Listed Property Trusts

Listed Property Trusts (LPT’s) provide a very flexible and cost efficient method of investing in the various sectors of the property markets. As a unit trust/pooled investment you are able to gain exposure to large investment properties that would not normally be within the reach of most investors.

Each LPT has a responsible entity (RE) which manages the buildings and tenancy requirements. The RE collects all rental income, pays expenses and the net income is payable to the unit holders.

Within the LPT sector, we firstly consider the relative merits of each sector, including Industrial, Commercial/Office, Retail, and Leisure property. Despite a significant number of takeovers and corporate activity in the sector over the last 12 months, there remain a sizeable number of trusts available for us to construct a diversified portfolio of LPT’s with exposure to these different sectors of the market. Finally, we take into account the value of individual property portfolios within each sector and consider the relative income yields that they offer.

The LPT is traded on the ASX which means settlement of both purchases and sales occurs within three working days and no stamp duty is payable. The only transaction expense is the brokerage plus GST. Direct property investment involves a far lengthier settlement process and additional costs such as stamp duty.

Significant takeover and merger activity has seen the decline of the pure trust structure that was popular during the 1990’s. LPT’s are now more likely to be a “stapled structure” where investors are purchasing a combination of the property trust and the RE or management company. The two are “stapled” and cannot be transacted separately.

A rising percentage of Australian LPT’s are now holding assets domiciled overseas, in particular in the U.S.A. This brings additional risk, in the form of currency translation. Many LPT managers have in place hedge contracts to protect the value of the rental income stream, however most are not able to protect the capital value. The expiry of these hedges will result in sharp changes to the revenue and valuations of trusts. Trusts holding U.S. assets benefit from a lower Australian dollar.