What is a property trust?

A professionally managed property trust provides investors with an opportunity to invest in or hold part ownership of property that may not necessarily be available as an individual. Property trusts are also commonly known as property funds or property syndicates.

Investors buy ‘units’ in the trust which owns a property or properties, and is managed by a professional fund manager, like Trilogy. Investment properties are chosen by the fund manager and bought by the trust. The fund manager then manages the associated maintenance, administration and rent collection.

In a single asset property trust, 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, it would aim to provide income distributions at set intervals (e.g. monthly or quarterly).

What is a property trust? | Trilogy Funds

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The property classification for property funds can range from commercial, retail and/or industrial, which makes portfolio diversification highly accessible for most investors. Property fund managers must provide a Product Disclosure Statement (PDS) for retail investors with information about the trust, as well as updates 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.

 

Listed versus unlisted property trusts

Listed property trusts are publicly listed on the Australian Securities Exchange (ASX). While this generally provides the benefit of high liquidity as investors are able to buy and sell securities as they choose, this also exposes the trust to share market volatility.

Unlisted property trusts are, by nature of the description, not listed. Normally in an unlisted property trust, investors cannot redeem their initial capital investment. The net proceeds are distributed among investors on a pro-rata basis with the return of their capital while also receiving a distribution along the way.

Potential benefits of investing in a property trust

Most property trusts are designed to provide investors with distribution income from the property during the life of a trust. However, distributions are not guaranteed, nor is the return of initial capital invested.

Investors may also receive a ‘capital gain’ on their original investment. This will only occur if the value of the assets in the trust have increased upon sale. If they have decreased, it may result in a capital loss.

Like most investments, there are risks associated with the potential reward and it is critical to ensure the investment risk profile suits any investors’ personal circumstances. A licensed financial adviser can help investors who may be unfamiliar with this investment type.

 

How do property funds compare against other investments?

Property funds are one of many different investment options, which all may have different objectives, timeframes, levels of risk and potential for returns. So how do property funds compare? We briefly discuss the benefits and limitations of the most common investment options.

1. Direct property investment

Direct property investments, such as residential and commercial property, are considered ‘growth’ investments. They offer a higher potential return with medium-to-high risk. As price can be volatile over short periods of time, and due it its illiquid nature, property is generally considered a long-term investment as this allows investors to ride out the ups and downs of the property market. Direct property investments generally require additional effort in identifying, acquiring and managing the property or properties than an investment in a professionally managed property trust. Direct property investments are generally suited to investors seeking to meet long-term financial goals, earn a steady rate of income and potentially achieve capital appreciation.

2. Cash

Cash fund investments, such as savings accounts and term deposits, are considered ‘defensive’ investments. Cash funds are considered the most liquid assets, as they can be readily converted to other assets. They offer low risk; however, this also means they tend to generate lower returns relative to other asset classes. Cash funds are generally suited to investors seeing to meet short term financial goals, generate income, protect their wealth and diversify a portfolio.

3. Fixed interest investments

Fixed interest investments, such as government bonds, corporate bonds, debentures and capital notes, may be considered ‘defensive’ investments depending on the credit rating of the insurant . They offer moderate to high liquidity, low to moderate risk, with a relatively stable and reliable return. Fixed interest funds are generally suited to investors seeking to meet short term financial goals, earn a pre-determined level of income and diversify a portfolio.

4. Mortgage Trusts

Mortgage funds are generally considered to have low liquidity. An investment in a mortgage fund is generally considered longer-term as the fund manager may not be able to realise a mortgage investment in a period similar to what an investment in fixed interest investments and cash investments can be realised in. Mortgage Trusts are generally suited to investors seeking regular income, competitive rates of return and portfolio diversity, however, are generally higher risk. When investing in a mortgage Trust, such as the Trilogy Monthly Income Trust, investors’ funds are used to provide loans secured by mortgages to the residential, commercial, industrial and retail property sectors.

5. Equity Funds

Equity funds are funds that invests principally in stocks. Generally considered a higher risk asset, equity funds can be vulnerable to sudden fluctuations in price. This means they can provide high returns but can also provide substantial losses. Equity funds are generally suited for investors seeking a higher risk investment, high liquidity, small capital requirements and diversification.

All investments carry risk. It is crucial to ensure the investment risk profile of your investment choice suits your personal circumstances and financial goals. We recommend seeking independent financial advice before making any investment decision.

The Trilogy Industrial Property Trust

The Trilogy Industrial Property Trust (Trust), is an unlisted property trust which aims to provide investors with competitive and regular income and the opportunity for capital growth over the long term.

The Trust is designed to build a diverse portfolio of industrial properties located in key Australian regional and metropolitan precincts and seeks to target industrial properties that, where possible, offer the opportunity of value-add.

As at 31 August 2021, it has $122.49 million in funds under management (FUM), with 10 industrial properties diversified across Queensland, Victoria and South Australia.


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This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the Trilogy Industrial Property Trust (Industrial Trust) ARSN 623 096 944. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 1 July 2021 for the Trilogy Industrial Property Trust ARSN 623 096 944 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 Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy Funds 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 Funds are not bank deposits and are not government guaranteed.