quantum real estate opportunity fund · senior debt to be secured before the equity investment is...

Q U A N T U M R E A L E S T A T E O P P O R T U N I T Y F U N D

OCTOBER 2010

Strictly Confidential

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Certain information contained herein (including certain forward-looking statements and economic and market information) has been obtained from published sources and/or prepared by other parties, which in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, neither the Manager, its partners and affiliates nor any other person assumes any responsibility for the accuracy or completeness of such information.

Quantum has made every reasonable effort to ensure the information provided is correct, but Quantum makes no representation nor any warranty as to whether the information is accurate, complete or up to date. To the extent permitted by law, Quantum accepts no responsibility for any errors or misstatements, negligent or otherwise. The information provided may be based on assumptions or market conditions and may change without notice.

This information has been prepared without taking into account your objectives, financial situation or needs. Your position may differ and you should seek independent tax advice. Investors are urged to consult with their own advisors with respect to legal, tax, regulatory, financial and accounting consequences of their investment in the property.

DISCLAIMER


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Clearly defined Fund Strategy

Take advantage of dislocated debt markets in Australia.

Invest debt and equity with established developers, in approved developments ready to commence.

Forecast Gross IRR of 25%.

Opportunistic returns whilst targeting 30% of the funds returns to be secured through coupon income.

Short investment term per investment of 18 months to 2 years.

Experienced Local Manager

Local manager with 25 years experience in funds management and development.

Proven track record in the development and or approval for 1000+ apartments.

Strong Corporate Governance. Fully licensed by ASIC to manage MIT.

Rigorous underwriting process from acquisition to disposal.

INVESTMENT HIGHLIGHTS


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1. EXECUTIVE SUMMARY

2. MARKET OPPORTUNITY

3. INVESTMENT STRATEGY

4. THE MANAGER

5. PRINCIPLE TERMS & STRUCTURE

6. TRACK RECORD

7. ANNEXURES

i. ANNEXURE 1 – CORPORATE GOVERNANCE

ii. ANNEXURE 2 – MARKET RESEARCH

iii. ANNEXURE 3 – DETAILED TRACK RECORD PROFILES

QUANTUM REAL ESTATE OPPORTUNITY FUND

EXECUTIVE SUMMARY


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Objective:

Quantum Real Estate Partners is establishing the Quantum Real Estate Opportunity Fund (the “Fund”) to invest debt and or equity with established developers that will yield superior, risk adjusted returns on development opportunities created by;

1. Scarcity of both debt and equity,

2. Strong population growth and chronic undersupply of housing,

3. The flight of cash from mortgage funds (not guaranteed) to bank deposits (government guaranteed).

4. Stringent lending environment.

Investment Strategy:

Focus on the Australian Residential sector, specifically approved development opportunities only.

Invest in projects only located in prime metropolitan areas.

Focus on medium density opportunities.

Focus primarily on Sydney, Melbourne and Brisbane.

Invest in projects via Preferred Equity, Straight Equity or Mezzanine Debt structures.

EXECUTIVE SUMMARY


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The Fund:

AUD$100M. Quantum will make a sponsor commitment to align interests.

Target 25% IRR gross.

Invest and return equity over 4 years.

Invest in 10-15 deals.

Unique Characteristics of the Fund :

Limited competition.

Attractive market conditions mean the Fund can be very selective and access Grade A development opportunities, providing for potentially higher returns in lower risk opportunities.

Opportunistic returns whilst targeting 30% of the returns to be secured through coupon income secured via mezzanine or preferred equity investments.

Clearly defined exit strategy.

EXECUTIVE SUMMARY

MARKET OPPORTUNITY


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MARKET OPPORTUNITY

Quantum is seeking to take advantage of the following:

1. Scarcity of Capital

In October 2008 the federal government placed a guarantee on all deposits held in Australian banks which lead to a flight of cash from mortgage funds (not guaranteed) to bank deposits (government guaranteed). This flood of outflows from the mortgage funds has caused managers to freeze redemptions to preserve some liquidity. These funds were traditional providers of finance to the development industry and their withdrawal has left a void in the marketplace and developers without a source of equity and debt. This industry at its peak was worth an estimated $25bn.

“Perpetual's mortgage funds have lost 25 per cent of their investors and funds under management have fallen to $1.7 billion compared with $2 billion from the peak of crisis a year ago. Colonial's funds under management have tumbled to $2.5 billion from $3.3 billion, while Australian Unity's mortgage fund has fallen from about $1 billion to $850 million.” (Source:The Age December 2009)


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MARKET OPPORTUNITY


2. Attractive investment climate in the Residential Sector

Australia's housing market is chronically undersupplied with only 60% of demand met by supply in 2009/2010, with the supply shortage forecast to increase 130% in the next 5 years.

Population growth is currently 2.1%, twice the world average.

Conservative lending/low delinquencies at less than 2%/full recourse loans/no sub prime.

Strong Labour market with unemployment at 5.25%

Source: ANZ Economics and Market Research


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MARKET OPPORTUNITY

Source: ANZ Economics and Market ResearchThe Housing shortage

has reached unprecedented levels and is forecast to get worse.

Australia Population accelerated to record highs while home buildings weakened.


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MARKET OPPORTUNITY


3. Stringent lending environment

Lending criteria is restricting developers ability to commence projects.

Banks now require a much higher level of pre-sales typically over 60%.

Pre-sales must cover at least 100% of debt.

Projects must be proposed by creditable sponsors, with capable builders.

LTV ratios have fallen requiring greater equity from owners.

Falls in land values have meant owners need to find more equity.


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Typical Funding Structure for Residential Development

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Gross Sales Senior Debt Mezzanine Debt Required Pre-Sales

Equity Sales tocomplete project

Note:The above chart illustrates how a residential project could be structured. Not all opportunities will be structured in this manner.

Senior Debt must be approved and provided in advance and only drawn upon commencement of construction and would equate to approximately 60% LTV.

Mezzanine Debt may or may not be used and would only be provided when all pre-conditions of the senior debt are met and will be repaid in priority to equity and after senior debt. Mezzanine debt would take leverage to approximately 67% LTV.

Pre-Sales would account for 100-110% of senior debt cover before construction commences. Approximately 50% of the mezzanine debt or 35% of the Funds equity is secured by pre-sales before the project commences. Pre-sale contracts carry full recourse to the purchaser significantly reducing default risk. All pre-sale contracts have a 10% deposit held by the solicitor and is paid to the developer if the purchaser defaults.

Transaction Structure

MARKET OPPORTUNITY

INVESTMENT STRATEGY


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INVESTMENT STRATEGY

Investment Structures


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Projects will require a substantial level of pre-sales and debt coverage before an investment will be made. This will reduce the sales and exit risk significantly.

Project must have a fixed price maximum build cost with an experienced builder to avoid cost variations.

Surplus stock will be sold through recognised agency channels, project marketing groups and financial planners throughout the development phase so that stock remaining at completion of the project is nil or minimal.

Quantum will utilise its own internal distribution network to secure sales.

Exit Strategies

INVESTMENT STRATEGY

Debt

Senior debt to be secured before the equity investment is at risk.

Pre-sales to be secured such that at least 100% of the debt is covered before equity investment and construction commencement.

Maximum debt including mezzanine to be 70% LTV.

Debt will be limited recourse to the project.


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Risk Management principles:

All projects to be fully funded, have fixed priced building contracts, substantial pre-sales and debt coverage before commencing.

No planning risk or zoning risk will be taken on by the Fund.

At least 70% of the Fund to be invested in major urban centres. Apartment developments to be located in metropolitan areas.

No more than 30% of the Fund to be exposed to any one investment partner. No more than 20% of the Fund invested in any one deal.

Quantum to have step in rights to all projects.

Development partners must meet the following criteria; Have a minimum 5 years track record in delivering projects to budget, within timeframes and to a high standard. Be capable of securing debt funding for projects. Have sufficient capital backing to participate throughout the project. Be adequately resourced to complete the project and ensure appropriate risk management processes are in place. Possess a pipeline of opportunities to create strategic alliances for ongoing deals.

INVESTMENT STRATEGY

THE MANAGER


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The Manager will be Quantum Real Estate Partners (“Quantum”). Quantum is part of the Quantum Group based in Sydney, employing staff of 17, including five senior managers. The company was founded by the current Managing Director, Peter Gribble in 1985 and will utilise it’s existing platform of experienced staff, management and resources to actively source & transact real estate investments. Quantum has been an active purchaser of real estate assets in Australia and has acquired 24 properties with total investment in excess of A$1 billion.

Quantum employs a strong corporate governance process on all its investment decisions to ensure all investments have appropriate risks assessed and investments are made in line with the investment mandate of the fund.

The existing team has over 40 years experience in the market with a well established market presence and an extensive network of relationships within the real estate market, financial institutions, developers, private owners, administrators & receivers and government agencies to enable proprietary deal flow to source real estate opportunities for the Fund.

The company has been an active developer of real estate in Australia and has established a record of generating superior returns by combining its industry expertise with a well planned development and marketing strategy.

Throughout its two decades of real estate investing, Quantum has generated a gross IRR on opportunistic investments of 35.5% or a multiple of 1.8x.

Quantum believes its proven investment strategy uniquely positions the firm to source, structure and create attractive real estate investments and believes its strategy will deliver a strong pipeline of future investments for the Fund.

THE MANAGER


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Why Quantum?

ACCESS Capitalise on the existing teams combined 40 years experience and extensive network of relationships with brokers, developers, financial institutions to access unique opportunities on and off the market.

STRUCTURING & FINANCING

Benefit from Quantum’s extensive experience in structuring transactions to minimise tax and investment costs and utilise their strong financial relationships to secure Funding for investments. This approach enhances returns while ensuring that risks are minimised.

EXECUTION Quantum has successfully executed over A$1 billion of property and development transactions. Its entrepreneurial approach mean the team is able to “think outside the box” and respond to opportunities quickly, execute efficiently and implement calculated exit strategies.

DUE DILIGENCE Quantum applies a rigorous underwriting process from acquisition to disposal. This process provides Quantum with a well-informed, comprehensive view of the quality of the opportunity, its ability to add value through active management and its ability to achieve an exit from the investment and meet the Funds return parameters.

MONITORING Quantum continually evaluates actual’s V budget’s throughout the investment lifecycle and intervenes to proactively manage risk. Quantum has a an excellent understanding of the risk/reward matrix and possesses excellent development management skills.

INVESTMENT HIGHLIGHTS


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Managing DirectorPeter Gribble

Investor RelationsAndrew Robertson

Financial ControllerRyan Jones

Fund Manager Brent Mulligan

Treasury/Finance(to be appointed as fund

establishes)

Property Accounting(Team of 2 exist)

Senior Asset Manager Brooke Veenstra

Development Manager(to be appointed as fund establishes)

Board of Directors(Peter Gribble, 2 Independent Directors)

Advisory Committee3 External Professionals

Organisation Chart

THE MANAGER


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Name/ Title Prior Experience Total Experience Education

Peter Gribble Chief Executive Officer

Peter Gribble is the founder of Quantum and was responsible for the direction and development of many of its property products. Mr. Gribble is a qualified accountant and has over 20 years experience in tax, the investment markets and property. Mr. Gribble has been involved in approximately AU$840 million of property transactions over that period, including direct involvement in most aspects of property acquisitions, management and development.

23 years with Quantum

Bachelor of Economics majoring in Accounting at La Trobe University Melbourne, 1985. Taxation Institute of Accountants 1998. Member of ASCPA’s CPA 1993, Property, Stock, & Business Agent 2004.

Brent Mulligan Fund Manager

Brent Mulligan is a licensed real estate manager with over 15 years of property and finance experience. Mr. Mulligan worked for eight years in investment banking in London, Singapore and Sydney. Prior to joining Quantum he ran his own business providing property consultancy services to a number of the property funds across Australia. He has executed over AU$850 million worth of transactions. Mr. Mulligan is responsible for the financial modelling for the acquisition and disposal of the Fund’s assets and ensuring the business plan of each asset is followed through the life of the Fund including the exit strategy.

15 years, and 3 years with

Quantum

Bachelor of Commerce 1991 from University of Queensland. Diploma Applied Finance at Securities Institute 1994. Real Estate License 2004.

Brooke Veenstra Senior Property Asset Manager

Brooke Veenstra is a licensed real estate manager with over seven years of experience. Prior to joining Quantum, Ms. Veenstra worked in London managing a portfolio of 400 properties and a team of letting staff. Her responsibilities included underwriting property approvals, management of properties and management of all syndicated properties.

7 years, and 3 ½ years with

Quantum

Real Estate License 2001.

Ryan Jones Financial Controller

Mr. Ryan Jones has over 5 years experience in the Australian funds management industry most recently as a Senior Manager for Macquarie Funds Group with a focus on fund accounting and financial reporting. Prior to this role he worked as a finance manager for Multiplex Capital with responsibility for financial and management reporting for both listed and unlisted property funds. Having trained and qualified as a chartered accountant in the UK, he joined PKF in Sydney and worked in their audit and assurance department for 3 years gaining experience with clients ranging from smaller single entity audits through to the audit of major multinationals. He holds a BA (Hons) Degree in Accounting and Finance from the University of Manchester.

14 years, Commenced with Quantum in 2010

BA (Hons) Degree in Accounting and Finance from the University of Manchester Chartered Accountant 1999

JoAnna Fisher Non-Executive Director of Quantum Australia

JoAnna Fisher has over 20 years of experience in the financial sector, with a thorough knowledge of investment management and investment banking. Ms. Fisher is a former General Manager – Strategy and Marketing for the Commonwealth Bank. She also spent 12 years at Bankers Trust Corporation in the United States, Japan, the United Kingdom and Australia, developing and managing the institutional funds management businesses. At Bankers Trust Corporation, Ms. Fisher was a member of the Bankers Trust Global Asset Allocation Committee.

5 years with Quantum

B.S. degree in Economics & Asian Studies from the Australian National University. Diploma from the Australian Institute of Company Directors.

Senior Management of QuantumTHE MANAGER

PRINCIPAL TERMS AND STRUCTURE


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Investment Type Debt – Mezzanine Preferred Equity Equity

Target Net Returns 15% 20% 25%

Tax Leakage ^ 0% (Zero) Tax including no withholding tax

0% (Zero) Tax including no withholding tax

0% (Zero) Tax including no withholding tax. 10% over 30%

IRR

Investment Term 18 month - 2 years 2-3 years 2-4 years

PRINCIPAL TERMS & STRUCTURETarget Equity Commitments: A$100 million

Distributions: 1. Return of capital.2. 15% preferred return.3. 50%/50% catch up.4. 85% Investor/15% GP.

Management Fee: 0% of Capital Committed. 2.0% of Invested Capital.

Reimbursements: Nil

Organizational Costs: Nil

Cost Recoveries: Nil


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Property

Property

Quantum Property Note #1

Investors

PRINCIPAL TERMS & STRUCTURE



Property

Quantum Funds Management Ltd

Trust

Trust

TrustTrust Company Trustee

Ltd (Independent Custodian)

Deal 1

Deal 2

Deal 3

TRACK RECORD


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TRACK RECORD


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TRACK RECORD

Quantum Australia Detailed Summary of Quantum Australia's Investment Performance for Opportunistic Investments Through June 30, 2010(AUD$ in thousands)

InitialProperty Investment Total Equity Realized Unrealized Total Gross Investment

Investments Location Type Date Investment Invested Proceeds Value Value IRR Multiple

Quantum Opportunity Funds20 Clarke Street Sydney Office Jul-97 1,649 740 1,891 0 1,891 24.7% 2.6xTaren Point Sydney Residential/Mixed Jun-99 26,921 3,900 18,037 0 18,037 94.6% 4.6x40 Pacific Hwy Sydney Office Jul-99 3,771 1,950 3,879 0 3,879 23.1% 2.0xCity Beach Wollongong Residential Jun-00 57,043 5,357 20,148 0 20,148 40.5% 3.8x155 Queen Street Brisbane Retail Jun-03 25,215 10,191 25,676 0 25,676 26.7% 2.5xThe Wharf ^ Sydney Retail Dec-04 19,779 10,555 5,475 11,102 16,576 10.4% 1.6x370 Queen Street Brisbane Office Jun-04 13,083 5,560 12,477 0 12,477 29.5% 2.2xAgnes St Albion Brisbane Residential Sep-06 8,995 1,144 3,349 0 3,349 156.0% 2.9xEclipse Wollongong Residential Oct-05 51,415 8,873 6,806 0 6,806 -12.8% 0.8xCasuarina ^ Tweed Coast Residential Jun-06 31,507 5,600 0 3,500 3,500 -11.3% 0.6xGateway Townsville Residential Oct-06 65,784 13,448 12,509 0 12,509 -3.6% 0.9xGepps Cross ^ Adelaide Retail Feb-08 131,007 12,000 0 18,993 18,993 9.2% 1.6x

Total Investments 436,168 79,319 110,248 33,595 143,843 35.5% 1.8x

^ The unrealised values are based on Quantums forecast timing for exiting the assets and expected value on exit.

ANNEXURES


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Preliminary feasibility study Final feasibility study

• A detailed feasibility study will be conducted covering the following issues:

• Revenue, cost and profit estimate• Timing• Town planning• Site issues• Legal review• Regulatory, taxation• Capital Investment • Exit Strategy• Market Research• Scenario modelling

• Further investigations and sensitivities will be conducted following valuation and assessment by Advisory Committee, prior to lodgment of report to the Board from final approval.

Final ApprovalA

ctiv

ities

con

duct

ed

Independent Valuation

Independent Advisory

Committee

Board of

Directors

Quantum Investment Committee

Due Diligence Phase Investment Approval Phase

Initial approval

An Advisory committee made up of external independent senior industry professionals, from Banking, Legal, and the Property sectors will consider; if the Investment is in line with the Fund Strategy, have all risks been considered and appropriately mitigated, are the assumptions in the financial model fair and reasonable, can the investment be funded and is the correct legal documentation in place.

Quantum’s Real Estate Due Diligence & Approval Process

ANNEXURE 1 – CORPORATE GOVERNANCE


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Phase Activity Process

Investment Committee

Investment Assessment/ Due Diligence

The Acquisition team will vet deals and conduct initial due diligence on opportunities. When an opportunity is identified the Acquisition team will present an initial feasibility and risk analysis to the Investment Committee during a weekly scheduled management meeting. During this meeting, the senior professionals will determine if the investment opportunity is worth pursuing.

If agreed, the Acquisition team will create a detailed report on the transaction and present the opportunity in full to the Investment committee. The Investment Committee comprises senior investment professionals of Quantum.

Advisory Committee

Investment Evaluation An Advisory committee made up of external independent senior industry professionals, from Banking, Legal, and the Property sectors, will assess each investment. The committee will consider; if the Investment in line with the Fund Strategy, have all risks been consider and appropriately mitigated, are the assumptions in the financial model fair and reasonable, can the investment be Funded and is the correct legal documentation in place. The committee will not have voting rights on investment, but will act as a further check in the due diligence process.

Valuation Independent 3rd party Valuation Appointment of external valuers, to assess and support gross realisation, feasibility and construction costs assumptions.

Board of Directors Final Approval Investment Committee finalises any outstanding issues and creates an investment memorandum to present to Quantum Board of Directors. The report will identify projected returns, transaction merits, risks and mitigantsand provides a detailed overview of the opportunity. The Board will determine if they support a binding bid on the project.

Once an investment is secured Quantum will hold monthly meetings at the Board level to review and confirm property management reports, monthly accounts and project control reports for each of the investments are performing within the underwriting parameters of the deal.

Quantum’s Real Estate Approval Process


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Quantum understands the importance of strong corporate governance:

Quantum has established an independent advisory committee of 3 senior professionals who bring unique knowledge and skills which complement the knowledge and skills of the board members to more effectively govern Quantum.

The Advisory Committee serves to make recommendations and/or provide key information and materials to the Board of Directors via the Investment Committee.

The advisory committee comprises 3 senior professionals. One is a partner in the Real Estate team with one of Australia leading law firms, the second is an ex Managing Director of one the top Real Estate Agency and Advisory firms in Australia and the third is an ex Finance executive with CBA. These 3 individuals bring a wealth of knowledge and experience to the Quantum group and provide and invaluable service in our investment approval process and governance.



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1) The Australian economy is experiencing a high level of resilience to the global financial crisis;

Australia’s population is growing at 2.1% twice the world average.

Australia has one of the lowest government net debt position globally, currently at 3.2%.The Government is forecasting the economy to be in surplus by the 2012/2013 year.

Unemployment has peaked and is forecast to decline and remain low at around 5.0%.

Robust Financial Sector; Australia was ranked 2nd in the world in The World Economic Forum’s Financial Development Report as a global financial centre. The efficiency of its banks, where it earns 1st place in the rankings, is a key strength; the stability of its banking system (10th) and a low risk of sovereign debt crisis (1st) underpins its relatively high degree of financial stability through the current crisis.

ANNEXURE 2 - RESEARCH

2) Key factors supporting the Australian Housing market;

Limited exposure to sub-prime mortgages in Australia has ensured forced selling has remained at very low levels.

Historically low interest rates and a high proportion of variable rate mortgages.

Robust financial sector and full recourse loans.

Underlying housing demand remains above new supply. Current underlying housing demand is running at an annual rate of 200,000 while dwelling completions are expected to fall to under 130,000 in 2009-10. The National Housing Supply Council estimates a shortfall of 178,400 properties across the country, a gap projected to grow to 308,000 within five years and 640,600 by 2028.


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2) Key factors supporting the Australian Housing market (cont’d)

The relaxation of foreign investment rules earlier this year has seen a marked rise in homes purchased by wealthy overseas investors which has added to price gains.

Auction clearance rates have remained high and an upgraded economic outlook and improved job security will continue to boost investor and homebuyer confidence.

The housing market will remain undersupplied for many years which will place further upward pressure on both rents and house prices.

Buoyed by rapidly expanding net international migration, population growth accelerated to 2.1% in the year to March 2010 – an additional 439,000 people, the strongest increase on record.

Existing Residential Supply/Demand

Source: Westpac Bank



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Cumulative Shortfall of Houses Annually to 2029

436,300

549,100

640,600

308,400

282,100254,900

228,300202,400

178,400

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2009 2010 2011 2012 2013 2014 2019 2024 2029

No

of H

ouse

s R

equi

red

3) Property Fundamentals

Around two-thirds of the additional demand over the next 20 years is projected to be in and around four of the major cities: Melbourne (19 per cent), Sydney (16 per cent), Perth (10 per cent), and Brisbane and surrounding areas in south-east Queensland (21 per cent).

The medium projection of underlying demand is 3.2 million additional households in the twenty years to 2029, requiring 180,000 new dwelling annually.

The Australian market is characterised by strong macro economic Fundamentals, strong growth prospects, stability and transparency. Population growth expected to expand by more than 60%, reaching 35 million by 2050. This will drive demand for residential stockand with approvals at their lowest in 15 years the residential property market presents excellent investment opportunities

Source: National Housing Supply Council of Australia Source: Population Reference Bureau

Projected Population Change 2009-2050 (%)

Germany

Australia

United States

Canada South America

Asia (excl China)

India

Southeast Asia

China

Northern Europe

United Kingdom

-20

-15

-10

-5

0

5

10

1520

25

30

35

40

45

50

55

60

% C

hang

e in

Pop

ulat

ion



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Eclipse, Wollongong Albion, Queensland

Gateway On PalmerGepps Cross

Taren Point

City Beach

VI. TRACK RECORD


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Investment overview The Company committed A$1.1 million to secure the land under a contract

from Toyota Motor Corporation Limited, who occupied the site. Quantum addressed contamination issues as the site was previously a landfill. Quantum also needed to address sulfate soils and carbon contaminations from Toyota’s occupation of the site.

Quantum obtained a master plan approval over the property and sub-divided the property into five lots in addition to seeking a retirement village development approval under a newly commissioned government ordinance.

Quantum was able to settle the purchase of the property around the same time as the sale of four of the five lots. This allowed Quantum to mitigate part of the risk of the transaction as well as requiring minimal equity and maximizing the property IRR.

Quantum obtained a development approval for 220 residential apartments on the remaining lot, which Quantum later sold prior to commencing any construction on the property.

Transaction structure Quantum contracted to purchase the property with a two-year delayed

settlement while Toyota moved from the site.

The delayed settlement allowed for a repositioning of the asset by subdividing the property into five separate lots to reduce the holding risk of the property and provide multiple exit opportunities.

Key terms

Asset type Industrial and retirement village

Acquisition date June 1999

Exit date January 2002

Total investment A$26.9 million

Quantum equity commitment A$3.9 million

Leverage 37%

Quantum's share 100%

Realised Gross IRR 94.6%

Realised equity multiple 4.62x

Taren Point, Sydney

ANNEXURE 3 - TRACK RECORD


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Investment overview Quantum purchased the property and obtained a development approval for a three-

stage residential apartment complex.

Stage 1 of the property consisted of 56 residential apartments, Stage 2 consisted of 62 residential apartments and Stage 3 consisted of 110 residential apartments.

Quantum developed Stages 1 and 2 and sold the property through their on-site sales office as individual residential apartments.

Quantum won a number of awards for the design and development of the Stage 1 apartments.

Quantum sold Stage 3, prior to the completion of the development of Stage 2 for a profit.

Transaction structure Quantum purchased the property for A$5.4 million.

Quantum bought out one of the two existing joint ventures partners which provided Quantum Australia with the same purchase price as was paid by the existing joint venture partners when they first purchased the property.

As the land was developed in three stages, Quantum was able to minimize the equity required to complete the project and choose from multiple exit options and timings to minimize risk while maximizing returns.

The project was a 50/50 joint venture with Miltonbrook, a local developer who provided the local expertise and experience to ensure the development was delivered in a timely manner and on a controlled budget.

Key terms

Asset type Residential apartment


Exit date June 2006

Total investment A$57 million


Leverage 56%

Quantum Australia's share 50%



City Beach, Wollongong



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Investment overview Quantum purchased the land in Townsville to develop a 12-story residential

tower on the waterfront at the fringe of the CBD consisting of a mix of 24 luxury residential apartments and 88 resort-style managed apartments. construction was completed in late 2008.

Before completing the acquisition, Quantum contracted Matrix, one of Queensland’s largest residential builders, to construct the apartment building at a fixed price and on a fixed 20-month schedule.

Quantum contracted with Oaks Hotels & Resorts to purchase the rights to the on-site management and leasing business for the managed apartments. Oaks Hotels & Resorts is a publicly traded national hotel and apartment operator.

Quantum leveraged the strength of Oaks Hotels & Resorts to achieve sales of individual apartments.

Transaction structure Quantum contracted to purchase the property conditional upon securing an

onsite operator for the managed apartments and a builder to construct the tower within the agreed budget. This gave Quantum time to pre-sell a number of the apartments before having to pay for the land.

By purchasing the property conditionally, Quantum was able to reduce the risk of the project while fixing the construction cost of the building, which in turn maximized the return.

Quantum was able to identify that the current owner, a private developer, did not have the capital to complete the project, and was able to negotiate terms to purchase the property that gave the optimal outcome for both parties.

Key terms


Acquisition date October 2006

Exit date Current



Leverage 57%


Projected gross IRR Returns to investors were taken as stock in the development at a discount to market value.

Townsville (Delivery Completed)



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Investment overview Quantum secured an development approval for 92 beachfront apartments.

Casuarina Beach is a fully planned township. A 20 hectare beachfront site will be developed into a A$650m town centre. Six years in the planning this commercial, cultural, and artistic hub will feature cutting edge beach design and a pedestrian friendly layout in character with the rest of the community.

This project is currently on hold until market sentiment improves.

Investment overview The Eclipse Project is a mixed use residential, retail & serviced apartment

development located on the corner of Market and Corrimal Streets, Wollongong. The site is located approximately 300 metres to Wollongong City Beach and Wollongong Harbour and 300 metres to Wollongong CBD and the Crown Street Mall.

Comprising of 98 apartments (68 serviced apartments, 30 residential apartments) and 4 retail shops. Serviced apartments have been fully leased by Medina.

Construction completed in February 2008.

Quantum secured, managed and delivered the construction of the apartments.

Casuarina, Northern NSW (Project – Delivery Pending)

Eclipse Project (Delivery completed)



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Investment overview Gepps is currently Australia’s largest Bulky Goods Retail centre in

Australia.

Encompassing over 62,000 sqm of retail space, Gepps Cross is an unrivalled offering in the Adelaide market.

The centre is located 10kms north of Adelaide CBD in Adelaide’s residential growth corridor.

The construction was completed in mid 2009.

The centre is anchored by Australia’s pre-imminent retailers with 90% of the tenants being national retailers. The centre is 95% leased.

Transaction structure Quantum took a 37.5% interest in the property.

Gerry Harvey owner of Australia’s largest retailer Harvey Norman and Gepps Cross’s largest tenant is one of the part owners of the centre.

Quantum’s investment was a late stage development investment. Quantum did not invest its capital until development approval was secured, a fixed price build contract was agreed, tenant pre-commitments exceeded 50% and construction finance was unconditionally approved.

Gepps Cross, Adelaide (Unrealised)



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Albion, Brisbane – Realised Investment

Investment overview

Agnes St was a 5,658sqm site located just 5km north of Brisbane CBD.

Quantum identified the site was located in a urban renewal area and our research suggested that the site could achieve an improved yield through under new planning codes.

Quantum secured a DA approval for the a residential development in February 2007.

Transaction structure

Quantum took an option over the site and work to achieve a development approval for the a residential development..

By taking an option on the site Quantum was able to work through its business to plan to a point where it was confident of the outcome before committing its equity to the project..

Quantum onsold the site with the benefit of the improved development approval to a local developer. The sale presented an excellent IRR return on equity for the project and we chose to exit and reinvest capital in other opportunities.

Key Terms


Acquisition date September 2006

Exit date 2008



Leverage N/A

Quantum's share 100%

Realised Gross IRR 156%

Projected equity multiple 2.9x



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370 Queen Street, BrisbaneKey terms

Asset type Office


Exit date June 2008

Total investment A$11 million


Leverage 70%




Investment overview Quantum purchased the property with 3,500 square meters of net lettable area and

a weighted average lease expiry (“WALE”) of only 1.2 years.

Quantum progressively refurbished each floor as tenants vacated and released whole floors to new tenants to maximize the rents, in some cases up to a 75% increase from the previous tenants.

Quantum was able to negotiate new leases with terms ranging from 3 to 7 years and generally with market reviews of the rental income every 3 years.

Quantum also executed a major repositioning of the ground floor retail space with a new refurbishment which made for an impressive interface of the building with the streetscape.

Once the property was fully refurbished and the rents stabilized, Quantum sold the

property to a core fund with a WALE of over 5 years.Transaction structure Quantum negotiated the purchase of the property for AU$11 million from a local

private investor with a delayed settlement of 6 months and exited at $20m.

The property was purchased at a very low cost per square meter compared to similar office buildings in the area.

At the time of purchase, 370 Queen Street appeared under-rented when compared to similar refurbished office buildings in Brisbane.

370 Queen Street has a key location in the “Golden Triangle of Brisbane,”diagonally opposite the tallest building in Brisbane.

TRACK RECORD


45

155 Queen Street Brisbane

TRACK RECORD

Key terms

Asset type Office


Exit date November 2007



Leverage 75%




Investment overview

Quantum purchased the property with the possibility that the major tenant may vacate as the lease was close to expiry.

Quantum was able to negotiate new leases with the major tenant and include a demolition clause in the new lease. This locked in the income value to the property and unlocked the redevelopment potential of the property.

Quantum identified the site opportunity for further development and commenced securing a DA for a commercial development above the centre.

Transaction structure

Quantum negotiated the purchase of the property for AU$23.7 million from a local private investor and exited at $37.8million.

155 Queen Street had a key location on the prime retail shopping mall in Brisbane CBD.

The site was strategically located between two institution owners. Both owners had intentions to develop their sites and this site assisted with the amalgamation of their developments sites. Ultimately they become the buyer of the property.

As a prime retail strip the Brisbane mall was viewed under rent and under values against other Australia CBD malls.

quantum real estate opportunity fund · senior debt to be secured before the equity investment is...

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