Stapled securities

Let's stick together

A stapled security is an investment with two parts that can't be separated from each other. A common example would be a listed property trust investment stapled to shares in the company that manages the property trust.

What are stapled securities?

Stapled securities are created when two or more securities are contractually bound together so that they cannot be bought or sold separately.

The two parts are usually a share in one company and a unit in a trust related to that company. For example, a property trust may have its units stapled to the shares of the company that manages the trust's properties. The trust is the legal owner of the property assets. The related company manages the fund and development opportunities, and charges the trust a fee.

Pros and cons of stapled securities

Stapling gives the management company an incentive to work for the benefit of the unit holders, rather than just its own shareholders. Some stapled securities may provide minor tax advantages.

One of the disadvantages of stapling is that you cannot buy one without the other.

Sometimes stapling may change the security you have. For example, you may move further away from being a creditor of the company and closer towards being a shareholder. (Bear in mind that shareholders generally get paid last, if at all, when a company is wound up.)

Stapled securities are a bit more complicated and no two are the same. If they are not listed they can be difficult to sell.

Ask for financial advice if you're unsure whether stapled securities are right for you.

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Last updated: 15 Oct 2018