Want a boring value investment which provides capital growth and steady income?

(Last Updated On: 10/10/2017)

If the answer is YES, and you thought I am referring to fixed deposit or bonds, then you are dead wrong. Fixed deposit and bond do not provide capital growth.

The answer lies in real estate investment trust (not to be confused with unit trust or mutual funds albeit the “trust” term).

Can we really have the best of both worlds?

Some facts – It’s highly transparent (the fact it is regulated Draconian-ly by the Securities Commission), asset-backed and there is no hidden upfront or back end costs besides the REIT manager’s annual compensation.

Perfect for a retirement portfolio, as capital preservation and consistent income is more important than anything else.

Mr Stewart LaBrooy, Chairman of the Malaysian REIT Managers Association calls REIT – “a notch above bonds“, and a risk-return profile between that of equity and bonds. A securitized environment of owning assets in properties, akin to owning a commercial property with low risk attached to it, if you may. And we know property is a natural hedge against inflation.

*Side note – What is bond? Read about it here*

But how exactly is it different from normal company stocks (equity), and real estate property investment?

Don’t hear it from me, but let’s hear it from an authoritative figure in the industry. That’s what Part 2 this interview is about.

MRMA

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Lieu Ching Foo: What is M-REIT advantage compared to its South East Asia counterpart, say, S-REIT?

Stewart LaBrooy: All the REIT markets are different. There are 196 REITs listed in Asia Pacific with a market capitalization of USD 215 Billion.

Country Number of REITs Market Cap. (US$ bn)
AUSTRALIA 52 87.4
JAPAN 35 49.6
SINGAPORE 27 39.2
HONG KONG 9 20.5
MALAYSIA 16 8.0
THAILAND 38 5.0
NEW ZEALAND 5 2.6
TAIWAN 6 2.6
S. KOREA 8 0.4
Total 196 215.1

 

For example the S-REIT market is a very liquid market that has a large foreign and retail participation.  The M REIT is largely held by local institutions and has low foreign and retail participation. It is also a much smaller and less liquid market. However with the listing of the larger REITs Sunway, CMMT, Pavilion and IGB we have risen to an USD 8 billion market cap which places us 5th in the region in size

During the GFC M REITs were one of the most resilient asset classes in the region as we had the benefit of a sound banking system that enabled all REITs to ride the storm successfully without resorting to dilutive capital raising exercises which destroyed shareholder value over the longer term.

There are some areas we are not as competitive – for example we don’t enjoy a zero withholding tax for individual unitholders like Singapore does. This is a feature we would like to see happen as it would encourage pensioners to place their funds in REITs for steady returns.

Lieu Ching Foo: What is M-REIT advantage compared to direct commercial property investment? (especially with Budget 2013 increasing RPGT, but the 10% withholding tax for REIT since 2008 has been extended to Dec 2016 since Budget 2012)

Stewart LaBrooy: Purchasing REIT stock is the same as owning direct property but it not an investment for speculators but rather long term ownership of assets. The big difference is that for the long term investor we take out the business risks in investing in direct property and provide them with a portfolio that carries a much lower risks profile. For example at Axis-REIT we have a diverse portfolio of 32 properties so it lowers the risk if there is tenant leaving.

Unitholders also enjoy all the advantages of direct property ownership in that when assets are disposed of by the REIT, the capital gains are returned to them tax free. However when we own properties to rent individually that income is subjected to a 25% corporate tax (REITs only pay 10%).

Stewart LaBrooy

A prominent speaker on Conventional and Islamic REITs in the region, Stewart LaBrooy is the CEO of the first REIT to be listed on the Mainboard of Bursa Malaysia in 2005; Axis REIT Managers Berhad.

Stewart holds a Bachelor of Engineering (Hons) degree and a Post Graduate Diploma in Business Studies from the University of Sheffield. He is a Board member of the Asia Pacific Real Estate Association (“APREA”) and the Chairman of the Malaysian REIT Managers Association (“MRMA”).

 

Lieu Ching Foo: What is the advantage of REIT stocks compared to company stocks?

Stewart LaBrooy: REITs are a different asset class with a high certainty of dividend payouts (Minimum 90% of net profit before tax) and this is done every quarter or half yearly.

There are also much higher requirements in corporate governance when compared to listed companies who can be controlled by owning a 32% share of the stock. In REITs the manager is appointed and all assets are held in trust by the Trustee. The manager is normally the promoter of the REIT at listing but they can be removed if they do not perform and they cannot vote in any Related Party Transaction. It’s a highly transparent industry.

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REIT Method, the first online educational course on REIT investment in Malaysia  by myself and KCLau,  is re-launching soon in Nov 2012. Get priority notification and a FREE Report to go with by visiting REITMethod.com

If you missed Part 1 of the interview, click here.

Your say?

5 Comments

  • Steve Lye

    Reply Reply 06/11/2012

    Great piece! Luv it.

    • LCF

      Reply Reply 06/11/2012

      Part 3 to come soon. Thanks for the kinds words Steve!

  • TY

    Reply Reply 06/11/2012

    CF, Thanks for sharing with me. Good question you ask at begining of this article. MREIT is one of the investment tool to generate monthly incoming during retirement

    • LCF

      Reply Reply 06/11/2012

      Most welcome, TY. It just made sense, coming from someone in the industry who isn’t a fund manager or trying to sell any financial products.

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