A Nice Little Six-year Earner

Sun Herald

Sunday September 26, 2004

David Potts

Investors can tap into the booming Brisbane market via Stockland Direct Office Trust No. 1, writes David Potts.

What's the deal?

It's an unlisted property fund that ...

Hang on, did you say unlisted?

Yes, so it won't be trading on the sharemarket. It's expected to have a term of about six years when unitholders vote on what to do next. The chances are they'll wind it up and distribute the profits.

Hmmm, so I'd be tying my money up for six years?

Maybe longer. Unlike listed property trusts star performers of the sharemarket over the past three years you can't sell your holdings on the open market. Once in, you're stuck. But in return you get a better yield.

Now you're talking. How much?

It's forecasting 8.05 per cent a year, paid quarterly, for the first three years and is 100 per cent tax advantaged.

100 per cent what?

Some of the income is tax deferred because of things such as depreciation. But note this also reduces the cost base, making the eventual capital gains tax higher. Westpac, which will own half the trust, is offering an investment loan fixed at 7.25 per cent for 60 per cent of the application price, which will bump up the annual return to 9.24 per cent over the first three years. That's because you get a 40 cents a year cash-back. On the top tax rate with gearing, the return for the first three years would be 14.51 per cent.

Is that after fees?

Yes. And there are no entry or exit fees.

Well, I'm not sure property is such a good idea at the moment.

Good point, except this is a waterfront office block in the centre of Brisbane, where the property boom still seems to be in full flight. It's true office blocks have been the laggard among properties, prompting some to suggest their time is nigh. In this case there's the advantage that it is 98.4 per cent leased, with an average lease of 4.4 years. No need to worry about the rent.

What are the risks?

Not getting the $66.5 million it wants to raise. Or not getting tenants when the leases expire. That might happen if there's an economic downturn or other office blocks are built nearby.

Can my DIY fund invest?

Yes, but it can't take out the investment loan.

Where do I get it?

You have to fill out the prospectus, at www.stockland.com.au/unlisted propertyfunds, or phone 1300 653 941. Units are $1 each and there's a minimum investment of $10,000. It closes on November 5.

What about the investment loan?

If you decide to apply, tick the box on the application form.