FAQ’s for RBS Investment Model
1.Why did you choose this structure in favour of more common structures?
This structure was recommended by a team comprising leading business advisors and is designed to give the utmost flexibility, legal protection and tax mitigation.
2.What are the main points of the shareholders agreement?
a.How the exit process is controlled, how the investment is governed and how returns are distributed to shareholders.
3.What are the main things that shareholders vote on?
a.The amounts to be distributed, who will govern the investment and the sale of the investment
4.Who manages the governance structure (admin, secretary work)?
a.RBS Ltd will offer a service to do this, but it is at the discretion of the governance team to decide.
1.Why are your returns for the landowning entity much lower than other EP offerings?
a.This offering concentrates solely on the cash returns, not hypothetical capital gain. RBS Invest ltd also have scrutinised the returns based upon their experiences in the sector with robust modelling.
2.How is the tenant risk mitigated?
a.The tenant will also be a shareholder in the land owning entity, giving a meaningful relationship with the landowners. Also it will be structured with a reviewable lease agreement for the landowners’ protection.
3.What is the outcome if the tenant fails to meet the lease or other conditions?
a.A number of options exist such as financial penalty or termination of lease. If the tenant fails to meet its obligations, then it risks devaluing its landowning investment.
4.Who monitors the tenant and for what cost?
a.It is the landowners’ governance determination who does this. It can be a competitive tender process, and it is envisioned that is should be completed at around a proportion of the return.
5.How is the return, returned to the investor (tax implications)?
a.Depending on the structure used it may be returned with tax paid, or with tax yet to be paid ( Limited Liability partnership)
1.What is the process for selling out of the investment?
a.This is covered by the shareholders agreement. The first option will be to the tenant, the other investors and then onto the open market. The tenant will be obligated to purchase into the landowning entity under the shareholders agreement. The investment will be independently valued at market rates as part of the process.
2.How long minimum does an investor need to be involved?
a.The investor will need to be committed to the term of the lease (5 years). That is not to say that the operator can purchase over this period and start to pay out investors.
3.What is the process and who does the valuation?
a.A registered valuer familiar with the area.
4.What if my circumstances alter and I need to get out immediately?
a.This process is governed by the shareholders agreement and may result in a discounted price. However as this investment is designed to offer a cash return, backed by unencumbered land security which would appeal to the open market.
5.What happens if the investor does not want to sell?
a.The investor is compelled to sell as part of the business transition to the operator. However new opportunities will be presented frequently to enable the investment to shift to a similar vehicle.
6.What if the investor does not agree with the valuation of the shares?
a.A disputes resolution process will be documented and adhered to. If the investor does not agree to a valuation then this process will be followed.
1. What is the minimum I need to invest?
a.This is governed by the Securities Act, and will require a minimum of $250,000
2.Who can I go to get independent advice?
a.RBS Invest Ltd strongly urges all investors to seek independent advice. For farm analysis the NZPIM organisation can be sourced to provide an independent farm consultant and the law society or legal advice.
3.What are the main risks to both the operator and landowning investor?
a.Investors will need to determine their own risks, but they may include business risks, climate risk, market risk, structure risk and tenant risk.
4. Who owns the Fonterra shares (if any)?
a. The operator will own the supply rights to any Dairy processor, so they can choose who to supply.
5. Can an investor have money in the operation side of the business without being directly involved?
a. Yes they can, and that would be a separate investment vehicle.