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Macquarie structures property plan

Macquarie Bank has established a structured product that provides exposure to the listed UK commercial property market through the FTSE Epra/Nareit UK Index.

The index is designed to track the value of property companies and Reits listed on the London Stock Exchange. As at May 10, 2010, there were 30 securities on the index, including Land Securities, British Land, Hammerson and F&C Commercial Property Trust.

The Macquarie FTSE UK property growth plan provides 85 per cent of the growth in the index at the end of a five years and two week team, with returns capped at 75 per cent of the original investment.

Investors will receive a full capital return at the end of the term provided the index does not fall by more than 50 per cent by the end of the term. This is the index average over the last six months of the term. If the 50 per cent safety net is breached, investors lose 1 per cent of their capital for each 1 per cent fall in the index.

The outlook for UK commercial property is unclear, as it has the potential to produce strong returns but rental income could be constrained by weak economic recovery. Against this backdrop, a capital-protected product which allows investors to gain exposure while hedging their bets could be attractive to some investors. Macquarie is the only structured product provider currently offering this, but not all investors will accept capped returns to pay for the cost of capital protection. These investors may prefer exposure to the index through an exchange traded fund from iShares.

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