The REIT stuff: Things to know before you invest

After being lulled into a COVID-19 pandemic stupor the past year, the Philippine stock market is now abuzz with exciting news about upcoming initial public offerings and new investment opportunities such as real estate investment trust (REIT).

“There are around 90,000 investors already attracted to REITs,” said Francisco Ed. Lim, former Philippine Stock Exchange president and CEO, at a REIT webinar last May 20, organized by the Financial Executives Institute of the Philippines.

Ready to jump into the bandwagon of REIT investors? Before you do, here are the top things you need to know about this fresh financial concept:

You don’t need to buy land or manage properties on your own to be an investor. By buying shares in a REIT, you can tap into areas of the real estate market and potentially earn dividends without purchasing or managing the property yourself, or even taking out a loan. You just need to sign up with a stock brokerage, do due diligence, and invest smart.

A REIT portfolio involves an extensive array of income-producing assets. As long as the property is attached to the ground and meets the investment criteria under the law (such as having a good three-year track record from date of acquisition), then it can be part of a REIT.

REITs aid wealth creation and distribution. REITs are required by law to maintain a 33-percent public float (the portion of the company owned by the investing public) and to distribute at least 90 percent of their taxable income to shareholders every year in the form of dividends. The game is in diversification. There is a wide array of projects to choose from, and the REIT stock price may increase with growing real estate demand, increased property value or intense development in the location.

REITs create a multiplier effect on the property sector. Under the law, at least 75 percent of the REIT’s total assets must be invested in income-generating real estate. They may invest in similar assets offshore but not exceeding 40 percent of their total asset value.

Investing in REITs also comes with risks. It’s important to choose your REIT wisely. Your REIT of choice must have a growing, high-income, and high-quality portfolio and are issued by highly reputable and well-managed companies with a steady track record.

REIT has some tax perks. The transfer of property to a REIT in exchange for its shares is exempt from the 12-percent VAT (value-added tax). REITs are also subject to tax hikes on properties that are imposed, both locally and nationally.

REITs help the economy bounce back better. REITs help the economy recover from economic slump by enabling issuing companies to shore up capital and fund their business growth, and allowing Filipinos to channel their savings to investment.

REITs get a boost from BPOs. The resilient IT-BPO sector is seen as a boon to REITs that have an office leasing portfolio. Among the upcoming REIT issues, Filinvest Land Inc. (FLI) has one of the longest track records in leasing office spaces to BPOs.

“The BPO sector affords steady cashflow for our office leasing business, thanks to the resilience of the country’s BPO sector,” said Maricel Brion-Lirio, president and CEO of FLI subsidiary, Cyberzone Properties, Inc. (CPI).

CPI has submitted an application with the Securities and Exchange Commission to change its name to Filinvest REIT Corp., which has a planned portfolio consisting of 16 office buildings clustered in the 18.7-hectare Northgate Cyberzone, a PEZA (Philippine Economic Zone Authority) Special Economic Zone in Filinvest City in Alabang, Muntinlupa; and one office tower with a retail component in Cebu Cyberzone, also an economic zone in Lahug, Cebu City.