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The risk and reward spectrum unique to G-REITS

Global REITS give investors a structured access point to real estate across regions, potentially unlocking a valuable investment sleeve. But there are risks to contend with, according to Will Arnost from Atchison Consultants.
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Global Real Estate Investment Trusts (G-REITs) can provide a gateway for investors to access international real estate markets without the complexities of direct property management. By pooling funds to invest in diverse income-generating properties worldwide, they offer an opportunity to diversify investment portfolios with international exposure. These REITs are publicly traded, making them accessible and transparent to investors.

G-REITs offer a structured way to invest in real estate across multiple geographical regions. They are publicly traded on major stock exchanges, ensuring high liquidity and transparency. A key advantage of REITs is their requirement to distribute a considerable percentage of their taxable income as dividends, providing a steady income stream for investors. This distribution model, combined with geographical diversification, reduces the risk associated with any single market and enhances the stability of returns.

Evaluating global REITs involves understanding several important metrics:

  • Funds from Operations (FFO) measure the cash generated by a REIT’s operations, excluding non-cash expenses like depreciation.

    Net Asset Value (NAV) reflects the estimated value of a REIT’s properties minus its liabilities, providing an indication of the underlying portfolio value.

    Dividend yield, calculated as the annual dividend payment divided by the REIT’s share price, shows the income return on investment.

    Occupancy rates, indicating the percentage of rental space that is occupied, reveal the demand for a REIT’s properties.

    Leverage ratios assess the REIT’s debt levels relative to its assets, impacting financial stability and risk.

    Investing in G-REITs comes with several risks. Firstly, currency risk is significant, as fluctuations in exchange rates can impact returns. Political and economic instability in certain regions can affect property values and rental incomes, adding an element of unpredictability.

    Market risk is another concern, as G-REITs can experience the same volatility as broader equity markets. Periods of rising interest rates are also a key risk factor, as this will directly increase borrowing costs for REITs, thus potentially reducing profitability and the ability to finance new acquisitions. Additionally, higher rates can make REIT dividends less attractive relative to other fixed-income investments, potentially leading to decreased demand.

    However, if inflation is brought under control and economic growth remains stable, REITs could still benefit from strong rental income and property value appreciation. Additionally, sector-specific risks, such as an oversupply in certain property markets, can adversely impact performance.

    Managing a portfolio of G-REITs involves navigating several challenges. Firstly, currency risk management requires sophisticated hedging strategies to protect returns from exchange rate fluctuations. Secondly, there is the issue of regulatory compliance which  involves understanding and adhering to diverse real estate and tax laws across different countries.

    Continuous market analysis is also essential to identify profitable opportunities in global markets. While understanding liquidity management ensures the portfolio can meet investor redemptions without having to sell underlying property assets at unfavourable prices. Additionally, geopolitical risks, including political instability and policy changes can impact property values and rental income streams, adding an extra layer of complexity to portfolio management.

    There were a total of 55 G-REIT funds assessed as at 31 May 2024 according to Atchison Consultants. With the average one-year return being 6.9 per cent, while the average three-year return was 2.5 per cent. Below are the top performing funds over the one and three-year periods.

    APIRFunds3 Months %1 Year %3 Year (% pa)
    BFL0020AUQuay Global Real Estate Fund1.213.43.8
    ETL0394AUSGH LaSalle Concentrated Global Property Fund6.313.44.0
    WHT0024AUResolution Capital Global Property Securities (WS)2.29.5-2.4

    Quay Global Real Estate Fund

    Quay Global Real Estate Fund (Unhedged) aims to deliver a total return (before fees and expenses) of the Australian Consumer Price Index (CPI) + 5 per annum over five years or more. The fund focuses on providing both income and growth to investors by investing in listed real estate securities globally. These entities primarily generate income from leases, rent, and other real estate-related activities.

    SGH LaSalle Concentrated Global Property Fund

    The SGH LaSalle Concentrated Global Property Fund seeks to deliver total return through long-term capital appreciation and current income by investing primarily in equity and equity-related securities of Australian and international property entities. It targets opportunities with compelling valuations due to deep value, market dislocation, or identifiable growth catalysts.

    The fund primarily invests in global listed property securities, including Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs) that derive most of their income from property rentals.

    SGH LaSalle Concentrated Global Property Fund

    SGH LaSalle Concentrated Global Property Fund aims to provide a total return through long-term capital appreciation and current income. The fund primarily invests in equity and equity-related securities issued by Australian and international property entities, offering investors exposure to property ownership attributes combined with the liquidity of tradable securities​​.

    Will Arnost


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