REITs are investment trusts that aggregate money from several investors to buy and own income-producing assets. Because these properties are leased to tenants who pay the REIT rental revenue, they generate income. You are entitled to a portion of the rental income as an investor.
REITs, like property investors, can buy new properties, upgrade and expand existing rental space, or raise rental prices to increase rental income. Because REITs are obligated to pay out the bulk of their earnings, you, as an investor, can benefit from a relatively large dividend without having to ‘lift a finger.’
Have you ever visited Pavilion KL? Pavilion REIT is the owner of Pavilion KL. If you recall, Pavilion KL was formerly a single structure. Elite Pavilion Mall was completed in 2016 and later injected into the REIT, increasing the REIT’s net lettable space by 11% and luring tenants such as ABC Cooking Studio, Coach, Haidilao Hot Pot, and others.
With more tenants paying rent, the REIT earns more rental money. As a unitholder, this also means that more money will be transferred to you. That’s how REITs function in a nutshell. In Malaysia, there are currently 17 REITs, each owning diverse properties such as malls, offices, hotels, industries, and so on.
Property in Malaysia has continued to rise in value over time. REITs are a strong proxy for the Malaysian property market because Malaysia is an oil and gas, electrical and electronics, and manufacturing hub as well as a popular tourism destination. Of course, the working environment must be pleasant.
How is REIT dividend calculated in Malaysia?
As previously stated, a REIT’s yield is calculated as a percentage of its current share price divided by its yearly income distributions. Because REITs are dividend stocks with high yields, it’s critical for REIT investors to understand how yields operate.
- If the REIT distributes quarterly dividends, multiply the most recently reported dividend payment by four to get the REIT’s projected payouts over a 12-month period. Multiply by 12 if it is paid monthly.
- Divide this annual dividend rate by the REIT’s current share price.
Let’s take a look at a real-life scenario. Realty Income (NYSE: O), one of my favorite REITs, pays a monthly dividend of $0.2275 per share and trades at $73.04 at the time of writing, so:
- The annual dividend rate is $2.73 per share when the monthly dividend is multiplied by 12.
- When it comes to rounding yields, there is no hard and fast rule, however one decimal place is the most frequent approach to express these values.
- Special dividends, which are one-time payments to shareholders, are paid by some firms. (If a REIT sells a number of properties, for example, it may decide to transfer a portion of the proceeds to shareholders in one lump amount.) These payments are neither predictable or consistent, thus while they constitute income to shareholders, including them while calculating the REIT’s yield is often misleading.)
- Because a REIT’s yield is determined by its share price, one fundamental principle is that the computed yield might change at any time. Lower yields derive from rising share prices, while higher yields result from declining share prices.
- Similarly, REIT share prices are frequently affected by yield. Falling interest rates, for example, cause all investment yields to decline, therefore REIT yields aren’t uncommon to fall when interest rates fall.
- Because REITs frequently increase their dividends, the computed yield may be lower than what shareholders would receive over the next 12 months. Despite this, the yield is determined using the present periodic dividend rate rather than the predicted payouts for the next 12 months.
What is a REIT and how does it work?
REITs provide a simple option for investors of all sizes to add the historically successful investment class of real estate to their portfolios. REIT shares are owned by an estimated 87 million Americans today.
What exactly are real estate investment trusts (REITs)? A REIT (real estate investment trust) is a firm that invests in real estate that generates revenue. Investors who desire to gain access to real estate can do so by purchasing REIT shares, which effectively add the REIT’s real estate to their investment portfolios. This investment gives investors access to the REIT’s entire portfolio of properties.
KLCC REIT
The KLCC REIT, unlike many other REITs, only has three properties in its portfolio, but these are enough to make it Malaysia’s largest REIT by market capitalization. It consists of the PETRONAS Twin Towers, Menara 3 PETRONAS, and Menara ExxonMobil, which are all 100% occupied as of the end of 2020. The retail area of Menara 3 PETRONAS is the only exception, with a good occupancy rate of 93 percent.
Another thing to keep in mind is that, based on the prices on Bursa Malaysia, it is by far the most costly REIT to purchase. This is due to its consistent payouts and occupancy rates, which make it an appealing alternative for investors looking for REITs to invest in.
IGB REIT
The IGB REIT is one of the most well-known Malaysian REITs, with only two shopping malls in its portfolio. These two malls, however, are Mid Valley Megamall and The Gardens Mall in Kuala Lumpur, two of Malaysia’s most well-known shopping destinations.
Mid Valley Megamall has a 99 percent occupancy rate, while The Gardens Mall has a 92 percent occupancy rate, according to its most recent annual report. It’s incredible that they were able to sustain such numbers throughout the Covid-19 outbreak, but it’ll be interesting to see if they can do so with the multiple Movement Control Orders in place.
Sunway REIT
- Sunway Pyramid Mall, Sunway Medical Centre, Sunway Putra Mall, and Sunway University are all notable properties.
It consists of buildings under the Sunway Group across a number of industries, including retail, hospitality, corporate offices, and education, and is another of Malaysia’s most prominent REITs. Despite the pandemic, its retail and office properties have a strong occupancy rate, but the hospitality properties are suffering from travel restrictions imposed by the Movement Control Order.
The Sunway REIT’s diversity could be a critical element for potential investors, as well as a vital mitigator against pandemic-related constraints. It remains to be seen whether lower foot traffic will have a significant impact on the occupancy rates of its retail locations.
Pavilion REIT
Pavilion Mall, Pavilion Tower, Intermark Mall, Da Men Mall, and Elite Pavilion Mall are among the five properties in the Pavilion REIT’s portfolio, which includes some of the most well-known landmarks in the Klang Valley.
With properties in the retail and corporate office sectors – two of Malaysia’s most reliable industries – it’s no surprise that the company’s market capitalisation is currently hovering around RM4 billion, indicating investors’ faith in these evergreen industries. The occupancy rate of most malls is above 80%, according to the company’s latest annual report, with just Da Men Mall lagging behind at 68.9%.
Axis REIT
- Menara Axis, Axis Business Park, Bukit Raja Distribution Centre, and Tesco Bukit Indah are some of the notable sites.
Based on market capitalization, the Axis REIT is one of Malaysia’s largest, with a current value of about RM2.8 billion! It currently has a property portfolio that includes corporate offices, logistics warehousing, manufacturing, and retail facilities located across Peninsular Malaysia.
It’s well-positioned to buffer the effects of the Covid-19 pandemic thanks to its diversification, with dividend payout typically above 5% in previous years and only 4.31 percent in 2020. These optimistic figures are one of the reasons why this is one of Malaysia’s most popular REITs.
YTL Hospitality REIT
- The JW Marriott Hotel Kuala Lumpur, The Ritz-Carlton, and The Majestic Hotel Kuala Lumpur are all notable properties.
The YTL Hospitality REIT, as its name suggests, is in the hospitality industry, with a network of hotels and resorts spread around Malaysia. Investors should be aware that the YTL Hospitality REIT has worldwide exposure because it owns various properties in Niseko, Japan, as well as three Marriott Hotel locations in Australia (Sydney, Brisbane, and Melbourne).
It began buying Australian hospitality properties in 2012, and in 2017, it took over The Majestic Hotel Kuala Lumpur, making it the YTL Hospitality REIT’s eighth property in Malaysia. With the purchase of The Green Leaf Niseko Village in 2018, it expanded into Japan. While the epidemic will hurt REITs focusing on hospitality and tourism in the near term, it could turn out to be a wise investment in the long run if borders are reopened and travelers are able to travel freely.
Capitaland Malaysia Mall Trust REIT
The Capitaland Malaysia Mall Trust REIT is one of the most well-known Malaysian REITs, with only five assets, all of which are shopping malls. Within those five malls, however, there are now 1,146 leases, indicating an occupancy percentage of 85.1 percent at the time of writing.
It also had a healthy foot traffic of 32.4 million in 2020, making it a solid alternative for individuals looking for a REIT with a healthy rental cash flow. It’s another question whether it can retain these levels in the aftermath of the pandemic. When lockdowns are eased and retail returns to normal, this might rebound back in the long run, therefore investors with a higher risk appetite should consider buying shares now while prices are cheap.
How does buying REITs work?
REITs allow anyone to own or finance real estate in the same way that they invest in other industries: by buying stock. Rent on those assets provides the majority of the revenue for equity REITs. Both residential and commercial buildings can be financed by mREITs.
Is REIT dividend taxable in Malaysia?
Despite the fact that a REIT is exempt from tax if it distributes at least 90% of its total revenue during the year, the distribution to unit holders will be subject to withholding tax and will be received net of tax. Individuals are subject to a 10% withholding tax. This is a one-time tax, so unit owners do not need to report it on their personal tax returns.
Unitholders of REITs that distribute less than 90% of their total income are taxed.
REITs that distribute less than 90% of their total revenue will be taxed at a rate of 24%. In such circumstances, the REIT’s dividend to individual unit holders will include a portion of the tax credit, which can be used to offset the income tax owed on the REIT’s distribution.
Depending on the amount of income obtained during the year, the individual will be subject to tax at scale rates ranging from 0% to 30%, which they must declare in their yearly income tax filings.
Exempt income received and distributed by the REIT, such as single-tier dividends, certain types of interest, and gains from the sale of investments, will be tax exempt in the hands of unit holders.
On the basis of capital gains, unit holders who sell their units will not be taxed on the sale or redemption of their units.
SM Thanneermalai, managing director of Thannees Tax Consulting Services Sdn Bhd, contributed to this article.
How many REITs are there in Malaysia?
In Malaysia, how many REITs are there? As of October 2016, Malaysia had a total of 18 REITs. I currently possess three of these: Axis, IGB, and Sunway REIT.
Can you lose money in a REIT?
- REITs (real estate investment trusts) are common financial entities that pay dividends to their shareholders.
- One disadvantage of non-traded REITs (those that aren’t traded on a stock exchange) is that investors may find it difficult to investigate them.
- Investors find it difficult to sell non-traded REITs because they have low liquidity.
- When interest rates rise, investment capital often flows into bonds, putting publically traded REITs at danger of losing value.
Do REITs pay dividends?
A REIT is a security that invests directly in real estate and/or mortgages, comparable to a mutual fund. Mortgage REITs engage in portfolios of mortgages or mortgage-backed securities, whereas equity REITs invest mostly in commercial assets such as shopping malls, hotel hotels, and office buildings (MBSs). A hybrid REIT is a fund that invests in both. REIT shares are easy to buy and sell because they are traded on the open market.
All REITs have one thing in common: they pay dividends made up of rental income and capital gains. REITs must pay out at least 90% of their net earnings as dividends to shareholders in order to qualify as securities. REITs are given special tax treatment as a result of this; unlike a traditional business, they do not pay corporate taxes on the earnings they distribute. Regardless of whether the share price rises or falls, REITs must maintain a 90 percent payment.
Why REITs are bad investments?
Real estate investment trusts (REITs) are not for everyone. This is the section for you if you’re wondering why REITs are a bad investment for you.
The major disadvantage of REITs is that they don’t provide much in the way of capital appreciation. This is because REITs must return 90 percent of their taxable income to investors, limiting their capacity to reinvest in properties to increase their value or acquire new holdings.
Another disadvantage is that REITs have very expensive management and transaction costs due to their structure.
REITs have also become increasingly connected with the larger stock market over time. As a result, one of the previous advantages has faded in value as your portfolio becomes more vulnerable to market fluctuations.
How can I join REIT in Malaysia?
Investing in REITs is similar to investing in any other type of stock. As a result, REITs are subject to the same trading, payment, and settlement procedures as other securities. Before you can begin investing, you must first open a trading account and a Central Depository System (CDS) account, which keeps track of your stock purchases and sales.
The Securities Commission (SC) in Malaysia regulates REITs and has released “Guidelines on Real Estate Investment Trusts” under section 377 of the Capital Markets and Services Act 2007. (CSMA).
Step 1: Pick a brokerage firm
Select a suitable brokerage firm from the Bursa Malaysia website. Consider the commission fees charged by the broker, the simplicity with which transactions may be completed, if the broker is Syariah compliant, and how user-friendly the selected online trading platform is.
Step 2: Open a trading account and CDS account
Make an appointment with the broker to open these accounts after you’ve chosen a broker. You will most likely be requested to supply documentation such as copies of your identification and a bank statement. A lesson on how to utilize the online trading platform will be provided by your broker.
Step 3: Put funds into your trading account
It takes a few days to open an account. After your account has been activated, you can begin investing in the online trading platform. Funds might be added dependent on your financial situation.
How do REITs make money?
REITs must distribute at least 90% of their distributable yearly revenue as dividends to their stockholders under the REIT Act of 2009.
Dividend payouts from REITs are guaranteed by law, unlike property stocks (e.g., Ayala Land, SM Prime, Megaworld, Vista Land, etc.) where corporations can choose to pay dividends or not.
REITs also provide a better return to investors than government bonds and time deposits (with an estimated dividend yield of 4% to 6%). Investors might expect bigger payouts if the value of REIT properties rises over time.
These advantages make REITs ideal for generating passive income. OFWs who invest in Philippine REITs would benefit even more, since they will be free from paying the 10% income tax or withholding tax on dividends for the next seven years, beginning January 20, 2020.
Capital appreciation
Buying REIT shares at a low price and then selling them at a higher price is another strategy to profit from REITs. Because the value of assets rises over time, REIT share prices may rise as well. This means that REIT investors can expect to make a lot of money.
High liquidity
If you need money quickly, you can easily sell all or part of your REIT shares on the PSE. You can withdraw monies from the sale of REIT shares through your broker.
REIT shares have a high level of liquidity, making them perfect for conservative investors who want quick access to their money.
Diversification of assets
Diversifying your investments is an effective risk-management approach. You add many income-generating assets to your investing portfolio even if you only buy in one REIT.
REITs hold a diverse portfolio of income-generating assets. Some REITs specialize in a single property type, while others manage a diverse portfolio of properties.
- BPO offices and call centers, commercial offices, government offices, and so on are all examples of office properties.
- Manufacturing plants, warehouses, distribution centers, R&D centers, and other industrial properties are available.
- Highways, railroads, airports, toll plazas, parking lots, cell towers, and other infrastructure
Low-price entry
Investing in REITs is much less expensive than buying a home outright, which can cost upwards of a million pesos.
To purchase a REIT share, only a small sum is required. For example, AREIT is currently trading at Php 25.60 a share with a board lot of 100 shares (as of October 9, 2020).
How often do REITs pay dividends?
is a firm that maintains and operates a diverse portfolio of properties. Apartment buildings, office complexes, commercial properties, hospitals, shopping malls, and hotels are examples of these properties, while particular REITs prefer to specialize in one type of property. REITs are popular because they are required to pay out at least 90% of their earnings in dividends to their shareholders, resulting in yields of 10% or more in some cases.
