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Investing in A-REITs

Learn more about the features, risks and benefits of investing in Australian real estate investment trusts (A-REITs)

 

What are A-REITs?

A-REITs are listed investment vehicles that provide exposure to property assets such as office towers, shopping malls, industrial buildings – even hotels and cinemas. Like managed funds, they are pooled investments overseen by a professional manager. And because they are listed on the ASX, you can buy and sell them through your broker, in the same way as shares.

Like any investment, A-REITs have risks you need to understand. You should seek independent advice from a professional adviser before investing.

 

Key features

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. 

Benefits and risks

A-REITs can offer a range of potential benefits, including diversification, a regular income, and capital growth. Yet it’s also important to understand the risks. 

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Types

By investing in A-REITs, you can select from a range of sectors and investment styles, depending on your investment outlook and your individual goals.

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