1. What are listed REITs?
A listed REIT is a vehicle for investment in a portfolio of real estate assets, usually established with the intention of generating income for unit holders. REIT assets are professionally managed and revenues generated from assets (primarily rental income) are normally distributed to you, as a unit holder at regular intervals. Units of listed REITs are bought and sold like any other security listed on exchanges at market-driven prices.

2. How can REITs be distinguished?

• By property type,, e.g. shopping malls, industrial properties, residential properties, hotels, commercial properties, etc.
• By geographic location, e.g. specific countries, regions, etc.
• By investment approach. Investors should study the specific REIT prospectus to understand its investment objective and details of the properties to be acquired before making an investment decision.

3. What are the features of listed REITs?

(a) Portfolio Diversification
REITs typically own multi-property portfolios with diversified tenant pools, thus reducing the risks of reliance on a single property and tenant in the case of directly owning a real estate asset.

(b) Income Distribution
REITs normally have regular cash flows. In most cases, most of the revenues are derived from rental payments under contractually-binding lease agreements with specific tenure. Investors should therefore study the occupancy rates of properties acquired by the REIT

(c) Participation in the Property Market
Most REITs are structured around large properties. With REITs, investors can own stakes in such properties.

(d) Professional Management
REITs allow investors the opportunity to buy into properties managed by professional property management companies.

4. What are the returns expected from REITs?
Returns vary for different REITs. A REIT typically distributes dividends regularly based on income generated by the properties in its portfolio. Most REITs have annual managers’ fees, property management fees, trustees’ fees and other expenses that will be deducted from their cash yields before distributions are made.

In Malaysia, for income distributions by REITs that are granted “tax transparent” treatment by the Inland Revenue, eligible unit holders will receive the distributions without having tax deducted at source, for which they subsequently pay income tax at their applicable individual or corporate tax rate. Specific tax treatment and eligibility criteria for tax transparency would be discussed in the prospectus.

5. What are the transaction costs involved in trading listed REITs?

Similar to securities trading, the transaction costs include :

• prevailing brokerage commissions and other charges;
• clearing fee of x% on the value of the contract (subject to a maximum of X$)

6. Redemption by REIT unit-holders
Some REITs do not provide for unit redemption. Regardless of whether redemption is possible, you can dispose your units by selling them on the Exchange through your broker if there is buyer in the market. This is one of the key differences between listed and unlisted REITs.

7. How are listed REITs different from unit trusts?
Unit trusts normally own a portfolio of securities, while REITs primarily own physical real estate assets and real estate-related assets. Unlisted unit trusts can only be bought and sold through the manager of the unit trust fund at prices usually quoted at the end of each trading day. Units of a listed REIT, on the other hand, are bought and sold during trading hours at market-driven prices.

8 What affects returns on REITs?

REITs unit holders are subject to similar risks as holders of other diversified asset portfolios.
Some of the factors which affect returns on REITs are

• Rise/fall in rental income and property prices arising from a change in market conditions. As REITs are intended to be invested primarily in real estate assets, a decline in the general level of real property prices could adversely affect the value of a REIT.
• The overall depth and liquidity of the real estate market and other assets in which REITs are invested may fluctuate, which could correspondingly affect the depth and liquidity of trading in REITs;
• The overall performance or expected performance of the real estate industry and other related industries, or by the general economic climate and outlook;
• Wear and tear, and disasters which damage physical real estate assets owned by the REITs;
• Substantial increase/fall in interest rates, making listed REITs less/more attractive as an investment instrument;
• Professionalism experience affecting the performance of the property management firm;
• Quality of assets owned by the REITs, essentially affecting sustainability and stability of revenues;
• Laws and taxation changes affecting real estate property prices which might impact on returns on REITs. REITs participating in properties or investments overseas may be subject to the risks of fluctuations in currency values, differences in generally accepted accounting principles, or local economic or political events in the countries in which those properties or investments are located; and
• Any other factors affecting returns of the underlying assets.

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