Unlisted Property Trusts

Professionally managed unlisted property trusts, also called funds, syndicates or schemes, are an alternative way to invest in property.

Investors buy ‘units’ in a trust holding investment property or properties, which are managed by a professional investment manager like Trilogy Funds.

The initial capital remains invested until the property asset(s) is sold when the trust ends and any net proceeds are distributed among the investors. Throughout the life of the trust, investors also receive income distributions that are paid at set intervals (e.g. monthly or quarterly).

Investment properties are chosen by the investment manager and bought by the trust. The investment manager then manages the associated maintenance, administration and rent collection. The property classification could be commercial, retail, industrial or some other class.

Investment managers must provide a Product Disclosure Statement (PDS) with information about the trust, as well as update investors about any significant changes to the trust. In the case of unlisted property trusts, the investment manager is also required to publish ongoing disclosure documents.

How an unlisted property trust works

Listed versus unlisted property trusts

Listed property trusts are listed on the Australian Securities Exchange (ASX), while unlisted property trusts are not. Withdrawing an investment from a listed trust may be easier than an unlisted property trust. Normally in an unlisted property trust you cannot withdraw your initial capital investment and must wait until the property is sold. The net proceeds are distributed among investors on a pro-rata basis as the return of their capital.

Potential benefits of investing in a property trust

In return for investing in the trust, investors receive distribution income from the property during the life of the trust. However distributions are not guaranteed, nor is the return of initial capital invested. You may also receive a ‘capital gain’ on your original investment. But this will only occur if the value of the assets in the trust, after selling and other costs, has increased upon sale. If they have decreased, it results in a capital loss.

Like most investments, there is risk associated with the potential reward and it is critical to ensure the investment risk profile suits your personal circumstances. A licensed adviser can help you make this judgement if you are unfamiliar with this investment type.

Single property trusts

Single property trust investments present an opportunity to earn long term income with the potential for capital gains. Cash flow is generated through long term leases to a single or multiple tenant(s). Annual rent increases provide growth in the rental income and property value. In addition, due to depreciation charges, distributions may provide a portion of income that is tax deferred. At the end of the term, the property is sold and any net proceeds are distributed among investors on a pro-rata basis as the return of their capital.

The Trilogy Funds approach

A property is identified by Trilogy Funds’ property team that has the potential to provide long term cash flow to investors; and the possibility of capital gains upon sale of the asset. The property is acquired by a trust and normally geared below 50% (i.e. the trust borrows money on a mortgage loan secured by the property acquired with the loan amount being up to 50% of the total value of the property). The property is managed through the term of the unlisted property trust, normally five to six years, both from a strategic and ongoing maintenance position.

Cash flow is generated through long term leases to tenants. Fixed annual rent increases provide growth in the rental income and property value. In addition, due to depreciation charges, distributions may provide a portion of income that is tax deferred. At the end of the term, the property is sold and any net proceeds are distributed among investors on a pro-rata basis as the return of their capital.

How we deliver value for investors

  • “Hands on” management of assets including prudent management of costs and outgoings; asset maintenance, regular inspections and strong working relationships with tenant(s)/lessee(s); and
  • A well-defined exit strategy aimed at unlocking the full value of assets.

Experience
Trilogy Funds currently manages three unlisted property trusts (please note they are all closed to investment):

  • Tower Central Trust
  • Ravenhall Office Trust
  • Trilogy Melbourne Office Syndicate Cheltenham

Further information about our experience is provided in our Property Trust Case Studies.