The Box Hill Trust Story
We launched a Product Disclosure Statement for the Trust in December 2012 and raised $70 million which, combined with debt, was used to acquire the 5 Star Green Star, 20-storey office tower in Box Hill, Victoria which had an expected valuation on completion of $117 million.
The Trust provided investors with a commencing distribution of 7.75% per annum paid monthly and was forecast to grow over time as the Trust benefited from the fixed rental increases built into the anchor tenant’s lease agreement.
The Trust was forecast to mature in late 2019, seven years after commencement, but the strength of an unsolicited offer prior to practical completion prompted unitholders to vote in favour of accepting the offer to wind up the Trust early and lock in their capital gains.
The building was sold in September 2015 for $156 million, 18.6% above the March 2015 valuation of $131.5 million.
A typical unitholders’ original $1.00 investment in December 2012 earned $0.21 per unit in total distributions and a Special Distribution Payment of $1.335 per unit post settlement in September 2015.
While the legal structure of unit trusts are well defined and fairly standard across the industry, there is still significant scope for developing innovative solutions that deliver value for investors. Unlike a traditional direct property syndicate, the Cromwell Box Hill Trust’s sole asset for the first two years was a construction site rather than a completed building. Usually, unit trusts pay distributions from rental income. With the major tenant not commencing payments until practical completion we needed to find a way to deliver investors a monthly distribution payment.
This was achieved by Cromwell:
- *Entering into a fixed price contract with the developer so both the risks and rewards normally associated with development were not carried by Trust investors; and
- *Paying distributions out of the Trust’s “funding allowance” (the difference between the building’s independent valuation and the amount actually charged by the developer) during construction.
Once the building was completed distributions began being paid from rental income. The structure significantly reduced investors’ exposure to any significant delays or mishaps during construction, while also delivering a range of tax benefits.