What is a REIT?

A REIT is a collective investment scheme where funds from investors are pooled and invested towards a specified goal as set out in the investment objective of the fund. In addition, a REIT is a fund that invests via funds raised from investors in a portfolio of real estate assets or real estate-related assets. These real estate assets generate income from rent collected from tenants, which is then, net of expenses, distributed to investors at regular intervals. A REIT may be listed or unlisted.

A REIT may be illustrated as a tripartite relationship between the manager, the trustee and the unitholders governed by a deed registered with the Securities Commission.

A REIT is constituted by a deed entered into between the manager and the trustee. The deed sets out the manner in which the REIT or scheme is to be administered, the valuation and pricing of units, the keeping of proper accounts and records, the collection and distribution of income, the rights of unitholders, the duties and responsibilities of the manager and trustee with regard to the operations of the scheme, and the protection of unitholders’ interests.

What are the benefits of investing in a REIT?
(a)
Diversification

In addition to other available investible securities and instruments, a REIT enables investors to further diversify their investments by providing them the opportunity to pool their resources for the purchase of a diversified portfolio of authorised investments in real estate or real estate related assets. Further, investors in a REIT can usually access a broader range of real estate than they could invest on their own.

(b)
Liquidity

In a listed REIT, units are generally more liquid as they are traded on a stock exchange and investors may purchase additional units or dispose all or part of their units on any market day on the stock exchange.

(c)
Affordability

REITs allow investors to participate in the real estate market via investment in units of the REITs, which requires a smaller capital outlay relative to purchasing similar real estate on their own.

(d)
Stable returns

REITs typically have relatively stable cash flows since almost all of its revenue is generated by rentals under the terms of lease agreements with its tenants. These agreements are typically for specific durations, and may be subject to tenancy extensions.

(e)
Professional management

REITs provide investors with an opportunity to invest in real estate that is managed by experienced and professional property managers. These managers are in turn overseen by an independent trustee and regulated by the SC.

(f)
Potential capital appreciation

In addition to distributing income at regular intervals, REITs also provide an opportunity for capital appreciation via any increase in the value of real estate held in its portfolio. In the case of a listed REIT, the unit price may appreciate subject to macroeconomics conditions, stock exchange sentiments and fund performance.

(g)
Ownership of large investment grade real estate

Subject to the quality of the real estate, investing in a REIT is akin to holding stakes in large investment grade real estate, which may otherwise have been impossible for a retail investor.

What are the performance indicators used?

In general, the Kuala Lumpur Composite Index is the most widely followed and used for performance benchmarking for listed securities. The Kuala Lumpur Composite Index is deemed an appropriate indicator and benchmark for evaluating performance of listed REITs as it is readily available to most investors and generally the preferred benchmark for all Malaysian-centric equity funds. In addition, the EMAS index, which indicates the overall performance of listed companies on the Main Board and property sector index, would also be practical for the same.

To obtain the latest information on the said indices, investors may refer to the Bursa Malaysia website, www.bursamalaysia.com under Market Information Section. Other pertinent information such as daily stocks performance by sectors and individual counter can also be obtained.

In addition, investors must consider and familiarise themselves with the following performance indicators of REITs:

(i)
Management Expense Ratio (“MER”)

The ratio of expenses incurred in operating a REIT to the NAV of the REIT. These expenses include the annual management fee, the annual trustee fee, valuation and auditors’ fees and the costs of printing, stationery and postage but exclude property operating expenses such as quit rent and assessment, general property maintenance etc.

(ii)
Average Annual Return

The percentage change in a REIT’s price (after adjusting for distributions payout) for the period to the number of years under review. This indicator allows investors to compare the annualised return of the REIT with other forms of investment which is most often expressed in ‘per cent per annum’.

(iii)
Distribution Yield

The ratio of the distribution paid to unitholders from the REIT’s income to the price paid for the units of the REIT.

(iv)
Net Asset Value (“NAV”)

NAV represents the total assets of a company after subtracting all its liabilities and obligations.

(v)
Total returns

Total return is computed based on the actual gross income distribution and the net change in the weighted average market price for the year, over the weighted average market price of the REIT for the respective year.

What is the fee structure like?

There are annual operating expenses involved in running a fund such as the management fee, trustee fee, audit fee and other direct administrative costs. These expenses are deducted from the gross income of the fund.

A summary of the fees and charges that you may incur is shown below:

Annual Management Fee  
(a) Base fee
  • 0.4% per annum of the Gross Asset value (“GAV”), accruing daily and payable to us monthly in arrears.
(b) Performance Fee
  • 3% per annum of the net investment income, payable semi-annually in arrears. However, for the period from the date of listing to 31 December 2010, performance fee is payable in full or in part subject to fund achieving a minimum annualised distributable income per Unit of 6 sen (after deducting the Annual Management Fee).
Acquisition fee
  • 1% of the acquisition value of any asset (other than the Subject Properties) being authorised investments purchased by the Trustee for MQREIT.
Divestment fee
  • 0.5% of the disposal value of any asset divested by the Trustee for MQREIT.
Annual Property Management Fee
  • 5.0% per annum of the gross annual rental income on the first RM30,000
  • 3.0% per annum of the gross annual rental income on the residue up to RM100,000
  • 2.0% per annum of the gross annual rental income on the residue over RM100,000

with permissible discount, reimbursable site staff cost and government service tax. The total property management fee inclusive of permissible discount and reimbursable site staff cost is subject to review upon renewal.

The Property Management Fee is payable monthly in arrears.

Annual Trustee Fee
  • 1st and 2nd year: 0.021% per annum of the GAV, payable monthly in arrears; and
  • 3rd year onwards: First RM2.5 billion of GAV at 0.03% per annum of the GAV, payable monthly in arrears and thereafter at 0.02% of GAV, payable monthly in arrears.
  • The trustee fee may be varied upwards up to a maximum of 0.05% per annum (“Maximum Limit”) of the GAV with the written consent of the Manager only. Any other upward variation exceeding the Maximum Limit requires the prior approval of the unitholders by way of an Ordinary Resolution.
Other Fund Expenses
  • Auditor’s fee;
  • Valuation fee;
  • Other relevant professional fees;
  • Interest expense;
  • Printing, posting and general expenses; and
  • All other expenses related to the Fund
What are some of the risk factors involved?

An investment in the initial public offering Units to be listed on the Main Board of Bursa Securities involves a certain degree of risk. You should carefully consider the following summary of risk factors (which may not be exhaustive) in addition to the other information contained elsewhere in this Prospectus before applying for the Units. If necessary, you should consult your own professional advisers as to the legal, business, financial, text and related aspects of holding and owing the Units.

(a)
Risks relating to MQREIT’s operations
  • Economic, political and regulatory risks;
  • Conflicts relating to the acquisitions from the vendors;
  • Potential conflicts of interest and potential competition between MQREIT and Quill Group of Companies;
  • Potential conflict of interest between ourselves and Malaysian Resources Corporation Berhad;
  • Risks associated with borrowings, CP/MTN Programme and interest rates;
  • Limitations on borrowings;
  • Operating history;
  • Dependence on key personnel;
  • Investment policies of MQREIT may change;
  • We may not be able to successfully implement our investment strategy; and
  • Illiquidity of investment in property.
(b)
Risks relating to Real Estate Assets
  • Location of the Subject Properties;
  • Dependence on tenant in a single-tenanted building;
  • Gross rental income and the value of the Subject Properties may be affected by a number of factors;
  • Increase in operating and other expenses;
  • Adequacy of insurance coverage;
  • Compulsory acquisition by the government;
  • Non-registration of the transfer of the Subject Properties; and
  • Subsequent disposal of the Subject Properties.
(c)
Risks relating to an investment in the Units
  • Distributions to unitholders will be subject to cash availability;
  • No prior market for Units;
  • No redemption of Units by us;
  • Future dilution of the NAV of the Units;
  • Effects of possible sale of a substantial number of Units by Substantial Unitholders;
  • Taxation;
  • Market price of Units after the IPO; and
  • Consolidated profit and distribution estimate, forecast and projections and forward-looking statements.
What is the typical investor profile of MQREIT?

Investments in REITs are generally less risky than direct investments in real estate, investments in shares and investments in financial derivatives. Investments in REITs are generally riskier than investments in bonds or fixed deposits. MQREIT may appeal to a conservative to moderate investor with a long-term investment horizon who seeks regular distribution of income and long-term capital growth.

What is MQREITs distribution policy like?

The distribution policy of MQREIT is to distribute at least 90% (or such lower percentage at our discretion) of the distributable income to the unitholders. MQREIT will distribute to unitholders such distributable income on at least a semi-annual basis (or such intervals as we may determine).

What is the stock quote for MQREIT?

MQREIT.

What is the total number of MQREIT units on issue?

661,381,000 units.

Who are the substantial unitholders of MQREIT?
  • Malaysian Resources Corporation Berhad - 206,250,000 units (31.2%)
  • CapitaCommercial Trust - 117,040,000 units (17.7%)
  • Quill Land Sdn Bhd - 48,767,000 units (7.4%)
  • Quill Properties Sdn Bhd - 45,997,000 units (6.9%)
  • Quill Estates Sdn Bhd - 22,276,000 units (3.4%)