Kuta Beach

Kuta Beach

Saturday, 28 November 2009

Investing in AREITs

When the GFC hit, Australian shares as measured by the All Ords went down from peak to trough by about 50 per cent. However, Australian real estate investment trusts (AREITs) as measured by the S&P/ASX 200 A-REIT index went down by about 80 per cent as the listed property sector in Australia was savaged.

Even though the listed property sector is very unhealthy, if you believe the sector will eventually recover, it is a good idea to start buying into the SPDR S&P/ASX 200 Listed Property Fund (code SLF on the ASX). I purchased some last week.

I have recently been reading a now-old (June 2009) Kinetic Research ETF research paper on SLF. Here are some interesting points the paper makes:

- REITs are legal structures that force companies to pay a large portion (about 90 per cent or so) of their profits as distributions to shareholders. This is great for income but may not be great for tax effectiveness.

- The forecasted yield for SLF for 2009 is 9.56 per cent. For 2010 it is 8.3 per cent.

- The forecasted PE ratio for SLF for 2009 is 10.7. For 2010 it is 11.27. Compare this with the PE ratio of the iShares MSCI BRIC ETF (another ETF I have been thinking of purchasing) of 21.12. This means SLF gives about twice the earnings for the price.

- If State Street (the company that manages the ETF) collapses, unitholders receive back the unemcumbered assets within the trusts. In the event of collapse, unitholders will receive legal title of the component shares within the ETF, i.e. they will receive 40% Westfield, 16% Stockland, and so forth.

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