A resounding yes for REITs

Are we right about real estate investment trust (REIT)?

It’s a resounding yes, according to the experts in a recently aired webinar titled “Are we right about REIT?”, which was hosted by the Property Section of the Philippine Daily Inquirer. This livestream event had as panelists Eduardo V. Francisco, president of BDO Capital & Investment Corp.; Atty. Francisco Ed. Lim, senior legal counsel of Angara Abello Concepcion Regala & Cruz Law Offices; April Lynn Tan, first vice president, corporate strategy, and chief investor relations officer, of COL Financial; and David Leechiu, co-founder and CEO of Leechiu Property Consultants Inc.

There has been so much excitement over REITs over the last 12 months, especially as two of the country’s most active property players had their REIT companies successfully completing their respective initial public offerings. Ayala Land’s AREIT was the REIT curtain raiser, which raised an estimated P13.6 billion from its IPO in August. It was followed by Double Dragon’s DDMP REIT, which completed its IPO in March this year. And now, more companies are following suit.

REIT refers to a company established for the purpose of owning income-generating real estate assets that can provide a return to investors from rental income. These assets include office spaces, shopping malls, serviced apartments, hotels and resorts, hospital and medical facilities, highways, railroads and warehouses. What makes this even more attractive is the fact that REITs must distribute 90 percent of its unretained earnings to its shareholders.

A good asset class

“For us Filipino investors, REITs are a good asset class to invest in. It’s relatively safer. Of course, nothing is fool-proof, but the kind of REITs that are coming out are all good REITs. They have good sponsors, good recurring models, good management,” Francisco said.

“I’m working on two more REITs so there might be six to seven REITs before this year ends. If you’re looking for a sign that the REIT is a good investment class, the fact that a lot of issuers are going to the market to tap it means that it is. For you as an investor, it’s a very good new asset that you should consider… because you get almost regular dividend yields that can even go up and there’s capital appreciation so you get the best of both worlds. (REITs) are not necessarily just for real estate. You could also do REITs for power, hospitals, roads, bridges, even water companies,” he further explained.

Lim, who initiated REIT in the country during his time as president of the Philippine Stock Exchange, pointed out that this new investment product was really envisioned not only to help develop the local capital market but to also enable Filipinos to be part owners of big real estate companies that are income generating.

“One thing that I need to emphasize is that REIT is not only professionally managed, but also that the fund managers and property managers are subject to strict corporate governance standards. That was envisioned to better protect the investors in a REIT company. I think that all of us, the retail investors, should look at it. It’s not only for institutional investors like SSS, but it was intended for the benefit of the retail investors,” Lim said.Leechiu meanwhile commented that REITs came at a time when the Philippines needed it most.

“We have to remember that times are hard today but despite that, there are many good things are happening—the performance of (Double Dragon’s DDMP REIT) and AREIT, and the long pipeline of REITs coming up are a testament to that,” he said.

“These REITs are some of the best assets that the developers have—some of the best tenants that you could ever have. For example, Megaworld will have JP Morgan as their tenant and they have committed to 90,000 sqm of office space with Megaworld. That’s some of the best companies you can ever have to get rent from in the world. And all these companies that are renting space in the Philippines, 98 percent continue to pay their rents; 99 percent have renewed their rents and leases and they are renewing for five, seven and 10 years, and that will show you the resilience and the security of investing in REITs,” Leechiu further explained.

Tan, for her part, noted that REIT is a new instrument that may help Filipinos reach their goal of increasing their passive income.

“As we always say in COL financial, every Filipino deserves to be rich. Now is your chance to buy equities in the form of REITs (which) are good sources of passive income. They’re less volatile than equities. You can think about it as if it’s a proxy of buying properties. As you know, when you buy properties and you don’t do anything, it’s not going to yield any income for you. But with these REITs, you have fund managers and property managers taking care of them for you and you only have to check your account every quarter to get cash dividends. It’s that simple,” Tan explained.

“It’s also affordable. You don’t need millions of pesos to own it. You only need a few thousands so it’s affordable. Second, it’s diversified. (REITs) have a portfolio of several buildings found in different locations… And if you need the money, you can easily sell a few shares, you don’t have to sell all of it. This is really attractive to investors,” she added.

This webinar was supported by AREIT, DDMP REIT, Megaworld Corp., and Sta. Lucia Land Inc. You can watch the replay of this webinar via the Inquirer Property’s Facebook page (https://www.facebook.com/INQ.Property/)