Why is REIT considered a satisfying investment option?

If you are an investor who has been considering entering the Thai stock market for a long time, you have certainly heard of REITs or Real Estate Investment Trusts( for quite some time, especially since 2018 when REITs began entering the institutional stock exchange and became a popular choice for those seeking returns higher than savings deposits. However, there have been periods when REITs delivered disappointing results. Why is that? And what exactly are REITs? Let’s take a deeper look into this asset class.

What kind of investment are REITs?

Fundamentally, REITs are asset funds managed by a trust manager. Their main role is to raise capital from investors to purchase and manage income-generating properties such as office buildings, shopping malls, warehouses, hotels, and lease agreements or communication network businesses.

The trust will generate income from managing these assets)such as rental income and fees(, which is then distributed to unit holders as dividends. These dividends are often stable because they come from steady income sources.

)Why are REITs popular?

For property owners with existing income, REITs allow them to raise funds from investors to finance new development projects.

Investors can access the real estate market without large capital outlays, easily buy or sell REIT units on the SET market, and benefit from professional management and reporting under government regulation.

How do REITs differ from property funds?

Both REITs and property funds invest in real estate, but they differ in three key aspects:

Structure and regulation: Property funds are mutual funds without securities deposit certificates, whereas REITs are trusts regulated by the SEC and the Stock Exchange.

Investment flexibility: Property funds are limited to the Positive List and cannot invest abroad, while REITs have more freedom, allowing investments in foreign assets and development of real estate up to 10% of total assets.

Unit distribution: Property funds do not require brokers, free float, or unit holder meetings, but REITs must have at least 15% broker participation and hold annual unit holder meetings.

Therefore, REITs are more flexible but have stricter requirements, which is why Thailand currently has no new property funds—only REITs.

How many types of REITs are there?

REITs can be classified in various ways depending on the basis of classification:

###Based on property rights:

Freehold REITs###: The trust owns the property and manages income directly from leasing. When property values increase(such as due to infrastructure development), the unit value also increases accordingly.

Leasehold REITs(: The trust does not own the property but has rights to benefit from it during the lease term. When the lease ends, both the rights and the unit value disappear. Therefore, Leasehold REITs tend to decrease in value over time.

)Based on investment type:

Direct investment: REIT owns or has direct rights to real estate.

Indirect investment: REIT holds shares in other companies that invest in real estate.

(Based on asset type:

• Retail REIT: Manages shopping malls, retail centers, outlets, etc.
• Residential REIT: Manages hotels, condominiums, apartments, dormitories, etc.
• Healthcare REIT: Manages hospitals, health centers, senior housing, etc.
• Office REIT: Manages office spaces for rent.
• Infrastructure REIT: Manages communication networks, energy pipelines, etc.

Each type of REIT has different payout characteristics and factors affecting cash flow.

Factors influencing REIT value changes

The value of REITs mainly depends on two sources:

Property value: Influenced by the rights held by the REIT)such as Freehold or Leasehold###, economic conditions in the area, infrastructure development, the overall real estate market, etc. If land or building values increase, the REIT’s value will also rise.

Expected cash flow: Depends on rental rates, occupancy rates###occupancy rate(, economic conditions affecting tenant demand. For example, if tenant numbers increase, income and dividends will rise. Conversely, if there are disturbances or major incidents)such as disease(, occupancy rates for hotels or retail centers may decline.

Advantages and limitations of REITs

)Positive aspects:

• High liquidity: Easily traded on the SET like regular stocks.
• Diversification: Offers an alternative investment outside stocks and bonds.
• Transparency: Information disclosure and oversight under government regulation.
• Steady income: Regular dividends derived from stable income streams.

(Negative aspects:

• Taxation: Dividends are taxed at 10% or can be used for annual tax deductions.
• Interest rate risk: When interest rates rise, investors may shift funds to other fixed-income investments, potentially lowering REIT prices.

Before investing in REITs, carefully consider these advantages and limitations to ensure they align with your financial goals.

Examples of REITs available for investment in Thailand

CPNREIT: Leasehold REIT managing Central Group’s shopping centers, offices, and hotels. Dividend yield is 8.35% per year based on the current price of 9.85 baht.

IMPACT: Freehold REIT of conference venues, exhibition centers, and four office buildings of Impact Muang Thong Thani. Dividend yield is 4.69% per year at a price of 12.80 baht.

WHART: REIT with both Freehold and Leasehold assets for warehouse businesses. Dividend yield is 7.63% per year at a price of 9.50 baht.

JASIF: Infrastructure REIT owning 1,680,500 fiber optic kilometers, earning rental income from telecom companies. The highest dividend yield is 13.73% per year at a price of 6.70 baht.

Summary

REITs are suitable investment tools for those seeking higher dividend returns than bank interest, benefiting from professional asset management and transparent information. However, before investing, study each trust’s characteristics, assess risks, monitor economic changes, and consider whether they match your investment objectives.