I recently had a client ask me to assess the merits of an unlisted property trust offer that he had received - the name of the offer shall remain nameless, but I thought it would be interesting to walk you through the key reasons I advised to disregard the offer.
I must highlight that on the surface of it, the offer looked very attractive with a juicy rate of income of 9% pa and some lovely photos of the building with a well known listed company as the major tenant.
Firstly, the trust consisted of only one office building, so there was no geographic diversity. Add to this that 80% of the building was leased to one company and this means that investors are not only putting their eggs into one basket (one property), but almost totally relying on one tenant.
The tenant was a successful listed company, so we are not arguing that the company would go broke, but highlighted what would happen if that company wished to relocate into larger or smaller premises. If this happened then virtually all of the income is vulnerable.
There were two other aspects that concerned us. One was the average lease expiry which was only until 2016 - which means that the income from the property was only really secure until 2016.
Finally this property trust was an unlisted property trust which meant that in the event of an investor wanting to get their money back, for any reason, there is no mechanism to do this.
I thought this was an interesting exercise in the aspects we consider when deciding to proceed or "bin" an investment idea.
Mark Draper
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