Aurora Funds Management launches Buy-Write property income trust
Aurora Funds Management Limited has broken new ground with launch of Australia’s first buy-write property income trust that offers retail investors a high dividend yield and low volatility.
Aurora will seek up to $150m via an Initial Public Offer (IPO) for its new listed investment trust, the Aurora Property Buy-Write Income Trust. The trust will close for subscriptions on July 6 and expects to list on July 19.
The trust aims to generate high semi-annual income through selling call options over a portfolio of 10 property securities listed on the ASX.
According to Aurora Funds Management, this is an exciting opportunity for investors. Since 2001, the distribution income yields from property securities have outperformed the ASX 200.
And in 2006 the average yield of the top 10 property securities was more than 8%. In addition, these property securities have been far less volatile in market downturns.
Barclays Capital, which has advised on more than $US1bn of funds in buy-write strategies globally, has been appointed to advise Aurora Funds on the trust’s investment strategy.
Westpac is supporting the offer in Australia while Forsyth Barr will be appointed to act as the lead manager in New Zealand.
The trust will sell (or write) over the counter call options against the 10 individual listed property securities in order to generate additional income to the dividend income received from holding the portfolio.
The portfolio of 10 listed property securities will be geared within the trust to an average loan to value ratio (LVR) of 50%.
The trust employs a risk management program in order to help protect investors from extreme downward movements in the underlying Australian listed property securities market. It will buy three month over the counter put options on each security at 90% of their prevailing price.
According to Aurora Funds Management, this is an attractive retail investment offer that will appeal to time-poor investors seeking to generate high income returns.
The trust employs a sophisticated buy-write strategy on Australian listed property securities and can be accessed through one listed investment trust.
According to Aurora Funds Management, they can potentially manufacture a high yield through this structure and that is going to be attractive to retail investors looking for this sort of equity related income returns from what has traditionally been seen as a stable sector of the share market.
Buy-write strategies are particularly suited to market sectors that generate high dividend yield with steady or slowly growing share prices.
These strategies generate additional portfolio income, while also providing some protection against an unexpected fall in the market.
The Trust will suit:
- Investors seeking absolute returns from a portfolio of property securities that targets a consistent high income return over the medium term
- Self-managed superannuation fund investors, charities and individual investors
- Investors who want the flexibility afforded by an ASX listing and
- Investors who do not have the scale and systems to manage a comprehensive and active portfolio options strategy.
1-Jun-2007