Key points
- With Unibail-Rodamco’s $32 billion takeover approved, Westfield security holders will shortly receive a combination of cash and stapled securities in the new French-owned group
- As the new securities are not shares in an A-REIT, but CDIs (CHESS Depository Interests) in a foreign entity, they will have different tax and performance characteristics compared to A-REIT securities
- There is much speculation about what will happen as market pundits try to predict whether investors will retain their Unibail-Rodamco CDIs or whether they will reallocate towards other A-REITs to retain the favourable tax treatment applicable to a portion of an A-REITs’ income
- Passive funds tracking the S&P/ASX 200 A-REIT Index, which is heavily skewed towards the retail sector at ~45%, are likely to be impacted by these changes
- The VanEck Vectors Australian Property ETF (MVA) is better diversified than the S&P/ASX 200 A-REIT Index. The index MVA tracks has boasted a cumulative performance differential of 16.6% since its inception on 31 January 2007
- MVA offers investors pure A-REIT exposure without Unibail-Rodamco as it is not an A-REIT and therefore it is not eligible for inclusion in the index that MVA tracks MVA’s dividend yield is 4.97%[1].
- Investors looking to maintain diversified A-REIT exposure for income, without over-exposure to the retail sector should consider MVA
Takeover changes A-REIT landscape
Unibail-Rodamco’s $32 billion takeover of Westfield and the subsequent creation of a new foreign company listing on ASX to replace Westfield will transform the Australian listed property landscape. According to research from Macquarie the new listing will make up 10.65% of the S&P/ASX 200 A-REIT Index.
However, the new foreign entity will not enjoy the income tax advantages that investors in Westfield including funds that passively track the S&P/ASX 200 A-REIT Index have traditionally enjoyed. Some of the tax differences in holding Unibail-Rodamco in place of Westfield are:
- French withholding tax of 15% will be deducted from dividends
- Tax deferred and tax exempt income components will no longer be available
- Discounted capital gains tax will no longer be available on the sale of underlying assets
The new foreign entity will not qualify for inclusion in the MVIS Australia A-REITs Index (MVA Index) because the new foreign listing is not an A-REIT. So when Westfield shareholders receive their cash and CDIs in the new ASX listing, MVA, which tracks the MVA Index, will still have a portfolio with all the benefits of 100% exposure to A-REITs without CDIs.
A diversified exposure: VanEck Vectors Australian Property ETF (MVA)
The MVA Index, and therefore MVA, includes only the largest and most liquid ASX-listed REITs with a maximum individual holding at each review date of 10%.
With its capped exposure to larger property securities, MVA can help former Westfield security holders significantly reduce retail concentration risk and get a more diversified exposure to the listed Australian property market while retaining the tax benefits A-REITs offer relative to a CDI in a French company.
Potential tax benefits
- Compared to other funds that would continue to hold the Unibail-Rodamco securities following the takeover, MVA offers investors:
- No French withholding tax deducted from dividends
- Greater tax deferred and tax exempt income opportunities
- Discounted capital gains tax on the sale of A-REITs’ underlying assets
- The index MVA tracks boasts a 16.6% cumulative absolute differential
- The MVA Index has demonstrated long term outperformance against the S&P/ASX 200 A-REIT Index since it was launched in January 2007.
Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in MVA. You cannot invest directly in an index. Past performance of MVA’s Index is not a reliable indicator of future performance of MVA.
Key benefits for clients:
- MVA is the only smart beta Australian property ETF on ASX with 100% exposure to A-REITs, providing tax benefits for investors
- MVA is better diversified across securities and sub-sectors than the S&P/ASX 200 A-REIT Index with reduced concentration risk in the retail sector
The index MVA tracks boasts a cumulative absolute performance difference of 16.6% above the S&P/ASX 200 A-REIT Index since the MVA Index was launched in January 2007 - MVA has a trailing dividend yield of 4.97%[1].