Given the option, would you rather invest in a single property with no guarantee of returns, or the entire industry as a whole with a historically proven track record of providing substantial returns?
If you have picked the latter, maybe investing in real estate investment trusts (REITs) is the way to go. REITs is (mostly) a public listed platform, that acquires and rents out real estate, and distributes the rental incomes amongst its unitholders.
A REIT is operated by a REIT management company, and Entrepreneur Insight is proud to have a chance to meet Ms Leong Kit May, Chief Executive Officer of Axis REIT Managers Berhad (ARMB), to pick her brain on the real estate market and REITs in general.
A large portion of Axis’s portfolio consists of warehouse logistics and manufacturing facilities. Why is that?
It very much depends on the REIT itself, actually. We started out as very much an industrial player.The first five properties we started out with, beside the menara axis at crystal plaza which is 100% office, the rest of the properties is a combination of warehousing and office.
Since then, we start to see more potential in that industrial space, and AXIS REIT has started promoting itself as an industrial builder. Since then, the portfolio has gained more exposure towards warehouse and manufacturing
Why industrial properties? One very positive aspect is that industrial properties are very stable and has very long leases. The tenants will occupy the space for a very long time because of the investment they have put in. Office generally has a tenure contract of three years, but for industries like manufacturing, you can get stretch it until twenty years, hence why they provide a lot of stability to the portfolio.
Would you say that the industrial property market is independent from the other property segments, not likely to be affected by market trends?
When you look at the property market, there are many segments and within those, even more sub segments. The industrial space supply and demand has always maintained at a healthy level, and the demand for industrial space will only continue to grow overtime.
The manufacturing segment is very resilient, and the growth of e-commerce will drive growth in demand for warehousing space as well. Normally, people invest in the residential industry speculatively. But for REITs, we will only acquire and invest in properties when it provides good returns to shareholders.
Do you acquire your own tenants?
Generally, we acquire properties with tenants inside and not the tenants themselves. But we are always actively sourcing tenants, because being a landlord in any property businesses, tenants sometimes move in and out and we need to ensure tenant renewals are maintained at a good rate.
Are there any specific types of unitholders that you are specifically looking for?
I think, generally, the REIT unitholders are long-term investors. They understand that when they invest in REITS, they are essentially investing in the real estate market, and they are looking at long-term prospect of the REIT itself. If you notice, a large majority of units are held by EPF, KWAP, and some insurance funds.
But at the same time, we are reaching out to individual unitholders as well. Back in 2005 when REITs were new, people do not understand what exactly REIT is and the benefits. One of those benefits is tax transparency. We do not pay tax as long as we distribute more than 90% to our individual shareholders. Compared to anyone who invests in public listed companies, they would have to pay tax which will reflect in their dividends.
What is you future outlook on the industrial and REIT market?
We have a positive outlook of the industrial market , due to the growth in this particular segment. REITS has always been a stable investment tool. With the current low interest rates, and potential rate cuts, I think REITS will be a much more attractive investment for unit holders.
Despite the KLCI dropping, there are alot of people looking for defensive investment opportunities. They are also looking into REITS, because REITS is backed by real estate. With the portfolio of properties that we have on board and our occupancy rate, I would say it is very defensive.