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Frequently asked questions about unlisted property fund investments

What is the difference between an unlisted property trust, a listed property trust and a property syndicate?

An Unlisted Property Trust is a fund in which a Trust structure has been created to act as the legal owner of a property on behalf of its investors. The fund manager acts as the trustee, making decisions on behalf of investors who, like a listed property fund, purchase ‘units’ in the Trust dependant on the size of their investment. Unlike a listed property fund, units in unlisted property trusts are not as ‘liquid’ but can be sold to other investors. There is no established secondary market for unlisted property trust units.

Listed Property Trust is a fund in which investors purchase ‘units’ at a price calculated based on the total worth of the fund at the time of the transaction. A property fund may include a portfolio of properties and is managed by a fund manager who invests on behalf of the unit holders/investors. The investor has no ownership of the individual properties held by the fund. The investor can trade their ‘units’ in the fund at any time, and the transaction is not dependent on the sale/transfer of any property within the fund.

Syndicate is a generic term to describe a self-organised group of individuals, companies, or corporations formed to transact some specific business, to pursue or promote a shared interest. In the past syndicates provided certain tax advantages which are no longer available and as such have been replaced with the ‘flow through’ advantages of property trusts.

What is an asset class?

Asset classes are categories of investments which have similar characteristics in the marketplace. The investments within a single asset class are expected to have similar risks and returns, be subject to the same laws/regulations and perform in a similar manner in particular market conditions.

Who is Stronghold?

Stronghold was established in 2013 and is a specialist Business Park and Hospitality sector Fund Manager with clear expertise, market intelligence and a proven track record in the active management and value-add approaches to investment philosophy.

Stronghold, alone and in partnership, manage nine unlisted property trusts which own circa $200M of commercial property assets in Brisbane, Sydney, Melbourne and Regional Queensland.

What are the key property features of Stronghold investments?

Strategic location, Quality Assets: Quality tenants and WALE, Tax Advantage, Income Growth and Capital Gain potential.

What are the key risks for commercial property investment?

The key risks include;

  • A fall in property income or property value
  • Vacancy in tenancy and/or additional letting costs or increase in costs
  • Capital expenditure to maintain the building may exceed forecasts
  • Uncontrollable events
  • Increase in finance costs or management costs

How long do you usually have to commit to a Stronghold property trust?

While it can vary, but the typical investment period is 5-7 years

How and when can you get your money back?

We advise clients to consider the long-term nature of a wholesale commercial property investment. The typical investment period is 5-7 years. We commit to creating a liquidity event for our investors via sale or transfer within that time frame allowing them to realise their return and/or reinvest in a new trust.

Is this the same as direct property investment?

No. Stronghold establishes a dedicated property Trust for each property investment. Stronghold in its capacity as Trustee takes legal ownership of the property and the unitholders have the beneficial interest in the property. Investors buy units in the Trust. The units are allocated to investors on a proportional basis dependent on their investment. Stronghold acts as the trustee and makes decisions on behalf of the unit holders.

Is this an unlisted property trust?

Yes. Unlisted property trusts are property holdings that have been unitised in a trust structure and are not listed on the Australian Stock Exchange.

Why do I have to be a wholesale investor to participate and how do I qualify?

Because this is not a short-term investment and minimum investment starts at $100,000, you have to demonstrate that you have the means to afford to leave your money in the trust for 5-7 years and that you fully understand the risks.

A wholesale investor under the Corporations Act is an entity that is not a small business, that has assets of $2.5million or a gross income of $250,000 for the past two years or invests more than $500,000. For more information on how to qualify to be a wholesale investor CLICK HERE.

What is WALE and why is it important?

WALE stands for Weighted Average Lease Expiry. It is a measure of a property’s average lease term relative to the income from each tenant.

Do your buildings offer a better than average WALE?

Our investment strategy includes seeking multi-tenanted properties with high-quality tenants. With multi-tenanted properties, you are not putting all your eggs in one basket. The WALE of the property will vary over the investment period.

Why are depreciation allowances a selling point? How do you report them to your investors and how do they use this benefit?

We can claim a deduction for the decline in value of certain items, known as depreciating assets. A depreciating asset has a limited effective life and can reasonably be expected to decline in value over time it is used.

We engage a quantity surveyor to complete a detailed report on depreciating plant and equipment. They provide a detailed report for transparency and compliance purposes. Our Accountant manages the claim for depreciating assets which is incorporated into our tax return as a Trust. This claim offsets the taxable income.
New stock has greater depreciable value. However, we don’t invest in newer properties solely on that basis.

What does partially underwritten mean?

When there is limited time before a property goes unconditional on a non- refundable asset we would use an equity underwriter. The underwriter will guarantee to acquire a certain number of the available units (in exchange for a fee). Accordingly, the Trustee is secure that we will raise a certain minimum equity, while the underwriter bears the risk of the issue. The cost of underwriting the asset is borne by the Trustee and not the prospective investors.

Why is it important that you consider the lease expiry profile when investing in commercial property (i.e., staggering lease expiry)?

A staggered lease profile spreads the vacancy risk over time, reducing the likelihood that the property will ever be 100% vacant. A staggered lease profile is effective when managed alongside lease options to minimise the financial impact.

What financial forecasting information does Stronghold provide?

Forecast income and distribution statements for the Forecast period, sources and application of funds, and proforma statement of financial position at Property settlement. Quarterly reporting to investors.

Do you have any current property trusts I can invest in?

To enquire please click here.

How do I invest?

Applications must be made electronically or by hand, on the formal Application Form Document provided with the Information Memorandum.

Do I qualify as a Wholesale Investor?

Wholesale investors are savvy investors who usually have the financial resources to allow them to take a long-term approach to their investment decisions.

Unlisted property funds like those offered by Stronghold, involve the purchase of a property that will be held in trust for at least 5-7 years before being resold.

Investors in these trusts initially buy units with a value of $1 purchase value = 1 unit. As there is no established secondary market for selling those units, investors are expected to hold the units for the term of ownership.

During the term of ownership, the capital value of the property may increase, and the unit owners can expect to receive an equivalent gain in their unit value at the time of sale.

To qualify as a wholesale investor, a potential Investor needs to comply with one of the four categories summarised below:

  • Make an investment of $500,000 or more in a trust; or
  • If investing less than $500,000, provide a certificate from a qualified accountant, obtained within the prior two years, that he or she has net assets of at least $2.5m or has had a gross income for each of the last two financial years of at least $250,000; or
  • Be a “professional Investor” or a “sophisticated Investor” (as those terms are defined in the Corporations Act); or
  • Be an “experienced Investor”. An Experienced Investor is a person or organisation that has had significant dealing and exposure to investment particularly related to unlisted property trusts. A prospective Experienced Investor is required to either; complete a certificate detailing occupation / profession, qualifications and investment experience to be qualified by the Trustee or, alternatively, an AFSL Licensee may certify accordingly.

Disclaimer: The following questions and answers are provided for general information purposes only and may not be entirely accurate in every circumstance.