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23 August 1999

News Release

DISCLOSURES IN OFFER DOCUMENTS OF COMMERCIAL PROPERTY SYNDICATES

Media Release

Commercial property "syndicate" investments are often offered on what is known as a "stapled" basis made up of bonds and shares in the property-owning company. We consider that the investment statements for those offerings may be confusing to the prudent but non-expert investor. The industry practice is to state and highlight a rate of return based on cash interest payments on the bonds as a return on the total stapled investment.

The marketing documents usually disclose details about the returns. However, the information is not always clear:

• A rate of return may be promoted to imply that it is a return per annum promised for a number of years. However, the cash interest payments to investors can often be changed by the company. Overall returns depend on the ultimate financial performance of the company or the property or properties held by the company.

• The quoted rate of return does not take into account initial losses (typically represented by substantial establishment and marketing costs). Quoted returns will be achieved only if the initial losses are recovered over time. This is not assured.

• The net tangible asset backing for each share following allotment is reduced below the amount paid by the subscriber for that share. This is because of the initial losses.

• Various terms are used for describing projected returns including "returns", "yields" and "earnings" which are used interchangeably. They are not interchangeable.

The Commission proposes to address these and related questions about the disclosure in offer documents on an industry-wide basis.

We are reviewing the disclosure of rates of return in offer documents of commercial property syndicates. We will issue a discussion paper offering guidelines to the industry.

In the meantime, promoters and issuers should consider carefully the manner in which returns are expressed and disclosed in their offer documents. Disclosure must be clear and unambiguous. They will be liable for misstatements in an advertisement, investment statement or prospectus, both civilly and criminally.

Prospective investors in commercial property syndicates should exercise great care when assessing projected returns and comparing them with projected returns from other forms of investment.

E.H. Abernethy
Chairman

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