1. REITs Investment Is Simple And Straightforward
REITs investment allows you to profit from commercial properties’ rental income. Commercial property types include:
- Office
- Industrial
- Retail
- Hotel
- Combination of the above. This might also include Hospital, Education, Business Space and Plantation.
Each REIT is managed by a Trust – a bunch of people who make big decisions for the REIT. Multiple properties managed by the same Trust is common.
Rental income comes from:
- Retail shops at malls (from H&M to Guardian);
- Office lots at office buildings;
- Medical, logistical, industrial and educational institutions at whole buildings;
- Hotels at hotel buildings;
- Any commercial (not residential) properties.
It’s quite easy to see good-performing REITs in action. Go to any of their properties and see the tenant occupancy rate. If there are a lot of shops (more than 80% filled) and many people at the building, that’s a good sign.
The process to add REITs in your portfolio is similar to stocks. Get a CDS account and go from there. See #4 for more information.
2. REITs From A Fundamental Analysis Approach
An investor usually favors either Fundamental Analysis (FA) or Technical Analysis (TA):
- Fundamental analysis (FA): it takes into account the factors that make an investment good or bad; suitable for long-term investing. “I think the property will continue to attract renters and yield a steady passive income because it is close to a college and shopping mall.”
- Technical analysis (TA): assesses the potential profit of an investment based on chart reading; mainly for short-term trading. “Based on the chart indicators, there is a strong possibility that the market will correct itself and the price will increase. Thus, I will buy this stock.”
Experts claims both FA and TA approach can work, but it is best to pick a main approach because using both can sometimes give you contradicting results and get you stuck in analysis paralysis.
The Fundamental Analysis approach for REITs would be something like:
- Because e-commerce is growing, REITs that concentrate on retail (ie shopping malls) may lose tenants as they can’t compete with online shops
- Likewise e-commerce is likely to help push REITs that include logistics industry
- Booming tourism means that REITs in the hospitality/tourism sector have a good chance of doing well
- REITs that includes medical industry might do well as Malaysia is set to be an ageing population by 2030
The analysis above are merely examples, there are more things to take into consideration. There is no one correct answer. Different people may have different opinions.
3. How to Choose the Right REITs (in Malaysia)
Using simplified fundamental analysis, investors should focus on three things:
Dividend Yield – Was the REIT yield steady or experience growth in returns in previous years? If yes, that’s a good indicator.
Growth Potential – the FA part – will the rental demand for the properties increase or decrease in 5 years?
Loan Related Risk – is the REIT in a financially stable position? Whatever their asset value is, they must have less than 45% in debt. For example, if they manage RM100 million worth of properties, their debt must be less than 45 million. They must have good interest coverage ratio as well (more than 3 is good).
4. Where To Find Information About REITs in Malaysia
Bursa Marketplace – Go to The Market >> REITs. This will list all available REITs in Malaysia. Click on each one for more information.
MalaysiaStock.Biz – Go to Market >> REITs and Stock Quote >> REITs pages.
The REITs’ individual websites – Google the REITs’ names and you will find their websites. The websites contain reports, types of properties they manage, the people behind the trust, and more.
Conclusion
REITs is like the stocks version of properties, so if you like stocks and properties, it might be a good option for you. If you think the properties are managed properly and can attract tenants, it has potential. Think about it from the tenant’s point of view, “Would I rent here if I have a shop/office?”
