Did you invest in the right REIT?

There are multiple ways to grow your wealth. 

From direct to passive investments, the list is extensive and varies widely. With real estate investment trusts (REITs) available in the Philippine Stock Exchange (PSE), are you ready for this new asset class?

What are REITs?

The Real Estate Investment Trust Act of 2009 (RA 9856) defines REITs as stock corporations established principally for the purpose of owning income-generating real estate assets that produce income streams from rentals, toll, user’s fees, tickets sales, parking fees, storage fees, etc.

In addition to real properties, assets may include real estate-related, managed funds, debt securities, listed shares, government securities, cash and cash equivalent items or other investments.

REITs are required to be publicly listed, with a P300 million minimum paid-up capital, have at least a thousand public shareholders each owning at least fifty shares, who when aggregated, own at least a third of the outstanding REIT capital.

PSE REITs

There are six REITs that are trading in the PSE since 2020, of which five are property-related companies:

• AREIT Inc. (AREIT). AREIT was the first REIT to list in August 2020. The Ayala Land Inc.-sponsored company ended 2021 with 12 properties with a market value of P53.4 billion. These 549,000-square meter gross leasable area (GLA) properties include office, retail, hotel and industrial buildings in Metro Manila, Laguna, Cebu and Bacolod. Based on its disclosures, from 2020 to today, declared dividends totaled P3.09 per share. From P27.00 per share initial public offering (IPO) price, it is trading at P46.25 per share as of March 18, 2022.

• DDMP REIT Inc. (DDMPR). The second REIT was sponsored by DoubleDragon Properties Corp. Initially incorporated to develop DD Meridian Park, it has six office towers with retail components, with expansion plans in Metro Manila and other key provinces. Based on its disclosures, the declared dividend totaled P0.096391 per share. From its IPO price of P2.25 per share last March 2021, DDMPR is at P1.60 per share as of March 18, 2022.

• Filinvest REIT Corp. (FILRT). FILRT was the third REIT to list. Its properties consist of over 300,000 sqm. GLA in 17 office and commercial buildings catering to business process outsourcing and information technology companies in Metro Manila and Cebu.  Sponsored by Filinvest Land, declared dividends from 2021 totaled P0.336 per share. From its August 2021 IPO price of P7.00 per share, it is trading at P7.13 per share as of March 18, 2022.

• RL Commercial REIT Inc. (RCR). Backed by Robinsons Land Corp., the company was the fourth to list. Its initial portfolio covers 14 assets with 425,315 sqm. GLA, the biggest in REIT asset size. It boasts of the largest market capitalization at P64.2 billion, and highest portfolio valuation of P73.9 billion as of end-June 2021. RCR also has the widest geographical coverage, spanning Metro Manila, Naga, Tarlac, Cebu, and Davao, and the longest land lease tenure arrangement of up to 99 years and average of 89 years. So far, the total paid dividend reached P0.154 per share. From its September 2021 IPO price of P6.45 per share, it is trading at P7.18 per share as of March 18, 2022.

• MREIT Inc. (MREIT). The fifth REIT is a Megaworld Corp.-sponsored company that has ten offices with retail components, and hotel properties in Metro Manila and Iloilo City, with nearly 225,000 sqm. GLA. All of the properties are owned by MREIT but lease on land owned by the sponsor.  It has declared a dividend totaling P0.4799 per share.  From its IPO price of P16.10 per share last October 2021, shares are trading at P18.62 per share as of March 18, 2022.

• Citicore Energy REIT Corp. (CREIT). CREIT was the sixth REIT to list last February 2022. It is the country’s only renewable energy-focused and non-property REIT. It is sponsored by Citicore Renewable Energy Corp., and under the same ownership group of Megawide Construction Corp. It has eight solar assets located in the provinces of Tarlac, Pampanga, Bulacan, Bataan, Negros Occidental, Cebu and South Cotabato. It has declared a dividend of P0.035 per share for April 2022 pay out.  From its IPO price of P2.55 per share, shares are trading at P2.68 per share as of March 18, 2022.

Pros of REITs

A REIT play is considered a proxy to direct real estate investment, without the need to be involved in the companies’ day-to-day operations. With REITs, investors are now able to diversify their stock market portfolio.

Because REITs enjoy special tax status, their shares are well received by big and small players who are attracted to the stable yet passive cash flows.  

Dividend payouts

REITs’ most important advantage is that companies are mandated by law to pay out a very high 90 percent of distributable income as dividend, out of unrestricted retained earnings.  Unlike stocks wherein the corporation’s board has to decide whether or not to distribute excess cash, the regularity of REITs’ income distribution means better returns.

Dividend yield is computed by dividing the total dividend over the stock price. To illustrate, if a REIT company declares a dividend of P1.77 per share for the year at a price per share of P44.35, the resulting 0.03833 when converted into percentage means a 3.833 percent dividend yield. At the offer price of P27 per share, dividend yield is at 6.556 percent.

The law prescribes that “Cash or property dividends paid by a REIT shall be subject to a final tax of ten percent unless: (a) the dividends are received by a non-resident alien individual or a non-resident foreign corporation entitled to claim a preferential withholding tax rate of less than ten percent pursuant to an applicable tax treaty; or (b) the dividends are received by a domestic corporation or resident foreign corporation, or an overseas Filipino investor in which case, they are exempt from income tax or any withholding tax: Provided, That in the case of overseas Filipino investors, they are exempt from the dividends tax for seven years from the effectivity of the tax regulations implementing the Act”.

Points to consider

When choosing which REIT to invest, know the sponsor company, management team and track record. Research the properties being managed. Invest in companies with quality tenants, long contracts and have diverse property locations to reduce any localized socio-economic concerns.

In comparison with the PSE Index, bonds and commercial papers, the increase in REIT share prices, plus annualized dividend yields are generally better, asserting that they are great buys.

But before making that final decision, check out other statistics. Study the share price movement, capital appreciation, growth opportunities of additional value-accretive properties, historical performance, and total return. With numerous investment choices, be well informed, and reduce your risks.

Did your money grow if you invested in REITs? Check out this chart

If you invested approximately P100,000 at the REITs’ IPO price, below are the new investment values based on share prices as of March 18, 2022 inclusive of total dividend declared after listing.

(References used include RA 9856, SEC MC 01-20, PSE and REIT companies’ websites)

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Henry L. Yap is an architect, environmental planner, real estate practitioner and former professorial lecturer.

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