Real Estate Investment Trusts (REITs) are essentially companies that operate and/or manage real estates. REITs are especially well-received among long-term investors that are looking for a reliable passive income stream.

To invest in REITs is identical to typical stock investment – you buy their shares through your stock broker.

That said, here are 5 terminologies that you HAVE TO know before investing in REITs:

(1) Distribution/Distribution Per Unit (DPU)

Distribution is one of the MOST IMPORTANT elements in REIT investing. Essentially, distribution refers to the total amount of money that a REIT is paying back to its investors at the end of every quarter or Financial Year (FY).

As such, take the total distribution of a REIT and divide by the total number of shares of a REIT, and you will get the Distribution Per Unit – a.k.a. the total amount of distribution you will get as one unitholder of a share in the particular REIT.

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DPU details of SunREIT (Source: i3investor)

(2) Dividend Yield

Compared to Distribution/Distribution Per Unit, Dividend Yield is much more familiar to people.

In short, Dividend Yield is derived from Distribution Per Unit (DPU) – by dividing DPU with the price per unit of a REIT.

From the example above, the Dividend Yield of SunREIT for its latest four quarters is:

Dividend Yield of SunREIT

(3) Net Asset Value (NAV)/Net Asset Value Per Unit (NAVPU)

Net Asset Value shows the total worth of the net assets of a REIT.

When divided by the total shares (or units issued) of a REIT, you will get the value of Net Asset Value Per Unit (NAVPU), a.k.a. the total value of the net asset of a REIT per share.

NAVPU is very useful to determine if a REIT is undervalued or overvalued. As an example, if the price of a REIT is less than NAVPU, it shows that a REIT is currently market-priced at a value less than the worth of the net asset of the REIT (undervalued).

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YTL REIT market price: RM1.34 vs NAVPU (or NAPS) of RM1.6059. (Source: i3investor)

(4) Gearing

Gearing refers to the leverage of a REIT. Essentially, it refers to how much is the total debt of a REIT in relative to its total asset.

Generally, a REIT is legally required to maintain a Gearing of 50% or less.

Source: YTL REIT 4Q FY2019 Quarterly Report

(5) Occupancy Rate

Occupancy rate is extremely crucial to determine if a REIT is going to earn money. Simply put, the more tenants that occupy a REIT’s property, the higher the occupancy rate of the property.

Generally, we should want to look for REITs that have a high occupancy rate for their real estate portfolio:

Mid Valley and The Gardens have more than 95% occupancy rate. (Source: IGB REIT FY2018 Annual Report)

No Money Lah’s Verdict:

So that’s it! Here are 5 terminologies that you MUST KNOW while investing in REITs. While this is a short and simple article, yet if you are new to REITs, I definitely hope that you find this article informative!

If you find this article useful, do share this article out to benefit more people around you! Also, do check out my articles on WHY you should invest in REITs, and the different TYPES of REITs in the market (and why they matter!)


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