REIT – Real Estate Investment Trust

Recently, the investment term “REITs” come across my mind. I keep seeing news about REITs in newspaper, forums and personal blogs. A REIT or real estate investment trust is a real estate company that offers common shares to the public.

What is REIT? According to Wikipedia:

A Real Estate Investment Trust or REIT (pronounced /ˈriːt/) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable, into the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

In Malaysia, REIT is a little bit different (source).

• 1. Investors’ dividends will be taxed at investors’ books.
• 2. Non-residents’ dividends will be taxed at 28%. It is an upfront and final withholding tax.
• 3. There are NO explicit requirement of minimum payout ratio in the guidelines.

Like other stocks in Malaysia, public REITs are listed in KLSE too under “REITS” sector. Other than blue chip + high dividen stocks (e.g. PBBANK 1295 and BAT 4162), REITs seem to be a good alternative investment to me.

Like other stocks, stock prices of REITs fluctuate. However, as long as the rental properties are well managed, the rental markets are stable and the rental incomes are consistent, you can get consistent dividend incomes (as long as you buy it at the right price).

Due to the natural of REITs where they are required to distribute most of their income to the hand of investors, REIT stocks normally, consistently pay out high dividend yearly (normally around 10%) to investors. Other than that, you may also earn money from price changes (capital appreciation).

Currently (July 10, 2009), there are 13 REITs being listed in KLSE (stock code, stock name [price in RM per unit stock, dividend yield %]):

• 4952, AHP [0.835, 8%]
• 6696, AHP2 [0.590, 5%] (suspended)
• 5116, ALAQAR [0.935, 9%]
• 5120, AMFIRST [0.900, 10%]
• 5127, ARREIT [0.720, 10%]
• 5130, ATRIUM [0.700, 12%]
• 5106, AXREIT [1.570, 10%]
• 5124, BSDREIT [1.210, 9%]
• 5121, HEKTAR [0.940. 11%]
• 5123, QCAPITA [0.950, 8%]
• 5109, STAREIT [0.840, 8%]
• 5111, TWRREIT [1.020, 9%]
• 5110, UOAREIT [1.180, 8%]

AMFIRST, ATRIUM, AXREIT, HEKTAR and STAREIT are top, favorite stock counter among REIT investors. I have put AMFIRST, ATRIUM, AXREIT and HEKTAR into my stock watch list. In fact, I have just bought some AMFIRST and HEKTAR (click the links to read the companies’ investment portfolio).

Since I don’t have that much money to buy an office or a building like those big companies do, I can invest in REITs. To me, buying REITs’ stock is like “having” a small part of the properties that the REIT companies owned.

I earn money from renting “really small part” of my “office” or “building” to the big customers (e.g. Nestle, AmBank and etc.). The best is that I does not need to worry about the occupancy rate of my “little properties” as they well are managed by the management team of my “REIT companies”. Ha..

I wish to keep at least 20% of REIT stock in my stock portfolio. If these REITs perform consistently well, it is definitely a good place to park my cash. They give far better return than putting my money in saving accounts and even fixed deposit (FD) accounts.

Hopefully these few stock counters will perform better in future and bring better return to investors.