Capital raisings were not always easy to access for individuals. That's changed and investors now have a wide variety of entry points into private and public capital markets.
Capital raisings can be a great entry point into real estate investment trusts, but there are a few things to consider to get your strategy right
In Australia, Real Estate Investment Trusts (REITs) have long been considered a good alternative to traditional property investment, as investors can include various property types, such as commercial, industrial, and retail assets to complement their residential property portfolio.
Many REITs are also geographically diversified, mitigating the risk associated with one area or location. In addition, REITs are managed by professionals who are tasked with sourcing, financing, managing, and selling the property, so investors can be freed from the onus of property ownership. And in many cases, REITs can focus on a certain type of property, such as logistics or healthcare, which require highly specialised skills to manage.
Typically, investors seek regular income from distributions from REITs, however, depending on the structure of the REITs, capital appreciation may also be a key consideration.
REITs capital raisings come in two forms, listed and unlisted.
Understanding capital raisings for unlisted REITs
Many unlisted funds are closed investments. That means once the initial capital is raised the fund does not take on new investors. If more capital or new investors are required, the fund may undertake a capital raising. In Australia, capital raisings are an important entry point to unlisted REITs.
Capital raisings for REITs are usually associated with requirements for purchasing additional property. Investors should review and understand the following before participating.
Listed REITs – more than just increased liquidity
In Australia, listed REITs on an exchange like the ASX are also known as A-REITs. Many A-REITs, including larger ones such as Goodman Group (GMG), Scentre Group (SCG) and Stockland (SGP) are stapled REITs, meaning the unit of the trust and the shares of trust management business are trading together.
This structure essentially allows investors to be not only the unitholder of the trust but also the shareholder of the trustee company. Investors get the benefit of both passive income from trust ownership and active income from fund management. The two income streams are taxed separately. A-REITs would normally have more flexible options and structures when conducting capital raising as opposed to unlisted options, including issuing corporate debt.
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