[Investment] Guide for REITs - Part 3

This is a continuing blog from Guide for REITs Part 1 and Part 2.

What are the investment considerations for REIT?

REITs vs Property Companies

	REITs	Property Companies
Earning Profile	A REIT is driven by recurring rental income	A property company seeks a combination of property sales, development profits, rental income and property investments
Capital Structure and Cash Flow	A REIT has low and defined level of retained earnings, low debt level defined by the regulators and strong cash flow from operations	A property stock has a high gearing ratio due to high capital expenditure required for property development and sometimes negative cash flow; and low dividend payouts
Dividend Distribution Policy	A REIT will distribute 90% – 100%of its retained earnings before tax	A property stock has no certainty of a dividend payout
Risk Profile	A REIT is a low risk, passive investment vehicle with a high certainty of cash flow from rentals derived from lease agreements with tenants	A property stock has a high development and financial risk
Corporate Governance	REITs are governed by multiple layers of stakeholders – unitholders, manger, trustees, regulating authorities ensuring that interest of minority unitholders are protected	A property stock is often dominated by a controlling shareholder which raises conflict of interest issues with minority shareholders

(Source: Bursa Malaysia)