[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)

[Investment] Guide for REITs - Part 2

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

What kind of returns can be expected from REITs?

• Typically, the returns to unit holders of a REIT can be in the form of:

1. Income distribution based on the distribution policy stated in the REIT's deed; and/or
2. Capital gains which may arise from appreciation of the REIT's price.

What are the performance indicators of REITs?

• Distribution Yield (DY):
• DY = Income distribution paid to a REIT unit holder/ REIT's price paid by the unit holder

Other indicators include the following which are available in annual reports:

• Net Asset Value (NAV):
• The value of a REIT is based on its tangible real estate holdings. This is calculated by the total assets of a company after subtracting all its liabilities.
• Management expense ratio:
• The percentage of operating expenses (management fees, etc.) incurred to the NAV.
• Total return:
• The change in a REIT's price for the period under review plus any income distribution received during the period.

[Investment] Guide for Real Estate Investment Trust (REIT) - Part 1

What is a REIT?

• A Real Estate Investment Trust (REIT) is a fund or a trust that owns and manages income-producing commercial real estate (shopping complexes, hospitals, plantations, industrial properties, hotels and office blocks).
• A management company for a REIT is permitted to deduct distribution paid to its shareholders from its corporate taxable income. However, to enjoy this tax-free status, the REIT must have most of its assets and income tied to the real estate and distribute at least 90% of its total income to investors/unit holders annually.

List of Malaysia REITs 

Name	Dividend Frequency	Type of Property
KLCCP STAPLED GROUP	Quarter	Office, Mall and Hospitality
PAVILION REIT	Semi-Annual	Office and Mall
IGB REIT	Semi-Annual	Retail Mall
SUNWAY REIT	Quarter	Office, Mall, Healthcare and Hospitality
CAPITAMALLS MALAYSIA TRUST	Semi-Annual	Retail Mall
AXIS REIT	Quarter	Office, Industrial (logistics & manufacturing), Hypermarket
YTL HOSPITALITY REIT	Quarter	Hospitality
AL-'AQAR HEALTHCARE REIT	Semi-Annual	Healthcare
AMFIRST REIT	Semi-Annual	Office, Mall and Hospitality
HEKTAR REIT	Quarter	Mall and Hospitality
UOA REIT	Semi-Annual	Office
AMANAHRAYA REIT	Quarter	Hospitality, Higher Education, Office, Industrial and Mall
QUILL CAPITA TRUST	Semi-Annual	Office and Hypermarket
TOWER REIT	Semi-Annual	Office
ATRIUM REIT	Quarter	Industrial (logistics)