Unit trust offers farm investment

Press, 15 February 1989, Page 45

Unit trust offers farm investment

The New Zealand Rural Property Trust, an unlisted two-year-old unit trust that invests in rural property, is offering units to the public in a prospectus dated February 16. The directors say that as a property investor, the trust does not involve itself in the daily operation of farms. It buys the properties and leases them back to farm vendors or other suitably experienced farmers.

By separating the ownership of land from the business of farming the trust enables farmers to redirect their income away from the costs associated with owning property into increasing the efficiency of farm production, with the resultant growth in farm profitability. The practice of separating the ownership of property from commercial activity has been an accepted feature of business in urban areas of New Zealand for more than thirty years with commercial tenants leasing space in buildings owned by specialist property investment companies, institutional investors or trusts. The New Zealand Rural Property Trust is the first professional investor to apply this practice to the rural environment. Lease agreements between farmers and the trust are based on this principle. As part of the lease agreement, farmers make an ongoing investment in the trust which ensures their continued involvement and commitment. In this way both farmers and investors share in the success of the trust and in the capital appreciation of its investments.

The trust offers both fully-paid units and, through investment savings plans, partly-paid units. Each fully-paid unit costs $l.OO, comprising an issue price of 92.5 c and a once-only service fee of 7.5 c. The net tangible asset backing of a fully paid unit on December 31, 1988 was 92.5 c.

The trust’s minimum investment is $5OO, being the purchase of 500 fullypaid units. Subsequent applications may

be made for multiples of 100 units. The manager receives a service fee of 7.5 c on the issue of each fully-paid, partly-paid and bonus unit, and a halfyearly management fee equivalent to one per cent of the value of the trust fund. The trustee receives remuneration of $lO,OOO, or 0.125 per cent of the trust fund, whichever is the greater, payable in half-yearly instalments.

Commission to authorised investment brokers on investment transactions is paid by the manager out of its own funds.

The trust offers investors both capital growth and income with distributions made in proportion to the number of units held and the length of time they have been held.

Capital growth arises from an increase in the value of the assets of the fund. Unitholders’ entitlement to a share of capital growth is passed on by the issue of bonus units.

In the future, the manager proposes recommending to the trustee an amendment to the trust deed which will alternatively enable capital growth to be passed on by an increase in the repurchase value of units held.

Bonus units resulting from the capitalisation of the trust’s income are automatically allocated on a six monthly basis as soon as is practical after the end of each reporting period to unitholders who held units at each period end — on December 31 and June 30.

Unitholders may elect to receive their portion of the trust’s income in cash. The manager is required to provide an independent valuation of each property at least once every three years, but has the intention of revaluing each on an 18 month basis in a schedule which ensures revaluations of a proportion of the property portfolio approximately every six months. Distributions will be made under the new imputation regime