REIT is a real estate investment trust that generates continuous income.

REIT (Real Estate Investment Trust) or property trust funds for investment are increasingly popular investment tools in the Thai stock market. They have been traded since 2018 and have become a main choice for investors seeking steady income. However, the benefits of REITs vary over time due to various factors affecting income generation and the value of the trust fund itself.

What kind of investment is a REIT?

A real estate investment trust is a “fundraising system” where fund managers pool capital from selling units to investors, then use that money to manage income-generating assets such as hotels, warehouses, shopping malls, land, or even communication networks.

REITs are special in that the income collected from rent and other benefits is paid back to unit holders as dividends, providing investors with relatively consistent cash flow throughout the year. Additionally, REITs operate under the supervision of relevant government agencies to protect investors.

Why invest in REIT?

For property owners

Property owners with income-generating assets can bring those assets into a trust to raise additional funds by selling units to investors. This way, property owners can fully develop new projects using the raised capital.

For investors

REITs provide access to the real estate market without requiring a large amount of capital. Investors can start with a small number of units. There are also professional managers overseeing and managing the trust professionally, with transparent profit sharing under government oversight.

How do REITs differ from Property Funds?

REITs are a development continuation from (Property Funds), which have been improved for greater flexibility and to meet international standards. The two options differ mainly in three aspects:

Structure and regulation

Property Funds are mutual funds that do not require a securities deposit certificate, whereas REITs are established as trusts under the supervision of the SEC (Securities and Exchange Commission) and must be approved by the SET (Stock Exchange of Thailand).

Investment scope

Property Funds have investment restrictions, only investing in items listed on the Positive List (Positive List) of the SEC, and cannot invest abroad. REITs are more flexible, allowing investments in foreign assets and development of real estate up to 10% of total assets.

Unit issuance and management

Property Funds issue units similarly to typical mutual funds, without maintaining free float or holding unit holder meetings. In contrast, REITs are managed like listed companies, with at least 15% of units held by retail investors and annual unit holder meetings.

Currently, in Thailand, old Property Funds are no longer issuing new units, as they have all been converted into REITs. REITs can also include (Infrastructure Funds).

How many types of REITs are there?

Based on property rights

Freehold (Absolute ownership)

The trust owns the property outright, able to generate income from rent and other benefits. Since the trust owns the property outright, units can appreciate with the property’s value, such as through additional construction, increasing unit value.

Leasehold (Lease rights)

The trust does not own the property but has the right to use it under a lease agreement. The trust manages the property to generate income and pays dividends to unit holders. When the lease expires, the trust loses the right to use the property, causing the unit value to gradually decrease over time until the lease ends, at which point the value drops to zero as it can no longer generate returns.

Based on investment method

Direct Investment (Direct ownership)

The trust directly holds ownership or usage rights of the property.

Indirect Investment (Through holding shares in other companies)

The trust holds shares in other companies, which in turn invest in real estate.

Based on property business type

Retail REIT (Retail properties)

Manages income from shopping malls, retail centers, gift shops, outlets, and other trading venues.

Residential REIT (Residential properties)

Manages income from hotels, condominiums, apartments, student dormitories, and residential buildings.

Healthcare REIT (Healthcare properties)

Manages income from hospitals, clinics, and elderly care centers.

Office REIT (Office buildings)

Manages income from office buildings.

Infrastructure REIT (Infrastructure properties)

Manages income from communication networks, energy pipelines, and other infrastructure-related structures.

What determines the value of a REIT?

The value of a trust fund consists of two main parts: the value of the properties held by the trust and the expected long-term income streams.

Factors related to property value

The type of property rights determines the valuation trend. Leasehold REITs tend to decrease in value over time as the lease term diminishes. Local economic conditions, construction investments, utilities, and location also play significant roles in increasing or decreasing property prices.

Factors related to expected income streams

Economic conditions are crucial. For example, if office tenants increase, Office REITs will generate more income and pay higher dividends. Conversely, events that reduce tourism will decrease hotel asset income, leading to lower dividends.

Advantages and limitations of investing in REIT

Advantages of investing in REIT

High liquidity

REITs are easily traded on the SET (Stock Exchange of Thailand), allowing investors to enter and exit positions quickly.

Diversification

Adding REIT units to an investment portfolio helps diversify risk. Investors can also choose different types of REITs to balance their holdings.

Transparency

Real estate trusts are regulated by government agencies. Registration, offering, and operational disclosures are all subject to strict oversight.

Relatively steady income

REITs are designed to generate regular cash flows, so investors receive dividends consistently throughout the year.

Limitations of investing in REIT

Tax burden

Dividend income from REITs is subject to 10% withholding tax or included in annual income taxed at personal rates, which can be higher for high-income earners.

Interest rate sensitivity

REITs are influenced by changes in interest rates. When rates rise, investors may shift to other fixed-income assets, causing REIT prices to decline.

These advantages and limitations should be carefully considered by investors to ensure alignment with their investment goals and financial situation, aiming for expected returns.