Username
Password
Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,546.91 +5.00 +0.14%
KLSE Composite 1,824.98 -3.65 -0.20%
Hang Seng 32,047.18 +63.77 +0.20%
Dow Jones 26,115.65 +322.79 +1.25%
What Are REITs?
Education | 16 October 2015

Real Estate Investment Trusts (REITs) are securities investments that allow you to own shares in properties such as shopping malls, offices, factories and hotels while enjoying rentals from these properties in the form of distributed income.

Before REITs existed, an investor who wishes to invest in real estate for the purpose enjoying rental income and asset appreciation would have to put up a hefty investment upfront by purchasing the intended real estate. REITs allow investors who do not have access to such capital streams own their own shares in income producing real estate.

As the name suggests, REITs are legally trust corporations. Investors are able to participate in the properties that a trust holds by owning the shares in the trust. For a trust to qualify and enjoy favourable tax rulings as a REIT, it will have to distribute at least 90 percent of its income to shareholders annually. Investors holding on to shares of REITs typically receive the distributed income in the form of cash dividends every quarter.

What Are The Returns Like On REITs?

REITs have beaten stocks for much of the preceding years.

In countries such as Singapore, REIT indexes have also constantly beaten national barometers of the economy such as the Straits Times Index.

REITs will continue to enjoy superior returns like these as long as there are tenants paying rents in the various shopping malls, offices, hotels and factories that they own. This will very much depend on how well an economy of the particular country is doing.

Who Invests In REITs?

Besides individual investors, organisations such as pension funds, investment banks, insurance companies, private equity corporations and other institutional investors have all seen the benefits of investing in REITs due to its strong potential for long term growth and high levels of current income.

In recent years, Asian REITs have particularly caught the spotlight of investors all over the world due to the promising prospects for growth in the region.

What Are The Sectors That I Can Invest In When Investing In REITs?

Although there are REITs that invest a broad variety of real estate types, most REITs typically focus in a specific sector. Each of these sectors have unique attributes. For example a REIT that focuses on hotels and hospitality properties will typically be exposed to the cyclical nature of the tourism industry.
The following are the broad categories in which REITs invest in:

• Healthcare REITs
• Hospitality REITs
• Industrial REITs
• Office REITs
• Retail REITs

What Are The Advantages Of Investing In REITs?

Growth Potential And Yield
REITs have historically shown competitive growth vis-à-vis other forms of securities such as stocks.

On top of strong growth potential, REITs have also provided reliable yields in the form of annual income distributions to shareholders. And unlike holding on to the shares of the company which can choose not to pay dividends in a particular year, REITs are mandated by regulations to return at least 90 percent of its income to shareholders.

As such, annual yields are assured.

Liquidity
Unlike real estate, REITs are easily converted into cash as they are publicly traded on the stock exchange as you would with stocks. This effectively allows the investor to enjoy yields typically received from real estate with the liquidity of stocks.

Professional Management
REITs are helmed by experienced real estate professionals who are apt in property acquisitions and asset enhancements. Experienced REIT managers will ensure continued growth of your investments in the long run.

Transparency
REITs are governed by the respective exchange regulations and are mandated by law to submit disclosures every quarter or year. This makes REITs highly transparent investment instruments.

REITSWEEK is a weekly journal of REITs and listed real estate securities. Visit www.reitsweek.com to subscribe and receive weekly updates, insights and reports on REITs and securitized property investments

Please click here for more information about this author.


Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.