A real estate investment trust known as REIT is a listed company where investors gain exposure to a portfolio of income-producing properties. REITs work the same way as a mutual fund where investors contribute its fund in a pool of capital. The company uses this fund to build the properties and expand its portfolio. Income earned from the properties will be distributed among its shareholders semi-annually or annually..
There are around 18 REITs in Malaysia up-to-date. There are 8 different core categories of REIT investing in, namely retail, hotels, industrial, office, healthcare, warehouse, car parks and residential.
The pandemic has impacted the REIT field in good and bad ways. The REITs are expected to benefit from the low rate interest environment. Many REITS are proactively lengthening debt tenures, refinance loans ahead of maturities, and establishing new loan facilities for future drawdown. However, the continuous lockdown and social distancing have hurt the footfall to hospitality and retail REITs such as Pavilion and IGB REITs. The continuous lockdown and social distancing have accelerated the e-commerce trend and benefited industrial REITs which invest in office, warehouses, logistics centres, data centers and business parks. We will be discussing more industrial REITs.
There are five REITs that have industrial exposure in Malaysia.
1. Sunway REIT (SREIT)
Photo Source & Company Information: http://www.sunwayreit.com/
Sunway REIT is a leading retail-focused REIT with a market capitalization of RM 4.86B. Its share price is trading at RM 1.42, with 4.79% distribution yield. It is one of the largest diversified REITs in Malaysia. Its portfolio comprises 17 properties, including retail malls, hotels, offices, a medical centre, industrial property and a purpose-built campus. Sunway REIT has a total property value of RM8.05 billion with a total gross floor area (GFA) of approximately 15.7 million square feet as of 30 June 2020. Its portfolio is strategically located in Klang Valley, Perak and Penang. Even though Sunway REIT is a diversified REIT, its retail sector contributes 62% of the total property value and 68% of the Sunway REIT gross revenue. Thus, Sunway REIT financial also suffered a decline in revenue due to the pandemic.
2. Axis REIT (AXREIT)
Photo Source & Company Information: https://www.axis-reit.com.my/
Axis REIT is also a diversified REIT with a portfolio located in the Klang Valley, Johor, Penang, Pahang, Negeri Sembilan and Kedah. It has a market capitalization of RM2.79B; its share price is at RM1.93 with a 4.56% distribution yield. It has 57 properties and 10 mil square feet of space under management. Its portfolio is industrial-centric, where it has offices, logistics warehouses, manufacturing facilities and hypermarkets. The COVID-19 pandemic has had a limited impact on the Axis REIT as more than 50% of its tenants are allowed to operate because they are manufacturing essential goods and services.
3. Atrium REIT (ATRIUM)
Photo Source & Company Information: https://www.isaham.my/stock/atrium
Atrium REIT is a pure industrial REIT with a market capitalization of RM 315.12M. Its share price is trading at RM1.54 and has a 6.43% distribution yield. Atrium REIT owns 6 industrial properties which 5 industrial properties are situated in Selangor and 1 in Penang. Despite the pandemic uncertainty, Atrium REIT still maintains its overall 100% occupancy rate. Looking at Atrium REIT’s financial performance, it has performed relatively well. Its net rental income has increased from MYR13.3 mil in 9M19 to MYR 22.9 mil in 9M20, one of the fairly solid performances for REIT despite the Covid-19 pandemic.
4. AmanahRaya REIT (ARRREIT)
Photo Source & Company Information: http://amanahrayareit.com.my/
AmanahRaya REIT is another diversified REIT that has exposure in the healthcare, office, retail, hospitality and industrial sectors. It has a market capitalization of RM 378.35M, its share price is trading at RM0.66 and it has a 7.59% distribution yield. It has 13 properties with an asset value of RM1.47 B. Even though AmanahRaya REIT is a diversified REIT, it also suffered a decline in financial performance due to a decreased rental of its office sector due to the movement control order and COVID-19 pandemic, AmanahRaya REIT has offered rental assistance or relief for the affected tenants.
5. Al-Salam REIT (ALSREIT)
Photo Source & Company Information: http://www.alsalamreit.com.my/
Al-Salam REIT is a diversified Islamic based REIT with a market capitalization of RM324M with its share price trading at RM0.56 and a distribution yield of 3.44%. Al-Salam REIT operations include retail, office, education, and the F&B sector, which consists of restaurant and non-restaurant outlets. Their main tenants are the famous and our all-time favourite KFC and PizzaHut. Even though Al-Salam REIT owns 49 real estate properties, but 3 properties from retail sectors have contributed 58% of the overall proposition. Thus, its net income halved from a year earlier due to the rental rebate granted to tenants from the Covid-19 pandemic and MCO.
So, what are the benefits of investing in REITs?
We can enjoy a few key benefits from investing in REITs. As long as REITs in Malaysia distribute at least 90% of their current year taxable income, its income earned is exempted from income tax. With a 90% income distribution, we can get better dividend income than investing in other companies. Besides, professionals manage these REITs; thus, this is truly an excellent passive income compared to putting them in fixed deposit.
Of course, some investors may argue that REITS is not as exciting as other growth stocks as there is not much volatility in REIT. REITs performance rely on occupancy rates and vacancy rate. When the occupancy rate increases, REITS income increases. Remote working is here to stay, thus it will impact gross revenues and distribution yields.
We think that industrial REITs perform better than commercial or retail REITs for the current scenario with pandemic uncertainty. So, what do you think? We want to hear from you on your thoughts about which REITs have a more significant opportunity to emerge as winners in this pandemic? Which REITs have a more substantial presence during the recovery phase?
For more information about REITs in Malaysia, kindly refer to Bursa Malaysia
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REITs with Industrial Property Exposure You Must Know
