If you have dabbled in the stock market for a while, I bet you must have heard about real estate investment trust (REIT) already. So what exactly is a REIT?
From Investopedia,
“A real estate investment trust, or REIT, is a company that owns, operates or finances income-producing real estate. For a company to qualify as a REIT, it must meet certain regulatory guidelines. REITs often trades on major exchanges like other securities and provide investors with a liquid stake in real estate.
(Investopedia Definition Link)”
Basically, a REIT is a company that invests in real estate and earns its income through rent payments. In Malaysia, a REIT is traded like a stock in Bursa Malaysia.
Characteristics of REIT
A REIT normally pays a minimum of 90% of its taxable income in the form of shareholder dividends each year.
To know about the expenses of a REIT, we can look at its management expense ratio (MER). This is the percentage of operating expenses (management fees, etc.) incurred to the net asset value. Generally, the lower the ratio the better. The basis of calculating MER can vary between REITs, making the comparison between REITs hard.
Benefits
1. Accessibility
Imagine if we want to invest directly in real estate. The cost will be prohibitive for most of us. REIT provides a means for us to partake in the real estate market at a fraction of the cost of direct investment. Furthermore, it is almost impossible for us to own prime buildings and/or lands. REIT allows us to own a piece of the prime buildings and/or lands in proportionality to the shares we hold.
2. Liquidity
Shares in REITs can be readily converted to cash when required, as opposed to directly held real estate. The time taken to sell shares is much faster than the time to sell a house.
3. Persistent income
By owning a REIT, we will have a steady dividend stream. The dividend will not stop unless the REIT does not have any earnings (which is quite rare).
4. Professional management
A REIT and underlying assets are managed by professionals who hopefully will add value for a higher yield. If we hold the real estate ourselves, we would either have to manage it ourselves or hire others to do it. REIT frees us from this headache.
REITs in Malaysia
There is a total of 18 REITs in Malaysia. These REITs are involved in different sectors which are outlined below.
| Name | Portfolio |
|---|---|
| Amanah Harta PNB | Retail, Office |
| Al-'Aqar Healthcare REIT | Hospital, Nursing College, Hotel |
| Al-Salam REIT | Commercial Retail, Office, Industrial Purposes |
| AmFirst REIT | Office, Retail, Hotel |
| Amanah Raya REIT | Industrial Office, Hotel, Institutions, Retail |
| Atrium REIT | Industrial, Warehouse, Office |
| AXIS REIT | Office, Industrial |
| CapitaMalls Malaysia Trust | Retail |
| Hektar REIT | Retail |
| IGB REIT | Retail |
| KIP REIT | Retail |
| KLCC REIT | Retail, Office |
| MRCB-Quill REIT | Retail, Office |
| Pavilion REIT | Retail, Office |
| Sunway REIT | Retail, Hotel, Office |
| Tower REIT | Office |
| UOA REIT | Office |
| YTL Hospitality REIT | Hotel |
Conclusion
For those who are interested in real estate investment but lack the capital to do so, REIT represents an attractive option. As for those who are looking for consistent dividend, REIT is a good option too.
Nonetheless, we still have to check the fundamentals before buying. Though the dividend is consistent, the share price can fluctuate wildly. Thus, the capital gain or loss depends on our purchase price. If we overpay, both the dividend yield and the chance of future capital gain will be low. To avoid this predicament, try to invest when the price-to-earnings ratio is below or near the historical average of your favourite REIT.