The Beginner's Guide to REITs in Malaysia

REIT (Real Estate Investment Trust) is a type of investment vehicle that invests in real estate. REIT's portfolio would consist of one of several of the following:

• Office
• Retail / Commercial
• Healthcare
• Hotels
• Industrial
• Warehouse

It is often listed on stock exchanges. REITs usually receive special tax considerations and usually offer higher dividend yields compared to other companies.

REITs in Malaysia

The first REIT formed in Malaysia is Axis REIT all the way back in 2004. At the moment, there are a total of 18 REITs available in Bursa Malaysia. Below is the list of REITs in Malaysia

1. Amanah Harta Tanah PNB (AHP) - Retail and office
2. Al-Aqar Healthcare REIT (ALAQAR) - Healthcare and hotels
3. Al-Salam REIT (ALSREIT) - Office and Industrial
4. AmFirst REIT (AMFIRST) - Hotel, retail, and office
5. Amanah Raya REIT (ARREIT) - Hotel, industrial, retail and office
6. Atrium REIT (ATRIUM) - Industrial, warehouse, and office
7. Axis REIT (AXREIT) - Industrial, warehouse, and office
8. Capital Malls Malaysia Trust - Retail
9. Hektar REIT (HEKTAR) - Retail
10. IGB REIT (IGBREIT) - Retail and hotels
11. KLCC REIT (KLCC) - Retail and office
12. Pavillion REIT (PAVREIT) - Retail and office
13. Quill Capita Trust (QCAPITA) - Commercial, carparks, office and industrial
14. Starhill REIT (STAREIT) - Commercial
15. Sunway REIT (SUNREIT) - Retail, hotel, and office
16. Tower REIT (TWRREIT) - Office
17. UOA REIT (UOAREIT) - Office
18. YTL Hospitality REIT (YTLREIT) - Hotels

The Pros of Investing in REITs:

• The Malaysian REITs usually distribute dividend every 3 months. 
  Because REITs are required to give out 90% of their income as dividends, investors should be fairly certain that they would consistently get dividends as long as the REIT continues to be profitable. REITs also tend to sign long-term leases with their tenants. Because of this, investors are able to predict the long-term revenue of a REIT accurately.
• The prices of REIT are less volatile compared to other stock in the market. 
  The beta of REITs, a measure of volatility, and consequently, risk, has been historically much lower than stocks at most times. This is because of the predictable nature of REITs’ cash flows and business.
• Many types of REITs to choose from. 
  As mentioned, there are 18 REITs in Bursa Malaysia that investors can choose to invest in. that can be further divided into different categories. These include healthcare, residential, commercial, retail and mixed REITs. Investors who are looking for overseas exposure also have the option of choosing REITs that have a portfolio of properties located outside of Malaysia

The Cons of Investing in REITs:

• REITs are highly leveraged
  REITs are usually highly leveraged investment vehicles. This works as a double-edged sword. Leveraging allows REITs to purchase more assets than they have in unitholders’ equity. At the same time, leverage poses additional risks as REITs may face difficulty paying off its debt in difficult times. As such, investors need to find REIT investments that have lower leverage to survive through any exigencies.
• Unable to reinvest and grow
  Due to the fact that REITs are required to pay out 90% of their income to unitholders, it actually works as a double-edged sword too. Although unitholders can sleep easy knowing they can earn consistent dividends, REITs would not able to reinvest into their portfolio. Thus REITs can remain stagnant for many years. The only two ways to grow are through issuing new units that will dilute current unitholders’ equity or by increasing its borrowings from banks.
• Concentration risk
  REITs, because of their focus on properties, will be affected when the property market faces a downturn.