How the Trilogy Monthly Income Trust
chooses loans and manages risk

The Trilogy Monthly Income Trust (Trust) is a property-based investment option that earns income by lending to the residential, commercial, industrial, and retail property sectors in Australia. 

The Trust’s goal is to deliver competitive returns and portfolio diversification for its investors, with a strong emphasis on proactive risk management. 

As at 28 February 2021, it had $489 million in funds under management and over 90 loans, with an average loan size of $5.31 million.  

A substantial portion of the Trust’s portfolio (22.58% as at January 2021) is allocated to cash and investments considered liquid in order to manage the Trust’s current and future cashflow requirements.  

Below, we explain how we choose loans and are managing risk in the Trilogy Monthly Income Trust. 

How we choose loans

The Trust’s lending committee meets regularly to consider applications for construction and development loans typically of the size of $3 million to $25 million, with a maximum loan period of 24 months. The types of projects we finance include townhouses and apartment buildings, industrial complexes, service stations and land subdivisions. 

Choosing loans and managing risk in the Trilogy Monthly Income Trust | Trilogy Funds

Loan applications are comprehensively vetted, and by the time they are presented to our lending committee we will have instigated independent valuer reports. 

We also take the time to get to know each applicant personally and examine their background and experience in construction and development. 

Our Head of Lending, Clinton Arentz, says the lending committee members, who have many decades of property development experience between them, carefully assess both the person and the project behind each application. 

“We’re looking for high-quality projects being delivered by high-quality developers with good track records,’’ says Clinton.

“We base our decision on the merits of the project, the sponsors and the business plan.

“And when we decide to lend, we tailor our funding packages to meet the specific needs of each unique project. We build in contingencies for delays or hiccups, which allows us to minimise the impact of any problems that may occur.’’

 

How we are managing risk in the Trilogy Monthly Income Trust  

At Trilogy we prioritise risk management, and we work hard to protect our investors’ funds by identifying, evaluating and prioritising risks so as to minimise, monitor, and control the probability or impact of unfortunate events. 

 

Diversification 

Unlike contributory mortgage trusts, which raise investor funds for a specific property development, the Trilogy Monthly Income Trust is a pooled mortgage fund. This means it links investors to the Trust’s entire “pool” of loans, diversifying their exposure and spreading any risks associated across the loan pool. 

The Trust’s loan book is well diversified across residential, commercial, industrial, and retail property and across southeast Queensland, New South Wales and Victoria, including some key regional cities.  This reduces the effects on investment returns of factors which may cause some sectors of the property market to perform differently to one another over time. 

 

First mortgages 

All loans by the Trust are secured by first registered mortgages over Australian property. This helps to protect investors from financial loss, as a first registered mortgage has priority over all other liens or claims on a property in the event of default (apart from government charges). 

This gives the Trust the right to take possession of a property and sell it to recover funds should a borrower stop making loan repayments or otherwise fail to honour the terms of a loan agreement. 

 

Loan to Valuation Ratio (LVR) 

All loans approved for inclusion in the Trust must be at or below a maximum loan to valuation ratio (LVR) of 70% of the ‘as if complete’ valuation basis for property development or construction loans and of the ‘as is’ valuation basis for all other loans. 

The lower the LVR, generally the less risk to the lender. This is because the ‘excess’ value of the property over and above the loan amount provides a buffer that can help protect the lender in the event of a loan default, which could potentially result in a forced sale of the property for a lower price than expected, as well as additional interest and other fees and costs. 

As at 28 February 2021, the weighted average loan-to-valuation ratio of the Trust’s loan book was 62.88%. 

 

Active loan management 

At Trilogy, we believe our borrowers’ success is our success. Each of the Trust’s loan clients is assigned a dedicated portfolio manager, who works with them until their loan is repaid in full. This high level of active management means if we become aware of potential problems, we then have opportunity to help prevent them from escalating. 

Clinton says examples of issues a property project may face include falling behind schedule, or overruns in construction costs.  

“The important thing is that we monitor these issues and address them as soon as they arise,’’ says Clinton. 

“So, for example, if there was a variation in the construction cost relative to the original plan then we would call the developer, arrange a meeting with them and work through that together. 

“We might make suggestions such as increasing resources in a particular area or element of construction delivery so that we can get the project back on track.’’ 

 

Independent assessment 

A 2020 review of the Trilogy Monthly Income Trust by independent ratings agency Australia Ratings gave it a ‘Very Strong’ investment rating. 

Australia Ratings’ investment team concluded that “the team at Trilogy is very experienced, with multiple checks and balances contributing to the ability of the Trust to achieve its objectives’’.

They said the ‘Very Strong’ rating indicates “a very strong level of confidence that the Trust can deliver a risk-adjusted return in line with its investment objectives”. 


This article has been prepared by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy) as responsible entity for the Trilogy Monthly Income Trust (TrustARSN 121 846 722. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 17 December 2018 for the Trilogy Monthly Income Trust ARSN 121 846 722 available at www.trilogyfunds.com.au. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy are not bank deposits and are not government guaranteed. 

The information contained in the Australia Ratings Analytics report and encapsulated in the investment rating is of a general nature only. The report and rating reflect the opinion of Australia Ratings Analytics Pty Limited (AFSL 494552). It does not take into account an individual’s objectives, financial situation, or needs. Professional advice should be sought before making an investment decision. A fee has been paid by the fund manager for the production of the report and investment rating.