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Welcome Macquarie Financial Services How to Increase your Income Wisely

Join us for a presentation on how to increase your income wisely through high yielding shares, listed property trusts, preference shares, and income securities. Learn the criteria for selecting the right trust and why investing in income securities can be beneficial. Presented by Alan McKinnon and Andrew Telford.

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Welcome Macquarie Financial Services How to Increase your Income Wisely

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  1. WelcomeMacquarie Financial ServicesHow to Increase your Income Wisely Presenters: Alan McKinnon - Associate Director Andrew Telford - Branch Manager, Burleigh Heads Thursday 14th June 2001

  2. Agenda • High Yielding Shares • Good Franked Dividends and Capital Gains • Listed Property Trusts • Top income returns from ‘bricks and mortar’ • Learn the criteria for selecting the right trust • Preference Shares • RECAPS, PRYMES, PERLS, Reset Prefs • Income Securities/Floating Rate Notes • Why should you invest in Inc. Sec/FRN’s?

  3. High Yielding Fully Franked shares • Superannuation funds and investors with a marginal tax rate of less than the company tax rate can create yields in excess of quoted yields.For example:Marginal tax rate of 15%, Company rate 34%Dividend of 5.00% fully franked ($5.00)Price of $100.00Gross Dividend of $7.58Tax payable of $1.14, rebate of $1.44Net yield = $5.00 + $1.44 = $6.44 (6.44%)

  4. High Yielding Fully Franked shares • Be aware that not all dividends are sustainable. A company showing a 10% fully franked dividend based on historical figures may not be all that it seems.Were there any special dividends due to one-off asset sales?Are profits able to support any future dividends?More often than not excessively high dividend yields are not maintainable and the market is telling us this.

  5. What is a Listed Property Trust? • A Listed Trust which invests in a portfolio of property assets • A number of different types • Industrial • Commercial • Leisure • Retail • Diversified

  6. Criteria for Investment • Diversification of properties • Diversification geographically • Diversification of revenue • Quality of Management • Quality of Properties • Vacancy rates of Properties • Average Lease profiles • Quality of Tenants • Borrowings

  7. Diversification of Properties • Are the properties diversified? • What level of exposure does the trust have to any one property?For example: a property trust with 10 properties would seem well diversified. What if one of the properties makes up 50% of revenues?

  8. Diversification Geographically • Where are the properties situated? • Ensure that not all properties are situated in one region, city or state.For example: If all the properties are in Victoria then the trust is at the mercy of the economic conditions in Victoria.

  9. Diversification of revenues • What level of exposure does the trust have to any one tenant? • Are there any large tenants, ie. 30% of revenues from one group.For example: If this major tenant gets into difficulties earnings would be under pressure.

  10. Quality of Management • What is their track record? • Are they a large manager with access to greater expertise? • Are they achieving adequate vacancy rates? • Are they achieving adequate rental increases?

  11. Quality of Properties • Are the properties of investment grade or are they substandard? • Are there any buildings that need renovation or are they in good condition? • What yields are the buildings achieving? • Are the managers achieving adequate rental increases?

  12. Vacancy rates of Properties • Low vacancy rates are importantVery simple concept, the more tenants the more revenue!

  13. Lease Profiles • What is the average lease profile? • An average of five years or longer is adequate • Does any large tenancies come up for renewal in the near term? • What is the likelihood of an increase in rental income from these properties?

  14. Quality of Tenants • Are the tenants financially sound with the ability to pay rent over a long period? For example: quality tenants like Coles Myer.

  15. Property Trusts • Commercial/Office • Macquarie Office, ING Office • Industrial • Deutsche Industrial • Retail • Westfield Trust • Diversified Trusts • AMP Diversified

  16. Preference Shares • A Preference share is a share of a company that usually has preference to dividends over the ordinary shares and usually rank behind debt and before ordinary shares in the event of the company being wound up. • The dividends are also usually franked • The dividends are usually higher than on ordinary shares

  17. Coles Myer RECAPS • Resetting Convertible Preference shares • Resetting - rate resets at maturity (based on 5yr SWAP) • Convertible - Can be converted to ordinary shares at maturity at 5% discount to VWAP • 6.50% fully franked on Face Value of $100.00 • Current price $105.75, running yield 6.15% fully franked • May be redeemed by issuer at Face Value at maturity date

  18. St George Bank PRYMES • Preferred Resetting Yield Market Equity Securities • Resetting Yield - rate resets at maturity (based on 5yr SWAP) • Convertible - can convert to St George Bank shares at 2.5% discount to VWAP • 6.36% fully franked on Face Value of $100.00 • Current Price $106.75, running yield 5.96% • May be redeemed by issuer at Face Value at maturity date

  19. Commonwealth Bank PERLS • Preferred Exchangeable Resettable Listed shares • Exchangeable - can be exchanged for Ordinary shares at reset dates at 2.5% discount to VWAP • Resettable - rate is reset on a quarterly basis in reference to 90 day Bank Bill rate. • Yield is 90 Day BB rate + 1.85% multiplied by 0.7568. Current 90 day Bank Bill rate 4.84%. Yield is therefore 5.06%. Current price is $203.25, running yield 4.98% fully franked. • The issuer may redeem PERLS at Face Value of $200.00 at resettable date.

  20. Bank of Qld Reset Prefs • Reset Convertible Preference shares • Reset - rate is reset at maturity • Convertible - may be converted into ordinary shares at maturity or by issuer at 2.5% discount • Yield is 7.4148% on Face Value of $100.00 • Current Price is $107.00, running yield 6.9% fully franked

  21. Income Securities/Floating Rate Notes • A Note with an interest payment which is usually based on the 90 day Bank Bill Rate • A debt instrument by nature as opposed to an equity instrument (shares) and are therefore unfranked • Participation in movements in interest rates

  22. Current Issues • Macquarie Floating Rate notes • 1.70% over 90 day BB rate • Minimum 7.25% until 15 January 2003 • Current Yield 7.25% per $100 (min. rate) • Current Price $97.00, running yield 7.47% • National Bank Income Securites • 1.25% over 90 day BB rate • Current yield 6.09% per $100 • Current price $91.65, running yield 6.65%

  23. Current Issues • AMP Income Securities • 1.30% over 90 day BB rate • Current Yield 6.14% per $100 • Current Price $89.90, running yield 6.83% • Woolworths Income Securities • 2.00% over the 90 day BB rate • Current Yield 6.84% per $100 • Current Price $97.20, running yield 7.04%

  24. Current Issues • Publishing & Broadcasting Income Securities • 2.0% over 90 day BB rate • Current rate 6.84% per $100 • Current Price $92.00, running yield 7.44%

  25. Current Issues • Publishing & Broadcasting Income Securities • 2.0% over 90 day BB rate • Current rate 6.84% per $100 • Current Price $92.00, running yield 7.44%

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