Delivering investors outstanding income and capital returns¹
Case Study: Box Hill Trust
Delivering investors outstanding income and capital returns¹
Case Study: Box Hill Trust
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.
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.
The trust utilised the real expertise of Cromwell Funds Management to identify and invest in a real asset that delivered real returns1.
Innovative structure
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.
The Cromwell Riverpark Trust was Cromwell’s first investment trust. Access is available exclusively via the Cromwell Direct Property Fund.
Footnotes
- Capital growth and income distribution are not guaranteed and are subject to the assumptions and risks contained in the PDS. Past performance is not a reliable indication of future performance.
Important information
This notice has been prepared by Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333214 (CFM). This notice is not intended to provide investment nor financial advice or to act as any sort of offer or disclosure document. It has been prepared without taking into account any investor’s objectives, financial situation or needs. Any potential investor should make their own independent enquiries, and talk to their professional advisers, before making investment decisions. Neither CFM nor Phoenix Portfolios Pty Ltd ABN 80 117 850 254 AFSL 300 302 (Phoenix) receive any fees for the general advice given in this notice.
CFM has prepared the fund summarises and is the responsible entity of, and the issuer of units in, the funds referred to in the fund pages (the Funds). In making an investment decision in relation to a Fund, it is important that you read the disclosure document and the target market determination for that Fund. The fund summarises for each Fund refer to the disclosure document (product disclosure statement and any supplementary product disclosure statement) issued for that Fund. The disclosure document and target market determination for each Fund are issued by CFM and are available from www.cromwell.com.au or by calling Cromwell’s Investor Services Team on 1300 268 078. Not all of the funds are open for investment. Applications for units in open Funds can only be made on application forms accompanying the disclosure document for the Fund.
Before making an investment decision, you should consider the disclosure document and the target market determination for the particular Fund and assess, with or without your financial or tax adviser, whether the Fund fits your objectives, financial situation or needs. Past performance is not a reliable indicator of future performance. Forward-looking statements (provided here as a general guide only) and the performance of a Fund are subject to the risks and assumptions set out in its disclosure document. CFM and its related bodies corporate, and their associates, do not receive any remuneration or benefits for the general advice given in these investment updates. If you acquire units in a Fund, CFM, Phoenix and certain related parties may receive fees from the Fund and these fees are disclosed in the disclosure document for that Fund.
Please note: Any investment, including an investment in the Funds, is subject to risk. If a risk eventuates it may result in reduced distributions and/or a loss of some or all of the capital value of your investment. See the disclosure document for examples of key risks. Capital growth, distributions and tax consequences cannot be guaranteed. The performance of each Fund is subject to the risks and assumptions set out in the disclosure document.