Investing into Oversea Real Estate Investment Trust (REIT) that generates 8% or more in annual returns

With our local equity market not doing too well, many investors are seeking for alternate investments. As a matter of fact, I have received a couple of emails asking my opinion on REIT investing. Since there's some form of interest on the topic of REIT, I might as well as put up post on it but with a little extra on side. In this post, I will cover the basic concept of REIT as well as the opportunity to invest into Oversea REITs as well.

Introduction to REIT
What is REIT?
REIT stands for Real Estate Investment Trust

How does REIT works?
Taken from Investopedia:
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.

Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.

Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
In simple explanation,

• REIT is a company that invest into all things related to property. 
• A REIT company may own the property/properties or own the mortgages of the property/properties. 
• Shares of a REIT company is listed in a stock exchange and traded like stocks. This means that an investor can invest into a REIT similar to investing into a company stock. 

What makes REIT attractive?
By investing into REIT, an investors to become a partial owner of all the properties (albeit indirectly) owned by the REIT company.

Here's an example,
If REIT Company A own several prime properties with 100% rental rate thereby generating great income. An investor that invest into REIT Company A will also enjoy the profit generated by rental of properties owned by REIT Company A. 

However, the rental income is not paid directly to the investors. Returns of investment of the investor is given by REIT Company A through issuance of generous dividends.

REITs in Malaysia
Local REITs, all 14 of them (as of time of writing) are listed on the Bursa Malaysia Stock Exchange. As explained earlier, these local REITs are then traded and owned like stocks.

List of local REITs as provided by Malaysia REITs:

REIT	Price (RM)	Yield	NAV (RM)	Assets Type
YTL Hospitality Reit	1.070	7.603%	1.1581	Diversified
MRCB Quill Reit	1.180	7.102%	1.3446	Office
AmanahRaya	0.885	7.006%	1.1423	Retail
UOA	1.640	6.988%	1.5053	Office
Hektar	1.520	6.908%	1.5524	Retail
CMMT	1.370	6.394%	1.2410	Malls
Atrium	1.130	6.018%	1.3827	Industrial
Al-AQAR Healthcare	1.320	5.795%	1.1797	Plantation
IGB REIT	1.350	5.778%	1.0833	Malls
Tower	1.220	5.762%	1.8922	Office
AmFirst	0.860	5.674%	1.2261	Office
Sunway	1.560	5.462%	1.2337	Diversified
Pavilion	1.550	5.316%	1.2435	Malls
Axis	3.440	4.767%	2.4511	Office

Problem with local REITs

As described earlier, local REITs are also traded like stocks. That means local REITs are exposed to buying and selling sentiments (panic selling and/or over enthusiastic buying). Now that the current general sentiment of the local Bursa is bearish, I'm pretty sure that price of local REITS will also take a hit. 

Shown below is the performance of Sunway REIT (5176) for the past 5 days:

Sunway REIT (5176)

As you can see, the overall bearish market has also resulted in this particular REIT to shed 1.94% over the past five days.

Other REIT option?

Knowing that the overall bearish sentiment of the Bursa would continue to impact the performance of local REITs, investors can consider diversifying into oversea REITs instead.

The best thing about investing into oversea REITs for Malaysian is that it can be done easily and convenient via an unit trust fund. The next few parts of this post would explain more about oversea REITs investing via unit trust.

Investing into Oversea REITs via Unit Trust Fund

When investing into an oversea REITs via unit trust, we are actually contributing to a pool of funds that is managed by a fund manager. The fund manager will then use that pool of funds to invest (buy & sell) into different types of oversea REITs share.

By having a fund manager to manage the fund, investors need not waste time on micro researching into each and every REIT. Let the fund manager crack his or her head doing that task. All we need to be concerned with when investing into REITs unit trust are two factors:

1. Location, area and country that you wish to have REITs exposure?
2. Which REITs unit trust fund to invest into?

Benefits of investing into an Oversea REITs Unit Trust Fund

• Potential of making profits from REITs listed in Developed and/or Emerging markets. 
• UK REITs, Singapore REITs, Japan REITs as well as Hong Kong REITs are known to be paying better dividends as compared to our local REITs.
• Diversification of your investment portfolio. Why limit your REITs portfolio to only local REITs when you can also have exposure to oversea REITs?
• Ringgit (RM) of a particular unit trust are converted into foreign currency when investing into oversea REIT. Therefore further depreciation of the RM would be converted into additional gains on your investment. With Ringgit fast depreciating, perhaps it would be a smart choice to invest into an overseas REIT that could offer currency protection as well as provide potential gains.
• Lower sales charge when investing into Oversea REITs unit trust fund via an online platform. This eliminates the argument that investing into unit trust is foolish due to high sales charge. As a matter of fact during promotion periods, the sales charge for REITs funds can go as low as 0%!

List of Oversea REITs funds available on "eUnittrust" online platform

1) REIT/Property Indirect Asia

• AmAsia Pacific REITs
• AmAsia Pacific REITs Plus
• AmAsia Pacific Property Equities

2) REIT/Property Indirect Europe

• AmPan European Property Equities

3) REIT/Property Indirect Global

• AmGlobal Property Equities

Performance of Oversea REITs funds available on "eUnittrust" online platform

The performance of all 5 REIT funds are indicated via annualized % return over 1, 2 and 3 Years:

Fund Name	1 Yr Return (%)	2 Yrs Annualized Return (%)	3 Yrs Annualized Return (%)
AmAsia Pacific REITs	8.86	8.73	8.25
AmAsia Pacific REITs Plus	11.14	9.31	N/A
AmAsia Pacific Property Equities	17.11	8.11	13.87
AmPan European Property Equities	40.48	29.03	27.45
AmGlobal Property Equities	23.55	13.6	13.73

Note from the author : This is the first time I'm making a performance comparison between overseas REIT funds. The shocking discovery for me is the consistent high returns generated by AmPan European Property Equities fund. With such outstanding returns, let's us take a look at further details of this fund.

AmPan European Property Equities Fund

Basic Information

(Details of this fund taken from its fund factsheet - as at 31 May 2015)

• Fund Category - Feeder Fund (97.40% invested into Henderson Horizon Fund Pan European Property Equities)
• Fund Launch Date - 6th March 2007
• Fund Size (31 May 2015) - RM62.65 million

Fund's Top Holdings

AmPan European Property Equities Fund Top Holdings

Fund's Sector Allocation

AmPan European Property Equities Fund Sector Allocation

Fund's Country Allocation

AmPan European Property Equities Fund Country Allocation

Fund's Calendar Year Return

AmPan European Property Equities Fund Calendar Year Return

Summary for this fund

As of date of writing, this fund is THE ONLY fund that has exposure to European REITs. Another beauty of this fund is that there is no redemption charges after 90 days from the purchase of this fund. Service charge/entry charges is 2% or lower if your invest through an the online platform called eUnittrust.

This particular REIT fund far outperforms any local REIT funds. As a matter of fact, the YTD (10th August 2015) for this fund is an astounding 24.14% as shown below:

Overall Summary

What I am highlighting in this REITs post is an alternative for Malaysian investors. While most of us are aware of the availability of local REITs listed on Bursa Malaysia, I'm pretty sure many of us have overlooked the potential of investing into oversea REITs via unit trust.

Looking at the performance of the 5 oversea REITs funds, we can see that even the worst performing of the five was able to generate 8.25% annualized return over 3 years. It is indeed a reasonable return of investment for something as passive as this. 

Lastly, I would urge investors to seriously consider including oversea REITs funds as part of your investment portfolio. At times of uncertainly of our local equity market and currency, investing into an overseas REIT fund could be a smart choice for many.

Cheers and Happy Investing

P.S : Start investing into any of the above listed oversea REITs fund by first registering an account with eUnittrust. To register, just click HERE

P.P.S : When you have successfully open your free account with eUnittrust, just drop me an email at shanesee03@gmail.com and I'll send you a copy of my self written ebook entitled "The Basics of Investing In Unit Trust" absolutely FREE! I believe this ebook will help you to understand unit trust better as well as help you to get started on your own unit trust investment journey.