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Open-ended trust offers greater exposure

A PROSPECTUS on offer from the Aspen Group includes a new product for investors keen to gain exposure to the commercial property sector.

The listed structure of the company provides investors with more liquidity than the traditional property syndicates.

It’s not just Aspen that has brought a new product to the market, however.

Glenmont Properties also is attracting attention for its recently launched open-ended trust.

Irrespective of which product type investors are considering, a thorough scrutiny of the management team is the key to a carefully planned investment, according to an industry source spoken to by WA Business News.

The Aspen Group claims the listed structure of the company provides investors with greater liquidity than the popular property syndicates.

Managing director Angelo Del Borrello said Aspen Group Limited started life in 1995 as an online directory, aussie.com.au.

The business was then acquired by Boss Resources NL and became part of a listed company in 1999.

At this time it was renamed Aussie Online Limited

The dot.com crash effected a downturn in business, resulting in another name change, to Aspen Group, following a decision to refocus the group’s activity on the property sector.

The board of directors consists of Reginald Gillard, Angelo Del Borrello and Gavin Hawkins.

“Effectively, Aussie Online didn’t go so well so we took an equity position in the company and put together a strategy to convert Aussie Online to a property company,” Mr Del Borello said.

“With low interest rates it makes sense – you can borrow at 6.5 per cent and get up to 10 per cent on commercial property.

“We think there are legs in the commercial market.”

Aspen Group is currently raising funds to purchase three property interests – Septimus Roe Square, Champion Drive Shopping Centre and Midland Cinema Complex and Food Hall.

Aspen is forecasting an initial yield of 8 per cent in the first year following the completion of funds raising and the acquisition of the first three properties.

A minimum investment of $2,000 is required, throwing open the door to a very broad range of potential investors.

“Our strategy is to accumulate a portfolio of commercial yield-based property,” Mr Del Borrello said.

“We’re looking to build [the property portfolio] within two years to a couple of hundred million.

“The portfolio will be focused on CBD office buildings and shopping centres and then a sprinkling of specialty properties, things like cinemas. We’ll have about 10 per cent in those areas.

“The company has currently got about 38,000 shareholders and we’ve got a prospectus out to encourage new investors to come in.”

To this point Aspen Group has responded to requests for 6,000 prospectuses, with $3.8 million of the total $7.5 million already raised

“It’s already underwritten by two parties, and they’re big companies, Mr Del Borrello said.

“Quite a few stock brokers and financial planners are quite interested.”

According to Mr Del Borrello the group is looking to apply experience gained in the investment banking sector to the property market.

“Up to 70 per cent of property [in the Perth CBD] is owned by Singaporeans, who got in when the Japanese got out in the early 90s,” Mr Del Borrello said.

“There are quite a few available at a price … we’re looking for a minimum 9-10 per cent yield.”

The popularity of investment in the whole range of property products has led to speculation about the future strength of this market.

From an investment perspective the experience of the operators behind any product is critical, according to one industry source.

“People need to look at the people behind the trust or the company and ask if the company has paid too much for the property and what the leasing arrangements are,” the source said.

“You need to look at the management and ask whether they are property skilled people.

“And what are the fees?”

There was also the issue of how shares in a company such as Aspen would be valued by the market, he said.

There are concerns among some in the industry that the buoyant property syndicate market is facing some problems in the not-too-distant future.

However, most of this speculation is based on the markets in Sydney and Melbourne, rather than Perth.

“I believe the syndicate market will implode, but not in Perth,” the source said.

Local property syndicator Glenmont Properties has recently launched an open-ended trust, the Glenmont Industrial Property Trust.

Glenmont Properties executive director Jon Stewart said the company had to apply to the Australian Securities & Investments Commission for a special licence for the trust.

This style of trust will allow Glenmont Properties to raise more funds than needed to acquire the seven industrial properties that have been listed in the prospectus.

The trust is starting with seven industrial properties in WA but Glenmont Properties is looking to acquire further properties in established industrial areas in Sydney and Melbourne.

Mr Stewart said the open-ended style was suited to industrial property.

“If you look at office buildings and shopping centres, they’re quite substantial buildings and they’re quite visible,” he said.

“Industrial buildings are generally of a lesser value as a unit … and they are quite unobtrusive, often set in industrial parks outside of the city.

“We think it’s better to have some scale and a number of properties.”

Mr Stewart said the open-ended trust delivered greater flexibility to Glenmont and it could take the position of a cash buyer in negotiations for additional properties.

“It means our investors can have exposure to a wide range of products and, over time, we’re interested in going national,” he said.

“In terms of the structure, it’s not really the driving issue, we really just felt that this type of structure was suited to this type of property.

“The size of the trust will probably be driven by our profile.”

The launch of Glenmont Properties’ open ended style trust has almost coincided with the launch of similar product by national group MCS Property.

MCS Property offers shared ownership of direct property.

It manages $850 million worth or properties with more than 1,000 tenants and a gross annual income totalling more than $95 million.

“MCS’s last project was a very similar structure, which was interesting for us. They must have put an application in for a variation to their licence at a very similar time,” Mr Stewart said.

The open-ended structure has sparked concern, however, with some analysts expressing doubts about how additional funding might be spent in the future.

The Glenmont prospectus includes details relating to the additional funds stating that, if the subscription moneys are not used for the purchase of additional properties by June 30 2003, these subscription moneys will be refunded with interest.

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