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STAPLED SECURITIES

Some REITs offer hybrid structures called ‘stapled securities’.

These give you exposure to the funds management and/or property development business, as well as the real estate itself.

A share in a stapled securities fund usually consists of one trust unit and one share in the management company, and cannot be traded separately. The trust holds the portfolio of assets, and the company manages the trust and any development opportunities.

One of the problems with investing directly in property is that the cost of a single investment is very large, so it’s hard to diversify risk. It’s also complex. The simplest way to invest in property is through a fund, and the easiest funds to invest in are REITs – Real Estate Investment Trusts.

A REIT is a trust, the units of which you can buy on the Australian Stock Exchange. The trust invests in a diversified portfolio of Australian (and/or overseas) real estate assets.

Australian REITS offer a range of alternatives:

  • Industrial trusts – warehouses, factories, and industrial parks.
  • Office trusts – medium to large scale office buildings in and around major cities.
  • Hotel and leisure trusts – hotels, cinemas and theme parks.
  • Retail trusts – shopping centres and similar assets.
  • Diversified trusts  – invest in a mixture of industrial, offices, hotels and retail property.

So what are the pros and cons of REITS? Glad you asked…

The Pros
  • REITs offer access to the property market with professional investment management at a relatively low transaction and management cost.
  • REITs can be bought and sold as quickly and easily as shares, so you can convert some or all of your investment into cash in as little as three days.
  • REITs offer instant diversification and exposure to sectors of the property market you would not otherwise be able to access.
The Cons
  • Market prices of REIT units fluctuate daily, and are subject to market sentiment as well as devaluations of underlying assets.
  • Some REITs may borrow funds to increase potential returns. This gearing magnifies both returns and losses.
  • Distributions (the income from the trust to investors) can vary over time.
What are your thoughts?

Have you invested in REITs? Is there more you’d like to know about listed property investment? Join the conversation — leave a comment below and let us know what you’re thoughts are.