Investing in commercial property can be a lucrative opportunity, and there are various ways to do it. From direct investment to real estate investment trusts (REITs), each option has its own advantages. However, in this guide, we will focus on unlisted property trusts and explore why they are an essential choice for investors like you.
Understanding the Benefits of Investing in a Trust Structure
Unlisted property trusts offer several key benefits that make them an attractive investment option. By pooling investors' funds, these trusts provide access to assets that would be otherwise inaccessible on an individual basis, such as large office buildings or major shopping centers. Additionally, professional management ensures protection and efficient operation of the trust.
Unlike other investment structures, unlisted property trusts offer non-recourse internal gearing. This means that in the event of a default, the investor is not liable for further compensation, reducing risk and making them suitable for Self-Managed Super Funds (SMSFs). Moreover, these trusts generate regular income streams, with distributions ranging from monthly to six-monthly payments, allowing investors to enjoy a stable source of returns.
Investors in unlisted property trusts also have the opportunity to share in any capital growth, directly proportional to their holdings. The potential for tax-deferred income further enhances after-tax returns. Additionally, professional management covers all aspects of due diligence, debt, property, and tenant management, ensuring that your investment is in capable hands. The liquidity of these trusts can vary, but they generally require only a small investment, allowing for diversification across properties and managers.
How an Unlisted Property Trust Works
Unlisted property trusts offer investors an experience similar to a direct purchase of a commercial property, along with the added advantage of professional management. Unlike their listed counterparts, these trusts are primarily influenced by movements in the commercial property market, minimizing volatility. There are two types of unlisted property trusts: open-end property funds and fixed-term, closed-end property trusts (syndicates).
Open-End Property Funds
Open-end funds have no maturity date or finite number of units. They can continue to issue units as long as they raise money, using the funds to purchase additional properties. To allow investors to exit their investments, open-end funds provide liquidity through cash holdings, using incoming investors' funds to pay out existing investors, or selling assets if necessary. These funds offer diversification by holding multiple assets, and the success of buying or selling assets depends on the manager's expertise.
Fixed-Term, Closed-End Property Trusts (Syndicates)
Syndicates consist of one or more properties held for a specified period, usually five to ten years. At the end of the term, investors vote on the future of the trust, typically resulting in the sale of the property, winding up of the trust, and proportional payout to investors. While syndicates are illiquid investments, they provide clear ownership of specific properties. Investors can choose syndicates based on their preferences, allowing for diversification by property, location, sector, maturity date, and manager.
The Importance of Property Management
One of the primary advantages of investing in an unlisted property trust is gaining access to professional property management. The best property fund managers have internal property management divisions that oversee the buildings in the trusts they manage. By avoiding the use of third-party agents, the alignment of interests between the manager and investor is ensured.
Property management includes crucial tasks such as leasing, maintenance, concierge services, fire safety compliance, and rent collection. With a professional property manager handling these responsibilities, investors can rest assured that their investments are being managed expertly and efficiently.
Distributions and Costs
Unlisted property trusts receive rental payments from tenants, which are then passed on to unitholders as regular distributions. These distributions are adjusted for various expenses, such as property management and maintenance costs. Depending on the trust, distributions may be paid monthly, quarterly, or six-monthly.
Unlisted property trusts incur various costs and fees, including acquisition fees, ongoing management fees, and property management fees. Additionally, trusts are responsible for paying stamp duty, legal fees, and other associated costs for property acquisitions. It is important to consider these fees and costs when evaluating potential returns. The Australian Securities and Investments Commission (ASIC) requires managers to provide clear and consistent fee information in the Product Disclosure Statement (PDS), facilitating easy comparison between trusts.
Evaluating an Unlisted Property Trust
To evaluate an unlisted property trust, it is crucial to thoroughly review the trust's PDS, which contains valuable information about the manager, distribution yield, property assets, trust structure, fees, borrowing, and more. Pay close attention to the risks section and seek independent advice if needed.
Track Your Unlisted Property Trusts with Sharesight
Sharesight is a platform that provides investors with the latest unit price and distribution information for many unlisted property funds in Australia. With data updated daily from Morningstar, the world's largest and most trusted provider of managed fund data, you can easily track the performance of your investments.
To get started, sign up for a FREE Sharesight account and add your holdings to your portfolio. You can search for the name of the unlisted property fund or use the APIR code for quick and accurate tracking. Sharesight automatically updates unit prices daily and delivers distributions as soon as they are available.
Join the thousands of investors who rely on Sharesight to track their unlisted property fund investments. Sign up today and gain control over your investment performance.
Disclaimer: This article is not intended to provide investment or financial advice. It has been prepared without considering any investor's specific objectives, financial situation, or needs. Investors are encouraged to conduct independent research and seek advice from professional advisers before making any investment decisions. The information provided in this article is provided by Cromwell Funds Management Limited ABN 63 114 782 777, AFSL 333214. Cromwell Funds Management Limited and its related bodies corporate, along with their associates, do not receive any remuneration or benefits in connection with the advice provided.