Why REIT investment makes sense
Written by: Amy R. Remo
It’s a simple but highly attractive instrument that will entice more Filipinos to start investing in the stock market. Real estate investment trust (REIT), which has stirred up a lot of excitement in the local capital market over the past year, presents a new and alternative option for those wanting to get a head start in building their investment portfolio.
How so? 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. Through a share offering, a REIT lets investors own its assets at a fraction of a cost.
Since 75 percent of a REIT’s total assets are mandated to be invested in income-generating property, you are most likely guaranteed returns via dividend yields. What makes this even more attractive is that a REIT must pay at least 90 percent of distributable income as dividends to shareholders.
Shares in a publicly traded REIT are also easy to purchase and easy to dispose and therefore are readily convertible to cash.
“Having REITs in your portfolio is an excellent way to receive a steady stream of cash through cash dividends and at the same time there is also a potential for capital gains,” wrote Jaycob Yedra, a licensed stock broker from AP Securities and a Certified Securities Specialist, in an article for Inquirer Property in March. “Overall, the advantages of investing in REITs still outweigh its disadvantages. It is a great investment instrument that even first time investors should consider.”
April Lynn Tan, first vice president, corporate strategy, and chief investor relations officer of COL Financial, pointed out in an Inquirer Property webinar in June that investing in REITs is “affordable as you won’t need millions of pesos to own it; you only need a few thousands.”
“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 for 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.
New REIT offering
The latest REIT offering in the market today is sponsored by Filinvest Land Inc. (FLI), one of the country’s largest developers with over 50 years of experience. The upcoming listing of Filinvest REIT Corp. (FILREIT) presents a competitive and lucrative offering that will enable investors to benefit from an exceptional portfolio comprised of 17 Grade A offices with reputable, multinational outsourcing companies primarily as its tenants.
Giving FILREIT a distinct competitive advantage is the fact that it will allow investors to participate in the most resilient and attractive leasing sector of the Philippine real estate industry—IT and business process outsourcing (IT-BPO) sector, which impressively continues to see growth and steady demand despite the difficulties posed by the pandemic. Currently, some 88 percent of its offices are leased to prime, global BPO locators while 8.8 percent is leased to traditional offices and retail.
FILREIT is likewise touted as the first sustainability-focused REIT in this part of the world. In its initial asset portfolio of 17 office buildings, 16 are located in Northgate Cyberzone in Filinvest City—the first central business district in the Philippines to attain LEEDv4 Gold certification for Neighborhood Development Plan. The other one is an office tower with a retail component located within Cebu IT Park in Cebu City.
Besides having a stellar portfolio, a strong tenant base and sustainable offices, FILREIT can further ensure continued sustained growth with its 5 percent average contract rental escalation rate. This means that FILREIT’s leasing revenues are expected to steadily grow with its fixed contractual escalations averaging five percent a year for its entire portfolio.
Further, FILREIT also has strong growth potential from inorganic sources such as its parent firm’s extensive portfolio and CBD landbank in major hubs. FLI has 31 operational office buildings and 11 more under construction, which include 315,000 sqm of total gross leasable area that can potentially be added to FILREIT’s portfolio.
FILREIT is currently offering 1.63 billion shares priced at P7 per share with an overallotment option of 163.42 million shares. Its estimated dividend yield stands at 6.3 percent for 2021 and 6.6 percent for 2022. Offer period is until August 3.
For more details on FILREIT’s initial public offering you may visit https://filinvestreit.com/ipo-information-center.
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