Listed vs Unlisted Property Trusts
Property trusts have become an essential investment vehicle, enabling individual investors to move beyond residential property ownership and access high-grade real estate like shopping centres and industrial properties. While individual ownership of these types of assets is beyond the reach of all but the wealthiest people, through collectively pooling wealth in a property trust under professional management, investors can secure a stake in institutional-grade property investments that deliver robust income and capital growth potential.
However, once you decide to invest in a trust, you need to make a key decision: choosing between listed vs unlisted property trusts.
While both vehicles allow you to gain exposure to the property market, they are fundamentally different in how they are valued, how they are traded, and how they behave during periods of economic stress. Understanding these differences is the key to aligning your investment with your financial goals and risk tolerance.
What Are Property Trusts?
At their core, both listed and unlisted trusts operate on the same principle. Investors contribute capital to a pooled fund. A professional manager then uses that capital to purchase and manage a portfolio of property assets, such as office towers, shopping centres, or industrial hubs.
The manager is responsible for managing the tenants, handling rental collection, and maintaining the fund’s assets. The net income is then distributed to investors, providing a source of regular income.
The difference lies in how you enter and exit the investment, and how the value of your investment is determined.
Listed Property Funds (A-REITs): The Public Market
Listed property funds, often referred to as Australian Real Estate Investment Trusts (A-REITs), are listed on the Australian Securities Exchange (ASX). You buy and sell units in these trusts the same way you would buy shares in a bank or a mining company.
It is important to note that many A-REITs are “stapled securities”, meaning you are typically buying both a trust unit and a share in a management company. This structure exposes you to corporate risks and tax liabilities beyond simple property ownership.
The Liquidity Premium
The primary advantage of listed funds is liquidity. Because they are traded on a public market, you can sell your units and convert them to cash almost instantly during trading hours. This makes them attractive for investors who may need quick access to their capital.
The Volatility Trap
However, this liquidity comes at a cost. The price of a listed REIT is not just determined by the value of the underlying assets but also significantly influenced by general market sentiment.
Research shows A-REITs have a high correlation with the broader share market. This means they act more like equities than property, often failing to provide the portfolio ballast investors are seeking. If the stock market takes a downturn, the unit price of a listed REIT can plummet.
Unlisted Property Trusts: The Strategic Alternative
Unlisted property trusts, like those offered by Sentinel Property Group, are privately held investments. They are not traded on the stock market. Instead, you invest directly with the fund manager.
Valuation Based on Real Assets
Unlike listed funds, where the price is set by the “mark-to-market” panic or euphoria of traders, unlisted investments use a “mark-to-model” approach based on the tangible reality of the real estate. The unit price is calculated using independent valuations of the investment properties held by the trust.
Income Stability
Unlisted trusts are typically designed for income-focused investors. Because the manager is not chasing daily share price growth, the focus is often on maximising steady rental collection. While listed funds often pay distributions biannually, many unlisted funds, including Sentinel’s, prioritise cash flow and pay distributions monthly. This stable income stream is often preferred by retirees and sophisticated investors who rely on their portfolio for living expenses.
Key Differences: Listed vs Unlisted Property Funds
To make an informed decision, it helps to compare the mechanics side-by-side.
1. Volatility and Risk
Listed trusts are subject to the same volatility as the broader equity market. If the ASX drops 5% in a week, a listed REIT often drops with it. Unlisted property offers a buffer. Because the units are not traded daily, the investment is insulated from short-term market noise. This structure prevents panic selling. By removing the ability to click ‘sell’ during a market dip, unlisted funds enforce investment discipline, protecting the long-term capital value from emotional decision-making.
2. Investment Horizon and Liquidity
Listed funds are open-ended and highly liquid. You can sell tomorrow. Unlisted funds generally require a longer investment horizon. They can be open-ended (allowing periodic withdrawals) or closed-ended (where capital is fixed for a set term, often 5-7 years). When weighing up open-ended vs closed-ended funds, sophisticated investors accept this lower liquidity in exchange for higher stability and the potential for an “illiquidity premium”, often resulting in higher yields.
3. Tax Advantages
Both structures offer tax benefits, but unlisted trusts are often “pure play” vehicles focused on maximising passive income. This allows them to pass through significant “tax-deferred” income (derived from depreciation) to the investor.
Unlike A-REITs, where distributions may be diluted by fully taxable corporate earnings, unlisted structures maximise the tax advantages, effectively converting taxable income today into a discounted capital gains tax liability tomorrow.
Why Sophisticated Investors Choose Unlisted
For many, the debate of listed vs unlisted property trusts settles on the unlisted side when the goal is true diversification. If you already own a portfolio of shares, adding a listed REIT doesn’t necessarily diversify your risk; you are just adding more exposure to the stock market movements. By allocating capital to unlisted investments, you are adding a true “alternative” asset class that behaves differently from shares.
The Sentinel Approach
Sentinel Property Group specialises in unlisted property funds for a reason. We believe that property should be valued as a long-term investment, not as a stock to be traded frequently. By committing capital for the lifetime of the trust, we remove the pressure of daily redemptions. This stability allows us to execute complex value-add strategies, such as major refurbishments or repositioning, and ensures assets are sold only when market conditions are optimal to maximise your return.
We employ a counter-cyclical strategy, often acquiring assets below replacement cost. This “value-add” approach allows us to engineer higher yields and maximise depreciation benefits for our investors.
Conclusion
When weighing up listed vs unlisted property funds, the right choice depends on your personal situation. If you need instant access to your cash and are comfortable with daily price swings, a listed fund may suit. If you are looking for stable income, reduced volatility, and a direct connection to the underlying real estate, an unlisted trust is often the superior strategic choice.
For sophisticated investors ready to step off the stock market roller coaster and build wealth through tangible assets, Sentinel Property Group offers a proven pathway. Request an investor information pack below, view our current investment options, or speak to our team to find out how our unlisted trusts can form a foundational part of your investment strategy.
Disclaimer: This article is provided for general information only and should not be taken as financial advice. We recommend speaking with a licensed financial adviser to determine whether any investment strategy is appropriate for your individual circumstances.