Social Infrastructure:

Transition to mainstream

Oct 2018

Artist impression of the Herston Quarter, QLD

Rathdowne Place, VIC The Grace (Albert Road), VIC

PFA Masterclass

Confidential

1

Important information

Units in the Australian Unity Property Income Fund and Australian Unity Diversified Property Fund are issued by Australian Unity Property Limited, ABN 58 079 538 499, AFSL 234455 (AUPL).

Units in the Australian Unity Healthcare Property Trust and Australian Unity Retail Property Fund are issued by Australian Unity Funds Management Limited ABN 60 071 497 115, AFSL 234454

(AUFM). The Australian Unity Office Fund is issued by Australian Unity Investment Real Estate Limited (AUIRE), ABN 86 606 414 368, AFSL 477434. The Australian Unity Select Income Fund is

issued by Australian Unity Funds Management Limited ABN 60 071 497 115, AFSL 234454.

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2

1 What is Social Infrastructure

2 The Push to Core

3 AU’s Vision of SocInf - Precinct Developments

4 Australian Unity

Lane Cove, NSW

What is Social Infrastructure

4

Social Infrastructure

Social Infrastructure

is defined as

the interdependent

mix of facilities,

places, programs,

projects, services

and networks that

maintain and

improve standards

of living and the

quality of life in a

community.

“ Australian Unity is focused on the rapidly multiplying health and

financial needs of a national population that is not only growing, but

also ageing, and suffering increasing levels of chronic disease.

” Morven Manor, Mornington, VIC ^Australia’s Health 2018

5

Delivering Value to Communities

Retirement Living and Aged Care

Student Accommodation

Healthcare

Social and Affordable Housing

Child Care

Disability Housing

Social Infrastructure

Social Infrastructure (SI)

covers a broad spectrum of

assets, looking after

communities through all

phases of life.

Why is SI needed?

To support a growing

population, demographic, and

socio-economic changes,

these assets help to create

sustainable communities.

The Push To Core

7

Key Drivers for Social Infrastructure

Largely attributed to rapid population growth during

the baby boom period and increased longevity

Population is rapidly ageing 1 Student enrolment in tertiary education increasing 2

Projected healthcare spend is increasing 4

Total students in Australia increasing while accommodation supply is

stagnating and education assets is aging

Affordable housing still a key concern across Australia 3

Affordable housing supply is lacking and is one of the

top 3 concerns for Infrastructure Victoria 30 year

strategy

Demand for healthcare services is expected to grow due to the aging

population plus increasing cost of new technologies

Source: Ansell Strategic, Cushman & Wakefield

8

Transitioning to Mainstream

The investment community is

beginning to recognise Social

Infrastructure as an asset class in its

own right.

Increasing media attention, data

transparency and capital inflows

have led to acceptance of these

assets.

Source: JLL Research

9

Transitioning to Mainstream

Social Infrastructure cash flows are

typically counter cyclical or have a

neutral correlation to economic

growth.

Compared to the typical core asset

classes such as the office and

commercial sector, the addition of SI

assets provide diversification

towards a portfolio of real estate

investments.

Source: JLL Research

10

Increased Demand in Social Infrastructure

Source: MSCI, Bloomberg

Cap rate compression in the healthcare sector has

sharpened the most relative to other sectors

(approx. 300bps), reflecting high demand for

alternative investments in the real estate sector.

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2013 2018

Retirement VillageOperators

Aged Care Operators

Healthcare Operators

$m

Market Capitalisation of Listed Social Infrastructure Operators

Healthcare Cap Rate Compression

Number of SI listed operators have increased and

market capitalisation have been growing at 28%

p.a. over the past 5 years from $11.4B to $31.4B,

indicating significant growth and investor’s

confidence in the sector.

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Reasons for Transition

Source: PwC Survey

Responses from investors have

supported the findings on the

previous slides.

Investors surveyed in the PwC

“Emerging Trends in Real Estate –

Asia Pacific 2018” believe that there

are strong drivers in the Social

Infrastructure sector and it provides

a distinct benefit towards a property

portfolio construction, maximising

risk-adjusted return.

Precinct Developments

13

Precincts Matter

• Developing individual SI assets on their own provide benefits, but it is

increasingly important to have a multi-faceted approach towards solving

the changing issues across the whole community.

• Precinct developments allow a vibrant masterplan to be developed, and

with a carefully selected mix of assets, the ability to deliver a better

outcome, to both the community and financially.

• Through a Master Developer, the private sector is able to work hand in

hand with the public sector/land owner to identify crucial needs, future

proof developments and maximise the benefits of an area.

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AU’s Take on Precinct Healthcare

Pathology

GP

Specialist

Pharmacist

Allied Health

Hospital

Support

worker

Psychologist

Community

support

?

The patient must

navigate disconnected

and complex systems

that treats illness and

symptoms. Defined by

episodic interactions.

CURRENT SYSTEM Fragmented and episodic healthcare

THE FUTURE Integrated healthcare

Homecare

worker

GP

Allied

Health

Hospital

Pathology

Psychology

Pharmacist

Specialists A full integration of

physical, mental and social

health

A holistic approach to

healthcare with the

individual at the centre.

Professionals understand

their patient,

communicate with each

other and focus on

prevention, treatment and

management

One medical record share

between key health personnel

Visit Based Outcome Based

Artist impression of the Herston Quarter development, QLD

Herston Quarter redevelopment An Example

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Herston Quarter redevelopment

A global benchmark in healthcare precincts in the heart of Brisbane

350 hospital beds (Private & Public Hospital)

156 retirement living apartments

153 residential aged care facility beds

165 residential apartments

176 childcare places

700 student accommodation beds

2,000 car spaces

• A co-working and innovation hub

• Located adjacent to Royal Brisbane and Women’s

Hospital (RBWH)

The Plan Australian Unity’s vision for the Herston Quarter Health

Precinct is to create a diverse, vibrant and connected

community to deliver health services, aged care and

supporting and complementary uses.

The site will also feature green spaces that encourage

socialization, innovation, collaboration and interaction Legend

1. Lamington Place

2. Herston Square

3. Spanish Steps

4. Green Heart

5. Specialist Public Health Facility

6. Aged Care

7. Private Hospital

8. Lady Lamington Towers

9. Lady Lamington Building

10. Retirement Living

11. Car Park

12. Edith Cavell Building

13. Lady Norman Building

14. Residential Tower

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$1.1b Herston Quarter project

*Artist impressions of Herston Quarter development

Empowering the community with 700+ jobs during construction phase

& nearly 1,000 once the facility is operational

Proud to partner with:

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Setting up for Success – Precinct

Development

After establishing

key objectives, land

owners should seek

to engage market

participants early

and have an

interactive process

to have the highest

chance in achieving

the land owners

core requirements.

• Define key principles and objectives for the State/land owner to increase the probability

of meaningful submissions that meet the State’s criteria (i.e For Herston - the SRACC

and readaptation of Heritage buildings)

• Understand risk and project delivery outcomes to

• Know when to be flexible in the negotiation

• Optimise risk allocation by allocating the correct risk to the party that is able to

manage the risk with the least cost

• Engage a Master Developer early to optimise outcome

• working with an experienced Master Developer through a ECI; or

• have a longer consultation period with the selected Master Developer

• Have an interactive process for all work streams (legal, planning, design, facilities

management requirements etc) to provide clear feedback

• Keep it simple at first – start with terms sheet and agree key delivery/principles for each

of the precincts

19

Learnings from Herston Quarter Project

• State was clear on its objectives and

worked with key general principles:

1. Adaptive reuse of heritage buildings

2. No net cost to the State

3. No risk to the State

4. Build the public hospital (the SRACC)

• Having clear objectives allows market

participants that satisfy the core

requirement to the State.

• These objectives act as a guide for the

market to provide innovative solutions, as

the market participants have different

costs of capital and would deploy capital

more efficiently.

State’s 3rd Attempt – Success!

AU Learnings - Innovating Work Streams State’s Learnings

Generally, the best outcome is achieved when the private sector has the flexibility to determine the optimal capital mix

for each precinct.

Before the Bidding Phase, the State/land owner should be clear on risk allocation for each precinct to satisfy their objectives.

During Bidding Phase:

• AU established a single point of contact to be the major contracting party in the legal documentation as it was important for

the State to have a single point of contact

• A commercial steering committee should be set up in both the State/land owner and the proponent.

• Part of the members of commercial committee should be included in the project delivery team to retain commercial

knowledge.

• Terms sheet for each precinct should be completed to provide clear understanding of high level commercial terms and what

needs to be achieved

• For funding, the potential partner could obtain indicative support from equity and debt partners, noting that market conditions

could change during project implementation

• The State should be open to the solutions provided by private participants, who are working on different return hurdles and

expectations

During Preferred Proponent Selected Phase:

• Full documents draft based on terms sheet in the bidding phase

• Contracts need to include flexibility to be future proofed

20

Learnings from Herston Quarter Project

AU Learnings - Structure and Ownership

• Australian Unity views integrated, multi-use precinct style developments as the future of healthcare expansion across Australia with the support of a strong

education facility (e.g Herston Quarter, SAHMRI). The importance of having the right legal and commercial structure allows the market to determine the optimal

capital mix.

• What was offered? Development land offered on a combination of 99 year lease and freehold as necessary (e.g residential)

• How was it executed? Australian Unity established a precinct company to develop the site and provide a single point of contact for the State. MNHHS retain

operating control of public health facility via bespoke PPP-style transaction

With the exception of the SRACC, which will be publicly funded through a PPP structure, this project is being funded and financed by Australian Unity and delivered

at no net cost or risk to the State.

This structure allows AU to leverage on the “Best of Breed” developers and operators to deliver the project.

The following diagram shows the general transaction structure for the delivery of Herston Quarter.

21

Why was AU selected

• Australian Unity is praised for being a long term capital partner and

operating partner, which allows AU to provide the highest value for

all stakeholders over funding partners with a short term focus.

• AU contains a wealth of health insights that provides a deeper

understanding required for a holistic healthcare redevelopment, the

future of integrated healthcare.

• AU wellbeing philosophy resonates with the State, where we

acknowledge that a successful precinct would require various

elements across education, wellbeing, transport infrastructure and

residential accommodation

• AU has experience in various sectors, which is desired for a

multifaceted precinct redevelopment

Commercial Sector

Australian Unity Office

Fund

10 Valentine Ave

- Renewed existing

tenancy and

increased asset

value by 28%

AU has a track record in multiple sectors, managing

developments and providing asset management

Healthcare Sector

Healthcare Property

Trust

Robina Private

Hospital

- Greenfield

development of a

364 bed hospital

Retail Sector

North Blackburn Shopping

Centre

- Feasibility to upgrade

Centre near complete

Retail Property Fund

Wellbeing

Retirement Village

Property Fund

Geelong Grove Village

Australian Unity About Us

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Through thick and thin, we’ve got you covered

RETAIL

Bringing private health

insurance, banking, general

insurance

and broking teams

WEALTH

&

CAPITAL MARKETS

Bringing property, financial

planning, investments, life

and superannuation and

trustee services

INDEPENDENT

&

ASSISTED LIVING

Bringing health and living

services

Creating innovative solutions

that offer great value to our customers

Customer-centric wealth solutions

for financial security

and peace of mind through life’s stages

Reshaping this platform to

provide enhanced care to our customers

Shaped to address market uncertainties and ever changing community challenges

24

Australian Unity Property

“A deeper perspective, delivered straight”

• A comprehensive real estate platform, established 1998

• $3.3 billion of real estate funds under management (FUM)

as at 30 June 2018

• Managing more than 90 properties across the healthcare, retail and

office sectors across Australia

• Deep expertise with 50+ specialist staff as well as support from the

wider Australian Unity Group

• Diversified offering of listed and unlisted property funds

• Master developer for the $1.1 billion Herston Quarter redevelopment

in Brisbane

• Australia’s largest property healthcare fund

Industry Awards

PPP Awards both conferred in 2017

+As at 31 December 2017

AU Property Support services

Data as at 30 June 2018