You can’t just look at dividend yield while looking for the finest REITs to invest in Malaysia. You should consider the quality of the properties a REIT owns, as well as the REIT’s plans to increase its distribution per unit in the future.
Here’s a quick rundown of five key factors to consider when selecting a REIT:
Property yield
The amount of money a REIT can create from a property is known as property yield. The bigger the yield on the property, the better. It demonstrates that the REIT’s buildings can yield more rental income. As an investor, you want a yield that is consistent or increasing.
Cost of debt
The average weighted interest rate a REIT pays on its borrowings is known as the cost of debt. The lower the cost of financing, the less interest a REIT has to pay. Debt expenses are typically varied in different industries. Retail REITs, for example, will have a different financing cost than industrial REITs. As a shareholder, you’ll want to compare a REIT’s cost of debt to others in its industry. The lower the debt interest rate, the better.
Gearing ratio
A REIT’s gearing ratio is computed by dividing its total debt by its total assets. A REIT with a higher debt-to-equity ratio has more debt. REITs in Malaysia are only permitted to borrow up to 50% of their total assets (the limit has been temporarily increased to 60 percent until the end of 2022).
We prefer REITs with a gearing ratio of less than 40% since it allows the REIT to have additional credit capacity in case it needs to borrow to complete an acquisition. A lower gearing ratio indicates that a REIT is more conservative and cautious when it comes to debt deployment for growth.
Price-to-book ratio
The P/B ratio compares the price of a REIT’s stock to its net asset value per share. A P/B greater than 1.0 indicates that the REIT is overvalued in relation to its net assets, whilst a P/B less than 1.0 indicates that the REIT is undervalued.
However, as an investor, you should not base your buy/sell choices on this ratio. Because of the quality of their assets, management team, and track record of making consistent distributions, several REITs may trade persistently above their net asset value. Instead, you may analyze whether a REIT is overvalued or undervalued by comparing it to its historical P/B norms.
Distribution per unit
When it comes to REITs, one of the most common mistakes new investors make is focusing solely on the dividend yield. The higher a REIT’s yield, the more appealing it is. This isn’t always the case, though. Due to a low share price, some REITs trade at high yields because the market finds them unattractive.
Instead, you should consider whether a REIT can regularly increase its distribution per unit (DPU). This is a better indicator of a REIT’s capacity to increase dividends in the long run, resulting in a higher yield-on-cost.
If you want an up-to-date table of these measures for Malaysia REITs, go to Malaysia REIT statistics.
You can also see a video presentation of these five measures with real-life examples here if you want to learn more: 5 Secrets To Investing In REITs For Passive Income
How do I choose a REIT?
Before investing in a REIT, as with any other investment, you should do your research. Before making a decision, there are a few clear signals to check for:
Management is number one.
It’s critical to comprehend and know the track record of the managers and their team before investing in a trust or managed pool of assets. Profitability and asset appreciation are inextricably linked to the manager’s ability to choose the best investments and methods. Make sure you understand the management team and their track record before investing in a REIT. Look into how they’re compensated. If it’s based on performance, it’s likely that they’re also looking out for your best interests.
Diversification is number two.
Real estate investment trusts (REITs) are trusts that invest in real estate. Because real estate markets vary by geography and property type, it’s critical that the REIT you choose is well-diversified. If your REIT has a lot of commercial real estate and occupancy rates drop, you’ll have a lot of troubles. Diversification also means that the trust has enough money to undertake future growth projects and leverage itself appropriately for higher returns.
3. Profits
The funds from operations and cash available for payout are the final factors to examine before investing in a REIT. These figures are significant because they reflect the REIT’s overall performance, which translates to money distributed to investors. Make sure you don’t use the REIT’s regular income numbers, as they will include any property depreciation and hence change the numbers. These figures are only useful if you’ve already scrutinized the other two indicators, as it’s possible that the REIT’s returns are abnormally high due to real estate market conditions or management’s investment luck.
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.
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.
Is investing in REIT a good idea?
As a result, in addition to cheap entry levels, REITs offer investors a safe and diversified portfolio with low risk and expert management, providing good returns on investment. REITs will be distinguished not only by their investment in real estate assets, but also by their restricted responsibility for all unitholders.
That’s not all, though. According to the criteria, finished projects must account for 80% of assets, while under-construction projects, equity shares, money market instruments, cash equivalents, and real estate activities account for 20%.
REITs allow investors to put their money into a diverse portfolio of commercial real estate assets. Investors who choose the direct investment path for commercial office spaces invest in a single office building.
Will REITs be able to provide the same returns on investment as’actual’ real estate investments? This is a question that small investors will be asking. No, that is not the case. Certainly, investors expecting for unreasonable profits (>20-30 percent) should go elsewhere. It’s critical to have realistic expectations for REIT returns. After adjusting for the fund management cost, a realistic ROI estimate would be in the range of 7-8 percent each year.
The return on investment (ROI) from REITs will be highly structured, realistic, and risk-averse. Investors who desire a regular income with no risk might consider REITs. Furthermore, REITs can provide investors with two types of income: capital gains from the selling of REIT units and dividend income. REITs will also be a good investment option for investors who want to diversify their portfolio beyond gold and the stock market.
REITs have already been introduced in India, and investors have seen excellent returns. The successful REIT listings in India have piqued investor interest in this new investment vehicle, and we expect more REIT listings to follow soon.
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.
Can you get rich investing in REITs?
There is no such thing as a guaranteed get-rich-quick strategy when it comes to real estate equities (or pretty much any other sort of investment). Sure, some real estate investment trusts (REITs) could double in value by 2021, but they could also swing in the opposite direction.
However, there is a proven way to earn rich slowly by investing in REITs. Purchase REITs that are meant to grow and compound your money over time, then sit back and let them handle the heavy lifting. Realty Income (NYSE: O), Digital Realty Trust (NYSE: DLR), and Vanguard Real Estate ETF are three REIT stocks in particular that are about the closest things you’ll find to guaranteed ways to make rich over time (NYSEMKT: VNQ).
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.
Which REITs pay the highest dividend?
For income investors, the beauty of REITs is that they are obligated to release 90% of their taxable income to shareholders in the form of dividends each year. REITs often do not pay corporate taxes in exchange.
As a result, several of the 171 dividend-paying REITs we follow have dividend yields of 5% or more.
Bonus: Watch the video below to hear our chat with Brad Thomas on The Sure Investing Podcast about sensible REIT investing.
However, not all high-yielding stocks are a sure bet. To ensure that the high yields are sustainable, investors should carefully examine the fundamentals. This post will go through ten of the highest-yielding REITs on the market with market capitalizations over $1 billion.
While the securities discussed in this article have exceptionally high yields, a high yield on its own does not guarantee a good investment. Dividend security, valuation, management, balance sheet health, and growth are all critical considerations.
We advise investors to take the research below as a guide, but to conduct extensive due diligence before investing in any security, particularly high-yield securities. Many (but not all) high yield securities are at risk of having their dividends cut and/or their business outcomes deteriorate.
High-Yield REIT No. 10: Omega Healthcare Investors (OHI)
Omega Healthcare Investors is one of the most well-known healthcare REITs that focuses on skilled nursing. Senior home complexes account for around 20% of the company’s annual income. The company’s financial, portfolio, and management strength are its three primary selling factors. Omega is the market leader in skilled nursing facilities.
High-Yield REIT No. 9: Apollo Commercial Real Estate Finance (ARI)
In 2009, Apollo Commercial Real Estate Finance, Inc. was established. It’s a debt-oriented real estate investment trust (REIT) that invests in senior mortgages, mezzanine loans, and other commercial real estate-related debt. The underlying real estate properties of Apollo’s investments in the United States and Europe serve as collateral.
Hotels, Office Properties, Urban Pre-development, Residential-for-sale inventory, and Residential-for-sale construction make up Apollo Commercial Real Estate Finance’s multibillion-dollar commercial real estate portfolio. Manhattan, New York, the United Kingdom, and the rest of the United States make up the company’s portfolio.
High-Yield REIT No. 8: PennyMac Mortgage Investment Trust (PMT)
PennyMac Mortgage Investment Trust is a real estate investment trust (REIT) that invests in residential mortgage loans and related assets. PMT
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.
Why do REITs pay high dividends?
REITs are a significant investment for both retirement savings and retirees who want a steady income stream to fund their living expenditures because of the high dividend income they generate. Because REITs are obligated to transfer at least 90% of their taxable profits to their shareholders each year, their dividends are large. Their dividends are supported by a consistent stream of contractual rents paid by their tenants. REITs are also a useful portfolio diversifier due to the low correlation of listed REIT stock returns with the returns of other equities and fixed-income investments. REIT returns tend to “zig” while other investments “zag,” lowering overall volatility and improving returns for a given amount of risk in a portfolio.
- Long-Term Performance: REITs have delivered long-term total returns that are comparable to those of other stocks.
- Significant, Stable Dividend Yields: REIT dividend yields have historically provided a consistent stream of income regardless of market conditions.
- Shares of publicly traded REITs are readily available for trading on the major stock exchanges.
- Transparency: The performance and prognosis of listed REITs are monitored by independent directors, analysts, and auditors, as well as the business and financial media. This oversight offers investors with a level of security as well as multiple indicators of a REIT’s financial health.
- REITs provide access to the real estate market with low connection to other stocks and bonds, allowing for portfolio diversification.
