Investing in A-REITs

Often larger and more established funds, these A-REITs offer a broadly-diversified portfolio covering most or all of the major commercial property sectors. Many also feature geographical diversification, reducing some of the risks associated with an economic downturn in one particular state or area. 

Many A-REITs specialise in a particular commercial property sectors, usually falling into one of these categories:

• Office: investing in office buildings ranging from premium towers in the central business districts of major capital cities, to suburban office parks.
• Retail: investing in shopping malls, high-street retail shopfronts and speciality outlets.
• Industrial: investing in warehouses, factories, distribution centres and other industrial facilities, such as oil refineries.
• Hotel and leisure: investing in hotels, cinemas, theme parks and other leisure facilities.

Some A-REITs focus on specialist investments falling outside the traditional commercial property sectors and often requiring specialised management skills – for example, data centres, healthcare facilities and pubs.

While most Australian A-REITs focus on the local market, some give investors access to international property, typically in the US or Europe. 

Some A-REITS trade as stapled securities, typically consisting of one unit in a property trust ‘stapled’ to a share in an associated company. The trust holds a portfolio of property assets, while the related company act as fund manager or undertakes development opportunities.

Because the two securities trade together, investing in a stapled security means taking a position on the performance of both the property portfolio and the related company, which may have very different investment characteristics. Investing in stapled securities can also have tax implications for investors, so it’s important to seek professional advice before you invest.

A-REITs enable you to join with other investors to gain access to large-scale commercial property assets that are likely to be out of your reach as an individual. Depending on the A-REIT you select, they can also give you exposure to a diversified property portfolio or to a specialist sector with particular income and growth characteristics.

Like shares, A-REITs can generate two kinds of return: capital growth and income, in the form of regular distributions. Because they typically earn regular rental income from medium or long-term tenants, A-REITs may also offer the potential for a consistent income stream, with distributions paid monthly or quarterly. In some instances, those distributions may include a tax-deferred component, potentially enabling you to defer paying tax until later. But remember, tax laws can be complex and everyone’s situation is different, so it’s important to get professional advice before you invest.

Like actively managed funds, A-REITS are generally run by specialist property managers, responsible for selecting investment properties and managing tenants, improvements, maintenance and rental. While professional management can potentially offer significant benefits, especially in niche market sectors, it also involves additional costs, with management fees paid from the A-REIT’s earnings before distributing income.

Some A-REITs are stapled securities, simultaneously giving investors exposure to a real estate portfolio and a funds management company or property development business. A share in an A-REIT with this structure usually consists of one unit in the property trust and one share in the company, ‘stapled’ together, so they cannot be traded separately. The trust holds the portfolio of assets, while the related company carries out the fund’s management functions and manages any development opportunities.

Investing in stapled securities can have tax implications, with each security treated separately for tax purposes. As always, it’s important to seek professional advice on your individual situation before you invest.