Mariner Financial's Infrastructure Trust No 1 is an unlisted property trust with one asset: the Sydney Opera House car park.

What it is
Mariner Financial's Infrastructure Trust No 1 is an unlisted property trust with one asset: the Sydney Opera House car park.

Unlike most property trusts, where investment returns come from rent, investors in the Mariner trust will earn income from the operations of the car park plus capital returns from the sale of 250 of its 1200 parking spaces, offering potential tax advantages over the initial five-year term of the investment.

How it works
Mariner has purchased the balance of a 50-year lease for $75 million and is seeking $25.8 million equity from investors in $1 units with a minimum $5000 investment. The offer closes on February 28 next year.

Directors forecast a total return of 8.6 per cent this financial year, rising to 19.8 per cent for the year to June 2007.

An independent report from Property Investment Research (PIR) estimates that total after tax returns will average 9.13 per cent a year for taxpayers on the top marginal rate, 10.8 per cent for those on the 30 per cent rate and 12.6 per cent for self-managed super funds.

The car park is to be operated by Wilson Parking and investors will receive rental income from 950 car parking bays.

Investors will also receive capital distributions from the sale of 250 bays to private investors at a rate of 84 a year, with prepaid rents of up to $90,000 for 38 years. The capital return portion is 100 per cent tax-deferred for the first four years.

Because investors will receive a partial capital return during the life of the investment they can expect to receive close to the $1 per unit purchase price after five years, hence minimising capital gains payable on the sale of the asset.

Mariner plans to sell the car park in the medium term. Mariner head of property, Andrew Saunders explains: "It's a cashflow-driven asset. Parking is getting harder to find and will become more valuable over time.

By 2008-2009 it will probably be time to sell to maximise investments returns for shareholders," he says.

Before September 2009, unit holders will vote whether to sell their investment. If a majority chooses not to sell, the syndicate can be extended every two years and Mariner has the option of listing the trust on the ASX.

What it costs
There is no entry or exit fee but there is an annual management fee of 3 per cent of gross income.

According to PIR, this represents less than 0.2 per cent of total assets, well below the industry average of 0.6 per cent.

The independent research house Aegis estimates establishment, performance and extension fees will take fees as a percentage of total assets to 5.5 per cent, compared with an industry average of 8.7 per cent.

Pros
Saunders says the car park was an underperforming asset and

Mariner saw an opportunity to improve its performance.

PIR operations manager, Dugald Higgins says Wilson Parking is an experienced operator likely to add value to the asset. The Opera House car park has an average weekday occupancy rate of 56 per cent, well below the industry average of 92 per cent.

Mariner is a relatively new group, formed by ex-Challenger founder Bill Ireland, but Higgins says its managers have a good track record.

PIR also points to the potential for high yields from the sale of the 250 car bays. Higgins says the ongoing capital returns give investors more flexibility compared with most property syndicates where all capital returns are made on the final sale of the property.

Cons
Higgins says there is always greater risk with a single asset syndicate because returns will depend on Wilson Parking's ability to improve the car park's performance. He also points out that car parks are potentially subject to government regulatory changes.

Aegis points out that the NSW Government may limit the number of car spaces that can be sub-leased to private investors.

As this is an unlisted trust, Aegis says investors will have no opportunity to sell before the initial five-year term.

While the tax advantages are an attraction, they are complex, so investors are advised to seek independent advice.

Where it fits in PIR gives the trust a rating of AA-, midway along its scale of investment grade products.
"It's a solid product and compared with other unlisted property trusts it's a touch above average," says Higgins.

Aegis gives the product an overall "recommended" rating, with 81 points out of a possible 100.