The Clever Investments Portfolio is a national portfolio of freestanding, fully leased Childcare Centres. The centres are currently owned by Austock Property Group and leased to independent Childcare Centre operators and are offered for sale individually.

The well performing properties are located throughout metropolitan and regional centres across Australia and are of high standard.

Each property is 100 per cent leased and will be sold subject to the existing lease in place. Most leases are long term in nature with initial 10 or 15 year terms and offer further option periods.

The majority of the leases in the Clever Investments portfolio are structured around an institutional grade lease that maximises returns by enhancing income and minimising the need for administration, management and cost via:

• Long term leases with annual rental reviews
• Recovery of all property expenses (excluding those prohibited by law)
• Tenant refurbishment and structural repair obligations including reinstatement requirements
• Extended lease renewal provisions that provide long term notice periods
• Bank Rental Guarantees and in many cases Personal Guarantees from Tenant Company Directors

The Clever Investments portfolio is enhanced by:

• Attractive yields
• Large site area (average 2,000m2) underpinned by residential land values
• High levels of Government Support – Up to 50 per cent of the tenant’s income is supported by the Federal Government
• Individual tax depreciation benefits
• Limited (if any) non-recoverable property expenses
• No land tax chargeable in NSW

The above benefits and more ensure that these properties are very clever investment opportunities.

How will the property be used and who will occupy it?

Each property currently operates as a Long Day Care (LDC) Childcare Centre. They are occupied by accredited Childcare Centre operators and are subject to licensing requirements of each State or Territory Government. State Government Departments are responsible for the licensing of childcare centre operators and impose a minimum operational standard for childcare centres.

How long are the leases for these properties?

The Clever Investment portfolio of properties provides strong lease covenants with the following features:

• An average of 10 years remaining on the lease
• No vacant centres, all are operating centres producing income

Most leases provide 5 + 5 year options to renew with a five year notice period. The lease structure within the Clever Investments portfolio provides investors with long-term visibility, minimal administration requirements, and most expenses being recoverable from the tenant, all based on a long term lease (inclusive of option periods).

What types of leases are available?

The Clever Investments portfolio includes long term leases of the standard required by an institutional landlord. These are typically for a 10 or 15 year initial period, with annual rental reviews and a high degree of recoverability of costs. The portfolio has been structured to ensure that investors have minimal recurring out of pocket expenses in comparison to both residential and more traditional forms of commercial property.

Many properties in the Clever Investments portfolio are secured by either a standard lease or an enhanced triple net lease.

What is a triple net lease?

The majority of the leases are triple net in nature, meaning that the tenant is responsible for all typical property related expenses including property management, repairs and maintenance and refurbishments. Substantially stronger than typical commercial leases, the tenant is responsible for:

• All repairs and maintenance including any structural repairs
• All managing agent and specialist contractor expenses
• All Council and Water Rates including all consumption charges
• Reimbursement of the cost of Insurance
• A requirement to refurbish the premises, if required, every five years

Repairs and maintenance include internal and external repairs such as: glass replacement; landscaping; carparking, driveways and other external areas; fencing; signage; and, plant and equipment, amongst other items including alternations that the tenant may wish to make to the premises.

This significantly reduces the risk to annual cash flows and property ownership generally where the tenant is responsible for these expenses.

The leases are subject to state statutes in particular with respect to the recovery of land tax, where payable.

What rental guarantees are provided?

The properties are supported by a three or six month rental guarantee. Many leases also provide a personal guarantee from the Directors of the tenant company.

Is the cost of property management recoverable from the tenant?

Yes. The cost of property management is fully recoverable under the leases in addition to rent.

What is the five year refurbishment provision?

Those properties with a triple net lease provide that on the reasonable opinion of the landlord, the tenant will be required to redecorate the premises as defined under the lease as requested, but not more than once every five years.

When does the tenant need to renew its lease?

In most leases, the tenant is required to notify the landlord if it chooses not to exercise any option period available to it no later than five years before the end of its existing term. This is considerably longer than the typical six month provision provided in standard lease documentation.

Restoration obligations at lease maturity

Each lease ensures that the tenants must maintain the premises to an acceptable standard throughout the lease. Where a redecoration clause exists, the tenant may be liable for redecoration prior to lease expiry. In any event, the tenant will be liable for any damage to the premises. This should ensure that the properties are left in a suitable state in the event that the properties need to be re-leased.

How is the tenant’s income derived?

Tenant income for Accredited childcare centres is backed by significant levels of Federal Government support. meaning that up to 50 per cent of the income comes directly from the Government. Read more about Government support here.

Who owns the childcare licence?

The childcare licence is the property of the tenant. It is also the responsibility of the tenant to renew the licence and maintain conformity with all childcare licensing requirements.

What are the benefits of having underlying development potential?

Given the typical large land areas that the majority of the Clever Investments occupy, subject to council approval and zoning, they possess multiple alternate use options, such as residential or retail developments. Many sites have wide street frontages potentially allowing for subdivision at some future point in time, enhancing their long term development potential.

Why is Land Tax not chargeable in NSW?

Childcare centres in NSW that hold a licence under the Children (Care and Protection) Act 1987 are exempt from land tax in NSW.

Taxation benefits of investing in commercial property

You may be able to claim a number of expenses related to your property investment as a tax deduction.

You may also be able to claim a deduction for the decline in value of certain items, known as depreciating assets, which you acquired as part of your property. In addition, a deduction for construction costs (capital works deduction) may also be available.

In order to maximise your deductions, you may be required to obtain a tax Depreciation Schedule produced by an appropriately qualified Quantity Surveyor, specifically for each property purchased.