March 2018 INVESTOR NEWSLETTER

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1 INVESTOR NEWSLETTER

2 02 VILLAGE BUILDING CO COMPANY NEWS TO OUR VALUED SHAREHOLDERS AND INVESTORS I trust you all had a relaxing and enjoyable festive season. The Village team returned refreshed in January focussed on making 2018, our 30th year, a highly successful one. Having worked hard in 2017 to acquire new projects to supplement our 3+ year pipeline, we are now committed to progressing these projects and delivering them well. Planning and detailed design on our 260 townhouse development in Weston here in the ACT is well underway with a sales launch projected for Spring 2018 and construction commencement in early The first of our 16 Mr Fluffy dual occupancy residences ( The Residences ) will be released to the market in the coming weeks. We are excited to be diversifying our housing offering in the Canberra market with several $1m+ properties. At Corrimal in north Wollongong, we have sold 12 of the first 16 apartments released to the market and are receiving very strong buyer interest, predominantly from local and Sydney owner occupiers. Demolition work is nearing completion and construction is scheduled to commence in March. In Melbourne at South Morang, we anticipate settling on the purchase of the land this month. Detailed design and planning is advanced to the point that we await formal approval of our Development Application which we anticipate receiving this month. While the overall project portfolio is in very good health, construction of the first 32 townhouses at Yarraman Village at Noble Park in Victoria is behind schedule and we are seeing the impacts of the buoyant Melbourne market flow through to increased build costs for the remaining 126 townhouses. This is likely to put downward pressure on the project surplus and IRR but we are currently developing strategies to keep the impact of cost increases low and to minimise any impact on projected IRR. We are also focussed on maintaining our FY18 budgeted settlements at Parklands at Austral (Austral 2) in as we experience ongoing challenges with approvals, stormwater management and construction. All our other projects continue to perform very well, with some of the highlights including Practical Completion at Westside at Indooroopilly in Queensland (119 apartments) achieved 3 months ahead of program. Improved sales rates at WoodLinks at Collingwood Park in Queensland are making an important contribution to the achievement of our current year settlement targets. A major milestone in our 30th year will be commencement at South Jerrabomberra at Tralee. The anticipated formal approval in the coming months of planning and infrastruture agreements, as well as our subdivision DA, should see us on site by August With a start at Tralee after 15 years becoming a reality, we have commenced planning to both mobilise and to recapitalise the project. With our focus on project delivery, we have decided not to participate in the tender for The Precinct in Red Hill, the former Red Hill government housing site. This decision enables us to have the capacity to retain a larger stake of the Weston project for ourselves and our loyal investor group, without the need for an external equity partner, which we had originally anticipated owning a 30% share of the project. Our original offer to investors of a 25% stake has been almost fully subscribed and we are now offering investors the opportunity to invest in an additional 25% of this project at $9m. The Weston and South Jerrabomberra projects will revitalise Village s presence in the Canberra market in our 30th year and we are planning a number of exciting initiatives to celebrate this important event centred around these projects. The competitive nature of land development in south west Sydney is currently pushing margins on new acquisitions below our hurdle rates. This coupled with the discovery of contamination on various sites under due diligence and the increasing risk of approval delays has resulted in no additional lots being added to the Austral 3 syndicate. The 28 lots requires only 24% of the committed equity for the project. With the reduced level Cover Image: Rooftop at Westside, Indooroopilly, QLD

3 VILLAGE BUILDING CO 03 of complexity on the back of our experience with Austral 1 and 2 we look forward to the ongoing success of this project. A declaration of the interim dividend will be made by the Board shortly. The Board is undertaking a review of the share price which, in order to encourage participation in the Company s Dividend Reinvestment Plan, has been held at 85 cents per share for a number of years. With the acquisition of Weston and the imminent commencement of South Jerrabomberra together with a strong pipeline of projects in Brisbane, Sydney, Wollongong and Melbourne, it is now timely to review the appropriateness of the Company s share price, having regard to various financial benchmarks as well as the future capital requirements of the Company. WoodLinks Villiage, Collingwood Park, QLD I look forward to seeing many of you at our quarterly shareholder and investor session at 6pm on Wednesday 14th March at the East Hotel in Canberra and thank you for your continued support and commitment. Best regards, Travis Doherty Chief Executive Officer Brickworks at Bulli, VILLAGEBUILDING.COM.AU

4 04 VILLAGE BUILDING CO PROJECT UPDATES THE BRICKWORKS, BULLI The most recent batch of 21 houses in the Brickworks development are now complete and settlements are expected to be finalised by the end of. There are a further 5 remaining houses to be sold and constructed to complete the project. Construction has commenced on the duplex site and we are progressing a DA for our 3 townhouses on Organs Road, which is subject to approval by Council and the Rural Fire Services. THE VILLAGE AT CORRIMAL, CORRIMAL Sales are progressing well on our Illawarra development, The Village at Corrimal which will deliver 60 apartments and 6 townhouses. 12 of the 16 apartments released have been sold and we continue to receive strong buyer interest. Demolition on the site is underway and construction is anticipated to commence in. THE SUMMIT AT COFFS HARBOUR Settlements have been completed on the last 6 townhouses in the development with the remainder of the site anticipated to be land lots. 18 land lots were released to the market in October 2017 as we aim to accelerate and complete the development. We have sold 8 of the 18 lots and are receiving good interest from local buyers. The civil contract for the construction of the Pinnacle Way road, which services 11 of these 18 land lots, has been awarded with construction scheduled to commence in early, subject to receipt of the works approval from Council. THE MEADOWS, AUSTRAL 1 Works are complete on the first 71 lots of our 92 lot development at The Meadows in Austral. Settlements commenced in February 2018 and construction on the remaining 21 lots is underway. Settlements are scheduled to be concluded by June 2018, with the exception of one lot being held back for a temporary detention basin.

5 VILLAGE BUILDING CO 05 PARKLANDS, AUSTRAL 2 Civil work has commenced on the first 80 lots in this development with settlements expected to start towards the end of this financial year. A total of 52 lots have been sold across the 94 lots that have been released to the market with a consistent level of buyer enquiry. A refreshed marketing campaign has accompanied the commencement of civil works, in addition to new site signage. AUSTRAL 3 The Austral 3 project will consist of 28 land lots. Due diligence on other potential sites to add to this syndicate identified a combination of risks and uncertainties that meant our required rates of return may not be achieved. The syndication for this project is fully subscribed and investors have been advised of their reduced equity requirements. QLD SOUTH JERRABOMBERRA The resolution of outstanding planning matters has progressed to the point where the State Infrastructure arrangements have been drafted and once agreed will be exhibited. Local infrastructure is nearing resolution with Queanbeyan-Palerang Regional Council and a revised Stage 1 Subdivision Development Application has now been lodged. WOODLINKS VILLAGE, COLLINGWOOD PARK DA approval has been received on an updated lot mix at WoodLinks, taking the total number of lots from 776 to 778. To date, construction has been completed on 167 of these lots. Of the 135 lots sold to date, 100 lots have been settled, with a further 35 expected prior to the end of the financial year. The market remains steady for house and land in south east Queensland, although tightened lending criteria from banks has reduced the ability for first home buyers to access finance on low deposits. VILLAGEBUILDING.COM.AU

6 06 VILLAGE BUILDING CO PROJECT UPDATES QLD ACT WESTSIDE, INDOOROOPILLY Construction on our 119 apartment complex, including the rooftop pool and recreation area, achieved Practical Completion on 8th February 2018, 103 days ahead of program. The first settlements commenced in late February CARRAMAR AT MONCRIEFF Construction of the 42 townhouses at Carramar is nearing completion with settlements expected to commence in April of the 119 apartments are now sold. Although the apartment market in Brisbane remains challenging there remains steady interest from buyers which suggests we will continue to achieve the remaining sales over the coming months. ACT ACT HORIZON AT COOMBS Construction is now complete on this 83 dwelling project consisting of a mixture of townhouses and apartments. The final settlements were completed in December This project was a Finalist in the Best Affordable Housing Development Award at the 2018 Property Council s Innovation and Excellence Awards. THE RESIDENCES Development Approval has been received on the first 2 of our 8 dual occupancy Mr Fluffy sites spread across Hackett, Watson, Garran, Chifley and Farrer. Sales and marketing for the individual dwellings will commence from as each Development Approval is received. Strong interest has been received from the preliminary marketing on these sites with 95 registrations on the database. Construction on the first site in Farrer is scheduled to commence in.

7 VILLAGE BUILDING CO 07 ACT VIC WESTON Our newest project is the 260 townhouse site in Weston, ACT, on the former AFP Training College site. This project will be a mix of 2, 3 and 4 bedroom townhouses in this established and sought after suburb close to schools, three main shopping hubs, employment, restaurants and parklands. We are working through the planning and approval phases on this project and expect a sales launch in the second half of 2018 with construction to commence in early Settlement on the acquisition of the site will occur in June THE PROVINCIAL, SOUTH MORANG Our 239 townhouse development in South Morang is still in the planning stage. Settlement of the acquisition of this site is now anticipated to occur in once the vendor has its sub division approved by Council. Our detailed design has progressed and a planning permit application has been lodged with Council. Feedback has been received which confirms Council is generally happy with the application but we await a formal response from Council s engineering department. We are finalising the build program and costs for the townhouses with sales and marketing anticipated to commence in April 2018 with the opening of a new sales suite. VIC YARRAMAN VILLAGE Construction has commenced on the first 32 of the 158 townhouses in this development. We are closely managing the construction program with JG King to bring as many settlements as possible into the 2018 financial year. Civil works have commenced on stages 2-6 which represents the remaining 126 townhouses. We are experiencing cost pressures in Melbourne due to the continued strength of the housing market and have been working closely with a local builder to firm up the building costs for the remaining stock. All 107 townhouses that have been released to the market have been sold. The remaining 51 townhouses will be released in the second quarter of The Melbourne residential property market remains very strong, particularly across townhouses and detached housing. VILLAGEBUILDING.COM.AU

8 08 VILLAGE BUILDING CO SHAREHOLDER INFORMATION View of Canberra from the National Arboretum DIVIDEND The 5.0 cent final dividend for the 2017 financial year was paid in late December A declaration of the interim dividend will be made by the Board shortly. A copy of the Company s Dividend Reinvestment Plan is available at or at Computershare. The Board has purposely held the DRP price at 85 cents, which represents a 36% discount on the net asset backing per share at 30 June 2017, to encourage participation in the DRP. The Company benefits by shareholders participating in the DRP as it assists in further strengthening the Company s ability to take advantage of new development opportunities through an expansion of its capital base. Participation in the DRP is optional and offered to all shareholders thereby providing equal opportunity to maintain proportional interest in the Company. The quarterly dividend for CRPS-2 shares will be paid on 29.

9 VILLAGE BUILDING CO 09 INVESTMENT OPPORTUNITIES WESTON The new syndicated project at Weston has been well supported and we are close to achieving the targeted equity of $9 million from investors. When this opportunity was presented to investors at the December 2017 quarterly shareholder and investor session, we indicated we were investigating a potential acquisition of a large site at Red Hill, which we are now not progressing with. This enables us to retain a larger ownership stake in the Weston project. The Company will now increase its share of Weston to 50% and will similarly increase the percentage available to investors to 50%. As such, if you are considering an investment in Weston and have not yet made a commitment or would like to increase your investment in this project please contact Vince Whiteside. SECURED NOTES Secured notes are available for investment and form an important part of the Company s funding structure. These notes assist in reducing the weighted average cost of capital of the Company, which currently sits at 9.05%. Notes are available for terms of 1, 2, 3, 4 and 5 years. There is also a Series F note which is convertible to equity in syndicated projects. The suite of notes with terms of one to five years offer attractive returns and provide flexibility of investment options to shareholders and investors. Secured notes are only available to sophisticated and professional investors. The notes application document is available on request. SHARES Ordinary shares can be purchased from the Company at the Dividend Reinvestment Plan price of 85 cents per share. Share purchases are subject to Board approval. For enquiries regarding Weston, secured notes, shares or any other investment matters please contact Vince Whiteside on or vwhiteside@villagebuilding.com.au. VBC Forecast Investor Returns as at 02/02/2018 Project Type Date % of Total Bulli Profit Distribution 6 31/03/ % Profit Distribution 7 31/08/ % Indooroopilly Equity Distribution 1 31/05/ % Equity Distribution 2 31/07/ % Equity Distribution 3 31/08/ % Profit Distribution 1 31/08/ % Equity Distribution 2 30/09/ % Austral 1 Equity Distribution 2 31/03/ % Profit Distribution 1 30/04/ % Profit Distribution 2 31/05/ % Austral 2 Equity Distribution 1 30/08/ % South Morang Equity Call 3 31/05/2018 (7.65%) Equity Call 4 30/09/2018 (9.41%) Corrimal Equity Call 1 27/10/2017 (43.65%) Equity Call 2 23/03/2018 (29.22%) Equity Call 3 30/08/2018 (20.38%) Austral 3 Equity Call 1 31/03/2018 (8.58%) Weston Equity Call 1 31/03/2018 (12.36%) Equity Call 2 08/06/2018 (43.19%) Woodlinks Loan / Equity / Profits Future Noble Park Equity / Profits Future Note: The above information is indicative only and based on best estimates at the date of issue and is subject to change. VILLAGEBUILDING.COM.AU

10 010 VILLAGE BUILDING CO WORK HEALTH & SAFETY INFORMATION SAFETY FIRST Village Building continues to benefit from the safety first culture. The Company remains incident and injury free across all Village Housing sites. Internal safety audits and inspections continue to occur routinely and are proving capacity to identify and mitigate risk prior to incidents occurring, contributing to a safer work environment for staff and contractors alike. Demolition of site at Corrimal PLAYING SAFE AT THE BIG BANANA Regular staff training and orientation of new casual staff members has been conducted efficiently and effectively. The January audit shows no breaches in procedure by staff members. Year on year results show a decline in guest injury incident rates, which remain at a level below industry standards, and those set by the Board of the Company. Staff training and reporting procedures have ensured rides and attractions remain in excellent working order. The ongoing commitment to safety continues with the routine audits scheduled every six weeks. Toboggan Ride at Big Banana Fun Park

11 VILLAGE BUILDING CO 011 STAFF PROFILE LINDSAY HUNTER We are thrilled to welcome Lindsay Hunter to the Village team as our National Construction Manager and Project Director. Lindsay will have overall responsibility for running our construction arm, Village Housing and will provide construction and building support to our State/Development Managers. Additionally, he will be the Project Director on our new Weston project and The Residences, our 16 Mr Fluffy dual occupancy residences. Lindsay has over 35 years experience in the construction industry in Canberra having been at CHC (Community Housing Canberra) for the past 15 months as General Manager of Developments responsible for the delivery of all of CHC s construction projects across the ACT. Prior to that, Lindsay was with CIC Australia Limited for 13 years as the National Building Manager and Project Director where he delivered projects such as Sky Plaza in Woden, The Ambassador Apartments in Deakin and Quayside at Kingston Foreshore. He also spent 12 years at Willemsen Constructions as Construction, Design and Project Manager. He brings a breadth of knowledge and expertise to the team to grow and enhance Village s building capabilities. Lindsay Hunter, National Construction Manager and Project Director Mini Golf at Big Banana Fun Park VILLAGEBUILDING.COM.AU

12 The Village Building Co Limited P. (02) W.