Top 6 Real Estate Investment Trusts (REITs) to watch
A-REITs are popular way for investors to secure income, as well as gain exposure to the real estate market. What are Australia’s biggest REITs?
What is a REIT and how does it work?
A REIT, or real estate investment trust, is a company that pools investor funds to solely invest in the real estate market. It functions like a managed fund, whereby investors entrust their money with a fund manager, who buys and sells assets on the investors’ behalf. The difference being, of course, that the investments are comprised of property assets, rather than assets like stocks or bonds.
Australian REITs (A-REITs) are popular for their income appeal above all else. Hence, for investors, buying shares in a REIT is a way of drawing income, and perhaps 'putting money to work' in the equity market during stages of the economic cycle where investing in 'growth' stocks are unappealing. AT IG, this can be achieved using the Nikko Listed Index Fund Australian REIT (S&P ASX200 A-REIT)
For traders, who look to enter-and-exit the market within shorter time scales, however, there are ways of trying to speculate on price changes of REITs. Using CFDs to go long on A-REITs when general market sentiment is bearish, and to go short when general market sentiment is bullish, is a popular way to try and profit from the short-term swings in the price of A-REITs.
Types of REITs
There are several types of REITs listed on the ASX. While all REITs invest specifically in real estate assets, the types of real estate assets a given REIT will invest in may differ – as will a REIT’s business model or investing style.
Some REITs will only invest in commercial, retail or industrial property, while others may restrict their activity to investing in residential real estate projects. Of course, some REITs look to invest in the full gamut of property assets.
Most REITs listed on the ASX focus on owning and operating property assets; with the ASX’s largest REITs generally falling into this basket. However, some REITs adopt different business models, like providing mortgages on real property.
|Company||Stock Ticker||Market Capitalisation ($US)||P/E Ratio||Indicated Gross Dividend Yield (%)||12 Month Return (%)|
|Goodman Group||GMG||$16.5 billion||16.3||2.24||49.83|
|Scentre Group||SCG||$13.6 billion||8.7||6.38||-8.47|
|The GPT Group||GPT||$7.2 billion||7.4||4.45||19.51|
|Vicinity Centres||VCX||$6.4 billion||14.3||6.43||0.19|
With operations spanning Australia, New Zealand, UK, Asia and Europe, Goodman Group is an industrial property group, with interests including property investment, funds management, property development, and property services. This includes a property portfolio containing business parks, industrial estates, office parks and warehouses. Possessing a market cap of around $16.54 billion, Goodman Group boasts an indicated gross dividend yield of 2.24%.
Scentre Group's portfolio is built around the ownership and operation of shopping centres across Australia and New Zealand. The company’s business model is centred on investing in these assets, particularly in regional areas, and undertaking their redevelopment, design, construction, leasing, management and market. Scentre Group has a $13.65 billion at present and offers a relatively attractive indicated gross dividend yield of 6.38%.
Specialising in real estate services, Dexus manages and invests in a portfolio of diversified properties. Stretching throughout Australia and New Zealand, the company’s property portfolio includes office and other industrial buildings (including high profile commercial office towers), retail shopping complexes, and car parks. The business currently has a market-cap of $13.85 billion, and its indicated gross yield is 4.21%.
The GPT Group
Possessing a portfolio of high-profile assets, the GPT Group is the active owner and manager of a diverse range of retail, office and industrial properties throughout Australia. This includes major retail and industrial precincts across many of the country’s largest cities. With a market cap of $7.26 billion, the GPT’s current indicated gross dividend yield of 4.45%.
Vicinity Centers is an A-REIT with its primary interests in retail asset and property management services. Operating Australia-wise, the company is involved in the ownership, management, and development of retail properties. Boasting a market-cap of $6.62 billion, Vicinity Centres possesses one of the higher indicated gross dividend yields in the Australia-REIT landscape of 6.43%.
A diversified property group, Stockland develops and manages retail centres, residential communities and retirement living assets, with a focus on suburban areas, and regional centres. It also owns a portfolio of industrial and office property assets across Australia. One of the higher yielding A-REITs, Stockland has an indicated gross dividend yield currently of 7.03% and possesses a market-cap of $6.4 billion.
How to trade A-REITs
As alluded to, A-REITs a popular for their income appeal above all else. Hence, for investors, buying shares in a REIT is a way of drawing income, and perhaps ‘putting money to work’ in the equity market during stages of the economic cycle where investing in ‘growth’ stocks are unappealing.
For traders, who look to enter-and-exit the market within shorter time scales, however: using CFDs to go long on A-REITs when market sentiment is bearish, and to go short when market sentiment is bullish, is a popular way to try and profit from the short-term swings in the price of A-REITs.
What are the risks of buying A-REITs?
A-REITs come with a similar risk profile to any other investment in the equity market. However, there are several risks that are unique to A-REITs, and ought to be considered before investing in them. For one, A-REITs can be exposed to movements in real estate prices, with the risk of capital depreciation higher in times when property prices are falling. Another risk, A-REITs could deliver negative real returns in times when interest rates are rising, meaning investors ought to be discerning when investing for the express benefit of seeking income.
This information has been prepared by IG, a trading name of IG Markets Limited. 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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