How is my Secured Income Notes investment secured?
The Secured Income Notes are registered, secured debt obligations of the Capital Prudential Diversified Development Fund Pty Ltd (Trustee) with limited recourse to the Capital Prudential Diversified Development Fund (CPDDF) assets by way of a first-ranking General Security Deed (GSD), including 100% ownership of the DevCo Unit Trusts.
CP Note Security Holder Pty Ltd ACN 658 854 221 (Security Trustee) has been appointed as the Security Trustee of the CPDDF in a Security Trust Deed and holds the benefit of security under the General Security Deed on behalf of the Secured Income Noteholders. As such, the development profit generated by each DevCo Unit Trust (net of senior debt repayments) is distributed to the CPDDF where the assets are pooled to secure the Secured Income Notes.
The advantage of this security structure is that the noteholders’ investments are secured by a diverse pool of development assets (as opposed to being exposed to a single property development). The investors have the certainty of a fixed interest return and are not exposed to the upside or downside of the development risks.
Is there alignment between Capital Prudential and Noteholder interests?
Yes. Capital Prudential derives its revenue from the excess profit of the CPDDF, which provides an extremely strong alignment of interests between Noteholders and Capital Prudential. Capital Prudential Pty Ltd, as the Trust Manager, only receives a distribution from the CPDDF once noteholder obligations are paid and unitholder interest and other internal liquidity thresholds are met. Our success is, therefore, dependent on driving profitable developments, resulting in increased security for noteholders.
How are the property developments ‘de-risked’?
Our sustained success results from our investment discipline in selecting each asset for origination through detailed due diligence, negotiations, structuring, establishing pre-investment terms and overall project assessment using our proprietary feasibility model in addition to actively managing our diversified portfolio, including maintenance of strong financial controls, throughout each assets lifetime. At Capital Prudential, we call this process ‘de-risking’.
Capital Prudential Pty Ltd identifies the assets and uses it owns balance sheet to fund all pre-settlement expenses. Once identified, every asset is subject to a robust and detailed feasibility assessment which involves proprietary modelling and analysis to calculate a forecast Total Development Profit which is then measured against target investment criteria. For assets that meet or exceed the target investment criteria, a proposal is prepared for review and approval by the CP Board.
The ‘de-risking’ process begins once an asset development is approved. The purchase is conditional based upon several key terms, including:
- Environmental risk assessment and analysis.
- Planning and development application approvals.
- Independent valuations.
- Securing long-term lease agreements (commercial properties) or meeting pre-sales targets (residential developments).
- Engaging pre-qualified service providers.
Only when the ‘de-risking’ is complete, does the unconditional purchase occur. A special purpose vehicle (SPV) is established to purchase the asset. At settlement, the SPV re-pays pre-settlement expenses incurred by Capital Prudential Pty Ltd. The SPV is majority-owned and controlled by Capital Prudential Diversified Development Fund who manage the construction and development process through to completion and asset sale.
Capital Prudential is focussed on ‘de-risking’ at a portfolio level by ensuring:
- There is a long pipeline of developments to balance the peaks and troughs.
- Development duration is short (portfolio average 18-months) to realise profit, manage cashflow and provide liquidity.
- Diversification by geography, asset type, and builder.
- Participating in highly liquid asset markets.
Property is developed with the intention to sell versus buy and hold. Accordingly, the strategy is highly focussed on mitigating building risk, fixing building prices, minimising development time and maximising sales price reliability for each development.
What is a ‘Wholesale Client’?
An investment in the Secured Income Notes is only available to Wholesale Clients, which is a term defined under section 761G of the Corporations Act 2001 (Cth) (Corporations Act).
In summary, you must satisfy at least one of the following criteria to be eligible to invest:
(a) apply for Secured Income Notes with an aggregate value of at least $500,000;
(b) have net assets of at least $2,500,000;
(c) have gross income for each of the last two financial years of at least $250,000 per year; or
(d) be a “professional investor” as defined in section 9 of the Corporations Act.
For full details, please refer to the Corporations Act and/or speak to your accountant.
Wholesale Certificate Template that may be signed by a Qualified Accountant as evidence of Wholesale Client status.
