Investment strategy

The Fund's investment strategy is focused on investing in existing and fully tenanted modern residential property in the major U.K. cities (excluding London) that is income generating from day-one and has potential for strong capital growth. The Fund typically avoids new build developments as the significant price premium (for being brand new) and the associated construction risk is less attractive.

The objective of the Fund is to deliver clients a net return of at least 10% p.a., including a sustainable dividend yield of approximately 6% p.a. (after fees and expenses, before tax).

Importantly, the assumptions underpinning this return are not reliant on significant house price growth or rising rental yields.

Investment objective

The objective of the Fund is to deliver a target average distribution yield of approximately 6% p.a. (post fees & expenses and before tax) and with the potential for capital appreciation. The Fund will seek to deliver this return through investment over the long term primarily in residential property in Tier 1' UK cities (excluding London) that deliver high rental yields. Examples of Tier 1' cities include Birmingham, Glasgow, Leeds, Manchester and Sheffield.

Investor suitability

Sophisticated/wholesale/retail investors

Overview

L1 Capital believes the outlook for U.K. residential property (excluding London) is attractive and offers a compelling risk vs reward profile. The combination of high rental yields, low borrowing costs and attractive long-term supply and demand dynamics makes for a highly attractive investment opportunity. To take advantage of the investment opportunity, L1 Capital launched its debut property fund ("L1 U.K. Residential Property Fund I) in September 2017 which is now fully largely deployed and fully committed. The fund purchases in bulk and invests in blocks of apartments which is a large asset class that institutions and pension funds invest in the U.K.

Why invest in U.K. Residential Property?

While many asset classes currently appear fully valued or outright expensive, the outlook for U.K. residential property (outside of London) is compelling. L1 Capital's view is premised on the following characteristics:

• High rental yields by global standards (7%+ rental yields)
  
• Low borrowing costs with interest rates near all-time lows
  
• U.K. property prices (ex-London) are relatively cheap - house price to average income of ~5x (compared to 11x in Melbourne, 14x in Sydney)
  
• Housing market is finally in recovery (growing at 5 - 6% p.a.) with very favourable supply / demand imbalance (U.K. homebuilding shortage of ~125,000 dwellings per annum)
  
• British Pound has fallen to multi-decade lows.
  

L1 Capital UK Residential Property Fund I - Performance to date

This fund is now largely deployed and fully committed and has met or exceeded expectation in acquiring its properties at substantial discounts to open market value (typically 20% discount), achieving higher rental yields than forecast (8%+ gross yield) and obtaining low cost debt (3% interest rate), while observing a stronger housing market growth rate (5%+ growth rate) than factored into its base case return.

Classes of Units

The Fund will initially offer the following two classes of Units on the following terms of issue, namely a Hedged Class and Unhedged Class of Units:

1. Unhedged Class - No currency hedging will apply.
   
2. Hedged Class - the Investment Manager will endeavor to enter into hedging transactions to protect the initial capital against movements in the GBP value of the Fund against AUD currency. The Investment Manager may also hedge unrealised gains throughout the life of the Fund.
   

The number of units in each class will be determined by the Responsible Entity in its discretion.

Minimum fund size

The Fund will target total applications for approximately $150 million, however the final amount is to be determined in the discretion of the Responsible Entity. The Fund will not proceed (and application monies will be returned) if the Fund has not commenced making investments and total applications received under this offer are less than $30 million.

Investment Guidelines

The Investment Manager will manage the Fund in accordance with a number of investment guidelines.

These guidelines aim to achieve a high level of diversification within the target asset class. The investment guidelines are summarised as follows:

• The Fund may only invest in property assets, which are substantially residential (which includes UK student property), situated in the United Kingdom, and will not make indirect property investments such as listed property trusts or REITs;

• The residential property portfolio will consist of freehold and/or leasehold interests in properties which are currently tenanted or are expected to be let shortly after acquisition. The substantial proportion of leasehold properties purchased (if any) are expected to have no less than 100 years remaining on the lease on the date of acquisition;

• No more than 25% of the Fund's gross asset value, can be invested in any single block of apartments.

Borrowing policy

The Fund expects to make borrowings in accordance with the borrowing policy of the Fund, which is summarised in the "About the Fund Investments - Borrowing Policy section of the PDS.