Property

Property

Insights

Autumn 2011

Property values on the road to recovery

The Australian Unity Retail Property Fund

– our success story

Healthy property investments

– getting the right mix

Investments

In this edition

01 Insights from Martin Hession

02 Property values on the road to recovery

04 Opportunity knocks... a quality diversified

property investment

06 The Australian Unity Retail Property Fund

– our success story

08 Healthy property investments

– getting the right mix

10 Property sector outlook

12 Up close and personal with Vincent Stranges

13 Activities and achievements

14 Performance of our open property funds

Insights from Martin Hession

2011 shapes up as positive for property investors

With growth in the Australian economy continuing to push ahead and the underlying

fundamentals for commercial property remaining strong, we believe that 2011 is looking

like a much better year for investors.

After difficult conditions in the two preceding years, 2010 appears to have drawn a line

under the global financial crisis (GFC). As a result, we are now witnessing the early stages

of a sustained and gradual recovery in the commercial property market.

Investors see value as confidence builds

Martin Hession

Head of Property,

Australian Unity Investments

One of the most encouraging signs we’ve seen for property markets recently has been

the renewed appetite and optimism for investing in quality direct property funds.

A good example was those investors in our Retail Property Fund who chose to invest

around $30 million in the Fund during our recent priority rights offer – the public offer is

now open and you can read more about this on page 7. In addition to this offer, you can

also read about the current offer we have for the newest property fund in the Australian

Unity stable – the Diversified Property Fund – on page 4.

A little ray of sunshine (among floods and cyclones)

Just when things looked relatively stable, in January 2011 nature went and reminded

us exactly who is really in charge. The dramatic and tragic weather experienced across

Australia, and particularly in Queensland, highlighted some of the risks of assuming that

all will be smooth sailing from here.

Property damage isn’t really a big concern when lives are at risk, but once the immediate

impact passes, the flow-on effects for the economy and investors are considerable.

Fortunately, none of the properties that we manage on behalf of investors were

significantly impacted by the floods and cyclones. Nonetheless, we expect that there will

be impacts on the businesses of our tenants throughout the year and we look forward to

working constructively with them through what is likely to be a difficult period.

Despite the impact of the floods and storms, our view of the commercial property

market is that the major sectors are generally sound, with the market skewed towards

undersupply in most capital cities. As a result, we expect property markets to achieve

growth this year.

Predictions one year on look solid

In the May edition of Property insights last year I wrote “the performance of the

commercial property sector will take a little while to catch the broader economy”.

Pleasingly, strong evidence is starting to emerge, particularly in the office and healthcare

sectors, of rental growth and increased valuations for properties.

While it’s not true that everything is heading up, over the last six months we’ve certainly begun

to see increasing valuations as a result of improving economic and environmental conditions.

As a result, we believe investors can generally look forward to 2011 with some optimism.

I hope you enjoy this edition of Property Insights.

Australian Unity Investments - Property Insights 1

Property values on the road to recovery

No one is celebrating wildly just yet, but there is strong evidence to

suggest that the commercial property market is on the way to recovery

and that the GFC is behind us.

Property Income Fund

During the December 2010 quarter, the commercial property market

continued to improve, as valuations, sales activity and underlying

economic fundamentals gained momentum.

While commercial property values still remain relatively subdued –

compared to pre-GFC valuations – there are indications of a broad

correction across the market as assets come back towards fair value.

Market fundamentals continue to be structurally sound as the broader

Australian economy expands. And, as a result of the general lack of

commercial development over the last two years, the gap between supply

and demand continues to narrow and present opportunities.

Based on the results of recent valuations and the continuing strength of market

fundamentals, our Property team is anticipating general improvement in

property values throughout the coming 12 to 18 months.

Salisbury Cinema Complex, Salisbury, SA

Up $150,000 (2.27%)

New value – $6.75 million as at December 2010

Retail Property Fund

Property values begin the climb back to fair value

In the May 2010 edition of Property Insights, Peter Lambden, Head of

Diversified Property, wrote “[the] Australian commercial property market

was at or near the bottom of the cycle in December 2009. We expect

property markets to tread water for the most part of this year with a more

pronounced recovery to take shape in 2011.”

This recovery appears to have begun, as we observed many instances of

improving valuations during the later stages of 2010. A good example was

the $2.05 million increase over the prior book value (October 2009) for

the Olderfleet Buildings at 477 Collins Street in Melbourne in November.

Elsewhere, our investors in the Property Syndicate No.1 benefited from the

sale of 180 St Kilda Road, Melbourne, which was sold in October 2010 for

$10 million — a result that was $1 million above the prior book value.

Caltex Twin Service Centres, Wyong, NSW

Up $2,750,000 (5.93%)

New value – $49.10 million as at November 2010

Office Property Fund

477 Collins Street, Melbourne, VIC

Up $2,050,743 (3.24%)

New value – $65.40 million as at November 2010

2 Australian Unity Investments - Property Insights

Healthy property sends a message that property values are getting better

There is much to be said about the quality of our Healthcare Property Trust. As most in the industry are aware, it is the largest and one of the

highest-rated property funds in Australia.

While it’s fair to say that healthcare property is a very different type of asset to retail, industrial and office property, the recent movement in

valuations within the sector has likely brought a smile to many investors.

Over the last six months, 11 properties in the Healthcare Property Trust have been re-valued. As the table below shows, nine were valued

above their previous book values and two were neutral.*

September 2010 October 2010 February 2011

The

Valley

Private

Hospital

Beleura

Private

Hospital

Beleura

Clinic

Hunters

Hill

Private

Hospital

Berkeley

Vale

Private

Hospital

College Grove

Rehabilitation

Hospital

Manningham

Medical

Centre

IVF Clinic,

St Leonards

Wakefield

Private

Hospital

Wakefield

Clinic

Brunswick

Private

Hospital

1.69%

neutral

17.65%

12.08%

11.43%

1.73%

neutral

1.99%

1.41%

5.66%

0.51%

Chris Smith, Australian Unity’s Head of Healthcare & Retirement Property Funds says the valuations are increasing evidence of a stabilising

market that is now presenting excellent opportunities for investors. In particular, he recently noted: “We are now witnessing stabilisation of

capitalisation rates applied by valuers and in some cases some tightening. Also, as predicted in May 2010, we are seeing real rental growth. The

combination of stable, and in some cases, firming capitalisation rates combined with increasing rents is resulting in increased property values.”

*For further details regarding Fund announcements, please visit www.australianunityinvestments.com.au/FindAFund.

Australian Unity Investments - Property Insights 3

Opportunity knocks...

a quality diversified property investment

While many investments in the commercial property sector were seen to

struggle during the last three years, Australian Unity Investments (AUI) continued

to view the period as a time of consolidation and, if the right circumstances

presented themselves, of potential opportunity.

Towards late 2009, we believed the worst of the GFC was over for commercial

property. Further, we assessed that the fundamentals across the industry were

strong and the likely path ahead was a gradual but sustained recovery.

Seeing the potential to add value through our expertise in property

management, AUI added the Diversified Property Fund to its suite of property

products in October 2010. Our view was that this Fund, prior to our involvement,

had been well managed, was neatly structured and, at its core, was built on a

diverse and high-quality group of office, industrial and retail properties across

Australia. Importantly, we also have the ability and expertise to further improve

the Fund.

Solid foundations on which to build

Our strategy for the Diversified Property Fund is to deliver exactly what a

quality, well-diversified, direct property investment should. That is stable, taxadvantaged

income and solid prospects for capital growth.

At 31 December 2010, the Fund continued to exhibit strong foundations upon

which to build, including:

■ $372.9 million in direct property across office, industrial and retail properties

■ secure tenants with a long average lease profile (Weighted Average Lease

Expiry was 7.42 years, 99.8% occupancy)

■ consistent and stable income, courtesy of long-term tenants and quality

properties

Highlighting its strength and quality, the Fund produced a 7.60% ¥ total return for

the year to 31 December 2010.

A new guard, a new direction

Certainly, you don’t have to look far to see the enthusiasm and ambition we’ve

applied to the Fund since last October. The list of highlights we’ve already

achieved includes:

■ negotiating new terms for the Fund’s $230 million debt facility and moving to

re-hedge the portfolio’s borrowings.

■ re-igniting negotiations with the ATO to extend a major lease for five years on

the Penrith property.

■ investigating the amalgamation of the three adjoining Busselton properties to

leverage scale, and to improve costs and leasing conditions.

■ actively managing each tenant and leasing profile for Parramatta, Dog Swamp

and Richland properties.

■ delivering a measure of liquidity for investors, including the limited withdrawal

offer made before Christmas.

A diverse and strategic property

investment

Good diversification is one of the most sought after

attributes of a quality investment portfolio. Currently,

the Diversified Property Fund contains a good mix of

properties and a healthy combination of lease terms.

Both of these are critical for delivering strong and

consistent income to investors.

Looking to the next two years, we want to

further improve the Fund. In particular we intend

to enhance the geographic spread of assets,

rectifying the current concentration in Western

Australia. We will also actively seek to increase the

asset allocation towards office property, where we

see considerable opportunity as well as the overall

diversification of tenants.

Importantly, too, we will seek to strengthen the

Fund’s financial position by lowering its overall

level of borrowings from the current 53% to a

range of between 45 – 50%.

For investors in the Fund, it’s an exciting time.

Opportunity knocks...again

To deliver our vision for the Fund, we are currently

seeking to raise $40 million for the Fund. And, for a

limited time, new securities in the Fund are being

offered at a discount.

On a first-come, first-served basis, we’re now

offering investors the opportunity to purchase

securities in the Fund at a discount of 7.5% to the

security price that would have otherwise applied.

The offer will close on the earlier of 30 June 2011

or when the target amount has been raised.

Investors interested in this opportunity can find

out more about the offer by reading the Product

Disclosure Statement available on our website,

www.australianunityinvestments.com.au/dpf.

And much more is on the horizon.

4 Australian Unity Investments - Property Insights

Australian Unity Investments - Property Insights 5

The Australian Unity Retail Property Fund

– our success story

How it all began

Since AUI became manager to its first retail property trust in 2001,

we have never looked back. During the 1990s, pooled property

investments were quickly gaining popularity and this soon led to the

introduction of more AUI retail property trusts being added to our

investment range. By 2003, AUI’s retail property portfolio had grown

to comprise eight properties across six retail property trusts.

Over the last decade, our property investments have served investors

well. Not only did they offer the opportunity to access large-scale

commercial property through shared ownership that for many would

otherwise be unaffordable, but they also spread the investment risk

across more investors while offering tax advantages, regular income

and the potential for capital growth.

But we knew we could offer investors more. Australia’s population

was growing fast, with skilled migration and a baby boom creating

new demands that would alter the retail landscape. As Head of

Property, Martin Hession recalls, “We knew there was huge potential

to grow our retail investments; we have the right mix of properties,

great locations and the expertise to create something much bigger

and better for investors”.

The journey to become bigger and better

Work began as early as 2007 by a project team, bringing together

accountants, portfolio managers, product specialists, lawyers and

sales and marketing professionals within and outside of AUI. The

immediate task at hand was to examine the feasibility of combining

seven retail properties from five of AUI’s retail property trusts to

create a larger, open- ended fund that would offer investors superior

benefits than their existing investments; including lower risk, greater

stability, liquidity and stronger growth potential.

By mid-2008, work was full steam ahead. Forecasts were closely

scrutinised and tax benefits thoroughly assessed, along with multiple

other streams of work to create a compelling product for investors –

the proposal could not proceed without the approval of investors in

each of the trusts.

The result of this would later put investors in a strong position to face

one of the worst property downturns in Australian history.

A Fund that stood the test of the GFC

On 28 February 2009, the Australian Unity Retail Property Fund was

launched.

Shortly after, the impacts of the GFC set in and the Fund’s properties

were re-valued lower in June 2009. While some properties were more

affected than others, the risks were spread across more properties

and tenants, making it a more diverse investment. The impact could

have been far worse for some of the trusts if they had stood alone in

the face of the GFC.

Importantly, the crisis has also demonstrated the genuine benefits of

diversification.

While many property trusts across the industry – both closed-ended

and open-ended – have frozen redemptions, the Fund continued to

offer liquidity through a regular withdrawal facility and continued to

achieve near full occupancy on its properties throughout the GFC.

Today, the Fund’s seven retail properties are valued at more than

$348 million (31 December 2010), and its stable income is supported

by more than 250 tenancies.

6 Australian Unity Investments - Property Insights

Building on the best to make it even better

Two years on, the Fund has embarked on a clear growth path,

and a strategic plan to acquire an expanded development of

Waurn Ponds Shopping Centre after its completion in late 2012 is

well underway.

The expansion will occur on the site adjacent to the Centre to

form part of a bigger Waurn Ponds Shopping Centre, increasing

the retail lettable area by 15,000 sqm. When complete, the

shopping centre will span approximately 35,000sqm (almost

twice the size of the MCG!) with the combined purchasing power

of brands like Coles, Woolworths, Kmart, Target, Priceline, Dick

Smith, Readings Cinemas, and an abundance of smaller specialty

stores. In short, the Centre will be transformed into a regional

shopping destination for serious shoppers.

Many retailers are already clambering to capitalise on the

potential they see for the Centre. To date, about 80% of the yetto-be-completed

development has been committed to by some

of Australia’s biggest retail brands.

As you read this, the architectural design of the development is

nearing completion and a funding program is in full force to raise

the $67 million required for this strategic acquisition.

Enormous growth awaits Waurn Ponds

The Centre has long been regarded as one of the Fund’s most

important assets. It is ideally positioned seven kilometres from

central Geelong, and sits at the gateway to Victoria’s famous

Bellarine Peninsula and Surf Coast. Anticipation is already

building at the growth pace of Greater Geelong’s population,

which is predicted to grow by 37% over the next 20 years – from

around 221,000 in 2011 to 303,000 in 2031 1 .

A standout, the Centre has won industry awards for outstanding

performance and design; they include the Joe Curlewis Property

Industry Award at the 2008 API (Victoria) Excellence in Property

Awards and Winner of the design /development category for

renovation and expansion of the Waurn Ponds Shopping Centre

(Victoria) at the 2008 ICSC Asia Convention.

City of Greater Geelong population forecasts (www.id.com.au/forecast/geelong)

The image is computer-generated and is an indication of what the expansion look like.

Did you know

The Fund’s first capital raising program to existing investors

ended on 15 December 2010 and was a great success, raising

a total of $29.3 million.

Now, for the first time, all new and existing investors have an

opportunity to purchase retail class securities in the Fund at

a 10% discount to its daily security price. This offer closes on

31 May 2011 and all applications are processed on a first-in,

first-served basis.

More information about this offer is available in the Product

Disclosure Statement on our website,

www.australianunityinvestments.com.au/rpf.

Recommended and well rated

The expansion of the Centre is rated positively by leading

independent research organisation, Lonsec. In October 2010,

Lonsec upgraded the Fund’s rating to ‘Recommended (Upper

End)’. Along with three other funds, the Fund gained the second

highest rating of ‘3.75 stars’ in the recent Adviser Edge direct

property review (26 October 2010).

Australian Unity Investments - Property Insights 7

Healthy property investments - getting the right mix

Perhaps the most strikingly different fund in the Australian Unity

Investments property suite is the Healthcare Property Trust. This

difference is due to the specific assets in the healthcare sector, the

types of tenants it attracts and the unique environmental factors

in which it operates, not least of which are Australia’s ageing

population and ongoing Government funding commitments.

Historically, the performance of healthcare property has been

more stable than other property sectors, even when confronted

with something like the GFC. This is one of the reasons the sector

continued to be popular with investors over the last three years.

Healthcare property can be good for your portfolio

Our Healthcare Property Trust invests in assets such as acute

medical hospitals, rehabilitation hospitals, medical centres and

aged care facilities (nursing homes). One of the features of these

types of assets is that they are typically more resilient in the face of

economic downturns.

The diagram below shows the level of correlation between the

Healthcare Property Trust and a prominent industry benchmark –

the PCA/IPD Australian Property Index (Composite). It also shows

how other specific sector indices for retail, industrial and office

property perform against the same benchmark.

0 0.50

1.00

Healthcare Property Trust vs PCA/IPD Australian Property Index (Composite)

PCA/IPD Retail Property Index vs PCA/IPD Australian Property Index (Composite)

PCA/IPD Industrial Property Index vs PCA/IPD Australian Property Index (Composite)

PCA/IPD Office Property Index vs PCA/IPD Australian Property Index (Composite)

Low correlation

− doesn’t behave similarly

High correlation

− behaves similarly

Some of the reasons why healthcare assets don’t generally

experience extreme market volatility are:

■ scarcity of the assets and the difficulties developing new assets

■ incentives to Australians to take up private healthcare from the

Federal Government

■ committed Government funding for healthcare services, and

■ increasing demand for healthcare services as a result of our

ageing population.

Note: PCA stands for the Property Council of Australia and IPD stands for the Investment

Property Databank.

Source: Australian Unity Investments, Mercer, Investment Property Databank.

Timeframe for correlation is from March 2002 to September 2010.

A correlation coefficient of 1.00 would mean that two things move in

sync with each other. As the chart shows, there is a strong correlation

between each of the well-known sector indices against the broader

composite index. However, the Healthcare Property Trust shows a

relatively low correlation, highlighting its distinctive characteristics.

Underpinning the entire healthcare industry is the scale of funding

provided by governments. For example, in the five-year period from

1 July 2008 to 30 June 2013, the Federal Government is forecast to

spend $64 billion in the hospital and health system. Additionally,

health spending accounts for around 25 per cent of state and

territory budgets 2 .

It’s also well known that Australia’s population is rapidly ageing.

The cause of this was the significant rise in Australia’s birth rate

between 1946 and 1961. As a result, since 1997, the first of the

baby-boomers have been passing age 50 and entering age groups

with significantly higher healthcare needs.

With these facts in mind, it’s not hard see why the demand for

healthcare services is expected to increase significantly over the

next 25 years. This demand can benefit investors in the healthcare

property sector.

A question of correlation – healthcare assets stand alone

Correlation is a measure of how much something moves or reacts

in the same way to something else. In the case of investments,

it is often interesting to see how the performance of a particular

investment correlates with (or against) the broader industry in

which it operates.

What this means for investors is that the Trust is likely to perform

differently to other property sector-specific funds. And, perhaps

most importantly, we believe these differences do not come at the

expense of more risk or lower returns.

Investors and financial advisers, then, can use information like this

to combine different assets in a portfolio to create a return profile

with better returns at a given level of risk.

Fine tuning a high performance investment

As we already know, property has unique investment characteristics

that warrant inclusion in many investment portfolios as a separate

asset class. However, diversification doesn’t have to end there.

Diversification within a specific property allocation also has the

potential to further improve the mix.

If we think of investment performance as the engine of wealth

creation, the inclusion of the Healthcare Property Trust might just

be the fine tuning required to reach your financial goal ‘finishing

line’ and get the most out of your investment.

For more information on creating your own investment portfolio, or to

discuss your ideal mix of investments, speak with your financial adviser.

Facts and Figures, Australian Government Department of Health and Ageing

(www.yourhealth.gov.au)

8 Australian Unity Investments - Property Insights

The Australian Unity Healthcare Property Trust has proven a popular choice

for investors since opening in June 1999. The Trust currently invests more than

$415 million on behalf of its investors (31 January 2011).

Australian Unity Investments - Property Insights 9

Property sector outlook

Retail

In the early stages of 2011 the retail sector exhibited varied results.

With Government stimuli having now fully exited the sector and the

interest rate rises during 2010 taking effect on household budgets,

retailers experienced mixed results. Examples of this were seen in

the profit downgrade announced by the prominent retailer Myer,

although it may be somewhat balanced in the sector by the record

first-half result posted by JB Hi-Fi.

Underlying consumer sentiment within the sector still remains

positive, even despite the recent natural disasters in Queensland and

elsewhere. Significantly, we have begun to observe a stabilisation of

investment yields across the sector.

As a result, we believe that property values across the retail sector

have moved beyond the bottom of the property value cycle. We are

confident that property values will further improve as commercial

investors recognise the opportunities within the sector. Further,

given the lack of development on the horizon, we anticipate

a steady to improving performance for existing retail assets

throughout 2011.

Looking at the wider economy, Australia’s predicted ongoing

economic growth and strong labour market are expected to lead to

an ongoing and slow-growing confidence within the sector, which

will produce stable yields in 2011. Rental growth, in line with the

Consumer Price Index, is also forecast over the next 12 months, led

by Perth and Melbourne, with South East Queensland forecast to

return stronger levels of growth towards the end of the year and

into 2012.

Office

Office markets are generally expected to perform well throughout

2011 — due in particular to sustained employment levels and the

low level of construction that has occurred throughout the past

three years. Across the nation, the six months to January 2011

produced the first vacancy decrease in the Australian office market

for the previous three-year period. Different regions are at varying

stages of the cycle, with Melbourne and Adelaide leading the

recovery and the rental upswing in Sydney now commencing. Most

recently, in March 2011, we have observed a significant change in

sentiment for the Canberra market as the level of lease enquiries has

increased substantially.

The Melbourne market is forecast to be the standout performer

over the short to medium term as tight supply continues to create

favourable leasing conditions. Up to this point, Sydney has lagged

behind due to higher existing levels of office space as a result of

recent new building completions. Despite this, sentiment remains

positive in Sydney, and we expect to see firming capitalisation rates

in the second half of 2011 as vacancy levels trend downwards.

In Perth and Brisbane, the steady demand for office space has

continued. Notably, the Brisbane CBD produced the largest vacancy

fall to January 2011 and, although there remains some uncertainty

about the impact of flooding in Queensland, the January nab Business

Survey revealed stronger business confidence levels in Queensland on

expectations that rebuilding will spur business activity.

Overall, we believe the outlook for CBD office markets throughout

Australia is relatively robust, evidenced by interest in the market from

both international and local investors during 2010. Offshore interest

remains strong, especially from Asian private equity firms. As well,

Australian superannuation funds and wholesale investment funds

are coming back into the market and most of the large Australian

Real Estate Investment Trusts (A-REITs) are actively looking to make

purchases.

10 Australian Unity Investments - Property Insights

Industrial

The industrial property sector continues to strengthen in the wake

of the global financial crisis, evidenced by movement in most lead

indicators for the sector throughout recent months. The continued

stagnation of speculative activity in Melbourne and Sydney is a

positive for existing assets in the sector, and is resulting in tighter

supply and limited new stock. Such circumstances create strong

underlying property fundamentals in those markets as supply

increases in line with actual demand. The market for new space

remains subject to regional conditions, with occupier growth more

or less exclusive to new facilities.

In Melbourne, however, a buoyant industrial market is spurring

property development as a result of low vacancies and rising

demand from tenants. For prospective tenants across this market,

the options are now relatively limited and, as a result, rents and the

length of tenancies have been gradually increasing. The Sydney

industrial property market continues to record a gradual recovery in

both rents and yields. This is anticipated to continue and translate

into capital appreciation throughout 2011.

Healthcare

With modest growth anticipated across other sectors of the

commercial property market in 2011, it is from the healthcare sector

that we expect to see the strongest overall performance.

We continue to see increased levels of interest in the Australian

healthcare property sector, as offshore investors seek to acquire

entire healthcare property portfolios. There is also growing demand

from healthcare service providers – particularly for properties that

are well located and in high profile positions. These factors underpin

the rental levels and provide a positive investment position for

buyers seeking to enter the property market. AUI, with our particular

interest and knowledge about the sector, anticipates this will lead to

a general tightening of capitalisation rates.

Already, we’ve observed some evidence of this in recent valuations

sought for properties within our Healthcare Property Trust. Of the 11

properties re-valued throughout the last six months, nine properties

were valued above their previous mark, while two remained neutral.

Our view for 2011 is that the increasing appetite from overseas

investors for Australian healthcare property will see competition for

quality assets increase, and this will lead to a tightening of yields

and higher property values. In addition, demand for space in highprofile,

well-located properties looks set to continue increasing as

the business of providing healthcare services to Australia’s ageing

population steadily grows.

Some of the views expressed in these outlooks have been sourced from Jones Lang

LaSalle – Outlook for Australian commercial property market (February 2011).

Australian Unity Investments - Property Insights 11

Up close and personal with Vincent Stranges

Vincent Stranges

Portfolio Manager

Australian Unity Investments

Putting it all together – the fine art of property portfolio

management

Meet Vincent Stranges, Portfolio Manager for Australia Unity

Investments’ direct property funds, whose achievements speak

louder than the quiet, calm demeanour he’s known for.

Since joining AUI more than 10 years ago, Vincent has held

important roles as Head of Strategic Research and Head of Product.

Prior to that, he has built his knowledge in the investment field

through specialised roles at AXA.

Here, we unravel the man behind almost every key decision for your

AUI property investments.

In a nutshell, my job is to manage the capital and return

position of our property portfolios so they meet current and

future capital requirements, while maximising returns for

investors over the long term. It’s a complex role which involves

making critical decisions and recommendations on a broad range

of issues that impact the cash flows, liquidity, capital expenditure

and tax positions of our funds − these issues typically range from

debt and interest rate management, capital raising, investor

distributions and lease negotiations to asset acquisitions and sales,

as well as taxation issues.

For investors in Australian Unity Investments’ property funds,

one of the biggest decisions I help make each quarter relates

to the amount of money distributed to investors. Receiving

distributions is a big priority for many investors. But often, decisions

about these distributions can involve a complex balancing act

between expenses, liabilities and tax considerations. As with all

considerations, however, our over-arching desire is to maximise

returns for our investors within a risk-controlled framework over the

medium to long term.

As a starting point, I first consider the amount of money received

during the relevant period by a particular fund. Once this is known

there are a range of considerations regarding the expenses incurred

during the period and any known upcoming capital expenditure

that may be required. I also consider any upcoming costs (e.g.

interest payments) that must be met and the overall tax position

of the income received. As a minimum, our general practice is to

distribute all net taxable income received by the particular fund

during the financial year.

Really, it’s a science as much as an art. Alongside these decisions,

a major part of my role requires forecasting fund and market

positions and having a preparedness to manage the unanticipated

– such as changes in interest rates or the credit environment. Events

like these can disrupt the cash flow of a fund and may require some

hard decisions. I work closely with my colleagues to ensure we keep

a close watch on these events and communicate any changes that

affect distributions to investors.

One opportunity I saw during the height of the GFC was the

historically low interest rates. We made the tactical decision to

lock in fixed rates (through interest rate hedges) for terms up to five

years on all our property funds. Although the GFC has also caused

bank credit margins (another component of borrowing costs) to

increase substantially, we have been able to offset the impact of

some of these rising borrowings costs. Today, all the funds are on

average over 80% hedged against interest rate rises.

Finding capital during the GFC was challenging but we’re

managing to turn things around. This was a time when all

property funds had to grapple with the double blow of falling

values and limited capital. Finding additional capital was a

challenging task but was necessary to improve our debt positions.

One example was when we selectively sold off some properties in

our Industrial Property Trust to pay off debt.

Personal insights

I would describe myself as…laid back with a dry sense of humour.

In school, I was known for…being the reliable one.

My most unforgettable childhood memory…was a trip to Italy

when I was eight. I stayed in a remote village with roaming farm

animals and also used an outdoor toilet for the first time…quite a

culture shock for a city slicker.

I usually read…non-fiction books such as biographies and

memoirs…although I’m currently reading “Where is Spot” and

“Wiggly Party” to my kids more often than not.

Life after work…is being home and spending time with my twins.

I’m a genius at…cooking the perfect BBQ steak.

12 Australian Unity Investments - Property Insights

Activities and achievements

Our Healthcare Property Trust continues to develop and

deliver

The Australian Unity Healthcare Property Trust continues to

reign as the largest and one of the most highly rated healthcare

property funds in Australia.

Leading independent research organisations have maintained

their high ratings for the Trust during a review in late 2010 –

Lonsec rated the Trust ‘Highly Recommended’ in September 2010

and Adviser Edge, ‘4¼ stars’ in November 2010.

Long lease secured ahead of Syndicate’s termination

Our preparation for the termination of Australian Property

Syndicate No.1 is well under way.

Pleasingly, we locked in a 10-year lease with two further fiveyear

options for the property at 65 Lathams Road in Carrum

Downs, Victoria. The lease commenced on 1 February 2011 and

will enable us to achieve the optimal sale price for investors.

The Syndicate’s debt has also been fully repaid, using the sale

proceeds from the property at 180 St Kilda Road, Melbourne.

The Trust’s success is also demonstrated in the scale of capital

works that is being invested in its property portfolio.

Over the next two years, an estimated $50 million will be set aside for

capital works to refurbish and expand a number of properties and this

will result in increased income for the Trust. This includes $9 million

for works already in progress for the Brunswick Private Hospital and

Brunswick House Aged Care and Wakefield Private Hospital.

Property Insights Webinar Series

Recently, we launched our inaugural Property Insights Webinar series for financial advisers.

The online sessions, which are CPD-accredited, are led by our highly acclaimed property team, and provide insight into key challenges and

opportunities within the sector.

If you are a financial adviser and would like to register for the briefings, please email webinars@australianunity.com.au.

Date Speaker Topic

Briefing 1

Tuesday 22 March

11:00 – 11:30am

(EDST)

Martin Hession

Head of Property,

Australian Unity Investments

Opportunities in Property:

The drivers behind future opportunities in

the direct property market.

Briefing 2

Tuesday 29 March

11:00 – 11:30am

(EDST)

Martin Hession

Head of Property,

Australian Unity Investments

Liquidity vs Certainty in Property Trusts:

Is the best of both worlds possible

Syndicates vs trusts, active vs passive.

Briefing 3

Tuesday 5 April

11:00 – 11:30am

(EST)

Mark Pratt

General Manager, Property,

Mortgages & Capital Markets,

Australian Unity Investments

Capital Markets and Direct Property:

How will changes to wholesale funding

affect property trusts and yields going

forward

Briefing 4

Tuesday 12 April

11:00 – 11:30am

(EST)

Peter Lambden

Head of Diversified Property,

Australian Unity Investments

Direct Property Valuations:

Understanding capitalisation rates and how

they affect valuations.

Australian Unity Investments - Property Insights 13

Performance of our open property funds

as at 28 February 2011

Fund

Growth

Return

1 Year % 3 Years % p.a. 5 Years % p.a. Since Inception % p.a.

Dist’n

Return

Total

Return

Growth

Return

Dist’n

Return

Total

Return

Growth

Return

Dist’n

Return

Total

Return

Growth

Return

Dist’n

Return

Total

Return

Diversified Property Fund #

Inception date: 31 Aug 2006

Geared Property Income Fund – Wholesale

Inception date: 30 Apr 2005

Geared Property Income Fund – Retail

Inception date: 30 Apr 2005

Healthcare Property Trust – Wholesale

Inception date: 28 Feb 2002

Healthcare Property Trust – Class A

Inception date: 28 Feb 2009

Healthcare Property Trust – Retail

Inception date: 30 Jun 1999

Industrial Property Trust €

Inception date: 30 Sep 1999

Property Income Fund – Wholesale

Inception date: 31 May 1999

Property Income Fund – Retail

Inception date: 31 Mar 2005

Retail Property Fund – Wholesale

Inception date: 31 Aug 2010

Retail Property Fund – Class A

Inception date: 31 Aug 2010

Retail Property Fund – Retail

Inception date: 28 Feb 2009

0.33 7.27 7.60 (11.62) 7.13 (4.49) - - - (4.33) 8.34 4.01

(5.35) 5.60 0.25 (14.23) 5.75 (8.48) (9.76) 8.31 (1.45) (7.17) 8.34 1.17

(4.96) 3.92 (1.04) (14.05) 4.20 (9.85) (9.66) 6.73 (2.93) (7.16) 6.84 (0.32)

1.89 6.55 8.44 (1.64) 6.95 5.31 3.30 8.05 11.35 3.54 9.35 12.89

1.64 6.15 7.79 - - - - - - (2.08) 6.38 4.30

1.82 5.73 7.55 (1.70) 6.22 4.52 3.38 7.12 10.50 2.90 8.51 11.41

(12.41) 18.03 5.62 (12.48) 9.57 (2.91) (4.31) 9.62 5.31 (1.74) 10.11 8.37

(2.95) 6.20 3.25 (7.49) 6.14 (1.35) (4.38) 7.72 2.89 (1.38) 8.32 6.94

(2.76) 5.21 2.45 (7.46) 5.27 (2.19) (4.86) 6.88 2.02 (3.30) 6.91 3.61

- - - - - - - - - (1.08) 4.25 3.17

- - - - - - - - - (0.74) 3.32 2.58

(10.15) 6.94 (3.21) (11.69) 6.70 (4.99)

Performance is calculated after fees and expenses and assumes the reinvestment of distributions. Past performance is not a reliable indicator of future performance.

Performance for the Diversified Property Fund is calculated as at 31 December 2010.

€

The unusually large distribution and growth returns, which flow through to other quoted periods, occurred because capital gains were distributed to investors. The distribution was a result of

the three property sales that occurred during the 2009/10 year.

Visit our website at www.australianunityinvestments.com.au for the

latest performance information and updates on our investment

products. To find out more about our property investments, please

contact your financial adviser or Business Development Manager or

Address

114 Albert Road

South Melbourne, VIC 3205

Investor Services 13 29 39

Adviser Services 1800 649 033

Website

australianunityinvestments.com.au

investments@australianunity.com.au

Important information

Australian Unity Funds Management Limited ABN 60 071 497 115 AFS Licence No. 234454 is the product issuer of the Australian Unity Healthcare Property Trust, Australian Unity

Property Limited ABN 58 079 538 499 AFS License No. 234455 is the product issuer of the Australian Unity Retail Property Fund and Australian Unity Property Funds Management

Limited ABN 28 085 352 405 AFS License No. 233718 is the product issuer of the Australian Unity Diversified Property Fund.

This information is general information only and does not take into account the financial objectives, situation or needs of any particular investor. Investment decisions should not be

made on the basis of past performance or any rating given by a ratings agency, as these can vary. In addition, ratings need to be understood in the context of the full report issued by

the ratings agency itself. Before deciding whether to acquire, hold or dispose a product, you should refer to the relevant Product Disclosure Statement (PDS). A copy of the PDS can be

obtained by calling us on 1800 649 033 or 13 29 39 or visiting www.australianunityinvestments.com.au. The information provided here was current at the time of publication only. ¥ Past

performance is not a reliable indicator of future performance.

The Lonsec Limited (“Lonsec”) ABN 56 061 751 102 ratings (assigned as follows: Retail Property Fund – October 2010, Healthcare Property Trust – September 2010) presented in this document are

limited to “General Advice” and based solely on consideration of the investment merits of the financial product(s). They are not a recommendation to purchase, sell or hold the relevant product(s),

and you should seek independent financial advice before investing in these product(s). The ratings are subject to change without notice and Lonsec assumes no obligation to update these

documents following publication. Lonsec receives a fee from the fund manager for rating the product(s) using comprehensive and objective criteria.

Adviser Edge is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system.

Information in this advertisement attributable to Adviser Edge must not be used to make an investment decision. The Adviser Edge rating is valid at the time of publication, however it

may change at any time. While the information contained in the rating is believed to be reliable, its completeness and accuracy is not guaranteed. The Adviser Edge star rating system

is of a general nature and does not take into account the particular circumstances or needs of any specific person. Only licensed financial advisers may use the Adviser Edge star rating

system in determining whether an investment is appropriate to a person’s particular circumstances or needs. You should read the Product Disclosure Statement and consult a licensed

financial adviser before making an investment decision in relation to this investment product.

14 Australian Unity Investments - Property Insights