Islamic REITs - Microsoft PowerPoint - Asst Prof Dr Nurdianawati by zhangyun

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									 Practice and Prospect of Islamic
  Real Estate Investment Trusts
            (I-REITs)
       Dr. N. Irwani Abdullah
International Islamic University Malaysia
                 & ARSA
What is REITs?
• a mechanism for individual investors to invest in
  commercial real estate.
• is a corporation or business that combines the capital of
  many investors to acquire or provide financing for all forms
  of real estate, including, but not limited to, apartments,
  offices and shopping centres.
• serves much like a mutual fund for real estate in that retail
  investors enjoy the benefit of a diversified portfolio under
  professional management.
• This pool of real estate then generates income through
  renting, leasing and selling of property and distributes it
  directly to the REIT holder on a regular basis.
• In other words, REITs are essentially a listed vehicle in a
  form of a trust, which holds investment grade real estates
  with stable income-generating features.
                     Real Estate?
             Securities Commission’s
   Guidelines on Real Estate Investment Trusts
• real estate means physical land and those human-made items
  which are attached to the land.

• real estate-related assets include units of other real estate
  investment trusts, listed securities of and issued by property
  companies, listed or unlisted debt securities of and issued by
  property companies, and mortgage-backed securities.

• real estate investment trust or “property trust fund” means an
  investment vehicle that invests or proposes to invest at least 50%
  of its total assets in real estate. An investment in real estate may
  be by way of direct ownership or a shareholding in a single-
  purpose company whose principal assets comprise real estate.

                                                                   3
           How REITs work?
                             Pool Capital and
                                invest in real
                                      estates
                 Investors




Most Income
is distributed
to investors



                                   Shares traded
                                 on stock market
   Islamic Real Estate Investment?
            Securities Commission’s
  Guidelines on Islamic Real Estate Investment
                      Trusts


• Islamic REIT is a collective investment scheme in real
  estate, in which the tenant(s) operates permissible
  activities according to the Syariah.
• However, in the event that the tenant(s) is found to
  operate non-permissible activities, the fund manager
  for the Islamic REIT must perform additional
  compliance assessments.


                                                       5
    Shariah-compliant Real Estate
             Investment
• Shariah-compliant assessment is undertaken by Shariah
  committee or advisor.
• Shariah committee is responsible to oversee the operation of
  Islamic real estate investment so that it complies with every
  aspect of Shariah principles including:
   – investment,
   – deposit and financing decision for Islamic REITs,
   – acquisition and disposal of real estate and
   – rental earnings and activities.
• The Shariah committee must supervise and ensure all funds
  are managed and administered according to Shariah
  principles decreed and outlined by the Regulators.



                                                                  6
                                                                    Stakeholders
                                                                         in REIT
Shariah advisors
                                         Unit Holder                   Operation
       Advise on                      Investment
        Shariah
        issues                                      Returns

               Management services                            Safeguard unit holder’s
                                                                     interest
                                           REITs
                   Management fees                                 Trustee fees
                                      Ownership
                                      Of Property
  Manager                                                                               Trustee
                                               Net Property
                                                 Income
                    Maintenance and
                     Management
                        Services                                          Rent




                    Maintenance and                                  Rental Payment
  Property          management fees
  Manager                                  Properties                                   Tenant
                                    Rental is free from
                                     Non-permissible
                                        activities

             How incomes from      Rental from tenant
              REIT are earned?     Who operates mixed
                                        activites

                                  Methods of calculating
                                   the ratio of rental of
                                 Non-permissible activities



 Shariah                           Instruments used in
                                  Investing, deposit and
Guidelines
                                  Financing fro I-REITs
on I-REITs
             How the funds are
                managed?             Takaful Coverage



                                 Risk Management Issues
       ISSUES ON RENTAL FROM TENANT WHO
          OPERATES IN MIXED ACTIVITIES
                                                 Core business is
                                                 Shariah Compliant
                                                 but a small portion
                                                 is non-halal
                                                 activities


                                                      Method of
          Principle
                                                      Calculation

    Non-halal must not                      In calculating the ratio of
    exceed 20% of total                     non-permissible rental,
    turnover of the                         use methods like usage
    Islamic REIT                            of space, hours of service
                                            etc.
 Principle of          Principle of
`Umum Balwa             Maslahah
                                         If total area of a mall is 10,000 sqf,
                                      The area allocated for alchohol beverages
            Principle of                is 1000 sqft, hence the ratio is 10%
           Benchmarking                    is still within the acceptable limit
Case Studies of Islamic
  REITs in Malaysia



 KPJ Al-`AQAR   AL-HADHARAH
     REIT       BOUSTED REIT
Al-Aqar KPJ REIT
Al-`Aqar KPJ REIT
• Established in 28 June 2006
• Claimed as the world’s first IREITs
• Owned and invested in 6 hospitals which
  were first required from KPJ Healthcare
  Bhd.
• Total market value of the properties worth
  RM481 million (appx USD138 million)
                                                                        KPJ
                                                                     Al-`AQAR
                                             Unit Holders               REIT
          Advise on
          Shariah                       Investment
          related matters
                                                      Dividend
  Manager         Management services                           Custodianship service
 (Damansara                                  Al-'Aqar                                      Trustee
REIT Mgmt. Sdn.                              KPJ REIT                                     (Amanah Raya
     Bhd.          Management fees                                   Trustee fees            Berhad)
                                  Ownership of
                                    Property
                                                      Net Property
                                                        Income
  Maintenance                                   REIT Properties:
                    Maintenance and     1.    Ampang Puteri
  Manager for
                     Management               Specialist Hospital                          Tenants
 the properties         Services              Building                      Rent          (Subsidiaries
   (Healthcare                          2.    Damansara Specialist
    Technical                                 Hospital Building                             of KPJ)
  Services Sdn.                         3.    Johor Specialist           Rental Payment
                    Maintenance and           Hospital Building
      Bhd.)         management fees     4.    Ipoh Specialist Hospital
                                              Building
                                        5.    Puteri Specialist
                                              Hospital Building
                                        6.    Selangor Medical Centre
                                              Building
Al-Hadharah Bousted REIT
        Advise on
                                         Unit Holders
        Shariah                        Investment
                                                                                  AL-HADHARAH
        related matters
                                                    Dividend
                                                                                  BOUSTED REIT
 Manager        Management services                          Custodianship service
 (Bousted                               Al-Hadharah                                     Trustee
   REIT                                   Bousted                                     (CIMB Trustee
Manager Sdn.
                 Management fees            REIT                   Trustee fees          Berhad)
   Bhd.                           Ownership of      Rental
                                    Property        Income


                                       REIT Properties:
                                       Oil Palm Estate and
 Plantation          Monitoring of          Estate with Palm Oil
  Adviser          Plantation assets        Mill in 8 different                         Tenants
                                                                         Rent
                                            locations:                                (Subsidiaries
(Appointed by
                                       1. Batu Pekaka, Kedah                           of Bousted
Bousted REIT
                                       2. Bukit Mertajam,                                Group)
  Manager).       Maintenance and           Penang
                                                                     Rental Payment
                  management fees      3. Malaya, Perak
                                       4. Bekoh, Johor
                                       5. Kulai Young, Johor
                                       6. Telok Sengat, Johor
                                       7. Chamek, Johor
                                       8. Lepan Kabu,
                                            Kelantan
Al-Hadharah Bousted
REIT
 Lauched on 15th Jan 2006
 1st I-REIT made up of plantation assets i.e. oil palm estates
 Involves sale-lease back mechanism
 Acquires 8 plantation assets from Bousted Group involving
 8 palm oil estates and 2 palm oil mills, all located in
 Peninsular Malaysia.
 Total purchase consideration RM472 million ( USD136
 million)
 Tenants pay a cumulative fixed rental of RM41.3 million per
 annum on a bimonthly bases for the 1st tenancy term of 3
 years.
   Sources of Income for Al-
Hadharah Bousted REIT Investors
• Rental
• Performance-based profit sharing
  – Annual profit sharing of net incremental
    income based on a formula pegged to
    crude palm oil prices and fresh fruit
    bunch prices.
  – The profit shared (50:50) and payable in
    the form of dividend to unit holders.
• Capital gain
Prospects
    of
 Islamic
 REITs in
Malaysia
      1. Enhancement of tax transparency
      system & reduction of Investor’s tax

   2. Operates in a more transparent and well
regulated and transparent esp. with the issuance
    of 2 Guidelines by Securities Commission

 3. High-Quality Assets which generate a stable
Stream of cash flow backed by a steady portfolio
                   of tenants.

4. Offers investors and subscribers with high yield
         Returns and certainty of income.
    Enhancement of Tax Policy
• Tax Transparency (Effective from YA 2007)
   – REITs will be exempted from tax on all income if it
     distributes at least 90% of income to investors
   – If distributes less than 90% of income, REIT will be
     subject to income tax on chargeable income at normal
     corporate income tax (eg. 28%)
• Implications:
   – Encourages REITs Manager to distribute at least 90%
     of income to investors.
   – Certainty of income to investors
   – Ensuring higher yields from investment
         Tax Reduction for REITs
                investors
                    REIT           Current tax          Amended tax
                Distributions      treatment             treatment
Individuals &   Resident        Taxed at own           Withholding tax of
non-corporate                   marginal rate of tax   15%
investors       Non-Resident    Withholding tax at     Withholding tax of
                                28%                    15%
Corporate       Resident        Taxed at normal        Existing tax
Investors                       corporate tax rate     treatment (27%
                                (28% currently)        effective YA 2007)
                Non-Resident    Withholding tax at     Existing tax
                                28%                    treatment (27%
                                                       withholding tax
                                                       from 1.1.2007)
Institutional   Foreign         Withholding tax at     Withholding tax of
Investors                       28%                    20%
                      Conclusion
    IREITs have the potential to appeal to investors because:
• Shariah-compliant investment
• Higher Certainty of income in the form of dividend
• Funds will typically have multiple properties in its portfolio as
  well as diversified tenant pool which reduces reliance on a
  single property and tenant in the case of directly held real
  estate
• Allows investors access to investment grade assets within the
  property market for the small initial capital outlay
• Investors have the opportunity to invest in properties which
  are managed by professional management companies.
            The Guidelines on Islamic REIT essentially
• provide Shariah guidance on the investment and business
  activities of Islamic REIT and
• complement the SC's Guidelines on Real Estate Investment
  Trusts.
Thank you for your
  attentiveness

  irwani@iium.edu.my

								
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