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Offers of Unlisted Interests in Commercial Properties - A Review

APPENDIX 1 REVIEW OF DISCLOSURES IN OFFER DOCUMENTS OF INTERESTS IN COMMERCIAL PROPERTY - QUESTIONS ON POSSIBLE RATES OF RETURN AND RELATED INFORMATION

We are conducting a review into the disclosures made in offer documents intended for the general public by promoters/issuers of interests in commercial property. In the course of this review, we are taking a particular interest in the manner in which forecast/projected/promised returns, assumptions and related information are derived and are expressed in the offer documents. We hope to issue a discussion paper on the subject and offer guidelines to the industry.

We have written to a number of promoters and other individuals posing the following questions. We would welcome your responses to the questions, in each case stating the reason(s) for your response.

1. Which of the following returns, whether forecast, projected or promised, do you think should be disclosed:
   1. dollar amount of cash distributions?

   2. rate of return taking into account cash distributions only?

   3. rate of return taking into account the financial performance of the issuer?

   4. internal rate of return of the investment for the total expected period of the investment?

   5. other (please specify)?

2. For investments that are stapled investments made up of bonds and equity securities, over a particular forecast/projected/promised returns period, which of the following do you think should be disclosed:
   1. the rate of return taking into account the cash distributions on the bonds calculated on the investment in the bonds only?

   2. the rate of return taking into account the cash distributions on the bonds calculated on the total investment made by the investor made up of bonds and shares?

   3. the rate of return taking into account the effect of the financial performance of the issuer?

   4. other (please specify)?

3. Which of the following information do you think should accompany any returns that are disclosed:
   1. the period the returns are forecast/projected/promised?

   2. the total expected period of the investment?

   3. the issuer's anticipated net tangible asset backing per unit of securities?

   4. principal assumptions, if any?

   5. other (please specify)?

4. Do you think that there should be guidance on:
   1. the terminology used in offer documents to describe and explain forecast/projected/promised returns?

   2. the information/assumptions that should accompany the returns that are disclosed?

5. The law requires the registered prospectus to contain a statement of the principal assumptions on which prospective financial information is based. Do you think that any principal assumptions relating to returns should also be disclosed in:
   1. the investment statement?

   2. other advertisements/promotional material?

   We would welcome any other comment or general observation you may wish to make to us about industry practice in relation to forecast/projected/promised returns and related information that you think would be helpful in addressing the issues at hand.