Five things you need to know when investing in A-REITs

For those investors ready to step ahead of the crowd and invest in A-REITs, there are several reasons why now is the time to take action.

More bang for your buck

Currently many A-REITs are offering 10 to 25% discounts to Net Tangible Assets backing, which means investors are effectively only paying 75¢ to 90¢ to buy a dollar’s worth of prime institutional-grade property. The tendency of A-REITs to trade at premiums to NTA is common when the market values the additional liquidity provided by A-REITs. The opportunity therefore exists for savvy investors to take advantage of discounted NTAs in the listed real estate market at a time when the risk profile is as modest as it has been for 15 years.

Liquid access to prime commercial property

A-REITs offer retail investors easy access to prime-quality commercial property without a minimum investment commitment. A portfolio of A-REITs may offer investors greater diversity for the amount they have to invest.

The liquidity feature of A-REITs also means that A-REITs are open for daily purchase and sale. All you need do to access your capital is say “sell” to your broker.

Sustainable, inflation-hedged yield characteristics

A-REITs also give retail investors the benefits of relatively high sustainable distribution yield and an effective hedge against Australian inflation. They are able to offer inflationary hedges due to many lease rent increases being tied to CPI or 3% to 4% per annum “locked in” growth.

The percentage of overseas property exposure in the index has decreased substantially, with many constituents like GPT selling all their overseas asset exposures. If an investor is indeed buying A-REITs as a proxy for an Australian property exposure this cannot be substituted by the use of global REITs.

A is for Aussie

A-REITs have the positive attributes of relatively high yield and an effective inflation hedge without currency risk and volatility. Global REITs, on the other hand, generally provide lower yield, due to structural differences and lower interest rate environments. Without the exposure to Australian property, global REITs do not provide an effective hedge against Australian inflation and are subject to differing global inflation environments.

Less gearing = less volatility

Given gearing in A-REITs has retreated to more conservative levels following the GFC (less than 30% versus 50% during GFC) A-REITs are again offering returns which are less closely linked to the movements of the broader equities market, offering diversity of returns for investors. The effect of lower gearing is lower volatility of returns as a result of less market-perceived risk associated with the asset class.