We examine what a Real Estate Investment Trust (REIT) is; Australia’s largest and most prominent REITs and how investors can buy and trade them.
What is a Real Estate Investment Trust (REIT)?
In the most basic of terms, a real estate investment trust – or REIT – is an investment product that gives investors exposure to property assets. Australian REITs are known as A-REITs and are publicly listed on the Australian Stock Exchange.
Different types of A-REITs
On a more granular level, real estate investment trusts invest in different types of property assets – from residential property to office buildings. While many A-REITs focus on a specific sector within real estate, some may hold a diversified basket of property assets across a number of different sectors.
The most common type of property assets that A-REITs have exposure to include:
- Retail property, including shopping centres, grocery stores and outlet stores
- Industrial property, such as warehouses and distribution centres
- Residential property which may include student accommodation, apartment buildings and standalone homes
- Office buildings, ranging high rise office buildings to smaller-scale office parks
Overall, investors are often drawn to real estate trusts for the potential to receive both capital growth – from an A-REIT increasing in value – as well as access to a potential income stream, in the form of distributions or dividends.
Mind you, while REITs have historically proven desirable as a source of passive incomes – the coronavirus pandemic has significantly impacted both the share prices as well as distribution policies of many prominent Australian real estate trusts.
Elsewhere and in more pragmatic terms, A-REITs may prove appealing to investors who want exposure to real estate assets – without having to deal with the complications often associated with owning physical properties. Some of these complications include: insurance costs, taxes, fees, a lack of liquidity and the time associated with property management.
A-REITs offer property-minded investors flexibility in a way physically owning property does not. Or, as the Australian Securities Exchange puts it, one of the key benefits of investing in listed A-REITs:
‘Is that they can provide access to assets that may be otherwise out of reach for individual investors, such as large-scale commercial properties.’
Top 10 Australian REITs in 2021
2020 proved to be a volatile period for Australia’s property market – with occupancy rates plummeting in response. This saw investors abandon ASX-listed REITs at a rapid click during March 2020 — S&P/ASX 200 A-REIT (XPJ) Index plunging close to 50% between Febaruy and March 2020. Since then however, investors have grown increasingly optimistic about the outlook, with the XJP rallying firmly to 1,403.1, at the open on 22 January.
With volatility abating some degree, below we look at Australia’s top 10 A-REIT’s – ranked in terms of market capitalisation – that investors may want to keep an eye out for in 2021.
Charter Hall Group
*Market capitalisation data correct as of 21 January, 2021.
Goodman Group (GMG)
Goodman Group represents the largest industrial property groups on the ASX with a truly global footprint. Indeed, across its expansive property portfolio Goodman Group has an impressive 97.8% occupancy rate, has 3.4 million square meters leased across Australia/ New Zealand, Asia and the UK and Europe and has a staggering $51.7 billion in assets under management (AUM).
As part of its most recent trading update, Goodman Group reiterated FY21 earnings per security of 62.7 cents, implying a year-over-year increase of 9%.
Scentre Group (SCG)
With over $50 billion in assets under management, Scentre Group owns and operates Westfield shopping malls across Australia and New Zealand.
While the coronavirus pandemic did impact Scentre Group – as it did the entire sector – the company has seen its operational performance recover in recent times.
As part of its latest trading update, SCG reported that 92% of its retail stores are open and trading, that portfolio occupancy stands at 98.4% (close of SEP quarter), and that during the first ten months of CY20, the group closed $1,621 million in rent, a solid uptick on the prior corresponding period.
Stockland Corporation (SGP)
With interests that span shopping centres, housing estates, industrial real estate and retirement housing, Stockland represents a significantly diversified Real Estate Investment Trust.
SGP recently announced an estimate for its H1 FY21 distribution amount, flagged to come in at around 11.3 cents per security. Despite providing the market with that estimate, the company said that due to uncertainty around the current and future impacts of COVID-19 on the economy, the broader community and business performance, FFO and guidance for any second half distribution payment for FY21 [. ] and all other forward-looking statements will remain withdrawn.’
Mirvac Group (MGR)
Mirvac Group not only boasts a diversified property offering across residential, retail, office and industrial properties; but one of the Group’s key advantages comes from the fact that the Mirvac is both designer, developer and manager, which means the firm ‘has control over every stage of a development’s lifecycle.’
Despite saying ‘It is impossible to product the length, nature and effects of the ongoing pandemic,’ Mirvac – as part of its latest operational update, nonetheless said it would target a distribution payout ratio of between 65% to 75% of fiscal 2021 operating profits.
DEXUS Property Group (DXS)
With a property portfolio valued at $32.0 billion, Dexus Property Group is unique in that it directly owns $16.5 billion of the assets in its portfolio. More broadly speaking, Dexus places a strong emphasis on office space and industrial real estate, with 1.8 million square meters of office workspace space spread across 51 properties.
Dexus recently told investors that ‘The estimates distribution amount for the six months ending 31 December 2020 is 28.8 cents per stapled security.’
LendLease Group (LLC)
Founded in 1958 and now holding assets across the globe, LendLease touts an integrated model, which, according to the company ‘involves leveraging more than one of our operating segments of Development, Construction and Investments across our diversified portfolio.’ Under this model, the company aims to thrive under any and all market conditions.
As highlighted in the company’s most recent Strategy Update:
- A development pipeline of $113 billion
- Construction backlog for revenues totalling $14 billion
- Assets under management totalling $29 billion
- A global footprint with property assets spanning Australia, Kuala Lumpur, Milan, London, and the US
GPT Group (GPT)
‘While the impact of the coronavirus pandemic continue to evolve, GPT remains in a strong financial positions, with prudent gearing, limited near term debt maturities and significant available liquidity. This has allowed the Group to continue to progress its strategic priorities while providing the flexibility to manage through the current challenging operating environment,’ the company said during its most recent trading update.
Despite those challenges, the company, as part of its most recent trading update, GPT Group reported:
- Rent collections rates average 90% in Q3, up from 67% in Q2
- Office occupancy rates dipped to 94.1%, while logistic occupancy remained steady at 99.8%
Given the uncertainty caused by COVID-19, GPT’s distribution guidance for FY20 remains withdrawn.
Vicinity Centres (VCX)
With a portfolio of 68 properties spanning the country, Vicinity Centers emphasises that its strength is understanding the Australian real estate landscape. Building on that claim, as reported on the companies website, Vicinity Centres boasts $24 billion in retail assets under management – across 63 of its properties.
VCX also claims to be pursuing a higher goal too, saying:
‘We exist to enrich community experiences. We reimagine destinations of the future, creating places where people love to connect.’
Beyond that, in December, Vicinity told that for the six months ending 31 December 2020, the expected distribution amount, per security, was set to come in at 3.4 cents. Given the uncertainty associated with COVID-19, the company said it could not provide full-year distribution guidance. While not flagging a specific amount, the company did note that ‘It is Vicinity’s current intention to distribute 95% to 100% of AFFO for the year ending 30 June 2021, subject to ongoing Board assessment and external conditions.’
Charter Hall Group (CHC)
With $43.4 billion funds under management and a development pipeline valued at $6.8 billion, Charter Hall Group boasts a diverse property portfolio, which prioritises quality and long lease agreements.
Speaking to the firm’s quality focus, of Charter tenants, the Australian government, Telstra, Wesfarmes, Woolworths, Coles Group and Amazon make up the top ten.
While many REITs saw their operational performance suffer in FY20, Charter Hall has continued to perform with remarkably robust consistently. Illustrating this fact, in December 2020, CHC announced for the half ending 31 December 2020 — it would be making a distribution of 18.55 cents per security, a 6% increase on the distribution made during the prior corresponding period.
BWP Trust Retail (BWP)
Of BWP Trust Retail’s 75 properties, 68 of them are Bunnings Warehouse sites. Beyond that, the retailed-focused A-REIT boasts an impressive occupancy rate of 98%, has a total portfolio value of $2,484.2 million and brings in annual rent of $151.4 million – at the time of writing.
On December 14, 2020, BWP told the market that – for the six months ending December 30 – the company expected to make a distribution payment of 9.02 cents per security.
How to buy, trade and invest in A-REITs
Now that we’ve examined the broad strokes of Australia’s best and largest real estate trusts, we look at how investors can buy, sell and trade these investment products.
How to buy and invest in Australian real estate investment trusts
Traders and investors can buy any of the A-REITs we have covered today through IG’s share trading platform in just four simple steps:
- Open a share trading account with IG or login to your existing account
- Fund your newly created share trading account – open IG’s share trading platform and type the name of the A-REIT you want to trade in the search bar.
- Select the number of A-REIT units you would like to buy and choose between a market order or a limit order.
- Confirm the trade
How to trade A-REITs
For traders who want to take a more active approach to investing in the A-REITs we have discussed today – you can utilise IG’s world-class trading platform to trade A-REITs long or short. As with buying A-REITs, trading real estate trusts on IG’s world-class platform can be done in just a few simple steps.
- Create an IG trading account or log in to your existing account
- Look for the A-REIT you would like to take a short or long position in
- Choose your position size
- Click on ‘sell’ or ‘buy’ in the deal ticket
- Confirm the trade
Mind you, unlike buying A-REITs outright, trading these products through CFDs come with a number of benefits and some additional risks. For example, as a leveraged product, CFDs allow investors to gain greater exposure to an underlying product’s price fluctuations – in this case an A-REIT – than you would by simply purchasing the instrument physically. However, it’s important to note that by using leverage – you both magnify your potential investment gains and losses.
CFDs may also be useful for investors who want the flexibility to easily trade A-REIT’s long and short as well as implement risk management strategies, such as hedging strategies.
Ultimately, though CFD trading may not be appropriate for every investor, if you’re interested in finding out more click here now or open an IG trading account today.
The Best Australian REITs of 2021 summarised
A-REITs have often proven a popular choice for investors looking to gain exposure to Australia’s real estate market, a steady income stream and potentially benefitting from capital growth. Additionally, buying and trading A-REITs gives investors exposure to some of the benefits of real estate investing without a number of its complications.
However, for investors looking to invest in A-REITs in 2021, you should also realise that the coronavirus remains a key overhang for the sector and property markets more generally.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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