Carrington Avenue, Hurstville NSW $7,500,000 Laila Burnet 22 Morrison Road, Midland WA $12,450,000 Laila Burnet Total (exclusive of GST) $207,630,000 We trust that this advice meets your requirements, however if you have any concerns or comments please do not hesitate to contact our office. Yours sincerely m3property Strategists Laila Burnet National Director Julian Gilbert Associate Director VIC Ross Perkins Managing Director QLD Simon Hickin Director SA Page 30

224 10. Taxation This page intentionally left blank 104

225 The Directors Heathley Asset Management Limited As Responsible Entity for the trusts comprising the Heathley Healthcare Group Level 7, 56 Clarence Street SYDNEY NSW October 2018 Heathley Healthcare Group (HHG) Taxation Report Dear Directors, We have prepared this letter to provide a broad summary of the Australian income tax considerations for Unitholders in HHG for the purpose of inclusion in the Product Disclosure Statement (PDS) to be dated on or about 18 September The comments in this letter are based on the relevant taxation laws in the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Income Tax Rates Act 1986, A New Tax System (Goods & Services Tax) Act 1990, the Taxation Administration Act 1953 and relevant stamp duty legislation (referred to collectively herein as the Australian Tax Act ) as at the date of this PDS and the associated administrative instruments, except where otherwise indicated. The taxation information provided below is intended only as a brief guide. The information applies only to Australian resident Unitholders who hold their units on capital account as a result of the Restructure. This letter does not cover the taxation implications for non-resident Unitholders, or Unitholders who hold their investments on revenue account or as trading stock, or who are exempt from Australian income tax, or are subject to the Taxation of Financial Arrangements (TOFA) rules in Division 230 of the Australian Tax Act. The tax consequences of participating in the Restructure will vary depending on your circumstances and the jurisdiction in which you are located. It is important that you consult with your professional tax adviser regarding your particular circumstances. This summary also does not address the tax consequences of participating in the Restructure for nonresidents of Australia under the laws of other jurisdictions. Non-resident unitholders should obtain tax advice specific to their jurisdiction before participating in the Restructure. Australian taxation laws are complex and subject to change as is their interpretation by the courts, the ATO or the Office of State Revenues (OSRs). We have not sought to have our advice ruled upon by the ATO or OSRs and therefore there is a risk that the ATO or the OSRs may not agree with our comments. The information contained in this letter does not constitute "financial product advice" within the meaning of the Corporations Act 2001 (Cth) (Corporations Act). The PricewaterhouseCoopers Partnership, which is providing this letter, is not licensed to provide financial product advice under the Corporations Act. To the extent that this letter contains any information about a "financial product", PricewaterhouseCoopers, ABN One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000 T: , F: , Liability limited by a scheme approved under Professional Standards Legislation.

226 within the meaning of the Corporations Act, taxation is only one of the matters that must be considered when making a decision about the relevant financial product. This summary has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient of the PDS. Accordingly, any recipient should, before acting on this material, consider taking independent financial advice from a person who is licensed to provide financial product advice under the Corporations Act. Defined terms used in this letter have the same meaning as they do in the PDS. Tax implications of Restructure Distribution If the Restructure is approved by Unitholders of the Head Trusts and Sub Trusts, a Restructure Distribution will be declared by HAML as the responsible entity of the Head Trusts and HKPF32. The Restructure Distribution is payable in cash to Unitholders listed on the unit registers of the Head Trusts and HKPF32 as at the Distribution Record Date. The Restructure Distribution is expected to be paid to Unitholders just prior to the Restructure being implemented. The Restructure Distribution is payable in respect of the period commencing at the end of the last distribution period of the respective Head Trust and HKPF32 and ending on the Restructure Date. The Restructure Distribution shall be made in accordance with the terms of the relevant trust deed of the Head Trust and HKPF32. On the basis that the Head trusts and HKPF32 are AMITs, each Unitholder will be taxed on their share of the taxable components of the Restructure Distribution which is attributed to them in accordance with the rules of the AMIT regime. Unitholders will be advised of the income tax implications of the Restructure Distribution in their AMMA Statement for the year ending 30 June Tax implications of electing to dispose of units under the cash offer or redemption offer Capital gain or capital loss upon disposal of Units Where a Unitholder holds their Units on capital account, the disposal of the Units pursuant to the Cash Offer or Redemption Offer will have CGT implications for the Unitholder. Broadly, the Unitholder must include any realised capital gain or loss on the disposal of their Units in the calculation of their net capital gain or loss for the year. The date of disposal for a unitholder who accepts the Cash Offer or Redemption Offer to dispose of their Units should be the Restructure Date. A Unitholder will derive a capital gain on the disposal of their Units to the extent that the capital proceeds on disposal exceed the CGT cost base of the Units. A Unitholder will incur a capital loss on the disposal of the Units to the extent that the capital proceeds on disposal are less than the CGT reduced cost base of the Units. The capital proceeds in respect of the disposal of the Units will be the amount received under the Cash Offer or Redemption Offer. 2

227 The CGT cost base of each Unit will include the amount paid by each Unitholder to acquire their Units, together with any capital costs of acquisition or disposal. Further, the cost base of each Unit is reduced by any tax deferred distributions or returns of capital made by the Head Trust or Sub Trust whilst each Unitholder held their Units. All capital gains and capital losses arising in a year (including capital gains and losses arising from the disposal of Units), including distributions of capital gains, are added together to determine whether a Unitholder has derived a net capital gain or incurred a net capital loss in a particular year. If a Unitholder derives an overall net capital gain in a year, this amount is, subject to the comments below, included in the Unitholder s assessable income. If a Unitholder incurs a net capital loss in a year, this amount is carried forward and is available to offset capital gains derived in subsequent years. If the Unitholder (being an individual) has held the Units for 12 months or more at the time of disposal and there is a net capital gain, a discount factor of 50% may be available to that individual. If the Unitholder is a complying superannuation entity the discount factor that may be available is 33 1/3 %. The CGT discount is not available to companies. Note that any available capital losses will be deducted from the gross capital gain before the CGT discount is applied. Tax implications of electing not to dispose of units under the cash offer or redemption offer Electing not to dispose of Units under the Cash Offer If a Unitholder in HKPF32 chooses to participate in the Restructure, this will involve the preliminary step of exchanging their Units in HKPF32 for Units in HDMF1. If a Unitholder in HKPF32 would otherwise realise a capital gain as a result of the exchange, the Unitholder can elect to defer the gain by choosing rollover relief. The effect of the rollover election is that any capital gain is disregarded, and the cost base of Units received in HDMF1 is the same as the cost base of the original Units held in HKPF32. For the purposes of the CGT discount, the 12 month period will be calculated from the original acquisition date of the units in HKPF32. However, to the extent that new interests are acquired in HDMF2, HACPF1, and HDFT as a result of the Restructure, the 12 month period will be calculated from the date of acquisition of those interests i.e. as at the Restructure Date. If a Unitholder in HKPF32 chooses to participate in the Restructure but realises a capital loss as a result of exchanging their Units in HKPF32 for Units in HDMF1, their cost base in the Units in HDMF1 will be lower than the cost base of their original Units in HKPF32. For the purposes of the CGT discount, the 12 month period will be calculated from the date of acquisition of their Units in HDMF1 as at the Restructure Date. As noted above, where new interests are acquired in HDMF2, HACPF1, and HDFT as a result of the Restructure, the 12 month period will be calculated from the date of acquisition of those interests at the Restructure Date. No disposal of Units in the Head Trusts The steps involved in implementing the Restructure are such that it should be possible for Unitholders 3

228 not to recognise any capital gain as a result of electing not to dispose of any Units currently held in the Head Trusts (and in the case of Unitholders in HKPF32, their Units in HDMF1 received on exchange). This is because under the implementation steps, Unitholders will not dispose of any of their original Units in the Head Trusts (and in the case of Unitholders in HKPF32, their Units in HDMF1 received on exchange) but will rather receive a return of capital that will then be applied to acquire Units in the other entities comprising the Stapled Group. Subsequent disposal of Stapled Securities The subsequent disposal of Stapled Securities by the former Unitholders will broadly have similar tax outcomes to the disposal of their Units (refer to comments above). Broadly, the former Unitholder must include any realised capital gain or loss on the disposal of their Stapled Securities in the calculation of their net capital gain or loss for the year. The disposal of a Stapled Security will involve the disposal of a number of separate assets, being an interest in each entity comprising the Stapled Group. The capital proceeds received on the disposal of a Stapled Security must be apportioned between the underlying units on a reasonable basis. One basis of apportionment is to use the relative net asset value (NAV) of each trust. The NAV of each trust will be provided on HAML s website. The CGT cost base of the Stapled Security must be allocated to each underlying unit. For the components that are acquired under the Restructure (i.e. not the original units in the relevant Head Trust), the cost base will be based upon the consideration paid to acquire that component. For the original Units in the relevant Head Trust, the cost base will be equal to the Unitholder s existing cost base reduced by the return of capital amount. HAML will advise Unitholders of the amount paid for the components acquired under the Restructure and the return of capital amount upon completion of the Restructure. For the purpose of the CGT discount concession, the treatment will also be different for the original Units in the relevant Head Trust and the new interests acquired under the Restructure. For the original Units, the 12 month period will be calculated from the original acquisition date whereas for the new interests acquired under the Restructure, the 12 month period will be calculated from the date of acquisition of those interests, and not from the date of acquisition of the original Units in the relevant Head Trust. Tax implications under both scenarios Goods and Services Tax No GST should be payable by Unitholders in respect of the transactions outlined above. The acquisition and disposal of Units in the Sub Trusts, Head Trusts and Stapled Securities are not subject to GST. Stamp Duty No Australian stamp duty should be payable by Unitholders in respect of the disposal of their Units in the Sub Trusts or Head Trusts or acquisition of Stapled Securities pursuant to the Restructure. 4

229 Yours faithfully, Joshua Cardwell Partner PricewaterhouseCoopers 5