International REIT Investment Vehicles: C Shares, GDRs, and DRs Explained

Real Estate Investment Trusts (REITs) have long been favored by investors seeking exposure to real estate markets without the burden of direct property ownership. With increasing globalization, international REITs have gained popularity, offering diversification benefits and access to growing property markets worldwide. However, investing in international REITs can be complex, especially with the various investment vehicles available, such as C Shares, Global Depositary Receipts (GDRs), and Depositary Receipts (DRs). This article demystifies these instruments to help investors make informed decisions.

Understanding REITs and Their Global Appeal

REITs are companies that own, operate, or finance income-generating real estate. By law, they must distribute a significant portion of their earnings (usually 90% or more) to shareholders, making them attractive for income-focused investors. International REITs operate similarly but are based outside of an investor’s home country, offering access to foreign real estate markets such as Asia-Pacific, Europe, and Latin America.

To facilitate cross-border investment, international REITs often issue shares or related instruments that are structured to comply with foreign investor requirements. Three common vehicles for this purpose are C Shares, GDRs, and DRs.

C Shares: A Transitional Investment Class

What Are C Shares?

C Shares are a type of share class issued by investment companies, often during new fundraising rounds. They are typically used when a fund is raising new capital but wants to protect existing shareholders from the dilution or cost impact of deploying those new funds.

How Do C Shares Work?

C Shares are issued and traded separately from the original ordinary shares. They represent a pool of capital that will be invested over time. Once the capital is fully deployed, and the costs associated with the issuance are amortized, the C Shares typically convert into ordinary shares based on a formula that considers net asset values (NAVs). This structure ensures that existing shareholders are not adversely affected by new capital inflows.

Relevance to International REITs

In the context of international REITs, C Shares may be used by REITs listed abroad to raise additional funds for expansion or acquisitions. Investors considering C Shares should understand that they represent a transitional holding and may carry additional risk if the REIT fails to deploy the capital efficiently.

Key Benefits:

• Protects existing shareholders from dilution.

• Provides time for effective capital deployment.

Risks:

• Conversion rate depends on NAV performance.

• Delayed income generation compared to ordinary shares.

Global Depositary Receipts (GDRs): Expanding Access to Foreign REITs

What Are GDRs?

Global Depositary Receipts are financial instruments that represent shares in a foreign company. They are issued by a depositary bank and traded on international exchanges, such as the London Stock Exchange or Luxembourg Stock Exchange.

How GDRs Work

When an investor buys a GDR, they are effectively purchasing a claim to the underlying shares held by a custodian bank in the issuer’s home country. GDRs are denominated in a foreign currency (often U.S. dollars or euros) and make it easier for investors to access companies listed in markets that may be hard to invest in directly.

International REIT Context

GDRs allow REITs based in emerging or less accessible markets (e.g., India, Brazil) to tap into international capital. Investors benefit from increased liquidity and simplified settlement, as they can invest in a foreign REIT as easily as they would in a domestic stock.

Key Benefits:

• Simplifies foreign investment.

• Traded in familiar financial markets and currencies.

• Enhances liquidity and global exposure.

Risks:

• Currency risk.

• Regulatory and tax implications in the REIT’s home country.

• Limited voting rights in some structures.

Depositary Receipts (DRs): U.S.-Focused Access to Global REITs

What Are DRs (Specifically ADRs)?

Depositary Receipts (DRs) are similar to GDRs but are primarily issued for trading in specific regions. The most common form is the American Depositary Receipt (ADR), used by non-U.S. companies to list their shares on U.S. exchanges.

How ADRs Work

A U.S. bank holds the foreign shares and issues ADRs, which trade on U.S. stock exchanges like the NYSE or NASDAQ. Each ADR may represent one or multiple underlying shares. Investors benefit from dividends paid in U.S. dollars and SEC-regulated disclosures.

Use in REIT Investment

Many international REITs use ADRs to attract American investors. For example, a Japanese or Australian REIT might list ADRs to reach the deep capital pools of U.S. institutional and retail investors.

Key Benefits:

• U.S. dollar-denominated dividends.

• Subject to U.S. disclosure standards.

• Easier access through U.S. brokerage accounts.

Risks:

• Foreign exchange fluctuations.

• Potential lower liquidity than domestic stocks.

• Withholding tax complexities.

Comparing the Investment Vehicles

Conclusion

International REITs offer compelling opportunities for investors seeking diversification, income, and growth potential in global property markets. However, understanding the vehicles through which these investments are made—C Shares, GDRs, and DRs—is essential for evaluating risks and maximizing returns.

Each vehicle comes with unique characteristics and trade-offs:

• C Shares are suitable for investors comfortable with interim investments.

• GDRs appeal to those investing in diverse markets with centralized access.

• DRs (especially ADRs) provide a convenient way for U.S. investors to access global REITs.

Before investing, consider your risk appetite, investment horizon, tax implications, and the nature of the underlying real estate assets. Consulting with a financial advisor or tax professional is also advisable when entering international REIT markets.

Frequently Asked Questions

What is the primary purpose of issuing C Shares in a REIT, and how do they protect existing shareholders?

C Shares are issued by REITs (and other investment trusts) primarily to raise additional capital for new investments without negatively impacting the performance metrics of existing shares. The key purpose is to segregate new capital until it is fully deployed.

C Shares are held in a separate pool and have their own net asset value (NAV). Once the capital raised through C Shares is fully invested, the C Shares convert into ordinary shares at a rate based on the NAVs of both the ordinary and C Share classes. This ensures that:

• Existing shareholders do not bear the dilution cost or drag on performance while new capital is still uninvested.

• The performance of the original portfolio remains unaffected until the new capital starts generating returns.

This structure provides fairness and transparency between old and new investors and is often used when a REIT is actively expanding.

How do Global Depositary Receipts (GDRs) facilitate international investment in REITs?

GDRs are financial instruments issued by a depositary bank that represent ownership in a foreign company’s shares—in this case, a REIT. They make it easier for investors outside the REIT’s home country to buy and trade its shares without dealing with local market access issues, currency conversion, or foreign regulation.

Here’s how they help:

• Accessibility: Investors can purchase GDRs on global exchanges (e.g., London Stock Exchange) rather than having to access potentially unfamiliar or restricted foreign markets.

• Currency Convenience: GDRs are often denominated in USD or EUR, removing the need for investors to deal in foreign currencies.

• Liquidity and Simplicity: GDRs offer better liquidity in major financial centers and are easier to settle using international brokers.

For REITs in emerging markets or smaller economies, GDRs serve as a bridge to global investors, helping them access more capital and expand visibility.