Au revoir Westfield
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.
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
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