Real Estate Investment Trusts (A-REIT)

By FutureNestEgg | July 11, 2008

Real Estate Investment Trusts were previously known as Listed Property Trusts. These are listed investment trusts with investments in property. There are around 70 A-REITs on Australian Stock Exchange.

The property sectors in which these trusts invest are:

* Industrial – investment in warehouses, factories etc
* Office – investment office buildings
* Hotel/Leisure – investment in accommodation assets
* Retail – investment in shopping centres
* Diversified – investment in a mixture of Industrial, Office, Hotel, and Retail
* International – investment in off-shore markets such as the US, Europe and Japan

The benchmark index for these funds is the ASX 200 A-REIT Accumulation Index. By investing in these trusts you are gaining exposure to not just the underlying property values but also to the rental income from the underlying properties.

There are two types of A-REITs –

1. Stand Alone – These invest purely in properties (in one or more of the sectors mentioned above)
2. Stapled – They not only invest in properties but also in some kind of funds management and/or property development company as well.

Some examples of A-REITs are: GPT, Westfield Group, Commonwealth Property Office Fund, Mirvac Group, CFS Retail Property Trust, Bunnings Warehouse Trust etc.

Lately A-REITs have not been performing well. The market has been concerned about the gearing levels of some of these funds, sub-prime crisis and the exposure of these funds in foreign market.

In late 2007, Centro Properties, Australia’s second largest shopping centre, became a victim to the sub-prime crisis (it was unable to refinance its debt). As a result its shares went into a free fall…

The market sentiment towards funds with high gearing and exposure to US markets has not been very good. Funds with exposure only to Australian market and cashed up funds have been performing better than the rest. I personally have no exposure to this sector. I am not considering buying any in the near future…If you have a view about this sector, share your thoughts…..