Property investing is the OG of passive income. Even though there are plenty of assets for the modern day investor to choose from, property investing remains one of the de-facto investment for stable and predictable passive income generation.
Only if it’s done right.
There are fewer than 20 M-REITs listed on the KLSE.
19 to be precise.
This means lesser choices and also lesser quality. The other side of the coin means its easier to sieve out the cream of the crop – the top 30%, or the top 6 M-REITs.
So which are the top 6 based on their historical 10 year track record?
1. IGB Real Estate Investment Trust (KLSE: IGBREIT)- Non-shariah compliant
The OG mall in Malaysia. Every Malaysians would have set foot at least once inside IGBREIT’s malls.
Even some Singaporeans I know adore the mall and location. While Bukit Bintang might be the tourist magnet, much like Orchard Road, I would compare the location of IGBREIT’s two key malls – Midvalley Megamall (MGM) and The Gardens Mall’s (TGM), to the City Hall area.
Not too far from Orchard Road, has its own charm, and practically no other competition would come encroaching into this particular space.
Imagine your Raffles City and Funan Mall. Yes there are other smaller malls nearby, but they all pale in comparison. That is the same for MGM and TGM.
IGBREIT’s portfolio has been boring ever since its IPO, with 2 very strong and well-managed malls. But that is about to change with recent news that it will be adding Mid Valley Southkey Mall as its third investment property, with the purchase targeted to be completed in Q4’25.
The acquisition is supposed to have an accretive pro forma effect to the NAV per unit and DPU – NAV per unit increase by +16% and DPU increasing by +15%.
It is also the outlier amongst all M-REITs – an investment in this REIT 10 years ago would have returned a total of +243%, inclusive of distributions.
2. Atrium REIT (KLSE: ATRIUM) – Non-shariah compliant
Atrium Real Estate Investment Trust (Atrium REIT) is a Malaysia-based industrial asset-focused REIT established in 2006. Atrium REIT primarily invests in income-producing industrial properties located in prime industrial locations within Klang Valley and Penang.
While the industrial assets in Malaysia might not have the data centre pivot and transformation similar to what’s happening in Singapore, Atrium REIT has a knack of doing strategic Asset Enhancement Initiatives (AEI) to boost the rentability of its properties. It has also rode on the rise of logistics and e-commerce as well for properties leased to logistics companies.
Its industrial asset portfolio is relatively defensive against economic cyclicality, unlike retail and hospitality REITs that face more volatility. This provides more consistent cash flow and less sensitivity to economic downturns
An investment in this REIT over a 10-year horizon would have returned +131%.
3. Sunway REIT (KLSE: SUNREIT) – Non-shariah compliant
Sunway REIT (SUNREIT) is a large diversified Malaysian REIT with a portfolio spanning retail, hospitality, industrial, office, and services segments. Its crown jewel – the Sunway Pyramid shopping centre is perhaps one of the most iconic malls in Malaysia with its Egyptian theme and giant lion-headed sphinx.
Unlike IGBREIT which is relatively passive in the acquisition front, SUNREIT has relied on acquisitions and diversification to built its portfolio to it’s current size.
Today, the REIT’s investment properties include malls in key cities in Malaysia, commercial buildings and even university campuses.
The Sunway Group has a strong track record in developing townships. So that spells more potential properties to be injected into SUNREIT.
A 10-year holding period on the REIT would have generated a total return of +130%.
4. Axis REIT (KLSE: AXREIT) – Shariah compliant
Axis Real Estate Investment Trust (AXREIT) is Malaysia’s first industrial REIT, focusing primarily on industrial and office properties across key industrial hubs such as Klang Valley, Penang, and Johor.
The REIT’s gearing ratio remains moderate at 33%, which has always been a vital factor providing flexibility for future acquisitions. Its stable rental income and positive rental reversion prospects underpin a solid distribution growth outlook, with analysts forecasting 10-15% NDPU growth in FY25.
Since the REIT does not have a sponsor, its track record of growth is derived from shrewd acquisitions and strategic greenfield projects for long term quality tenants.
Due to its impressive track record, the REIT has returned close to +115% over the past 10 years.
5. YTL Hospitality REIT (KLSE: YTLREIT) – Non-shariah compliant
Imagine a hotel REIT listed on the Malaysia stock exchange, with brands like Marriott, Hilton and Ritz-Carlton under its portfolio.
YTLREIT is a prolific hospitality REIT that owns multiple hotels, not just in Malaysia but also in Niseko, Japan.
While the hospitality segment can be notoriously cyclical, YTLREIT’s DPU has been stable, and recent talks of potential acquisition and capital management activities promises to boost future earnings.
Despite the short-term fluctuations, YTLREIT’s partnerships and marquee hotel assets provide a competitive advantage for sustained income growth.
The REIT has chalked a total return of +107% over the past 10 years.
6. Pavillion REIT (KLSE: PAVREIT) – Non-shariah compliant
If CapitaLand’s Ion is the centrepiece of Orchard Road, then the equivalent in Kuala Lumpur would be Pavilion Bukit Bintang, owned by PAVREIT.
While Pavilion Bukit Bintang is well known and considered a crown jewel in PAVREIT’s portfolio, the REIT also boasts other malls, offices and hotels as its collection.
The REIT’s 10-year outperformance and returns of closed to +100% stems from sustainable and strong growth of its investment properties, especially those located in Bukit Bintang area. While the REIT suffered during the lockdown, things are back to its rosiest, with retail and hotel bookings spurring a revival in the REITs fortune.
Let’s not forget its ongoing acquisition of Pavilion Bukit Jalil from its sponsor, which also adds to its growing distributable income.
Pavilion Bukit Bintang would forever be a tourist landmark and magnet, so at least we know that PAVREIT is here to stay.
Shariah compliance and the M-REIT distribution withholding tax
As Malaysia is primarily an Islamic country, the focus and priority of companies and investments adhering to Shariah compliance will play a key focus in attracting capital that focus on it.
Muslim investors might want to focus on REITs that are Shariah compliant that are attuned to their religious beliefs.
Regarding distribution withholding taxes, dividends paid by REITs in Malaysia will have a 10% withholding tax, regardless of the residency of the individual investor.
So a Malaysian investor who has invested in an M-REIT will get a 10% withholding tax on his or her entitled dividends. The same tax rate applies to foreigners as well.
While 10% is not a lot, it could dissuade investors to look for more opportunities, especially in Singapore where distributions and dividends normally do not have withholding taxes.
Verdict
While I agree that investing in blue chip REITs doesn’t necessarily equate to investing in businesses with a competitive moat, the strategic location of a property sometimes can work wonders in property investing.
The top performing REITs might have different focus, but their core strength still boils down to pristine location together with shrewd management.
While management could come and go, a great team would last for at least more than 10 years.
A great location alone is already a strong justification for a REIT to do well in the long run. That’s why I wouldn’t want to bet against the REITs listed above.
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