Malaysia REIT

I got involved in REITs some years back and I still remember my first purchase was MQREIT. It gave me some dividends and I sold it off with some capital gains. Back then, there was not much info about Malaysia REIT but nowadays with a simple Google search, you’ll find a lot of info on Malaysia REIT.

If you’re new to REITs – do read on below to learn more.

Malaysia REIT: What is REIT

REIT is short form of Real Estate Investment Trust. Basically, it’s an investment vehicle whereby you can buy shares of the trust on Bursa Malaysia like any other stocks of listed companies. This allows you to own part of the real estate and become like a property investor!

REITs can have many different types of properties, from hotels, to retail shopping malls, to industrial warehouses and logistics. When you go to big shopping malls like Sunway Pyramid, Midvalley Megamall, you are actually stepping foot into some of the better REIT properties in Malaysia that has been paying decent dividend yields.

REITs are not only limited to shopping malls, it’s just that in Malaysia REITs mainly comprise of retail REITs. In more mature economies, you can invest into data center REITs and even prison REITs (yes, you heard that right). There are many different types of REITs, and each REIT can focus on a particular segment i.e. retail, or it can be diversified, for e.g. Sunway REIT.

Things you should know before investing into Malaysia REIT

Malaysian REIT’s is one of the best income-producing asset one can own. All the REITs distribute 90% or more of their rental income as dividends to investors and best of all, this income is tax-free.

You should also learn about certain terms such as below:

Net Property Income (NPI) – how much the REIT brings in in terms (revenue minus off expenses)

Distribution Per Unit (DPU) – your income per unit share. Look for REIT with DPU that is going up.

Distribution Yield (DY) – similar like dividend yield for stocks, you take DPU divided by the REIT price. For example, IGB REIT has DPU of 0.0916. If current price is RM1.68, it’ll give distribution yield of 5.45%. Look for DY that is better than FD rate.

NAV (Net Asset Value) – basically what the REIT owns in terms of rental-generating assets. See whether NAV has been trending up over the last 5 to 10 years. A stagnant NAV means the REIT is not adding more assets to grow its income.

Gearing Ratio – the amount of debt divided by the REITs properties. A higher ratio means the REIT is overleveraged i.e. has high debts, a lower ratio means the leverage is well-managed. Lower is better because it means the REIT manager has room still to grow NPI with more properties purchases.

Rental reversion – basically means whether rental is higher or lower compared to previous quarters. Positive rental reversion means a higher rental is captured and vice versa for negative rental reversion.

Weighted Average Lease Expiry (WALE) – the duration of tenancy in the REIT’s properties in years. A WALE of 4.2 means on average, the tenants in the REITs have 4.2 years before the lease expires. WALE needs to be evaluated based on the current economic condition.

Malaysia REIT List

Fifth Person has a page tracking Malaysian REITs here – it’s worth checking out.

How to start buying Malaysia REITs

First you have to create a CDS account or nominee account (stock brokerage account). Read how to open CDS account in Malaysia here.

Buying REITs is like buying stocks. You determine which REIT is most attractive based on past performance, the yield, the future projection, the management strength etc. Then you buy if the REIT seems undervalued.

One way to determine if a REIT is undervalued is by looking at its distribution yield. If DPU stays the same but price has gone down, yield will go up. Buying a REIT at a higher yield compared to its historical yield means you are buying REIT at a historically lower price. But this doesn’t mean you should only buy REITs that have high DY as it could turn out to be a value trap. Due research and diligence is still needed.

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