A-REIT investors gain exposure to both the value of the real estate the trust owns, and the potential for rental income generated from the properties. The fund manager selects the investment properties and is responsible for all maintenance, administration, rentals, and improvements on the property.
REITs may adopt one of two structures. Stand-alone trusts or companies providing investors pure exposure to the underlining real estate portfolio or stapled securities providing investors exposure to a funds management and/or property development company in addition to a real estate portfolio.
Types of A-REITs
While each A-REIT will have its own set of characterisitics, generally speaking, the type of real estate can include property across a diversity of geographic regions, lease lengths, and tenant types. Typically listed real estate can be placed into the following categories:
- Industrial - investment in warehouses, factories, and industrial parks
- Office - investment in large to medium scale office buildings generally in and around major cities
- Hotel / Leisure - investment in hotels, cinemans and theme parks
- Retail - investment in shopping centres
- Diversified - investment in a mixture of Industrial, Office, Hotel and Retail
Benefits of Investing in A-REITs
A-REITs can offer a range of potential benefits for investors.They can include:
- Income & capital growth - The distribution yields on REITs are made either quarterly or twice yearly, allowing investors to regulate their cash flow. REITs may also offer the opportunity for capital growth. Rising yields or movements in other markets can cause REIT prices to rise.
- Low cost exposure to real estate - REITs offer access to the property market with professional investment management at a relatively low transaction and management cost.
- Liquidity - REITs can be bought and sold via any stockbroker on ASX with the proceeds of sales received in three days. Unlike most property investments, part or all of your REIT holdings can be sold at short notice.
- Taxation advantages - Due to REITs access to tax concessions like depreciation (capital) allowances, some of the tax associated with the rental income earned by the REIT is deferred. The tax-deferred component is generally between 15% and 100% of the total income distribution. The tax-deferred portion is passed through to investors, meaning you do not pay tax on this portion until your investment in the trust is sold. The tax-deferred component reduces the cost base and capital gains are calculated on the new cost base. This can lead to attractive results net of tax.
- Market risk - Markets and asset classes within them are cyclical and the performance of various asset classes is not correlated over time. Market risk is the risk of investing in an asset classwhich may decline in value. For REITs this could be caused by market sentiment owing to asset devaluations etc.
- Gearing risk - Some REITs may borrow funds to increase potential returns, a technique that can magnify both returns and losses.
- Income risk - Past distributions by REITs cannot be guaranteed for the future and may vary over time.
A-REIT Product List
ASX in conjunction with Morningstar produce quarterly performance reports. These reports show all of the A-REITS available together with their ASX code and data such as market capitalisation and performance returns. Click here to view the reports.