The
Loan Processes
The most common
question asked by our new LM clients and investors is :
"What exactly do LM Investment Management do with our investment monies and
how are they able to generate the yields and income that they pay ?"
Below is a simple
synopsis of the operational aspects of LM's Loan procedures.
Lets take a
look at the Australian Income Fund to see how it operates and functions.
The Managed Performance Fund operates in a similar way but also takes an equity
stake in the developments it helps finance.
This diagram illustrates the basic principles of the relationship between the
investor , LM Australian Income Fund (Mortgage Unit Trust) and the Borrower
(The borrower will typically be a commercial property developer. LM will
ordinarily have worked previously with the developer on previous projects and
will have built an excellent business relationship.
LM in all cases carry out extensive due diligence not only on the borrower but
also the project and aspects of its intended use at completion to ensure the end
product is both in demand and saleable)
The diagram
shows that clients invest into the Mortgage Unit Trust (The Australian Income
Fund). These investment monies in turn are loaned to the commercial borrower to
facilitate both the land purchase and project finance.
The borrower pays interest on the loan at commercial finance rates back to the
Mortgage Unit Trust (Australian Income Fund) which in turn returns interest
payment to the investors in line with the current schedule of declared rates.
Commercial finance rates in Australia do vary as they do globally. As with all
and any lending a lender will take a view on the security and risk of a project
in deciding a commercial rate of finance to apply to a loan.
Typically for the type of loans LM provide produce interest payments from the
borrower in the range of 10 - 12%
Interest
payments to clients and investors can be
viewed here.
Security of the loan is secured by a first legal charge on the land and
property.
Loans to the
borrower are always based upon a staged financing basis (see diagram below)
The
above chart is a typical loan in action.
Reading the
diagram from left to right you will note that The Australian Income Fund loans
finance to the borrower to purchase land. At this juncture a Mortgage is
established and security secured over the land.
Project finance
is then provided to the borrower incrementally during the
construction stages of the development under strict review processes by the fund
lending committee at LM.
Interest
payments to the fund commence at the initial loan stage and rise incrementally
with the drawdown of funds required by the developer.
Upon completion
of the project the development is sold and the mortgage to the fund repaid.
Typical
mortgage loan duration = 18 -36 months
Lets Take a
Look At The Current Composition Of the Australian Income Fund
By looking at
the above composition you will note that the typical loan to value ratio is just
46% - this is low to reflect the very conservative nature of the fund.
Cash is retained within the fund to assist with liquidity.
You will note
also that loans to developers exist in the commercial , residential (the
building of housing projects not individual loans) , retail and industrial
sectors.
Where Does This Type of Investment Fit In To The Scheme Of Risk / Reward ?
The Current Rates To Investors
Contact us for rates on other currencies.
Rates may vary dependant on the likely earnings, expenses and other conditions
at the time and during investment. Please check rates prior to investment. Past
performance is not a reliable indication of future performance.
Rates are net of fund fees and all expenses including any relevant commission.
Effective rates are calculated on the basis that distributions are reinvested
and remain the same for 12 months.
# Rates are current as at 6 June 2011. Please contact LM for rate applicable to
the date of dealing as these frequently change.
Investors must have read and considered the current product disclosure statement
(PDS), available at www.LMaustralia.com, before investing in this product issued
by LM Investment Management Ltd Responsible Entity and AFSL no 220281 ABN
68077208461.
The LM Managed
Performance Fund is also available for clients wishing to receive an enhanced
income - click here for further
details.
Click here to understand how the
Australian regulatory system helps protect clients and their investments
Take a look at the compelling
arguments as to why you should gain exposure to the Australian investment
market.
If
you would like to join the existing family of investors
or discuss how an LM Term Deposit
Investment could fit into your portfolio
please click on the e-mail icon below - We will contact you very shortly.
Thank
you for allowing us to be of service !!
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