REITs (Real Estate Investment Trusts) are a unique asset class on the ASX. Here’s a guide on what you need to know about REITs. 

 

Key Points

  • REITs are listed trusts which focus on various property assets which are leased out
  • Compared to investing in off-market properties or shares in property development entities, REITs offer the advantages of liquidity, diversification, income stability and potentially more favourable tax treatment
  • COVID-19 restrictions have hit some ASX listed REITs in causing their incomes to fall and some to raise capital
  • Generally REITs focusing on agriculture and industrial properties have done better than those focusing on retail or offices
  • Among REITs with a retail speciality, entities with assets focused on consumer staples have done better than those heavily weighted towards discretionary items

 

What are REITs?

In simple terms REITs are a type of listed trust focused on property assets. REITS own property assets ranging from agricultural land to shopping centres and collect rental income from them.

These are typically larger assets out of reach of the average retail investor but it allows investors to share in their ownership and receive rental income.

“Typically the vehicle needs to be focused on owning property to generate rental income so it will not have exposure to development and other activities – it’s about owning properties and collecting rent,” Morningstar Alexander Prineas told Stockhead.

REITs first emerged in the early 1970s starting with the General Property Trust. Until 2008, REITs generally were were known as listed property trusts.

 

Why do people invest in REITs?

 

1. Liquidity

There are several reasons why people invest in REITs.

First, it goes without saying that being listed allows the investment to be more liquid. You can buy and sell units just like any other ASX share.

 

2. Diversification

Second, REITs allows for greater diversification than investing in one property asset.

“You can get diversification an individual investor wouldn’t achieve,” Prineas said.

“They quite commonly take the form of a stapled security – what that means is you’ll have two securities together, the REIT and a company which undertakes more activities not related to just earning property.

“That’s quite a common structure for companies like Mirvac. If you buy Mirvac you own a share in the corporation and property trust.”

 

3. Income certainty (usually)

Thirdly, Prineas also says investors have liked them because of their income, particularly in a time of low interest rates and market uncertainty.

“They’re a source of income and rightly or wrongly they’ve viewed as a bit of a bond proxy because the income [until 2020] was predictable,” he said.

“As 2020 has shown there is some risk in REITs so they shouldn’t be viewed simply as a bond proxy – they do have equity risk in there as well.”

 

4. Different tax treatment

Fourth, investors may prefer the different tax treatment of REITs – not being subject to corporate tax.

“Generally speaking the income is passed through to the investor and the investors pay tax,” Prineas explained.

“[It] will typically pay a higher yield because they’re passing it all through – the yield will not be franked because they don’t pay company tax.”

 

What has 2020 done to REITs?

But as with every other market, COVID-19 has turned many market norms on its head. For REITs the most pertinent fundamental turned upside down is the certainty of income.

Prineas says that earnings of some REITs have been threatened because of people avoiding the assets – either voluntarily or mandated by lockdowns

“In the short term income has become less certain and a lot of REITs have reduced their dividends,” he said.

“In normal circumstances their earnings are stable because they have long leases for the most part and they have a high degree of visibility about what earnings are going to come – therefore investors have an idea of what to expect.

“But this year it hasn’t been the case. It’s very uncertain in the short term about what REITs will be able to pay.”

Prineas thinks things will turn around eventually even if REITs have had to raise capital.

“In the long term we expect visibility to return, we don’t expect the pandemic last forever. We’ve held the view that vaccines and treatments would eventually allow things to return to reasonably normal conditions.

“There is some uncertainty but we think the REITs with strong balance sheets will return to paying income in the long run even if distributions are threatened in the short run.”

 

REITs on the ASX

In the last 12 months the average REIT has lost 9 per cent. But some have been sitting on some noteworthy gains.

Here’s a list of all REITs on the ASX and their performance…

Swipe or scroll to reveal the full table. Click headings to sort.

Code Company Price ReturnYRoll% Return6MRoll% MktCap$
RFF Rural Funds Group 2.61 36 36 $891.3M
GMG Goodman Group 18.7 29 21 $34.0B
VTH Vitalharvest 0.97 25 29 $179.5M
CHC Charter Hall Group 13.25 23 40 $6.1B
CNI Centuria Capital 2.51 21 39 $1.5B
AQR Apn Conv Retail REIT 3.66 7 5 $413.6N
ADI Apn Industria REIT 3.01 3 23 $592.6M
PWG Primewest 1.16 3 16 $384.5M
APD Apn Property Group 0.585 3 13 $196.2M
INA Ingenia Group 4.69 3 15 $1.5B
BWP BWP Trust 4.31 2 13 $2.7B
WPR Waypoint REIT 2.76 1 5 $2.1B
BWR Blackwall Prop Trust 1.44 1 9 $213.9M
APZ Aspen Group 1.2 0 0 $139.6M
ECF Elanor Comm Prop 1.08 12 $218.7M
HDN Homeco Daily Needs 1.35 2 2 $654.0M
RNY RNY Property Trust 0.005 0 0 $1.3M
NSR National Storage 1.9 -1 6 $1.9B
HPI Hotel Property 3.2 -1 13 $545.2M
HMC Home Consortium 3.82 -2 38 $990.3M
ARF Arena REIT. 2.8 -2 13 $974.3M
SCP SCA Property Group 2.57 -3 11 $2.8B
APW Aims Pror Sec Fund 1.39 -4 20 $61.8B
AVN Aventus Group 2.7 -4 35 $1.5B
ERF Elanoretl Property 1.16 -5 49 $151.9M
SGP Stockland 4.63 -8 35 $11.0B
GDF Garda Prpty Group 1.24 -11 34 $282.3B
IAPDA Iapf Group 1.3 -12 8 $794.8M
CIP Centuria I REIT 3.15 -12 13 $1.7B
CLW Chtr H Lwr 4.88 -12 11 $2.5B
CQR Charter Hall Retail 3.87 -13 19 $2.2B
GOZ Growthpoint Property 3.73 -14 17 $2.9B
CQE Charter Hall Soc In 3.01 -15 22 1.1B
LEP ALE Property Group 4.65 -16 4 $915.9M
TGP 360 Capital Grp 0.95 -17 8 $206.6M
ABP Abacus Property Grp. 3.17 -17 21 $2.1B
DXS Dexus 9.86 -19 12 $10.7B
GDI GDI Property Grp 1.21 -20 13 $655.8M
GPT GPT Group 4.75 -22 12 $9.2B
MGR Mirvac Group 2.61 -22 11 $10.2B
AOF Australian Unity Off 2.18 -24 4 $354.7M
CMW Cromwell Prop 0.92 -26 11 $2.4B
SCG Scentre Grp 2.88 -26 17 $14.9B
COF Centuria Office REIT 2.25 -28 12 $1.2B
CDP Carindale Property 4.06 -32 26 $291.2M
VCX Vicinity Centres 1.68 -37 -1 $7.6B
AGJ Agricultural Land 0.03 -50 20 $2.9M
URW Unibailrodawestfield 5.04 -56 26 $1.1B
URF US Masters Res Fund 0.31 -60 -9 $117.5M

 

The top winners

The sector’s best performer is agriculture-focused Rural Funds Group (ASX:RFF)up 36 per cent in 12 months.

It’s peer Vitalharvest (ASX:VTH) is a winner too, up 25 per cent but much of it has come since it got a takeover offer from Macquarie earlier this month.

Goodman Group (ASX:GMG) is also up this year. This ASX giant focuses on industrial properties including warehouses and office parks.

While online and digital activity has saw a fall in company offices, it has been the opposite for facilities on Goodman’s portfolio, particularly those that support online retailers.

 

The other industry giants hit by COVID-19

However, these companies have been the exemption rather than the norm.

Vicinity Centres (ASX:VCX) and Unibail (ASX:URW) have been two victims of COVID-19 with their shopping centres affected by restrictions and people shopping online down by 37 per cent and 56 per cent respectively.

Dexus (ASX:DXS) and Mirvac (ASX:MGR) also suffered from a hit to their market. In their case it is commercial office market thanks to people working from home.

Stockland (ASX:SGP) and Home Consortium (ASX:HMC) however, which specialise in smaller, local shopping centres, have done better.

Both stocks are only slightly down in 2020 and the latter is only in negative territory after spinning off some of its assets into a separate REIT.

National Storage (ASX:NSR), which provides self-storage solution, is slightly underwater in the last 12 months.

The company reported a drop in business when COVID-19 first broke out but this has since reversed and it is anticipating $78-$84 million in FY21 earnings.

Charter Hall (ASX:CHC) is one of the more diverse REITs, owning 1300 properties across various sectors.

Charter’s main listed entity is up 23 per cent but its retail and social infrastructure funds are down 13 per cent and 15 per cent respectively.