FREQUENTLY ASKED QUESTIONS
Who is Prestigious Properties and what do they do?
Prestigious Properties specializes in acquiring, adding value to, and managing multi-family apartment buildings in growth markets with tightening vacancies. We target acquisitions of “C” class buildings in “B” locations where rent growth can be achieved. By purchasing with medium to high leverage, combined with ongoing cash-flow from renters, we aim to double investors' money in six to seven years. Prestigious Properties offers a proven track record, proven results, and proven management experience based on real assets with regular cash flow and significant equity growth potential. As of Spring 2011, well over 500 investors have invested over $40,000,000, with asset values transacted exceeding $115,000,000 and over $85,000,000 under management as of Q1 2011.
What is the Kings Castle Limited Partnership?
The Kings Castle Limited Partnership is our latest investment opportunity at Prestigious Properties. What we do is we raise capital for a period of time and then close each Limited Partnership (LP) to new members. Each LP makes its own investments. The Kings Castle Limited Partnership is our sixth LP offering.
What does the Kings Castle Limited Partnership investment entail?
The investment is in Limited Partnership (LP) Units in an Alberta based Limited Partnership formed to acquire, improve, re-finance and hold multi-family apartment buildings in growth markets in North America, but primarily western Canada.
Am I investing in a single apartment building?
No, the LP will acquire multiple apartment buildings in the partnership, and sometimes land, creating a small diverse portfolio of revenue-producing real estate.
How does a Limited Partnership (LP) work?
An LP is a preferred and commonly used way to structure a relationship between willing parties for a defined business venture. It is used to reduce risk, delineate responsibilities and share profits in a predetermined way. It is a well thought out, provincially regulated legal vehicle to raise capital for a venture without the expensive overhead of a public company. Each LP has one general partner (GP) and one or more limited partners.
An LP is like a marriage of multiple parties. Like a real marriage, responsibilities are divided up and it takes a very strong sense of structure when 30 or 50 people marry. One party has the expertise for a certain business venture, in our case, multi-family residential real estate in North America. This is the GP. The other parties have a desire to invest some of their capital for significant returns, limited risks and potential tax savings. The GP usually executes all activities of the business venture, reports regularly to the investor partners and shares the profits with the partners in a predetermined fashion.
In essence, the GP-LP relationship is like a trustee trust relationship: the trust (LP) holds all the assets, but the trustee (GP) on behalf of the trust (LP) manages the assets of the trust (LP). The GP in our latest syndication is called Prestigious Properties Kings Castle GP Inc. The benefits to the investors / limited partners are:
a) Limited risk – to the amount invested, even in case of a major disaster or law suit.
b) Clear delineation of responsibility – one party is the general partner which does all the work with a clearly defined fee
structure and compensation – usually a combination of (hopefully very small) fixed fees and variable, profit oriented share of profits (40% in our case, up to doubling your money, after you have received all of your original investment).
c) Allocation of 100% of losses for potential tax savings (usually in early years due to startup costs).
d) Clearly defined time line (up to 5 to 7 years in our case) with early exit options.
e) Possibility to sell units to later partners at annually set prices (usually higher).
f) Existing and well tested legal framework, with oversight by provincially appointed regulators.
g) Annual reporting.
h) Regular optional distributions, usually quarterly.
How do I know if I am eligible to invest?
Depending on your province of residence, the provincial securities commission requires that all investors must qualify as an Eligible or Accredited Investor, or invest a minimum amount, or is known well by the GP. An Eligible Investor is someone who has assets worth over $400,000 or has made over $75,000 in income (or over $150,000 with their spouse) per year over the previous two years. An Accredited Investor is someone who has over $1,000,000 in investable assets or has made over $200,000 in income (or over $400,000 with their spouse) per year over the previous two years. Other exemptions to invest are: a minimum investment over $150,000, or being a friend, family member or close business associate of the executives of the GP.
Is there any difference in the cash versus RRSP investment?
No, there is no material difference. Both invest in the same partnership units and the returns will be similar. The only difference is that the RRSP investment will be 0.5% lower annually as Target Capital Inc, a publicly traded corporation receives 0.5% annually for its supervisory and bond administration services.
What are my liabilities as an investor?
As an investor in the limited partnership, our limited partners are only liable for the amount of their investment. The General Partner, or principals of Prestigious Properties sign all personal guarantees for mortgages and take on all additional liabilities.
What kind of returns can I expect as an investor?
Prestigious Properties aims to deliver double-digit average annual ROI over a 5 to 7 year investment horizon with optional 5% annual cash distribution or DRIP (Distribution Reinvestment Plan). While we have been able to consistently achieve or even vastly exceed these results in the past through prudent acquisitions, renovations and asset dispositions, there is no guarantee that we will be able to exceed these returns as in the past. Although a look at our track record will give a some indication of the abilities of the General Partner leading the company into the future.
Is there monthly, quarterly or annual cash flow?
Typically, in the first 18-24 months after the acquisition of an underperforming multi-family property, there is very little positive cash flow as we aim to re-inject the majority of the cash flow back into the properties to improve the assets and to increase the value of our assets over the long term.
What is the DRIP program?
DRIP is an acronym for Distribution ReInvestment Program. The program allows our investor’s portion of positive cash flow to be reinvested into additional LP units to increase their equity share in the partnership, with the idea being that the investors return on investment will be higher at the end of five years if they chose the DRIP program versus quarterly cash distributions.
What are the tax implications of a LP Investment?
The LP agreement that you sign provides that income, and net taxable capital gains or losses for purposes of the Tax Act will be allocated to LP Unit holders in the same proportion as distributions received by Unit holders.
Distributions may consist of the following for income tax purposes for which T5013 partnership income statements are issued, usually in the latter half of March for the previous tax year.
a) Distributions that are currently taxable. This portion of distributions for income tax purposes will be treated as regular taxable income (and not treated as dividends or capital gains) to each Unit holder.
b) Distributions that are treated as a dividend received from a Canadian or US subsidiary corporation. As such, it will be subject to a preferential tax treatment that all dividends from Canadian corporations receive (subject to the dividend tax credit).
c) Distributions that represent your portion of capital gains allocated to you relating to gain on the sale of a property in the year, if any. Please note that of the portion reported as capital gains on your tax return, only 50% of this is included in the calculation of your taxable income. The nontaxable portion of the capital gain is not deducted from the adjusted cost base of your Units.
d) Distributions that are not currently taxable and will be treated for income tax purposes as a return of capital.
Accordingly, this currently non-taxable portion will reduce the adjusted cost base of the Units owned by each LP Unit holder. If, after deducting the return of capital portion, your adjusted cost base of your Units is a positive amount, no portion of the return of capital will be taxable. If, however, after deducting the return of capital, your adjusted cost base of your Units is a negative amount, you will realize a capital gain equal to the negative amount and your resultant adjusted cost base of your Units will be nil. LP Unit holders should consult their tax advisors with respect to any questions they may have concerning tax matters.
What communication can I expect to receive from Prestigious Properties after I invest?
We typically issue quarterly written updates on the progress of the limited partnership along with the financials of the partnership. We pride ourselves in our transparency and encourage all investors to contact us with any additional questions they have regarding the details of the partnership. All documents such as mortgage statements, property appraisals, engineering reports, offers-to-purchase or invoices are available for inspection online in a password-protected area or via our administrative headquarters in Canmore, AB.
What is the time horizon for my investment?
The investment is for five to seven years. It takes time to change poor management, to upgrade and renovate existing apartment buildings and to improve revenues and decrease expenses. Therefore, in order to deliver our typically above average returns, we need at least five years with the investment for it to materialize into above average returns for our investors.
When can I take my money out of the partnership?
The investment is a five to seven year investment, however there are liquidity clauses in the Limited Partnership Agreement outlining options for our investors if they need their money back before then. These fees are used as a disincentive to take money out before then and the fees decreases linearly over the first five years. For more details, please see the Offering Memorandum.
How does Prestigious Properties make its money?
In addition to very small, below industry-standard, commissions, acquisitions fees and asset management fees as outlined in the Offering Memorandum, Prestigious Properties, acting as the General Partner of the partnership, shares in the equity appreciation of the assets only after our investors receive 100% of their initial investment back.
After our investors receive 100% of their initial investment back, Prestigious Properties is entitled to 40% of all future cash distributions and the investors are entitled to 60% of all distributions until they have received a 100% return on their initial investment. At that time Prestigious Properties will then be entitled to 60% of all distributions and the investors or limited partners will then be entitled to 40% of all future distributions.
How do I liquidate my investment?
At the end of five years, and every year thereafter, there will be an Annual General Meeting of the partners. The partners will be given details on the current position of the Limited Partnership and have the opportunity to request that their investment be liquidated based on the Net Asset Value (NAV) of their proportionate share of the Limited Partnership assets. If they choose to remain partners, the General Partners may make recommendations to hold properties for longer than five years and the Limited Partners will have the option to remain partners going beyond the initial five year investment.
Please refer to the latest Offering Memorandum for all details. This is not an investment offering. This is not a guaranteed investment. Investment is sold via an Offering Memorandum (OM) only to Eligible and Accredited Investors, or to friends and family or close business associates of the GP, or if you invest over $150,000 without an OM.
