CORE Investment Fund

The Fund

How the CORE return is shared.

CORE owns and operates apartment buildings. Limited partners hold units in the partnership that owns them. This page sets out the order in which income from those buildings is applied, and how the remainder is divided.

Investor Economics

Preferred return

6%

Paid to limited partners first

General partner participation

20%

Of upside above the preferred return, taken in units

Target yield

12–14%

Distributions plus change in unit value

The preferred return and the general partner's participation are terms of the partnership. The preferred return sets the order in which available cash is applied; it is not a guarantee, and distributions are declared rather than automatic. The target yield is a forward-looking objective. It is not a forecast, and it is not a record of performance. All three figures should be read with the structure set out below and the conditions listed at the end of this page.

The Structure

Two separate paths, joined only at the end.

Cash generation and change in value are separate mechanisms. A property can increase in value in a period when it produces little surplus cash, and it can produce cash in a period when its value is unchanged. The two meet only in the investor's total return.

Path one — Cash

StartRent collected from the propertiesApartment buildings owned and operated by the partnership.
LessOperating costsUtilities, insurance, property taxes, repairs, on-site staffing and turnover. What remains is net operating income.
LessMortgage payments and capital reservesLenders are paid before the partnership is. Reserves are held for the property rather than distributed.
LessProperty managementThe manager's ongoing economics are met here, at the property level.
LessPartnership-level costsAccounting, legal, administration and reporting at the fund level.
EqualsCash available for distributionDistributions are declared rather than automatic. This is the amount available, not an amount owed.
First toLimited partners, up to the preferred returnThe preferred return is paid ahead of any participation by the general partner.

Path two — Unit value

AssetsValue of the properties, plus cash and other assetsProperty values are reviewed periodically. A valuation is an estimate, not a sale price.
LessMortgages and other partnership liabilities
EqualsPartnership equity, and equity per unitThis can increase or decrease. It decreases if property values fall, and it is affected by the number of units outstanding.
ThenAbove the preferred return, the general partner participates in the upside and takes that participation in unitsUnits issued to the general partner increase the total unit count.

Total Return

Total return reflects both distributions and changes in unit value. Neither component should be considered in isolation.

The Promote

The manager's participation is taken in units.

The Effect on Cash

Cash stays in the partnership.

Once limited partners have received the preferred return, the general partner participates in the upside above it. That participation is taken in units rather than paid out in cash.

The manager's share of a strong period does not compete with investor distributions for the same dollars. Cash that would otherwise leave the partnership remains in it.

The Effect on Ownership

The cost is carried in unit count.

Units issued to the general partner increase the number of units outstanding. An existing investor's percentage of the partnership decreases.

This is a real cost rather than an avoided one. It is located in unit value rather than in the distribution, which is why the two paths above are read together.

A manager paid in units realizes that value only if unit value holds over time. A manager paid in cash has been paid regardless. This aligns the manager's outcome with the investor's. It changes what the manager is exposed to; it does not change what the properties earn.

Fees

There is no separate fund-level management fee.

Many private real estate funds apply a management expense ratio at the fund level, charged against net asset value in addition to what the properties cost to operate.

CORE does not.

The manager's ongoing economics are met inside property management, at the building level. There is no separate fund-level expense ratio charged against unit value on top of that.

This is a difference in structure rather than a claim that management is free. The cost exists, it is met at the property, it is reflected in net operating income, and it is not duplicated at the fund level.

Tax

Income flows through to the investor.

CORE is an Alberta limited partnership. It does not pay tax itself. Income and losses flow through to the limited partners, who receive a T5013 each year reporting their share.

Because real property is depreciable, the capital cost allowance the partnership claims can offset much or all of the rental income it reports. A T5013 from a partnership of this kind may therefore show little or no taxable income in a period when cash distributions were paid.

The benefit is timing. Depreciation claimed reduces the tax cost of the property, which increases the gain and can trigger recapture when a property is sold or when units are disposed of. How this applies depends on the investor's own circumstances, and investors should speak with their own tax advisor.

Conditions

What has to be true.

  1. 01The properties stay occupied and collect rent.Everything downstream begins with rent collected, net of what it costs to operate the property.
  2. 02Lenders are paid before the partnership is.Mortgage obligations and required reserves are met first in every period.
  3. 03The preferred return is a priority, not a promise.It sets the order in which available cash is applied. It does not create cash the properties did not produce, and distributions are declared rather than automatic.
  4. 04Property valuations remain supportable.Unit value depends on them, and a valuation is an estimate rather than a realized sale price.
  5. 05Units issued to the general partner dilute existing investors.The promote is a real cost, carried in ownership percentage rather than in cash.
  6. 06Real estate values can fall.Unit value can decrease as well as increase, and leverage increases movement in both directions.
  7. 07Units are not liquid in the way a listed security is.There is no public market for them.
  8. 08The manager and the properties are related.Property management sits with an affiliated party rather than an independent third party.
  9. 09Past periods do not indicate future ones.Nothing on this page is a record of performance or a projection of it.

This page is informational. It is not an offer to sell or a solicitation of an offer to buy securities, and it is not tax advice. Any offering is made only under the applicable offering documents, which govern.

CORE Investment Fund. Coastal Oakmont Real Estate LP.

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