Real Estate Investment Trusts (REITs), are essentially companies that own and/or operates income-generating real estates. As an example, Mid Valley and The Gardens are operated by IGB REIT, and from the profit earned (mainly through rental), REITs pay their investors in the form of dividends.

That said, in this article, I want to dive deeper into the types of REITs in the market, and why knowing this is important in your REIT investing decision.

Essentially, there are 6 kinds of REITs that you will find in the listed market (a.k.a. REITs that are purchasable in the Malaysian stock market):

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(1) Retail REIT (eg. KIP REIT, IGB REIT – Mid Valley, The Gardens)

Retail REITs, as the name suggest, are REITs that own and operates malls and shop lots.

In other words, Retail REITs’ revenue comes from renting the space of their properties to retail tenants (eg. Nike, G2000, llao llao and more).

Pros:

If a Retail REIT owns a mall that is located at a prime area, they’ll generally attract crowd which would translate to 3 things: (a) Low tenant turnover, (b) Ability to command higher rental, and (c) Relatively stable revenue stream.

Cons:

That said, the economic condition would generally impact the revenue growth of Retail REITs. Logically speaking, consumption will drop in a bad economic condition and it will impact Retail REITs’ revenue negatively.

IGB REIT owns and runs Mid Valley and The Gardens.

(2) Office REIT (eg. MQ REIT, UOA REIT)

Office REITs are REITs that mainly own and operates office buildings.

Some of the common tenants of Office REITs are mainly from the financial services sector and MNCs.

Pros:

Office REITs that have office buildings in prime areas are able to command higher rental, BUT…

Cons:

Excess supply of office buildings are leading to (a) Less sticky tenants and (b) Price wars among office spaces.

Also, Office REITs will also be impacted negatively by bad economic condition.

UOA REIT owns and runs office buildings.

(3) Hospitality REIT (eg. YTL REIT)

Hospitality REITs are NOT REITs that own and operate hospitals.

Instead, Hospitality REITs are REITs that manage hotels and residential buildings. As an example, YTL REIT owns the JW Marriott hotel (in Malaysia and Australia) and the iconic Majestic Hotel in KL.

Pros:

Hospitality REITs can benefit from the rise of the tourism sector of the country, as well as currency drop that would lead to our country being a more attractive tourist-friendly country.

Cons:

Highly impacted by global economic growth. A dull economic scenario would impact the tourism sector badly and in turn, lead to less revenue for the hospitality industry.

Majestic Hotel is owned by YTL REIT

(4) Industrial REIT (eg. Atrium REIT)

Industrial REITs are REITs that own and operate properties like warehouses and factory spaces.

Pros:

Industrial REITs have little need to spend property maintenance or fancy designs relative to other REITs, which translates to lower operating expenses.

Cons:

(a) Most heavily affected by economic downturns, as factory operations and inventory storage, would be cut to a minimum during a downturn. (b) Limited rental hike potential due to a similar business model.

Atrium REIT

(5) Healthcare REIT (eg. Al-Aqar REIT – KPJ Hospitals and Specialist Centres)

Healthcare REITs are REITs that own and operate hospitals and healthcare services properties.

Pros:

No matter the economic condition, Healthcare REITs would, generally, be an excellent defensive hedge as people will need healthcare services no matter the economic condition.

Cons:

Limited expansion opportunity within its own properties (eg. Long term lease agreement that reduces revenue upside), unless opting for acquisitions of new or existing healthcare properties.

Al-Aqar REIT is the only listed Healthcare REIT in Malaysia

(6) Mixed REIT (eg. SunREIT – Sunway Pyramid, Sunway Tower & Axis REIT)

Mixed REITs are generally, REITs that own and operates real estates of different nature.

As an example, SunREIT has a portfolio of properties ranging from retail malls, offices, hotels, healthcare, and warehouses.

Pros:

Highly diversified range of properties. More resilient to various market fluctuation and economic conditions.

Cons:

Exposed to all kind of risks brought by owning a different kind of REITs.

SunREIT has an impressive portfolio of diversified properties.

Which type of REITs should You Invest In?

Based on the type of REITs introduced above, which are the REITs that you should consider investing in?

Generally, while REITs are relatively stable compared to conventional stock investing, REITs do have different risk profiles depending on their nature:

As an example, if you were to invest in Healthcare REITs for their nature of being more stable during various economic conditions, you should (generally) expect a lower yield compared to other REITs as Healthcare REITs have a lower potential for revenue growth.

On the other hand, if you were to invest in Industrial REITs, you should (theoretically) expect a higher yield as a compensation for the relative risks involved while investing in Industrial REITs.

Risk vs Expected Yield among Different REITs

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That said, the actual yield of your REIT investments may or may not reflect the ideal scenario given existing market volatility and actual business performance of REITs – but since we are discussing purely on the nature of the respective REITs themselves, I think a necessary conceptual understanding is still value-adding to you.


No Money Lah’s Verdict

So that’s it – the 6 types of REITs that you will find in the market. I hope this article has been informative for you, and if you are new to REITs, give you a more in-depth understanding of REITs.

In short, not all REITs are made the same and different REITs should be studied at with a slightly different lens depending on their nature.

REIT, in my opinion, is definitely a great choice that you can seriously consider should you are looking for a solid passive income and long-term investment to fulfill your financial goals in life

In the coming articles, I will share with you the terminologies that you should know in REIT Investing and an overview of all listed REITs in Malaysia.

Stay tuned!


Learn HOW TO BUILD A RELIABLE PASSIVE INCOME STREAM VIA REITs HERE!