With Unibail-Rodamco’s $32 billion takeover complete, 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.

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.

The charts below show the current sector breakdown of MVA and the S&P/ASX 200 A-REIT Index.    

AREIT sector compare

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

April 2018 MVA index performance differential

IMPORTANT NOTICE: This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) as responsible entity and issuer of the VanEck Vectors Australian Property ETF (‘Fund’).  Nothing in this content is a solicitation to buy or an offer to sell shares of any investment in any jurisdiction including where the offer or solicitation would be unlawful under the securities laws of such jurisdiction. This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision in relation to the Fund, you should read the PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.vaneck.com.au or by calling 1300 68 38 37. The Fund is subject to investment risk, including possible loss of capital invested. Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return from the Fund.

The MVIS Australia A-REITs Index (‘MVIS Index’) is the exclusive property of MV Index Solutions GmbH based in Frankfurt, Germany (‘MVIS’). MVIS makes no representation regarding the advisability of investing in the Fund. MVIS has contracted with Solactive AG to maintain and calculate the MVIS Index. Solactive uses its best efforts to ensure that the MVIS Index is calculated correctly. Irrespective of its obligations towards MVIS, Solactive has no obligation to point out errors in the MVIS Index to third parties.

Published: 09 August 2018