REITs

The Application of REITs in Malaysian Market Definition Purpose Modus Operandi Types 4R to Parties Involved Pricing & Distribution Applied for REITs Guidelines Tax Treatment

 REITs or Real Estate Investment Trust

or property trust funds means unit trust scheme that invests or proposes to invest primarily in income-generating real estate SC Collective investment schemes where funds are pooled and primarily invested in real estate and other real estate related assets Husni & Badri (2010) REITs increase strength from the pool of resources gathered from investors and invest into high profile and high value property for greater return as lots of investors may not be able to invest in huge real estate portfolio Wong (2004)

 REITs or Real Estate Investment Trust is

The flow of funds by investors which pooled by trust for

income-generating investment on real estate assets

This scheme of property trust funds paid most of 90 percent of taxable income to unit holders, collected as rental or capital appreciation from invested real estate assets including residential or commercial buildings, retail or industrial lots, lodging or resorts, hospital or healthcare facilities, self-storage facilities, warehouses, car parking lots, plantation lands and other related real estate assets.

Affordability Pooled funds to invest in large-scale of businesses Diversification Benefit Collective ownership helps lesser risks as burden be shared among stockholders and investors & investment in many types of assets High Liquidity Ease of buy and sell back like a normal equity Low Administration Cost Fees paid to manager of management company, property manager and trustee is lower Management Expertise Individual investors have no in-depth financial & market knowledge and time to do research on assets performance Stable Dividend & Tax Efficient

Investment funded by investors with custodian by trustee will be managed by management company to generate income by acquiring, leasing or/and selling assets. Assets acquired or leased, will be administered by property manager.

In return, the income gained from rental and any capital appreciations will be distributed as fees to property manager, manager of management company, trustee and finally to investors.

#1 Equity REITs
Operates income-generating through leasing, develop real properties and tenants services. In equity REITs, funds will be use to acquire and develop real estate assets with the intention to manage portfolio rather than resell once developed.

#2 Mortgage REITs
Holds long-term mortgage or short-term financing. The funds will be use to provide interest-based loans to real estate owners or developers. This type of REITs is more risky because expose to volatility of interest rate and holding a mortgage

Tasks \ Parties

Investors

Trustee

Manager / Management Company

Property Manager

Rights

To be provided any initial information regarding funds. Also permit to sells units at any time. Investors have a right to votes for any elections.

Right to access relevant records and information of funds manage by Management Company

To manage funds & assets without any intervention or hindrance of other parties as long as they followed the deed

Independence in managing assets without others interfere on their abilities

Tasks \ Parties

Investors

Trustee

Manager / Management Company

Carry on regulated activities exercised in deed Develop business plan for short, medium & longterm in a view to maximize income Acts in the best interest of unit holders* Clearly identify funds & separate from companys assets Account to trustee any loss suffered from funds Ensure correct valuation & pricing on assets Maintain & publish proper accounting records

Property Manager

Responsibilities

To vote during the meeting for any special resolution or any election for the appointment of a director Report any unfilled guidelines or deed by trustee or Management Company

Carry on regulated activities exercised in deed Acts as custody & control the funds property Acts honestly in the best interest of unit holders* Monitor operation & management of funds by management company Notify SC for any irregularity & inconsistency activities Approve Property Manager appointed by management company

Manage real estate assets held by the funds Should observe the best of corporate governance standard

* If there is conflict of interest between trustee and unit holders, or between manager and unit holders, give priorities to unit holders interests

Tasks \ Parties

Investors

Trustee

Manager / Management Company

Property Manager

Risks

Improper use of information by Trustee & Management Company Suffer loss from rental, disposal or any unrealized loss of assets & loss from management companys failure Uncertain & volatility prices of real estate in market

Responsible to act & carry out duties in accordance with the prescribed roles. Or else, they will be penalized by SC Did not collect fees if investment suffer loss Any decision made must be prioritize on unit holders interests Issues and risk involved in foreign investments or risk of borrowing

Returns

Income distribution raised from rental and capital appreciation

Remunerated by fees agreed and declared in deed

Where to get REITs? Bursa Malaysia the same way investor buy stocks Consult Stockbroker Go to Malaysian REITs Official Web site Price for REITs is available on daily basis or else can be reach through online trading platform

Guidelines The rules and regulation for REITs transaction in Malaysia is governed by the Guidelines On Real Estate Investment Trust by Securities Commission in 1991, with the later revised on July 13, 2011.

Authorized Investment Real estates Single-purpose companies Real-estate related companies Non-related real-estate companies Cash, deposits and money market instruments
At least 50 percent of funds total assets value must be invested in real estate and/or singlepurpose companies at all times A funds investment in non-real estate-related assets and/or cash, deposits and money market instruments must not exceed 25% of a funds total asset value

Borrowing Activities A fund may use borrowing to acquire real estates and single-purpose companies, and for capital expenditure purposes The total borrowing of funds should not exceed 50 percent of total asset value of the fund at the time borrowings are incurred. It may exceed this limit by the sanction of unit holders With consent of Trustee, Management Company may pledge the funds property to secure borrowings

Non-Permissible Activities Extensions of loans or any other credit facilities Property development Acquisition of vacant land

Tax Incentives: Currently, a full income tax exemption on income of REITs if 90 percent of such total income is distributed to unit holders. Stamp duty exemption on the instruments of transfer of real properties from individuals or companies to REITs Stamp duty exemption on the deeds of assignment relating to the sales of properties from individuals or companies to REITs income tax deduction on expenses for consultancy, legal and valuation service fees for the establishment of REITs
Investors
Individuals & NonCorporate Investors

Tax Residency
Malaysian Resident Non-Resident Malaysian Resident

Withholding Tax Rates

10% 10% No withholding tax. Malaysian corporations have to declare REITs distributions in their tax returns and pay the normal corporate income tax of 25%. 25% 10%

Corporate Investors Non-Resident Foreign

Institutional Investors

Q&A Session
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