Pentagon Group

JANUARY 2019

Investment Opportunity Pentagon Tasmania Hotel Trust

PART OF PENTAGON GROUP

Table of contents 1.0 Key Features Page 8

2.0 Introduction Page 10

3.0 Portfolio Details

4.0 Portfolio Strategy

Page 12

Page 24

5.0 Risks

6.0 Fees and Costs

Page 28

Page 32

7.0 Taxation Information

8.0 Expression of Interest Form

Page 33

Page 34

9.0 Financial Summary Page 38

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SPV Structure

The structure of the proposed investment is a stapled security, with Investors being issued a unit in the PGH Tas Property Trust and a unit in the PGH Tas Operations Trust. The Units are stapled together pursuant to a Stapling Deed and must be traded together.

Definition of “Stapling Deed” The deed that will be entered into between PGH Tas Property Pty Ltd ACN 631 371 269 as trustee for the PGH Tas Property Trust and PGH Tas Operations Pty Ltd ACN 631 370 888 as trustee for the PGH Tas Operations Trust in respect of the stapling of the Stapled Securities.

Definition of “Unit” A reference to Units is a reference to a stapled security comprising a unit in the PGH Tas Property Trust and a unit in the PGH Tas Operations Trust.

PART OF PENTAGON GROUP

Investment Opportunity | January 2019

Owns 100% of shares in

Owns 100% of shares in

Management Co

PGH Tas Mgt Pty Ltd

ACN 631 061 428

1% Asset Management Fee

5% Hotel Management Fee

Asset Management Agreement (AMA)

Hotel Management Agreement (AMA)

ACN 631 371 269

Trustee

(PGH Tas Property Pty Ltd)

Prop Co

(PGH Property Trust)

ACN 631 370 888 Lease agreements x 3

Op Co

(PGH Tas Operations Trust)

Trustee

(PGH Tas Operations Pty Ltd)

Trust Deed Old Tudor lease pmts $$

Trust Deed

Bayside Inn lease pmts $$

Foreshore lease pmts $$

Subscription moneys paid $$

Units Issued

Units

Quarterly distributions paid $$

Subscription moneys paid $$

Investors Stapled

Quest Launceston

Licensed Entity employs all operational staff operated businesses

Units Issued

Annual distributions paid $$

Units

Stapling Deed

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Notice

This Information Memorandum (IM) is dated 28 January 2019. The purpose of this IM is to provide information for prospective Investors to decide whether they wish to invest in the Trust.

The Trustee of the Trust is PGH Tas Property Pty Ltd ATF PGH Property Trust (ACN : 631 371 269), the Manager of the Trust is PGH Tas Operations Pty Ltd (ACN: 631 370 888)

NO DISCLOSURE REQUIRED This IM is intended to provide potential investors with information only and does not constitute a product disclosure statement or other disclosure document required by the Corporations Act 2001 (Cth) (Act). This IM has not been lodged with the Australian Securities and Investments Commission (ASIC) or any other government body.

The Offer made under this IM is only available for persons who qualify as wholesale clients (as defined in section 761G(7) of the Act) or sophisticated investors (as defined in section 761GA of the Act) (collectively, Qualifying Investors).

NO RESPONSIBILITY FOR CONTENTS OFÂ DOCUMENT To the maximum extent permitted by law, neither the Trustee nor the Manager, nor any of their associates, related parties, directors, officers, employees, advisors (including financial, accounting and legal advisors) or representatives make any recommendation in relation to the Trust, or make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the information contained in this IM. This IM does not purport to contain all the information that a prospective Investor may require in evaluating a possible investment in the Trust.

NOT REGULATED BY APRA The Trustee is not authorised under the Banking Act 1959 (Cth) (Banking Act) and is not supervised by the Australian Prudential Regulation Authority, nor are investments in the Trust covered by the deposit or protection provisions in section 13A of the Banking Act.

This IM includes forward looking statements that may contain the words “believe”, “intend”, “estimate”, “expect” and words of similar meaning.

All statements other than statements of historical facts included in this IM, including, without limitation, those regarding the Trust’s financial position and business or investment strategy, plans and objectives are forward looking statements.

Such forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Trust to be materially different from future results, performance or achievements expressed or implied by such forward looking statements.

Any forward looking statements are based on numerous assumptions regarding the Trust’s operations and present and future business and investment strategies and the markets in which the Trust will operate in the future. These forward

invested. Neither the Trustee nor the Manager, nor any of their directors, officers, employees, advisors or representatives guarantee the rate of return or performance of the Trust, the meeting of the objectives of the Trust, nor do they guarantee the repayment of committed capital nor do they make any guarantees about the timing of repayment of committed capital, which may be significantly delayed.

TRUSTEE LIMITATION OF LIABILITY Except in certain circumstances (including fraud, negligence or wilful default by the Trustee), the Trustee enters into transactions for the Trust in its capacity as trustee of the Trust only, not in its own capacity, and its liability in relation to those transactions is limited to the assets of the Trust.

DISCLOSURE OF INTERESTS The Trustee, the Manager or their related entities may also acquire units in the Trust on the same terms and with the same rights as other Investors in

looking statements are made on the date of this

the Trust.

IM. Accordingly, there can be no assurance that

UPDATED INFORMATION

such statements, estimates or projections will be realised.

INDEPENDENT ADVICE RECOMMENDED Prospective Investors are not to construe the contents of this IM as tax, legal, investment or

The information contained in this IM can change, and the IM may be updated or replaced from time to time. Unless the changed information is materially adverse to you, the Trustee may not always update or replace this IM to reflect the

migration advice. The information contained

changed information.

in this IM is general information only and does

CONFIDENTIALITY

not take into account your objectives, financial situations or needs. An investment in the Trust should be regarded as speculative and may not be appropriate for all persons or entities. You should seek appropriate professional advice and should conduct your own independent investigation and analysis regarding any information contained in

Investment Opportunity | January 2019

FORWARD LOOKING STATEMENTS

This IM is confidential and is being provided to prospective Investors for them to consider investing in the Trust. Its use for any other purpose is not permitted. It may not be reproduced or redistributed, in whole or in part, and its contents may not be disclosed to any person.

this IM. You should rely on your own enquiries, in particular in obtaining your own legal, investment and tax advice in determining whether to invest in the Trust.

NO GUARANTEE An investment in the Trust is subject to investment risk, including the loss of income and capital

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Key Features

Highly attractive forecast yield of 9% p.a.

Distributions paid monthly, commencing the third month post settlement Strong repositioning opportunity through capital expenditure program and rebranding to Choice Hotels under franchise agreement Purchase price below replacement value Portfolio is diversified across 4 hotel assets in key growth market of Tasmania Total hotel gross revenue of circa $19.2M Total electronic gaming gross turnover of circa $47.5M Total estimated first year hotel EBITDA of circa $4.12M Total of 175 rooms

90 electronic gaming machines

Significant development upside

Syndicate term of 5-7 years

1.0 Key Features

Seeking equity contribution of $15M

Forecast equity IRR of 15%+

Applications close and monies are due: •

20% of contribution upon signing

•

80% on 1 May 2019

175

Investment Opportunity | January 2019

4

TOTAL OF ROOMS

HOTEL ASSETS IN KEY GROWTH MARKET OF TASMANIA

FORECAST IRR OF

HOTEL GROSS REVENUE

15%+

$19.2M

ELECTRONIC GAMING MACHINES

HOTEL EBITDA

$4.12M

90

SIGNIFICANT DEVELOPMENT UPSIDE

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Introduction

Pentagon Group Hotels Pty Ltd (Pentagon) is delighted to confirm that we have now secured a significant hotel portfolio in Tasmania, Australia.

The portfolio consists of 3 freehold assets and 1 leasehold asset for a total price of $31,450,000.00.

Further details of each asset are provided below.

Pentagon was selected as the preferred purchaser following an on-market campaign run by international agency Jones Lang Lasalle.

The portfolio represents a unique opportunity to add significant value to the assets through active asset management and refurbishment whilst securing a highly attractive passing income.

Pentagon undertook thorough due diligence on all the assets prior to entering into an unconditional contract with the vendor. Consultants engaged include: a. Legal | McMahon Clarke b. Technical Due Diligence | Napier & Blakeley c. Valuation | Herron Todd White d. Depreciation | Napier & Blakeley e. Finance | Laminar Capital

2.0 Introduction

f. Tax and Accounting | D’Omkara

Director Pentagon Group, PGH Tas Property Pty Ltd M 0433 844 245 vijan@pentagongroup.com.au

Investment Opportunity | January 2019

VIJAN PATEL

JAMES WEAVER Director PGH Tas Property Pty Ltd M 0414 474 756 james@killila.com.au

PRATIK SARSAVADIA Director Pentagon Group, PGH Tas Operations Pty Ltd M 0425 401 843 pratik@pentagongroup.com.au

PRANAV PATEL Director PGH Tas Operations Pty Ltd M 0430 189 285 pranav@pentagongroup.com.au

ALAGU MURUGAN Group Hospitality Manager M 0426 251 631 amurugan@pentagongroup.com.au

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3.1 Freehold Assets Summary

Item Site Area Building Area Zoning Number of Motel Rooms Number of EGMs Total FY18 EGM Turnover Renovated Sports Bar Bistro Seating Capacity Drive-through Bottle Shop Function Room Admin and Reception Manager’s Accommodation Sales - FY2018 EBITDA* - FY2018

3.0 Portfolio Details

*After adjustments

The Foreshore

Bayside Inn

Total

18,897sqm

21,350sqm

5,615sqm

45,837sqm

4,873sqm

2,670sqm

3,594sqm

11,137sqm

Local Business

Local Business

Local Business

-

62

16

54

132

30

30

30

90

-

-

-

$47,520,724

Yes

Yes

Yes

Yes

180

200

200

580

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

$6,034,999

$6,918,385

$4,009,946

$16,963,330

$1,557,108

$1,173,339

$962,172

$3,692,619

Investment Opportunity | January 2019

Olde Tudor Hotel

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3.2 Quest Launceston Lease Asset Summary

Site Area Building Area Zoning

2,400sqm (Appox.)

-

No of Apartments

43

Studio Apartment

14

1 Bedroom Apartment

24

2 Bedroom Apartment

17

3 Bedroom Apartment

2

Murray Function Room

1

Admin and Reception Sales EBITDA* - FY2018

3.0 Portfolio Details

467sqm

Yes $2,199,000 $303,000

Investment Opportunity | January 2019

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3.3 Olde Tudor Hotel 229 Westbury Road Launceston

3.0 Portfolio Details

Freehold Asset

Olde Tudor Hotel sits in a prime position on Westbury Road, a large high-profile property that benefits from an enviable high traffic location, good access to major arterial roads such as the Bass Hwy and Midlands Hwy, only five minutes to the CBD and under 15 minutes to Launceston Airport.

complex in Launceston, the property has a large and varied range of guest amenity on offer. The hotel sits on a generous 18,872sqm of Local Business zoned land, is close to Cataract Gorge Reserve and UTAS Stadium, and provides easy access to scenic attractions such as the Tamar Valley wine region.

Prospect, a suburb of Launceston, has been

Investment Opportunity | January 2019

Considered the largest hotel and entertainment

developing and gentrifying as a residential suburb, and the hotel sits in the middle of its central town centre. Adjoining a large IGA Supermarket, a mix of retail and commercial tenants, the area also has expanding wholesale and industrial developments within close proximity.

Olde Tudor Hotel has only changed hands once in its 50 year history. It has undergone an extensive capex program in recent months, including a new paint scheme, significant room refurbishments in the past 12 months, bar upgrades and numerous other valuable additions.

Olde Tudor Hotel provides its patrons with high quality and prime location accommodation and modern wagering facilities (separately leased by Tote Tasmania Pty Ltd), large capacity bistro, sports bar, outdoor areas and drive-through bottle shop.

Additional facilities include a heated indoor pool and spa, kids’ games area, unique and large LED signage on the main road and a parcel of main road land prime for redevelopment.

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3.4 The Foreshore 464 South Arm Road Hobart

3.0 Portfolio Details

Freehold Asset

The Foreshore occupies a large strategic waterfront site overlooking Ralphs Bay, under 20mins from both the newly refurbished and extended Hobart International Airport and the Hobart CBD.

of South Arm and Ringwood Roads and boasts a total site area of 21,350sqm of Local Business zoned land, and is close to Blundstone Arena, Seven Mile Beach and the Royal Hobart Golf Club.

The Foreshore has undergone major renovations in recent years and presents in ‘as new’ condition.

The large capacity tavern services the neighbouring coastal suburbs of Oakdowns, Roches Beach,

Investment Opportunity | January 2019

The modern hotel sits on the high exposure corner

Sandford, Cremorne, Clifton Beach and South Arm completely unopposed by comparable competition.

In 2012 the hotel completed a project delivering 16 high quality motel suites at the rear of the hotel, adding a valuable revenue stream to the expanding business and yielding high returns on investment.

Additional land is still available for future development (STCA) and an architectural design scheme that highlights the potential and allowable use of this land is available upon request.

The Foreshore provides its patrons with high quality accommodation, modern gaming and wagering facilities, large capacity bistro, beer garden, sportsbar and high volume drive-through bottle shop.

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3.5 Bayside Inn 2 Cecilia Street St Helens

3.0 Portfolio Details

Freehold Asset

Bayside Inn overlooks the magnificent Georges Bay and holds stunning uninterrupted views across the bay to the seaport.

Considered the largest hotel on the East Coast, Bayside Inn holds a prime location on the main retail street.

St Helens is an easy 160km due east of Launceston and is on the main tourism route “Great Eastern Drive”.

It’s renowned for its oysters and also known as the game fishing capital of Tasmania.

sits on approximately 5,615sqm of land and boasts three distinct sections being the main hotel building over two levels with rooms on the first floor, all of which have recently been refurbished.

Other features include a large capacity bistro, gaming room, public bar and sportsbar that includes wagering, a large outdoor courtyard/beer garden overlooking the pristine Georges Bay and a

Investment Opportunity | January 2019

Constructed in the 1950s, this waterfront property

drive-through undercover bottle shop.

The Bayside Inn provides an opportunity to refurbish or rebuild some of the old-style accommodation offering to drive room rates, as it is a prime piece of real estate overlooking the bay.

Two additional older style buildings with budget motel accommodation and an indoor swimming pool are popular with tours and groups.

St Helens is the largest town on the east coast of Tasmania and, as part of the Great Eastern Drive, experiences strong tourism numbers, together with neighbouring coastal towns Scamander, Bicheno, Freycinet, the Bay of Fires and Coles Bay. The Great Eastern Drive is one of the most heavily occupied tourism routes in Tasmania.

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3.6 Quest, Launceston 16 Paterson Street Launceston Leasehold Asset

Quest Launceston serviced apartment style hotel rooms offer guests a relaxed and comfortable Launceston accommodation experience perfect for short or long stays.

3.0 Portfolio Details

Launceston is Tasmania’s second major city and a vibrant hub for food and wine, culture and nature.

In fact, the whole region is packed with city and country charm, gorgeous old towns, excellent food and wine and beautiful scenic highlights.

Quest Launceston serviced apartment style hotel offers guests 43 comfortable apartments including Studios and One, Two or Three Bedroom Apartments. Studios are the perfect alternative to a hotel room and have kitchenettes. The One, Two and Three Bedroom Apartments are ideal for families, colleagues or larger groups looking for a home away from home experience with full kitchens and laundry facilities.

EXPERIENCE QUEST LAUNCESTON Quest Launceston is a magnificently restored heritage building superbly located in the heart of the city and next door to the restaurant precinct, city mall and tourist information centre, and only minutes to the renowned Cataract Gorge, Boags Brewery and River Cruise Terminal.

PROPERTY FEATURES

•• Access to off-site gymnasium •• Conference facilities •• In-house movies •• Wheelchair access •• Business administration services •• Conference room facilities •• AAA 4.5 Star rating located in

Investment Opportunity | January 2019

LAUNCESTON ACCOMMODATION

the heart of the city

PROPERTY SERVICES

•• Breakfast options •• Restaurant chargeback •• Pantry shopping •• Valet dry cleaning •• Housekeeping service Monday-Saturday (excluding public holidays)

APARTMENT FACILITIES & FEATURES

•• Separate living and dining area (excluding Studios)

•• Fully equipped kitchens and laundry facilities •• Kitchenettes in Studios •• Stylish furnishings •• Apartment controlled air conditioning •• Flatscreen TV with Foxtel •• Work desk and WiFi internet access •• Mini bar • In-room safes

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4.0 Portfolio Strategy

Pentagon intends to implement an active operational and asset management strategy on the portfolio over the term of the syndicate, summarised as follows: 4.1 Branding Improvement Pentagon intends to rebrand the freehold properties with Choice Hotels with a preferred branding of Comfort Inn. The changeover from Golden Motel will provide access to the Choice Hotels guest database which will assist in driving occupancy and average room rate.

Furthermore, Comfort Inn guests typically have higher spending capacity than Golden Chain Motel Patrons. The rebranding will involve the following activities:

•• Integration of Room master into Choice Hotels Group network.

•• Introducing the capacity to update room inventory both online and on-site.

•• Booking website audit/integration.

•• Informing past, present and future guests of the branding change.

4.2 Refurbishment / Capital Expenditure Improvement During the first 3 months of operations, Pentagon has allowed for significant capital expenditure to

4.0 Portfolio Strategy

upgrade the properties to provide a superior level of accommodation which is in line with the new branding. Thereafter, Pentagon, via its operating entity, will operate and maintain the properties in good condition. This refurbishment, together with the location advantages of the properties and the new Comfort Inn branding to each property, will help Pentagon to create a more sustainable

the portfolio.

•• Full upgrade to bottle shops •• Upgrade to restaurant, to bring a modern and fresh feel

4.3 Asset and Lease Management The proposed capital expenditure involved and re-branding to a superior brand will create

Investment Opportunity | January 2019

business environment and enhance earnings from

synergies with each of the other operating departments, being food and beverage, bottle shop and gaming. This improvement to operational quality is expected to significantly improve both the operating cash flow and the asset values.

4.4 Performance Enhancement The expected performance enhancement of the properties associated with the re-branding and capital expenditure program is expected to increase the occupancy of the portfolio. The upgraded rooms and other guest areas such as restaurants, bars and swimming pools will be a great selling feature in capturing both existing and new guests to the properties. Being in locations with are most attractive to tourists, it is expected that very high occupancy can be achieved during peak time and revenue can be driven of this high occupancy and the established an extensive local database, Pentagon can also drive demand by implementing local marketing strategies across many platforms.

4.5 Market Position The core market for the properties currently relies on tourism inbound from overseas and interstate bringing high seasonal yield across all departments.

With Pentagon’s operating experience in the hospitality industry and the combines team expertise, high importance will also given to business clientele who are year-round travellers.

Choice Hotels reservations platforms will also open opportunities with many national and international companies by connecting with their national reservation database.

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Tasmania Tourism Market Summary

•• Tourism in Tasmania contributes about $3.03 billion to the state annually, $1.44 billion

directly and $1.58 billion indirectly. (Source Tasmanian Tourism Snapshot – year ending March 2018 – TT).

•• 1.22 million visitors on scheduled air and sea services during the year ending March 2018.

This does not include cruise ship visitors.

•• Visitor expenditure is up by 7%.

•• Over 300,000 international visitors, an increase of 20%.

•• Visitors spent a total of 10.83 million nights in

Tasmania, at an average length of stay per visitor of 8.4 nights.

•• Out of the total number of visitors, 640,000 for leisure, 338,000 for friends and family, 235,000 for business and conference.

•• Around 89% of all visitors on scheduled

air and sea services travelled by air, 55% of these through Hobart Airport, 28% through Launceston Airport.

•• Most popular airline routes (Hobart to/

from Melbourne, Sydney and Brisbane) and (Launceston to/from Melbourne/Sydney).

•• Most visited regions, South at just over 1 million,

North & East combined at just over 1.1 million, all posting growth.

•• For the 12 months ending May 2018, the average annual occupancy rates were 81% in the South and 71% in the North, the overall average occupancy being 74%.

•• Government spending on strategic advertising

and infrastructure, airport upgrades include new direct flights Hobart to/from Adelaide and also

4.0 Portfolio Strategy

Hobart to/from Perth.

•• Hobart Airport planning on direct flights to Asia,

New Zealand and USA and expected to increase passenger flow to over 3 million per year by 2022.

•• Tourism Tasmania reveals Tasmania is now more popular than Queensland as Australia’s most popular holiday destination with good food, drink and scenery among the top selling points.

Recent Airport terminal upgrades at both Hobart

passenger days, an increase of 44% from the

and Launceston along with runway extensions have

previous year.

been recently completed to cater for the increased

•• Spirit of Tasmania continuing growth, up 15% in

2016 from previous year, government committed to $700 million expenditure with two new larger ships to cater for demand.

visitation to the state.

Deloitte Access Economics (DAE) has forecast the Tasmanian economy to record solid economic growth over the next five years.

There are 2,345 poker machines in hotels and clubs currently in use with the balance in the 2 casinos

Investment Opportunity | January 2019

•• 130 cruise ships visited, accounting for 341,000

and on the 2 Spirit of Tasmania passenger ferries.

MELBOURNE AIRPORT

This equates to only 1 hotel/club poker machine for every 222 people in Tasmania, as compared to the following states around the country:

TO MELBOURNE

ST HELENS A3

DEVONPORT LAUNCESTON A4

A3

TASMANIA

222

1

HOBART

NSW

Tasmania has become a highly-sought tourism destination not only within Australia, but also globally in recent years. Hobart in particular was

81 ACT

82

voted by Lonely Planet as one of the ‘Top 10 Places to Visit’ in the world in 2015. The city boasts a range of world class events and attractions (Salamanca Place, historic locations and MONA Gallery) and acts as the gateway to all that Tasmania has to offer including iconic wineries, incredible produce and un-replicated natural beauty.

As a result, Hobart and key parts of Tasmania have witnessed considerable growth in domestic and international visitor arrivals and consequential hotel trading performance.

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5.0 Risks

Like any investment, there are risks associated with investing in the Trust. There are a number of risk factors that could affect the performance of the Trust and the repayment of an Investor’s capital.

Many risk factors fall outside of the Trustee’s and the Manager’s control and cannot be completely mitigated.

The following is a non-exhaustive list of the main risks associated with investment in the Trust.

Investors should consider and weigh them up carefully and make their own assessment as to whether they are comfortable with them.

Distributions are not guaranteed and neither is the return of Investors’ capital.

Hotel Industry Conditions Risk Change in macroeconomic factors which affect the hotel industry such as interest rates, employment levels, business confidence, social attitudes and/ or consumer preferences may impact on the performance of the Trust.

Hotel Manager Risk Pentagon Group Hotels Tas will be appointed as the hotel manager, and will be required to manage the hotel on a day-to-day basis pursuant to the Hotel Management Agreement. The performance of the operator will have an impact on the returns of the Trust. There is a risk that the Manager or the Manager’s asset management strategy will not achieve its performance objectives or produce returns that compare favourably against its peers.

Many factors can negatively impact the Manager’s ability to generate acceptable returns e.g. loss of key staff.

Interest Rate Risk Changes to interest rates can have a direct and indirect impact (negative or positive) on returns.

The income return on your investment is not

5.0 Risks

guaranteed and could go down. This could happen due to factors such as the deterioration of the

institution, adverse movements in the Australian and overseas interest rates, market illiquidity, adverse movements of exchange rates, negative changes in monetary policy and other economic, social and political factors.

Property Market Risk The value of the property asset held by the Trust are subject to property market conditions.

Increased supply or falls in demand in hotel or any other sectors of the property market, as well as fluctuations in yields sought by investors in

Regulatory Risk

property, the risk of vacancy, non-payment of rent

The Trust’s operations may be negatively impacted

and re-leasing of properties, could influence the

by changes to government policies, regulations and taxation laws.

by tenants and fluctuations in rentals on leasing value and income of the property assets held by the Trust.

Market Risk

Additionally, abnormal or difficult market

Investment returns from the Trust are affected

to become illiquid and restrict our ability to

by general market conditions and may decline over short or extended periods due to market sentiment, economic, technological, legal, social and/or political factors. None of these conditions are within the Trustee or the Manager’s control and no assurances can be given that such factors will be anticipated.

conditions may cause some normally liquid assets sell them and to make withdrawal payments for Investors without significant delay.

Borrowing Risk Gearing allows the Trust to leverage its investments, since the money received from borrowings can be invested by the Trust. This increases the potential

General Economic Risks

for both profits and losses in the Trust. Depending

General economic factors including (but not limited

may pledge or grant security over part or all of the

to) equity and credit market cycles and interest rate movements may have an adverse effect on the profitability of investments and the performance of the Trust.

Taxation Risk

on the arrangements with the lender, the Trustee assets of the Trust. In addition, providers of the borrowed funds to the Trust could withdraw their funding and alternative funding sources may not be available, which may have a material impact on potential returns of the Trust.

The returns to Investors may be affected by

Disaster Risk

changes to taxation legislation. Changes to taxation

Disasters such as natural phenomena, acts of

legislation may necessitate a change to the Trust’s structure to ensure Investor interests are protected.

Liquidity Risk There are no rights to withdraw your investment in the Trust or to require us to repurchase your investment. In addition, there will not be any established secondary market for Units. However, Investors may be able to transfer their Units to another person, subject to the approval of the

Investment Opportunity | January 2019

financial position or credit rating of a financial

God and terrorist attacks may damage or destroy properties. This may result in delays being incurred in repairing properties, or may result in properties not being reparable at all. In addition, it may not be possible to insure a property against some of these events or to obtain insurance at commercially reasonable rates. Occurrence of these events could also lead to insurance becoming unavailable for such events in the future, or premiums increasing above levels expected by the Manager.

Trustee at its discretion.

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Building Risk Property assets naturally deteriorate over time and are subject to disasters, which can damage the structure of the building. There is a risk that the value of a property could diminish if the building on the properties forming part of the Trust’s portfolio (if any) deteriorate or are damaged.

Development and Construction Risk The Manager may undertake development and construction on the portfolio and there are specific risks associated with this type of activity. These risks include: a. Construction or development costs can exceed budgeted costs and the Manager may be unable to complete the project unless the Trust can obtain further funds. b. The funds kept in reserve by us to complete the project being insufficient to meet the cost of completion. c. A change in market conditions could result in the project’s value on completion being worth less than anticipated, or in lower sale rates and prices than expected.

We strongly recommend that Investors obtain independent financial advice before investing in

5.0 Risks

the Trust.

Investment Opportunity | January 2019

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6.0 Fees and Costs

6.1 Establishment Fee A syndicate establishment fee of 2.5% of the gross purchase price of the portfolio is payable to the Manager. This fee is calculated and payable within 10 business days of the settlement date from the assets of the Trust. The 2.5% fee is split as 1.5% payable in cash upon settlement and 1% payable as units in the Trust.

In addition to the establishment fee, the Manager is entitled to the following up front fees associated with the acquisition of the portfolio and the set up of the Trust.

•• A fee for carrying out property & business due

diligence on the portfolio equivalent to 0.5% of the total acquisition price of the portfolio.

•• An equity raising fee equivalent to 0.5% of the total acquisition price of the portfolio.

6.2 Syndicate Management Fee A syndicate management fee of 1.0% per annum of the gross purchase price of the portfolio is payable to the Manager. This fee is calculated and payable monthly.

6.3 Syndicate Operations and Administration Fee This is the fee for the administration services payable in connection with the Trust and is paid to the Manager. This fee is 0.75% per annum of the gross value of the Trust’s assets. The fee is used to cover all operational costs including auditing, accounting, legal, marketing, and other service providers. Any balance remaining after the payment of these expenses will be paid to the Manager. This fee is calculated and payable monthly.

6.0 Fees & Costs

6.4 Performance Fee The Manger is entitled to a performance fee of 25% of equity returns to investors over an IRR hurdle of 12%. This fee is calculated and payable within a month of the end of the term of the Trust, or when any asset in the portfolio is sold.

portfolio. This fee is calculated as 3% of the value of

The Manager does not provide financial or tax

6.5 Project Management Fee The Manager is entitled to project management

works undertaken.

6.6 Goods & Services Tax Unless otherwise stated, all fees quoted are quoted exclusive of GST. The Trust may not be entitled to

advice, nor has it obtained taxation advice specific to the subject of this IM. As such, this IM cannot address all of the taxation issues which may be relevant to the Investor. The Investor must take full and sole responsibility for their investment in the

claim a full input tax credit in all instances.

Trust, the associated taxation implications arising

6.7 Waiver, Deferral or Rebate of Fees

taxation implications during the course of that

The Manager may, in its absolute discretion, accept lower fees and expenses than it is entitled to receive, or may defer payment of those fees and expenses for any time. If payment is deferred, then the fee will accrue until paid. In addition, the Manager may waive, negotiate or rebate their fees, for example, in the case of a large investment

Investment Opportunity | January 2019

fees for any capital works undertaken on the

7.0 Taxation Information

from that investment and any changes in those investment.

Before investing in the Trust, you should obtain your own independent tax advice, which takes into account your own circumstances. In particular, you should seek advice on income tax and interest withholding tax liabilities arising out of the investment.

amount.

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8.0 Expression of Interest Form

8.0 Expression of Interest Form

Investment Opportunity | January 2019

Pentagon Tasmania Hotel Trust

I,

Home

apply for units on behalf of the entity listed below.

Work

Mobile

Email Number of $1 units applied for: I confirm that a 20% deposit will be paid no later than

2019.

I confirm the balance of funds will be provided by EFT Details are as follows: Name BSB

Account Number

Please note your name on the transfer so this can be identified.

Please mail, scan or email the completed application form (2 pages) by no later than 31st March 2019 208/198 Harbour Esplanade Docklands VIC 3008 Phone: (03) 9670 8356 Email: vijan@pentagongroup.com.au I acknowledge and agree that this application is made subject to the disclaimer set out in the information memorandum in relation to Pentagon Tasmania Hotel Trust.

I understand that the Directors of the Manager and their associated entities have recommended that I seek independent professional advice before entering a purchase of units in the Trust.

I agree to provide a high net worth investor certificate from my accountant to satisfy the requirement as set out in Information Memorandum if my investment is less than $500,000 when requested by the Manager. or I do not have $2.5m in net assets or $250,000 in gross income in the last two financial year so I do not qualify as a sophisticated investor.

Dated this

day of

2019

Signed

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For companies, Trust and Superannuation Funds (Tick one circle only)

1. Company Company Name Address

TFN ABN

2. Trust Name of Trustee Address

TFN ABN

3. Superannuation Fund Name of Trustee

7.0 7. Expression of Interest Form

Address

TFN ABN

You are requested to provide your Tax File Number

Only legal entities are allowed to invest in the

(TFN), Australian Business Number (ABN) or

Trust. Applications must be in the name(s) of

exemption code, and failure to quote an ABN or

natural person(s), companies or other legal entities

TFN will result in tax being withheld by the Trustee

acceptable to the Manager. At least one full given

on distributions paid to the Investor at the highest

name and the surname are required for each

marginal tax rate plus Medicare levy. It is not

natural person. The name of the beneficiary or any

compulsory for you to quote your TFN or ABN.

other non-registrable name may be included by

The Manager has the sole discretion whether to accept or reject an application. If your application is rejected, wholly or in part, then the Manager

way of an account designation if completed exactly

Investment Opportunity | January 2019

8.1 Application Form Instructions

as described in the example of correct forms of registrable title shown below.

will notify you in writing and arrange for return of

The application form should be signed by the

your application money to you. Interest will not be

applicant. If a joint holding, all applicants should

paid to applicants on application money. If your

sign. If signed by the applicant’s attorney, a certified

application to invest in the Fund is accepted, then

copy of the power of attorney must be attached

interest earned on your application money will

to the application form. If executed by a company,

be retained by the Manager. If your application

then the form must be executed in accordance

to invest in the Trust is not accepted, then your

with the applicant’s constitution and the Act.

application money will be returned to you (without interest).

By sending a completed application form, you are making an irrevocable offer to become an Investor in the Trust and you are agreeing to be legally bound by the Constitution and the terms of the IM.

Type of Investor

Correct Form

Incorrect Form

Individual

Mr John David Smith

J D Smith

Company

JDS Pty Ltd

JDS P/L or JDS Co

Trusts Deceased Estates Partnerships Clubs/Unincorporated Bodies Superannuation Funds

My John David Smith <J D Smith Family A/C> Mr Michael Peter Smith <Est Late John Smith A/C> Mr John David Smith & Mr Ian Lee Smith Mr John David Smith <Smith Investment A/C> John Smith Pty Limited <J Smith Super Trust A/C>

John Smith Family Trust John Smith (deceased) John Smith & Son Smith Investment Club John Smith Superannuation Trust

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9.0 Financial Summary

Upfront Costs and Source of Funds Item Current - Portfolio Net Income Forecast - Portfolio Year 1 Income Purchase Price Stamp Duty Manager’s Due Diligence Fees Manager’s Equity Raising Fees and Travel Legal, Taxation and Accounting Physical Due Diligence Stock and Hotel Cash Floats Manager’s Acquisition Fee Lender’s Fee Mortgage (70%)

9.0 Financial Summary

Equity Required

The Foreshore

Bayside Inn

Quest Launceston

Total

$1,555,743

$1,188,536

$969,694

$303,188

$4,017,161

$1,477,807

$1,272,088

$1,070,472

$303,188

$4,123,555

-

-

-

-

$31,450,000

-

-

-

-

$1,621,185

-

-

-

-

$158,675

-

-

-

-

$208,675

-

-

-

-

$297,400

-

-

-

-

$178,050

-

-

-

-

$2,250,000

-

-

-

-

$476,025

-

-

-

-

$274,490

-

-

-

-

$22,214,500

Investment Opportunity | January 2019

Olde Tudor Hotel

$14,700,000

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Income Forecasts Year 1

Year 2

Year 3

Year 4

Year 5

$4,123,556

$4,301,624

$4,507,604

$4,645,212

$4,854,902

$1,580,671

$1,685,711

$1,787,289

$1,826,190

$1,784,412

Management Fees

$283,947

$299,361

$314,775

$323,812

$325,312

Annual Fees

$378,597

$399,149

$419,701

$431,750

$433,750

$40,585

$41,385

$42,862

$44,537

$49,889

$1,839,756

$1,876,018

$1,942,977

$2,018,923

$2,261,539

12.50%

12.80%

13.20%

13.70%

15.40%

Net Rental Income Mortgage Interest - 6.9% p.a.

Managerâ&#x20AC;&#x2122;s Equity Carry Net Income Income Yield Notes:

1. Loan terms are indicative only and amount will be confirmed during the acquisition period.

2. Managerâ&#x20AC;&#x2122;s assumption is that all Capital Expenditure will be funded by drawing on further debt.

However, the Manager reserves the right to partially fund Capital Expenditure out of surplus cashflow. (see below) 3. Surplus cashflow after paying a 9% p.a. distribution to investors will either be retained by the trust for future contingencies, applied towards capital expenditure, or used to pay down bank debts.

4. The manager may also in its discretion increase the payout to investors above 9% provided it is satisfied that both debt reduction and future capital requirements are adequately provided for.

Cash Reserves for Capex & Incentives Opening Cash Net income Distribution - 9% Closing Cash

-

$489,756

$1,015,774

$1,608,751

$2,277,674

$1,839,756

$1,876,018

$1,942,977

$2,018,923

$2,261,539

$1,350,000

$1,350,000

$1,350,000

$1,350,000

$1,350,000

$489,756

$1,015,774

$1,608,751

$2,227,674

$3,189,213

Notes

Notes

Investment Opportunity | January 2019

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208/198 Harbour Esplanade Docklands Vic 3008 www.pentagongroup.com.au