SPIRE GLOBAL INVESTMENT SERIES

Now open to Investment. Wholesale investors only.

BACKGROUND

The term ‘multifamily’ is one that may be unfamiliar to many Australian investors, quite simply because it is an asset class that does not yet exist in Australia. Multifamily describes an apartment complex or community, where all of the occupants are tenants, i.e. there are no owner-occupiers. The property is owned in whole by a single owner, often an institutional investor or family office. These can be large assets, providing between 300 and over 1,200 rental units in a single property. They can either be ‘downtown’ high-rise, or suburban low-rise, gated, ‘garden-style’ communities. Larger assets employ on-site property and leasing managers with 24/7 on-site security. Leases are for 12 months, although many tenants stay for much longer periods – from years to decades. Investors like the shorter term leases in multifamily, as it allows quicker access to market increases than other property types.

Approximately 35% of US households are ‘renters’ and over the past 30-years, the multifamily market has grown to the point where it is the dominant provider of residential rental accommodation in the US. New household formation, immigration, a transient US workforce, and – increasingly – downsizing seniors, are all important demand drivers.

Multifamily has also grown to become the second largest commercial property asset class in the US, second only behind the commercial office market. The US multifamily market has deep liquidity, with over US$170 billion in assets traded during 2018. This liquidity is supported by many different lenders, from national and regional banks, to the largest lender in the sector – Freddie Mac – which underwrote and securitised US$78 billion of multifamily loans during 2018.

Passive, yield-focused investors in multifamily are attracted by the low volatile nature of the income streams that stabilised (i.e fully leased at market rates), well managed multifamily apartment communities generate. A multifamily community with 1,000 tenants provides much less vacancy risk and rental volatility than a commercial office or industrial property of the same leasable area, which may only have a handful of tenants. As such, multifamily has been called the ‘gold standard’ for institutional property investors since the GFC.

This low-risk profile of multifamily is particularly the case with Class-B multifamily properties, as evidenced by the Fund’s US Investment Manager, Bridge Investment Group’s experience with its portfolio of circa 9,000 Class-B units during the Global Financial Crisis. Their experience was an initial GFC induced fall in Net Operating Income (NOI) of 3%, but recovery into positive territory within 12-months as housing affordability became paramount. Over the past decade, national multifamily vacancy rates have fallen to below 5%, and rents for ‘Class-B’ assets – where the fund will focus – and have been increasing between 4% and 5% per annum. In addition, most new supply has been in ‘Class-A’ product, which needs to achieve much higher rents (often 3 to 4 times higher), than Class-B, due to their higher land and construction costs. There is negligible new supply of Class-B product. Also, value-add Class-B multifamily assets, can be acquired at significant discounts to replacement cost, sometimes in the order of 50%. This provides substantial pricing power relative to Class-A and caters to a much broader target market. These are the reasons that Class-B remains the ‘smart’ choice in US multifamily investing.

OVERVIEW

Spire USA Multifamily Fund IV (AUD) (‘the Fund’) acts as a wholesale Australian feeder fund into the strategy and assets of Bridge Multifamily Fund IV LP (“BMF IV”); a Private Equity Real Estate fund. BMF IV is targeting US$750 million in equity via its capital raise. A Hard Cap of US$1 billion is likely to be determined.

The Investment Manager for the underlying fund is Bridge Investment Group LLC. Bridge is a specialist US real estate funds manager with over US$15 billion in assets under management. Bridge is headquartered in Salt Lake City, Utah, with offices in New York, San Francisco and Orlando. Over the last 24 years Bridge has invested, managed and sold several billion dollars of property assets across all segments of the market. Bridge has a strong operating and property management platform, comprising over 1,000 management, leasing and facilities employees across the 30 states in which assets are owned.

BMF IV will essentially create stabilised multifamily investments for passive, ‘buy & hold’, often institutional, investors to acquire via a competitive process, either individually or as part of a portfolio. BMF IV will be a ‘manufacturer’ of institutional grade assets, on a ‘buy, fix & sell’ basis in order to identify, unlock and return added value to investors. Typically (as the following case Study shows) the strategy will be executed by acquiring a 1980s or 1990s vintage B-grade, suburban garden style asset, which is tired and under ammenitised, and is therefore leased at rentals below the current market for fresher product with better ammenities.

Bridge will implement a business plan which will involve a capital expenditure program to refresh and ammenitise the asset, and then drive a new leasing and renewal strategy at the higher market rents now unlocked as a result of the repositioning of the asset within its market. When it has stabilised the asset (typically 93%+ occupancy at market) and added full value, Bridge will then seek to sell the asset via a competitive process.

BMF IV may also develop new assets (5-10% of the portfolio).

The targeted IRR on invested capital for BMF IV is 12-14% net (USD denominated).

HOW THE FUND INVESTS

The Fund will commit, as a single Limited Partner, capital into the underlying fund progressively during the capital raising period, which is expected to run through until the end of Q3 2019. By doing so, the Fund will acquire a proportionate interest in the underlying funds’ assets, at the original cost of those investments. The Fund will also pay an equalisation premium (estimated at between 2-4%), which is paid to earlier Limited Partners to compensate them for their dilution in the current portfolio.

The underlying fund, BMF IV, will continue to raise committed capital during its capital raising period, which will run between 12 and 18 months from its first close, depending upon if and when BMF IV reaches its target or hard cap. The underlying fund will also continue to invest committed equity during its 3 year (from first close) Investment Period. Following the Investment Period, the underlying fund will have a Harvest Period of up to 5 years*, during which time it will sell assets which have completed their value-add plan, and are thus considered stabilised. During the Investment Period rental income will be distributed to investors on a six-monthly basis as at 30 June and 31 December. During the Harvest Period, income from rentals and profits from sale, together with original capital, will be distributed to investors on the same six-monthly basis.

* The Harvest Period contains a 1+1 year extension provision which may be exercised at the discretion of the Investment Manager.

THE INITIAL PORTFOLIO (AS AT DECEMBER 2018)

BMF IV currently has 16 value-add multifamily assets already acquired or under contract at a total purchase price of approximately US$916 million. These are summarised below. If the targeted equity raise of US$750 – $1,0000 million is achieved, then Spire would expect a total portfolio size of 50 – 60 assets with a total purchase price of circa US$2.5 billion.

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The Fund aims to outperform the MSCI World Small Cap Index $A by 2% to 3% p.a. gross over a full market cycle (e.g. 5 to 7 years).

• The Fund will invest primarily in equity securities of US and non-US issuers listed on globally recognised exchanges of developed markets.
• Investment in any one region or sector will generally be limited to +/- 6% relative to the Benchmark.
• Investment in any one security will generally be limited to +/- 3.5% relative to the Benchmark.
• The Fund may also invest up to 15% in emerging markets.
• The securities in which the Fund may invest include common stocks, preferred stocks, convertible debt, depository receipts, rights and warrants.
• The Fund may also invest in initial public offerings and private placements.
• The Fund will generally hold between 80 and 120 securities.
• The top 20 holdings will generally form 30% to 40% of the Fund.
• The Fund will generally hold a maximum of 5% in cash.
• The Fund will generally be unhedged, but there may be instances where the Fund has the ability to Hedge back into USD.

*Performance is for the Copper Rock Global Small Companies Commingled Fund and is based on month-end unit prices before tax in Australian dollars (AUD). The Spire Copper Rock Global Smaller Companies Fund is a unit class of the Copper Rock Global Small Companies Commingled Fund. Gross performance is stated excluding all fees, costs and taxation. This is historical performance data. It should be noted the value of an investment can rise and fall and past performance is not indicative of future performance.

THE FUND IS CLOSED TO NEW INVESTMENT.

The Fund will invest as a single Limited Partner in two US private equity real estate investment programs implemented by the Investment Manager, Bridge Investment Group LLC; a specialist US real estate manager with over US$10 billion in AUM and over 1,000 employees nationwide. The first investment program will acquire value-add multifamily apartment communities, and will represent approximately 60% to 70% of the Fund’s investments. The second will acquire value-add commercial office buildings in high growth markets within the United States and will represent approximately 30% to 40% of the Fund’s investments.

This combination of exposure to value-add multifamily apartments and value-add commercial office properties is consistent with the highly successful predecessor funds in the ‘ROC’ fund series, which began in 2009. ROC is an acronym for ”Real estate Opportunity Capital”, and reflects the private equity real estate fund thesis of having committed capital available to take advantage of opportunities in the market.

As at the date of the PDS, the Bridge Multifamily Program has a strong pipeline of potential acquisitions, with 12 assets providing 3,884 rental units, having been identified for potential purchase from different sellers, at a total purchase price of US$517,250,000 million. The Bridge Multifamily Program’s first assets are expected to be acquired in mid-late March, following the program’s initial capital raising. The Bridge Multifamily Program is seeking to raise a total of US$1 billion in capital commitments, with a target rate of total return (income plus growth) on invested capital of a 12-14% net IRR (USD denominated). If the Investment Manager is successful in achieving its capital raising target (as we expect it to be), then we would expect approximately US$2.5 billion of multifamily investments to be acquired during the program’s 3-year Investment Period, which will begin on the First Close of the Bridge Multifamily Program (expected to be late March 2018).

The Bridge Office Program is seeking to raise a total of US$750 million in total equity commitments from Limited Partners, with a target rate of total return on invested capital of a 14-16% net IRR (USD denominated). If the Investment Manager is successful in achieving its capital raising target, we would anticipate that between US$1.5 billion and US$2 billion in value-add office properties will be acquired within pre-defined target markets over the program’s 3-year Investment Period, which began in July 2017. As at the date of this PDS, the program has already acquired 19 value-add commercial office assets at a total cost of US$507.65 million. The Investment Manager has estimated that this price represents a 51% discount to replacement cost.

The Investment Manager’s investment approach in both the Bridge Multifamily and Bridge Office Programs combines a disciplined asset selection process with a focus on operationally-oriented, value-added improvements that increase tenant satisfaction and solve vacancy issues. These improvements are designed to drive growth in Net Operating Income (NOI) and value. This value-add approach is core to the Bridge DNA.

The period following the expiration of each program’s Investment Period is known as its Harvest Period, during which Bridge and its affiliates will execute sales of stabilised investments, i.e., those investments whose value-add strategies have been completed, on an individual or portfolio basis. Realised capital and profits will then be returned to investors, whilst net rental income will be distributed annually.

We believe that an investment in the Spire USA ROC IV Fund (AUD) is a worthwhile consideration for those investors seeking to diversify part of their portfolio both globally and into an ‘alternative’ investment strategy which seeks to generate above market returns, with low or potentially inverse correlation to the returns and volatility of Australian and global listed equity markets.

THE FUND IS CLOSED TO NEW INVESTMENT.

The Fund will invest as a single Limited Partner in a US private equity real estate investment program implemented by the Investment Manager, Bridge Investment Group LLC, a specialist real estate manager with in excess of US$10 billion AUM and over 1,000 employees nationwide. The Bridge Office Program which will acquire value-add commercial office buildings in high growth markets within the United States.

Investment in value-add commercial office properties has been an integral part of the investments within the highly successful ‘ROC’ fund series, which began in 2009. ROC is an acronym for ”Real estate Opportunity Capital”, and reflects the private equity real estate fund thesis of having committed capital available to take advantage of opportunities in the market.

The Bridge Office Program is seeking to raise a total of US$750 million in total equity commitments from Limited Partners, with a target rate of total return on invested capital of a 14-16% net IRR (USD denominated). If the Investment Manager is successful in achieving its capital raising target, we would anticipate that between US$1.5 billion and US$2 billion in value-add office properties will be acquired within pre-defined target markets over the program’s 3-year Investment Period, which began in July 2017. As at the date of the PDS, the program has already acquired 19 value-add commercial office assets at a total cost of US$507.65 million. The Investment Manager has estimated that this price represents a 51% discount to replacement cost.

The Investment Manager’s investment approach in the Bridge Office Program combines a disciplined asset selection process with a focus on operationally-oriented, value-added improvements that increase tenant satisfaction and solve vacancy issues. These improvements are designed to drive growth in Net Operating Income (NOI) and value. This value-add approach is core to the Bridge DNA.

The period following the expiration of each program’s Investment Period is known as its Harvest Period, during which Bridge and its affiliates will execute sales of stabilised investments, i.e., those investments whose value-add strategies have been completed, on an individual or portfolio basis. Realised capital and profits will then be returned to investors, whilst net rental incomes are distributed annually .

We believe that an investment in the Spire USA ROC Office Fund I (AUD) is a worthwhile consideration for those investors seeking to diversify part of their portfolio both globally and into an ‘alternative’ investment strategy which seeks to generate above market returns, with low or potentially inverse correlation to the returns and volatility of Australian and global listed equity markets.

Spire USA ROC Office Fund I (AUD) is a unit class of Spire USA ROC IV Fund (AUD).

THE FUND IS CLOSED TO NEW INVESTMENT.

Introducing EVP Fund II – an accredited Early Stage Venture Capital Limited Partnership (EVCLP). As such all profits are tax-free, and investors are subject to a 10% rebate on invested capital. The Fund is open to wholesale investors only.

Investing early in Australia’s most successful technology startups to deliver outstanding returns.

• EVP has a longstanding reputation as one of Australia’s leading technology investors. EVP has backed some of Australia’s most successful startups over the past decade.
• The team is recognised for its unique and extensive experience scaling early-stage technology companies. Founders routinely seek out EVP as their preferred investment partner.
• The Fund has a high conviction, active investment approach, partnering with portfolio companies over the long term and working closely with management to drive a return on capital.
• The Fund’s objective is to deliver a 5 times return on capital over a 7 year period.
• The Investment Committee has already identified and negotiated Fund II’s initial two investments into Fusion Sports and Pendula. Both of these businesses are materially growing, are profitable, have significant product leadership within their categories and represent proprietary EVP deal flow opportunities not recognised nor approached by any other Australian VC investor.
• The EVP team invests in real businesses with demonstrable early commercial traction, product in market and paying customers. Typically the founding team has developed a unique software solution to solve a pain point within a niche, but often very large, sector vertical.
• The Fund is drawn towards businesses with favourable underlying unit economics; typically B2B software-as-a-service businesses that deliver high-margin recurring revenue with minimal churn and scope to increase revenue per customer over time.
• Capital is allocated to founding teams looking to build out commercial go-to-market capabilities rather than developing technologies or novel ideas.
• As a result of the Investment Committee’s involvement in over 30 successful startups and its active investment style, the EVP team is able to assist founders to navigate the common hurdles faced by technology businesses and significantly de-risk Fund II’s investments.

THE FUND IS CLOSED TO NEW INVESTMENT.

The Fund acts as an Australian feeder fund into the assets of Real Estate Opportunity Capital Fund, LP (“ROC II”). ROC II is a US$2.1 billion “buy, fix, sell” private equity real estate fund, investing in value-add US multifamily apartment communities and office buildings, which are generally acquired opportunistically from distressed sellers or Mortgagees in Possession.

The Fund owns a 5.88% share of a diversified portfolio of ‘value-add’ real estate assets across the US. As at the date of this update, the ROC II portfolio had invested in 52 multifamily apartment communities and 9 office buildings, and of these 11 have now been sold at an average 22.2% net IRR and 1.38x multiple on invested equity. US$1.9 billion in assets remain, which will also be progressively sold down during the ‘harvest period’ as each asset’s value has been maximised and stabilised.

THE FUND IS CLOSED TO NEW INVESTMENT.

Spire has again partnered with US based Bridge Investment Group LLC, to provide Australian investors with the ability to access income and growth via an investment in the US Senior Housing and Medical Properties market.

Spire USA ROC Senior Housing and Medical Properties Fund II, will operate as a feeder fund to the underlying US investments sourced and managed by Spire’s US real estate partner, Bridge Investment Group  LLC.

The Fund acts as an Australian feeder fund into the assets of Bridge Seniors Housing and Medical Properties Fund II, LP (“Bridge Seniors II”). Bridge Seniors II is a “buy, fix, sell” private equity real estate fund, investing in income producing and value-add US seniors housing and medical office properties.

The Fund intends to provide investors with meaningful and consistent Current Income paid on an annual basis and the potential for strong capital appreciation and attractive risk-adjusted returns by investing in select Seniors Housing properties located throughout the US. The Fund will focus on independent living (“IL”), assisted living (“AL”) and memory care (“MC”) facilities, although the portfolio may also include skilled nursing facilities (“SNF”) and continuing care retirement communities (“CCRC”). The Fund also intends to opportunistically invest in select medical office and other healthcare-related properties which represent exceptional value.

Following the Investment Period, an exit strategy will be executed, which may include an IPO or trade sale of the portfolio.

Bridge Seniors II will acquire assets that will benefit from what is being called the “Silver Tsunami’ – the US ageing population demographic, in which over 10,000 people per day are turning 65.

Each asset acquired will have a value-add strategy which will be implemented to increase the property’s cash flow and total return. In many cases this will involve increasing the number of Memory Care beds in a facility. Memory Care is a relatively new specialist sector and asset class within the US senior housing market, which provides specialist accommodation and care programs for residents afflicted with dementia; the leading cause of which is Alzheimer’s disease.

Currently in the US, there are over 5 million people living with Alzheimer’s and someone develops Alzheimer’s every 68 seconds. Yet there are only 35,000 Memory Care beds available. Accordingly, most Memory Care facilities are 100% occupied – with waiting lists.

Following the amalgamation of the portfolio during the Fund’s Investment Period, Bridge will asses the method and timing of the most profitable exit strategy for the portfolio. It is expected that this exit strategy will seek to exploit the pricing differences between the private markets and the public markets, via a portfolio or portfolio sales to publicly traded Real Estate Investment Trusts (REITs), or via an Initial Public Offering (IPO) of the portfolio as a new REIT. Alternatively individual assets may be sold when value has been maximised.

The Bridge  team behind the underlying Bridge Seniors II program, concluded a similar strategy in 2006 via the sale of a US$5 Billion portfolio of US Senior Housing properties to a publicly traded REIT, generating a portfolio Internal Rate of Return (IRR) of 33% (p.a.).

THE FUND IS CLOSED TO NEW INVESTMENT.

Spire’s second Fund has again partnered with US based Bridge Investment Group Partners, LLC, to provide Australian investors with the ability to access income and growth via an investment in the US Senior Housing and Medical Properties market.

Like Spire’s inaugural “ROC II” Fund, Spire USA ROC Senior Housing and Medical Properties Fund (AUD), will operate as a feeder fund to the underlying US investments sourced and managed by Spire’s US real estate partner, Bridge Investment Group Partners, LLC.

The Fund acts as an Australian feeder fund into the assets of ROC Seniors Housing and Medical Properties Fund, LP (“ROC Seniors”). ROC Seniors is a “buy, fix, sell” private equity real estate fund, investing in income producing and value-add US seniors housing and medical office properties.

The Fund owns a proportionate share of a current diversified portfolio of 50 separate real estate assets across the US, which have been acquired for approximately US$1.5 billion.

During ROC Senior’s 4 year Investment Period, the portfolio is expected to grow to US$2 billion in income generating assets.

Following the Investment Period, an exit strategy will be executed, which may include an IPO or trade sale of the portfolio.

The Fund will acquire assets that will benefit from what is being called the “Silver Tsunami’ – the US ageing population demographic, in which over 10,000 people per day are turning 65.

Each asset acquired will have a value-add strategy which will be implemented to increase the property’s cash flow and total return. In many cases this will involve increasing the number of Memory Care beds in a facility. Memory Care is a relatively new specialist sector and asset class within the US senior housing market, which provides specialist accommodation and care programs for residents afflicted with dementia; the leading cause of which is Alzheimer’s disease.

Currently in the US, there are over 5 million people living with Alzheimer’s and someone develops Alzheimer’s every 68 seconds. Yet there are only 35,000 Memory Care beds available. Accordingly, most Memory Care facilities are 100% occupied – with waiting lists.

Following the amalgamation of the portfolio during the Fund’s Investment Period, Bridge will asses the method and timing of the most profitable exit strategy for the portfolio. It is expected that this exit strategy will seek to exploit the pricing differences between the private markets and the public markets, via a portfolio or portfolio sales to publicly traded Real Estate Investment Trusts (REITs), or via an Initial Public Offering (IPO) of the portfolio as a new REIT. Alternatively individual assets may be sold when value has been maximised.

The Bridge Investment and Asset Management team behind the underlying ROC Seniors program, concluded a similar strategy in 2006 via the sale of a US$5 Billion portfolio of US Senior Housing properties to a publicly traded REIT, generating a portfolio Internal Rate of Return (IRR) of 33% (p.a.).

THE FUND IS CLOSED TO NEW INVESTMENT.

This Fund is available to Wholesale Clients only and is a partnership between Spire and its long-time U.S. real estate investment partner Bridge Investment Group Partners, LLC.

The Fund is a private debt fund and aims to generate a total return (IRR) of 11-13% p.a. from investing in  loans backed by U.S. multifamily apartment communities and other commercial real estate. The loans will either be originated by Freddie Mac Multifamily or Bridge directly.