On 15 April 2017, I attended a full-day REITs Analysis Workshop, part of the Bursa Investor Education Workshop Series where they talk about different investment vehicles and investment strategies. REITs stands for Real Estate Investment Trust. For other Bursa Malaysia-organised events, see here.
It was presented by speaker Chua I-Min from ShareInvestCoach.com, a Singaporean financial planner specialising in fundamental analysis (I’ll explain this term too). I think the speaker did a great job in breaking down all the jargon into digestible information.
All-in-all, I learned loads. Here are 5 things I learned about REITs in Malaysia, because sharing is caring.
#1 – REITs investment is straightforward
REITs investment allows you to profit from commercial properties’ rental income. Commercial property types:
- Mixed (combination of the above, may also include Hospital, Education, Business Space and Plantation)
Each REIT is managed by a Trust, ie 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;
- and more, as long as they are 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 fundamental analysis approach – what’s that?
I really liked the fact that the speaker took the time to explain fundamental analysis versus technical analysis. An investor is either one or the other. Which one do you prefer?
- Fundamental analysis (FA): assess 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 of its proximity to an expanding university.”
- Technical analysis (TA): the type of investment doesn’t matter, the profit potential based on charts does; mainly for short-term trading. “Based on indicators, there is a strong likelihood that the market will correct itself and the price will decrease therefore I will short X”.
Chua said that both FA and TA approach can work, but pick a primary approach because using both can sometimes give you contradicting results and get you stuck in analysis paralysis. My personal preference is FA because TA requires you to be a bit heartless and able to detach emotions completely from your investments. I take severe losses pretty hard – can worry for days about it – so I know TA is not for me. TA is popular among people who play forex – see my Should You Try Them Forex? No-Bullshit Guide for Gen Y article for insight on that.
By taking the FA approach for REITs, the speaker emphasised market forces, 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;
- And more.
The analysis above are examples, there are more things to take into consideration. There is no one correct answer. They can even be personal opinions, but you get the gist.
#3 – How to select the right REITs in Malaysia
Using simplified fundamental analysis, the speaker focused on three things:
- Dividend Yield – did the REIT yield steady or growing 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 is their asset value, they must have less than 45% in debt. For example, if they manage RM100 million worth of properties, the debt must be less than 45 million (Edit: 45 not 450 mil lol. Thanks for pointing it out Jeffry!). They also must have good interest coverage ratio (more than 3 is good; this part I’m still struggling to calculate).
The chart that was handed out:
Personally, I think that Dividend Yield and Growth Potential parts were easy enough to understand. It’s just looking at one chart then do the market forces assessment. The Loan Related Risk part requires you to read the REITs’ balance sheets, look for the correct numbers and calculate them. If you want to know more detail about the Loan Related Risk part, then google ‘how to calculate debt to asset ratio’ and ‘how to calculate interest coverage ratio’. I still don’t know how to read balance sheets well, so I can’t really expand on this.
Example of a Dividend Yield chart, taken from malaysiastock.biz. This is an example of good-performing, stable REIT:
Note: Ignore the current financial year ie FY17 in this case.
#4 – Where to find information about REITs in Malaysia
- Bursa Marketplace – Go to The Mkt > REITs – Lists all available REITs in Malaysia. Click on each one for more info.
- MalaysiaStock.Biz – Go to Market > REITs and Stock Quote>REITs pages. Another page that gives detailed info on the REITs
- The Complete Guide to REITs in Malaysia by Dividend Magic
- Which CDS Account to open to start investing in REITs – included in this handy stocks guide also by Dividend Magic
- The REITs’ individual websites – Google their names and their websites should pop up. The website should contain reports, types of properties they manage, the people behind the trust, and more.
#5 – Which REITs are considered good
At the end of the workshop, after doing all the groupwork and calculations, Mr Chua invited the 200-odd audience to complete a mini survey on which REITs they think are good buys. Take this info with a pinch of salt: this result is based on a small sample size (only 80+ people responded), based on the data collected as of April 2017, and heavily biased (as the results page were constantly refreshed, there is a possibility that survey-takers simply voted on whatever the rest voted).
The top REITs that the (amateur) audience *thought* might do well, sorted by popularity are:
- Ytlreit/Pavreit (tied)
- KLCC/Mqreit (tied)
Again, take this info skeptically and do own research. There are only 18 REITs as opposed to hundreds of stocks, so there is no excuse not to do own homework.
EDIT: Additional info from a REITs enthusiast – there are only 4 Syariah-compliant REITs: KLCC, Alsreit, Alaqar and Axisreit.
REITs is like the stocks version of properties, so if you like stocks and properties, it might be a good option for you. The bottom line is – if you think the properties is managed properly (good maintenance, etc) and can attract tenants, it has potential. Think from the tenant’s POV – would I rent here if I have a shop/office?
If REITs are not for you, there are other investment options in Malaysia. Read What can you invest with RM1000? A quick guide
Disclaimer: My knowledge on REITs in Malaysia is by no means complete, so I invite you to share what you think of it in the comments section below.