Unlisted trust sector looks to bag super funds

INVESTORS are set to tip more cash into unlisted property trusts as they seek solid returns for self-managed superannuation funds.

By InvestSMART · 9 Feb 2011

By InvestSMART ·
9 Feb 2011

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INVESTORS are set to tip more cash into unlisted property trusts as they seek solid returns for self-managed superannuation funds.

Having weathered the global financial crisis in better shape than the listed real estate investment trusts, the unlisted sector is set to offer even more products to investors without fear of being hit by sharemarket fluctuations and high management fee structures.

The unlisted sector is worth close to $60 billion but it is fragmented and many of the smaller funds own just one or two assets. In the midst of the financial crisis smaller funds were forced to freeze distributions because they were unable to unlock cash through asset sales.

However, with the thawing of bank credit and a rising demand for properties, many are now able to release cash and trade out of the assets.

Charter Hall has taken advantage of the improving sentiment with the launch yesterday of an unlisted retail property fund, the Charter Hall Direct Retail Fund.

Richard Stacker, the chief executive of the fund's manager, Charter Hall Direct Property, said the new fund would target high net worth investors and small to medium super funds.

He expected demand from the small to medium super funds would grow because their long-term outlook and appetite for income streams and capital preservation was ideally suited to unlisted property, particularly retail property underpinned by major brand tenants.

Mr Stacker said the new Charter Hall fund had a cornerstone portfolio of six properties with a total value of $177 million, across NSW, Victoria and Queensland.

Despite the volatility of the retail sector, the tenants include Woolworths, Coles, Big W, Bunnings, JB Hi-Fi, The Good Guys and Spotlight.

"Challenges in the unlisted property sector, including some funds still with distributions on hold and high gearing levels, are dispersing as managers sell assets, merge with other funds or managers, and start to provide some liquidity and exit strategies for investors," Mr Stacker said. "Australian super funds, which typically allocate around 10 per cent to real estate, are also anticipated to have a growing appetite for property due to the strong economy and good property market fundamentals."

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Frequently Asked Questions about this Article…

What are unlisted property trusts and why are everyday investors considering them?

Unlisted property trusts are pooled property investments that aren’t traded on the sharemarket. Everyday investors — including those with self-managed super funds — are considering them because they can offer steady income and capital preservation without the same sharemarket volatility, and they’re being promoted as an alternative to listed property trusts.

How big is the unlisted property sector and what does that mean for investors?

The article says the unlisted property sector is worth close to $60 billion. While sizable, it’s fragmented with many smaller funds owning only one or two assets, so investors should be aware that scale and diversification vary widely across unlisted trusts.

How did the global financial crisis affect unlisted property trusts and what has changed since then?

During the global financial crisis, many smaller unlisted funds froze distributions because they couldn’t unlock cash through asset sales. Since then, bank credit has been thawing and demand for properties has risen, allowing many managers to sell assets, release cash and restore liquidity.

What risks or challenges should investors watch for in unlisted property trusts?

The article highlights ongoing challenges such as some funds still having distributions on hold, high gearing levels and limited liquidity or exit options. Managers are addressing these by selling assets, merging funds or introducing exit strategies, but investors should check each fund’s gearing, distribution history and liquidity provisions.

What is the Charter Hall Direct Retail Fund and who is it aimed at?

Charter Hall launched the Charter Hall Direct Retail Fund as an unlisted retail property fund. Its manager, Charter Hall Direct Property, says the fund targets high‑net‑worth investors and small‑to‑medium super funds that seek long‑term income and capital preservation.

What assets back the Charter Hall Direct Retail Fund and which tenants are involved?

The fund launched with a cornerstone portfolio of six properties valued at $177 million across New South Wales, Victoria and Queensland. Despite retail sector volatility, tenants include major brands such as Woolworths, Coles, Big W, Bunnings, JB Hi‑Fi, The Good Guys and Spotlight.

Are superannuation funds increasing allocations to unlisted property trusts?

According to the article, Australian super funds typically allocate around 10% to real estate and are expected to have a growing appetite for property given a strong economy and good property market fundamentals — making unlisted property trusts an attractive possibility for some super funds.

How can everyday investors evaluate whether an unlisted property trust is suitable for a self‑managed super fund?

Investors should review the fund’s portfolio quality, tenant profiles (the article cites major brand tenants as positive), distribution history, gearing levels and liquidity or exit options. The article notes unlisted funds can offer income and capital preservation benefits, but also warns of fragmentation and past distribution freezes — so due diligence is essential.