A Real Estate Investment Trust (REIT) — known in Australia as an A-REIT — is a listed company or trust that owns and operates income-generating real estate. REITs allow everyday investors to access commercial property (shopping centres, office towers, industrial warehouses, hospitals) through the ASX, without the large capital requirement of direct property ownership. Australia has one of the most developed REIT markets in the world.
How A-REITs Work
A-REITs pool investor capital to buy, develop, and manage large-scale property assets. They are listed on the ASX and trade like shares — you buy units through your broker account.
Key characteristics of A-REITs:
- Mandatory income distribution — under trust law, REITs must distribute the majority of taxable income to unit holders (similar to how dividends work for shares)
- Passive income — investors receive regular distributions (typically quarterly or half-yearly)
- Liquidity — unlike direct property, A-REIT units can be bought and sold daily on the ASX
- Unfranked distributions — A-REIT distributions are generally not franked because trusts do not pay corporate income tax before distributing income
Types of A-REITs on the ASX
| Property type | ASX examples |
|---|---|
| Retail (shopping centres) | Scentre Group (SCG), Vicinity Centres (VCX) |
| Office | Dexus (DXS), Charter Hall (CHC) |
| Industrial / logistics | Goodman Group (GMG), GPT Group (GPT) |
| Healthcare | Healthco Healthcare REIT (HCW), Charter Hall Social Infrastructure REIT |
| Diversified | Mirvac Group (MGR), GPT Group (GPT) |
| Childcare / social infrastructure | Arena REIT (ARF), Charter Hall Social Infrastructure REIT |
| Data centres | DigiCo Infrastructure REIT (DGT) — recent entrant |
This list is for educational context, not a recommendation. Always research individual REITs before investing.
A-REIT Financial Metrics
REITs use different financial metrics from regular companies:
| Metric | What it measures |
|---|---|
| Funds from operations (FFO) | Operating cash flow — more useful than net profit (which includes depreciation) |
| Adjusted funds from operations (AFFO) | FFO minus capex required to maintain properties |
| Net tangible assets (NTA) | Value of property assets per unit; useful for assessing if REIT trades at premium or discount to assets |
| Distribution yield | Annual distribution as % of unit price |
| Occupancy rate | % of leasable space occupied; high occupancy = stable income |
| Weighted average lease expiry (WALE) | Average years remaining on tenant leases; longer = more income certainty |
| Gearing (debt/assets) | How much debt backs the portfolio; higher gearing amplifies both gains and losses |
Advantages of A-REITs vs Direct Property
| Feature | A-REITs | Direct property |
|---|---|---|
| Minimum investment | $500+ (one unit) | $400,000–$1M+ (Sydney/Melbourne) |
| Liquidity | High — sell on ASX same day | Low — weeks to months to sell |
| Diversification | Dozens of properties in one trust | Typically one or two properties |
| Management | Professional, passive for investor | Time-consuming for investor |
| Leverage control | Can choose geared or ungeared REITs | Usually heavily leveraged (mortgage) |
| Transaction costs | Brokerage ($0–$10) | Stamp duty, agent fees (5–7% of price) |
| Negative gearing | Not applicable | Interest deductible against income |
| Franking credits | Generally unfranked | Not applicable |
Risks of A-REITs
- Interest rate sensitivity — REITs are sensitive to interest rate rises because they carry significant debt (gearing), and higher rates increase borrowing costs; also rising bond yields compete with REIT distributions
- Property market risk — falling property values reduce NTA; rising vacancies reduce income
- Sector-specific risk — retail REITs faced structural headwinds from e-commerce growth; office REITs face uncertainty around working from home trends
- Gearing risk — highly geared REITs suffered significantly during COVID-19 and the 2022 interest rate rise cycle
- Distribution cuts — distributions can be reduced during economic stress (Scentre Group and other retail REITs cut distributions during COVID-19 lockdowns)
Related Articles
- Best REITs on the ASX
- LICs vs ETFs Explained
- Dividend Investing in Australia
- Property Investing Australia
- ASX Shares hub
- Investing hub
Frequently Asked Questions
Are A-REITs considered shares or property? A-REITs are listed on the ASX and trade like shares — your broker treats them exactly the same as buying shares. However, their underlying assets are real estate. They provide property market exposure via the stock exchange. Broad Australian share ETFs (VAS, A200) include A-REITs as they are part of the ASX 200 index.
Are A-REIT distributions tax-free? No. A-REIT distributions are generally assessable income. However, they may include tax-deferred components (related to building depreciation deductions) that reduce the taxable amount in the year received, creating a deferred tax liability on your cost base instead. Tax statements from the REIT’s registry will detail the components. Most investors include REIT distributions as taxable income — speak to a tax professional for your specific situation.
How do REITs perform compared to direct property? Both are real estate investments but perform differently. A-REITs are more volatile in the short term (they trade on the share market daily) but offer superior liquidity and diversification. Direct property has lower short-term visible volatility but much higher transaction costs and low liquidity. Long-term total return comparisons between A-REITs and Australian residential property vary significantly depending on the time period and properties compared.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.