Investment Risk

This is the risk that a Borrower or Borrower’s guarantor may not be able to meet their financial obligations. This may be for a wide range of reasons, including a change in the:

• individual financial or other circumstances of the Borrower; and
• economic climate generally that adversely affects all Borrowers.

We seek to manage and minimise these risks by only making loans to Borrowers that meet our lending criteria. Investments in the Fund are not capital guaranteed. During the life of a Mortgage Investment, factors outside the control of
Moshav such as economic cycles, property market conditions, government policy, inflation and general business confidence can affect property values and a Borrower’s ability to continue to service a loan.

If a secured property is required to be sold to recover a debt, Investors’ capital may be diminished or lost if the sale fails to realise sufficient funds to repay the loan balance and any interest and costs. Capital relating to mortgages held in other Mortgage Investments in the Fund is not available to make up any such loss.

Where a loan is not renewed, the return of investment capital may be delayed until the loan is either refinanced or repaid. Interest is charged to the time of repayment of the loan.

Moshav manages capital risk by applying its conservative lending policies, efficient collection and management systems, and the Fund’s compliance program. All loans and valuations are subject to periodic review.

This is the risk that a problem in documentation could, in certain circumstances, adversely affect the return on investment. We manage this risk by using qualified solicitors with professional indemnity cover to prepare documentation.

This is the risk that the valuation of a security property is inaccurate at the time of the loan so that the amount realised in a mortgagee sale situation is less than would have been expected had the valuation been correct. There is also the risk that a valuer who provides an inaccurate valuation does not have or no longer has adequate professional indemnity insurance to cover the valuation on which we relied. We manage this risk by relying upon recognised reputable valuers in this industry.

The Manager is responsible for managing the Fund’s investments on a day to day basis. If the Manager fails to do so effectively, then this could negatively affect the Fund’s performance.

In particular, there is a risk that the Manager may fail to anticipate movements in the property market, fail to manage the investment risks appropriately or fail to properly execute the Fund’s investment strategy. These factors could have an adverse impact on the financial position and performance of the Fund.

Investing in an unlisted and unregistered managed investment scheme (such as the Fund) is not like investing directly on your own. The Fund must take into consideration all applications made by all Investors, which can result in different income or capital gains outcomes when compared to investing directly on your own. Therefore, income from the Fund may be different to that received from investing directly on your own. You should obtain professional advice before deciding to invest in the Fund.

Changes to tax law and policy (including any changes in relation to how the income of the Fund is taxed) might adversely impact the Fund and Investor returns. You should obtain independent tax advice in respect of an investment in the Fund.

There can be no guarantee that the assumptions and contingencies on which the forward-looking statements, opinions and estimates are based will ultimately prove to be valid or accurate. The forward-looking statements, opinions and estimates depend on various factors, many of which are outside the control of the Trustee.

The Fund may lend money to Borrowers who are involved in property construction projects and there are specific risks associated with this type of loan. These risks include:

• construction or development costs can exceed budgeted costs and the Borrower may be unable to complete the project unless the Borrower can obtain further funds;
• the loan funds kept in reserve by us to complete the project are insufficient to meet the cost of completion; and
• 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.

• ensuring a fixed price building contract from reputable and established builders who have experience in the type of proposed construction to be executed between the builder and Borrower;
• ensuring that the project is employing standard construction techniques and that adequate building insurance cover is in place;
• requiring minimum pre-sales or leasing commitments on the proposed property development project;
• monitoring all construction loan drawdowns to ensure that there are always sufficient funds remaining to complete the property development project. An independent quantity surveyor or construction cost manager may be appointed prior to the commencement of the project to verify that there are sufficient funds available to complete the project and to verify the completion of each stage of construction prior to the draw-down of funds; and
• a contingency factor on total construction costs are also factored into the debt funding by the Borrower for each project.

This is the risk that the security property is damaged or destroyed and the insurance cover proves to be insufficient to cover the full replacement and/or reinstatement value of the property.

We manage this risk by verifying insurance certificates of currency are provided by the Borrower and that the insured

sum is commensurate to asset valuation.

Given that the underlying security is real property, which is relatively illiquid, there is also a risk that delays could occur between a loan going into default and the sale of the secured property. These delays may affect the payment of distributions to Investors and the ability of Investors to receive their funds at the end of the relevant Mortgage Investment term due to insufficient cash being available in the relevant Mortgage Investment.

There is a risk that force majeure events, such as natural phenomena and terrorist attacks, may affect the secured property for which insurance is not available or for which the Borrower does not have insurance cover. Should such an event occur, a loss will result which will have a negative impact on the performance of the Fund.

There is a risk that a mortgage may not be repaid or refinanced in a timely fashion, which may cause a delay or potential loss of capital. Moshav seeks to manage this risk through the initial loan approval process as well as managing maturing loans in a timely fashion.

If a Borrower defaults, the Fund may have to enforce its security to recover the loan and any unpaid interest. Consequently, any enforcement delay may result in the Fund temporarily having insufficient money to pay all distributions relating to that loan.

Because each Mortgage Investment will generally only invest in a single loan and mortgage, there will be no diversification of assets within each Mortgage Investment. Further, we cannot guarantee that investing in more than one Mortgage Investment will provide diversification as this will depend on the nature of the loans of the Mortgage Investments selected.

In the event of a loss by the Fund with respect to a Mortgage Investment, the loss is not spread across any other Mortgage Investments; rather the loss will be borne by Investors in that Mortgage Investment only.

Fluctuations in market interest rates may impact your investment in a Mortgage Investment. For example, rising market interest rates may increase a variable loan Borrower’s interest costs, making it more difficult to make regular loan payments. Similarly, falling interest rates may lead a fixed rate Borrower to repay the Mortgage Investment in order to refinance at a cheaper rate.

Although the Trustee has endeavoured to ensure that the target rates and other assumptions made in this Information Memorandum have a reasonable basis, there are a number of factors which may affect the achievement of those results. Investors should carefully review the risks, assumptions and target rates and make their own assessment and investment decision.

The presales required to commence development may not be achieved at the necessary rate. This may result in a delay in the commencement of construction, delayed completion of the asset as well as higher holding costs. Moshav will manage this risk through the appropriate application of its investment criteria which will require an acceptable number of presales to be achieved in order to properly test the market.

The Fund’s operations may be negatively impacted by changes to government policies, regulations and taxation laws. Although unable to predict future policy changes, Moshav seeks to manage this through its risk management and compliance programs to monitor and manage regulatory change.

This is the risk that the investment you hold is not generally available during the term of the investment. There are limited rights to withdraw your funds from a Mortgage Investment or to require us to repurchase your investment. However, Investors may be able to transfer their Mortgage Investment to another person. Funds held in the Cash Account are liquid.

If (for any reason) a Mortgage Investment has a second-ranking mortgage over the secured property (which ranks in priority behind a first mortgage (senior) lender), in the event of a default by the Borrower, the ability to recover the amount owing under the loan agreement may be affected by the actions of the senior lender.

Generally, the senior lender will have the right to take possession of, and deal with, the secured property and assets of the Borrower if various covenants of the senior lender’s loan facility are not met. Since a Mortgage Investment’s security will rank behind the senior lender, if the Borrower defaults under any of the loan facilities and the senior lender exercise its security, Moshav will not have day-to-day control over the Borrower’s assets. This will generally mean that we cannot exercise the Mortgage Investment’s security until the senior lender has been paid in full.