How to Invest in REITs in the Philippines

Last Updated Oct 14, 2021 @ 8:59 am

Real estate is a very profitable investment, but many middle-class Filipinos shy away from it because they can’t afford the high purchase price and the recurring costs of property ownership.

Enter the real estate investment trusts (REITs)—the emerging alternative for small investors who want to make money in real estate. 

REITs offer an easier, more accessible, and more affordable way to earn from large-scale, profitable properties without having to pay for their full cost.

Several developments in the real estate market have paved the way for the viability of REIT investing in the Philippines. For one, requirements for REITs in the Philippines have become more relaxed, encouraging the entry of companies like the Ayala Land REIT (AREIT), the first listed REIT in the stock market. 

As a result, more real estate companies are expected to make their REITs available to public investors in the future. 

What is an REIT?

A real estate investment trust (REIT) is a corporation that earns recurring income from properties they own and manage. A REIT makes money by collecting rentals, user’s fees, toll fees, parking fees, or storage fees from their tenants.

Not all real estate companies qualify as REITs in the Philippines. To become a REIT, a corporation should meet the requirements under the Real Estate Investment Trust Act of 2009 (Republic Act 9856)1 for the protection of investors.

A REIT must satisfy the following criteria along with others stated in the REIT law:

  • Public company listed with the Philippine Stock Exchange (PSE)
  • At least 1,000 public shareholders, with each owning at least 50 shares (Minimum public ownership must be 33% of the REIT’s outstanding capital stock.)
  • Paid-up capital of at least Php 300 million
  • At least 75% of the REIT’s deposited property consisting of income-generating real estate assets
  • An appointed independent fund manager who implements the REIT’s investment strategy
  • An appointed independent property manager who manages the REIT’s properties
  • An independent appraisal company that conducts a full valuation of the REIT’s properties at least once a year

How does an REIT work in the Philippines?

Here’s an overview of the REIT investing process—from the establishment of a REIT to when its investors earn money from it.

1. A real estate company creates a REIT corporation.

A REIT company starts with a sponsor that provides and transfers income-generating properties into the REIT entity.

For example, AREIT was incorporated as a real estate company2 in 2006 by its sponsor, Ayala Land, Inc. AREIT operates three commercial buildings in Makati: Ayala North Exchange, McKinley Exchange, and Solaris One.

Meanwhile, DoubleDragon is set to transfer its most valuable real estate asset into a REIT: the DD Meridian Park in Pasay City that consists of seven commercial buildings. 

2. The REIT gets listed in the stock market through an IPO.

After complying with all the requirements under the REIT law, the real estate company files its REIT listing application with the PSE and the Securities and Exchange Commission (SEC). 

Once the REIT gets the SEC approval, it can already list its shares in the PSE through an initial public offering (IPO). This means the REIT is selling its shares, which public investors can buy in the stock market.

Funds raised from the IPO are used for the REIT company’s expansion i.e., acquiring more properties to increase revenues.

3. Investors get paid as the REIT earns income.

When you buy shares of a REIT, you own a portion of its real estate assets. A share of the income generated from that investment is regularly paid back to you as a shareholder in the form of stock, property, or cash dividends.


REIT Investing: What are its similarities & differences from other investments?

For a deeper understanding of REIT investing, it’s important to know how it’s similar to and different from other types of investments such as stocks and mutual funds.

Investment TypesSimilarities to REIT InvestingDifferences from REIT Investing
Real estate investingBoth investments allow investors to own properties.Real estate investors have to shoulder the full cost of the acquired property. REIT investors pay only a small fraction of the property value in the form of shares.
Mutual fund investingFunds from individual investors are pooled and professionally managed.Mutual funds are invested in money market funds, bonds, or stocks. REIT shares are invested in real estate assets.
Stock investingShares are traded on the stock market and can be purchased by investors.Investors own a piece of the publicly traded company.Stock investors get shares from various companies, while REIT shares are limited to real estate.Stocks may or may not pay dividends to shareholders, while REITs are required by law to pay dividends.

Why should you invest in REIT?

Amid the current pandemic, REITs don’t seem like a good investment. However, you’ll think otherwise if you consider its long-term benefits3.

1. Regular earnings through dividends

Under the REIT Act of 2009, REITs must pay at least 90% of their distributable annual income as dividends to their shareholders.

Dividend payouts from REITs are guaranteed by the law, unlike when investing in property stocks (e.g., Ayala Land, SM Prime, Megaworld, Vista Land, etc.) in which companies may or may not decide to give dividends.

Investors also earn higher from REITs (with an estimated dividend yield of 4% to 6%) than government bonds and time deposits. Over time, as properties of REITs increase in value, investors can receive higher dividends.

These benefits make investing in REITs perfect for earning passive income. More so for OFWs who invest in Philippine REITs, as they’re exempted from paying the 10% income tax or withholding tax on dividends for seven years starting from January 20, 2020.

Related: How to Invest in Fixed Income Securities in the Philippines

2. Capital appreciation

Another way to make money from REITs is to buy REIT shares at a low price and then sell them later at a higher price. Considering that the value of properties increases over time, REIT share prices may also grow. This means a high earning potential for REIT shareholders.

3. High liquidity

When you’re in urgent need of cash, you can easily sell all or some of your REIT shares through the PSE. Through your broker, you can withdraw funds from the sale of REIT shares.

The high liquidity of REIT shares makes investing in REITs ideal for conservative investors who want easy access to their funds.

4. Diversification of assets

Diversifying your investments is an effective strategy for managing risks. Even if you invest in only one REIT, you add multiple income-generating assets to your investment portfolio. 

REITs invest in a wide range of income-generating assets. Some REITs focus on just one property type, while others operate a combination of different properties.

  • Residential properties: Apartments, condos, house and lots, dormitories, etc.
  • Office properties: BPO offices and call centers, commercial offices, government offices, etc.
  • Retail properties: Shopping malls, grocery stores, retail shops, etc.
  • Industrial properties: Manufacturing plants, warehouses, distribution centers, R&D centers, etc.
  • Hospitality properties: Hotels, resorts, etc.
  • Infrastructure: Highways, railroads, airports, toll plazas, parking areas, cell towers, etc.
  • Healthcare properties: Hospitals, clinics, nursing homes, etc.

5. Low-price entry

Investing in REITs is a lot less expensive compared to directly buying an actual property, which can cost you at least a million pesos.

Only a minimal amount is needed to buy a REIT share. For example, AREIT is priced at Php 25.60 per share (as of October 9, 2020) with a board lot of 1004. At this price point, you need only Php 2,560 to buy 100 shares of AREIT. 

6. Easy way to invest

Real estate investing through direct property purchase involves a lot of work. You have to secure the necessary permits, oversee the property’s purchase and construction processes, find tenants, and manage the property’s maintenance and repairs, among many other responsibilities.

The hassles of being a landlord won’t be a problem when you invest in REITs. You simply have to buy and sell REIT shares in the stock market as you would normally do with regular stocks.

7. Transparency

Because REITs are PSE-listed companies, they’re required to be transparent when it comes to sharing their company information. Like other types of listed companies, REITs make timely disclosures of their financial performance, share price, investment strategy, and stock information to their shareholders.

Such disclosures are made usually by holding an annual stockholders’ meeting. Other communication channels may be used for transparency purposes. For example, AREIT makes available relevant information to investors through its website.

8. Professional fund management

A REIT has an independent fund manager who’s responsible for the investment strategies. REIT investors can rest assured that their funds are professionally managed and that they’re investing in quality real estate assets.


What are the Risks of Investing in REITs?

REITs offer many advantages to investors, but they also come with investment risks. Before you start investing in REITs, consider its risks to have a more realistic expectation of the returns you’ll get.

  • Like stocks, REIT share prices can fluctuate over time. Political instability, economic recession, higher interest rate, and other factors may cause the prices of REIT shares to fall.
  • Depending on the REIT you invest in, if the rental demand for its properties drops, so do the REIT’s income and the dividends it will pay you.
  • Some REITs own only the buildings but not the land on which they’re built, as in the case of AREIT. Investors of such REITs lose the opportunity of getting higher returns from the appreciation of the land’s value.

Top REITs in the Philippines

Below are some of the top Real Estate Investment Trusts in the country at the moment.

1. Robinsons Land REIT (RCR)

This REIT sponsored by Robinsons Land Corp. recently started its offer period which will run until September 3. The initial public offering or IPO is made up of 3.34 billion common shares, with an over-allotment of up to 305 million common shares.

This REIT aims to use the proceeds from the IPO to build more projects, especially in the Business Process Outsourcing or BPO industry. Robinsons Land Corp. President Frederick Go shared that he considers the BPO industry as the bedrock of their office buildings business.

Benefits of investing in Robinsons Land REIT:

  • Widest geographical coverage and longest land lease tenure
  • Largest REIT in terms of asset size
  • Forecasted dividend yield of above 5.96%5
  • Good locations of real estate assets
  • No contract

2. Ayala Land REIT (AREIT)

The first-ever REIT in the country, AREIT is a subsidiary of Ayala Land. It owns three commercial properties in Manila including McKinley Exchange, Ayala North Exchange, and Solaris One, which all have a gross leasable area of 152,756 meters6

Ayala Land REIT priced its initial public offering at Php27 per share, with a maximum of 502.57 million shares, and an over-allotment option of 45.69 million shares.

Similar to Robinsons Land REIT, AREIT is also focused on serving the BPO industry, which makes up 59 percent of their leased properties. They have also bought the Teleperformance Cebu property, which has a total leasable area of 18,092 square meters that is already 100% occupied.

Benefits of investing in Ayala Land REIT:

  • Almost all their properties are fully leased
  • Long lease contracts
  • Solid company track record
  • No contract
  • The company has no long-term debt

3. Double Dragon REIT (DDMPR)

Double Dragon REIT is the second REIT that was listed on the PSE, following AREIT. The real estate investment trust of Double Dragon Properties Corp., DDMPR owns DD Meridian Park. 

DDMPR offered a low price of Php2.25 per share during their run from March 10 to 16. They have 17.83 billion common shares available, with an over-allotment option of 594.25 million common shares.

The company said that most of its proceeds will be going to CentralHub Industrial Centers, Inc. They are also working with global coordinators such as Nomura Singapore Ltd., Credit Suisse Ltd., and PNB Capital and Investing Corp.

Benefits of investing in Double Dragon REIT:

  • Affordable offer
  • Projected yield of 5.45% for 20227
  • Solid company track record
  • Good locations of real estate assets

4. Filinvest REIT (FILRT)

Another REIT in the Philippines is Filinvest REIT or FILRT. It is backed by Filinvest Land, one of the biggest developers in the country with an established portfolio that includes industrial, commercial, office, and residential developments. 

This REIT caters to high-growth BPO firms. Its portfolio includes 17 office buildings scattered around Northgate Cyberzone, IT Park in Filinvest City, Alabang, and Cebu Cyberzone. All of these spaces total over 300,000 square meters of gross leasable area. 

FILRT’s offer period ran until August 3. They are selling 1.63 billion shares at Php7 each, with an over allotment of 163.42 million. 

Benefits of investing in Filinvest REIT:

  • Affordable offer
  • Projected yield of 6.27% for 2021, and 6.62% for 20228
  • Great portfolio
  • No contract

5. Megaworld (MREIT)

Megaworld REIT leases ten office and commercial properties in the Philippines with an aggregate gross leasable area of 224,430 square meters for lease across different industries.

The outlook for Megaworld REIT is positive because it can remain successful with an increase in its portfolio. The company has proved itself to be a trustworthy sponsor, putting up quality assets that are large and actively managed by seasoned professionals in this industry. Moreover, this attracts more investors and encourages them even more as MREIT’s size increases.

Currently, the total office portfolio under MREIT’s belt is at 16% of MEG’s office portfolio (Megaworld Corporation), making this an attractive asset to own for local and global investors9.

All of MREIT’s assets are part Megaworld’s townships that have become the most sought-after destinations for BPO companies, making them more valuable than any other REIT out there.

Business Outlook

MREIT’s investment strategy is to find high-quality properties that generate income. They look for prime locations in Metro Manila or key provinces like Iloilo and Davao. The property primarily focuses on Grade A offices with stable occupancy rates and tenant incomes.

The MREIT’s property portfolio comprises ten properties, all located in the central business district. Industries covered include hotels, offices, and retail, to name a few.

Properties under this portfolio are located in business districts in Quezon City, Iloilo City, and Taguig City. All are owned by them and stand on land leased from their Sponsor for an aggregate period of 50 years, such as:

  • Eastwood City
    • 1800 Eastwood Avenue
    • 1880 Eastwood Avenue
    • Ecommerce Plaza
  • Iloilo Business Park
    • One Techno Place
    • Richmonde Hotel
    • Richmonde Tower
  • Mckinley Hill
    • 8/10 Upper Mckinley
    • 18/20 Upper Mckinley
    • One World Square
    • Two World Square
    • Three World Square

Benefits of investing in Megaworld REIT:

The Megaworld REIT has made quite an impact with their excellent track record and reputation.

Through Megaworld’s continuous growth and investor confidence, it convinced more investors about the caliber of REIT for prime office space, which is not filled up by POGOs from the Philippines and has some of the most prolonged lease agreements compared to earlier REITS offered.

Investors get access to the most sought-after buildings in central business districts

The flagship of the Philippines’ most prominent office developer and the landlord was priced at P17.80 per share as of October 14, 2021. But the excitement surrounding MREIT as investors now have direct access to some highly sought-after buildings located in three well-known townships just waiting for tenant growth.

MREIT, Inc. has decided to price the deal at an attractive level for more upside and long-term partners in this new journey with MREIT. At IPO pricing of PHP 16.10 per share (which is well below recent highs), investors will be getting a dividend yield of more than 5%10.

Investors can also take advantage by investing now because they’re guaranteed exposure on some high-quality assets as well.

Big-ticket projects in the future

Megaworld has retained MREIT, Inc. to capture more near-term and long-term valuation upsides for its shareholders. The IPO is a prime example of this strategy. It aims to achieve fast growth soon while maintaining strong aftermarket performance through a well thought out structure that will provide value creation opportunities in the future.

The MREIT, Inc. is making big plans for their future growth and expansion that will likely include developing new townships and further renting out office properties in those areas they develop.


How to Invest in REITs in the Philippines

When a REIT is selling its shares through an IPO, you can subscribe to the IPO through the PSE EASy online platform.

How to Participate in an REIT IPO through PSE EASy

  1. Open a trading account with an eligible stockbroker if you don’t have one yet.
  2. Access the PSE Easy website and click the Register button to sign up for a PSE EASy account.
  3. Fill out the online registration form, select your broker as your trading participant, and submit the accomplished form.
  4. Verify your PSE EASy account by clicking on the link sent to your email.
  5. Wait for your broker to verify your account.
  6. Give your consent to your broker for opening a Name-on-Central Depository (NoCD) account on your behalf. To do so, visit your broker’s website and click on the link that asks for your authorization. An NoCD account, which is a requirement for trading through the PSE, will be used to maintain your REIT shares. 
  7. Log in to your PSE EASy account. Your PSE EASy dashboard will display a notification about any available REIT IPO. Alternatively, you can search for a specific IPO.
  8. Enter the number of REIT shares you want to buy.
  9. Click the Subscribe button.
  10.  Check your email for your IPO subscription summary and payment instructions. 
  11.  Pay for your purchase on or before the given due date. Once your payment is processed, your shares will be credited to your stock brokerage account.

How to Buy and Sell REIT Shares through a Broker

After the IPO period, you can purchase REIT shares like regular stocks using your stockbroker’s online trading platform.

If you don’t have a stock brokerage account yet, you should open an account with one of the brokers approved by the PSE to trade REIT securities in the Philippines. Only then can you start buying shares in a REIT and other listed companies in the PSE.

Once you have an online stock trading account, follow your broker’s instructions for placing a buy order on the trading platform. When buying shares, be sure to order the required minimum number based on the assigned board lot for the particular share.

For instance, if the board lot for a REIT share is 100, you have to buy at least 100 shares per transaction.


Complete List of Online REIT Brokers in the Philippines

Interested in trading REITs? Open an online brokerage account only with a PSE-approved broker11.

Here’s a list of all brokers in the Philippines that enable investors to buy and sell REIT shares using their online platforms.

Online REIT BrokersMinimum InvestmentOnline Trading Platform
A&A Securities Inc. Php 50,000https://aa.psetradex.ph
AAA Southeast Equities, Inc.Php 20,000https://aaa-equities.com.ph
AB Capital Securities, Inc.No minimum deposit requiredhttps://www.abcapitalsecurities.com.ph
Abacus Securities CorporationPhp 100,000https://mytrade.com.ph
Alpha Securities CorporationPhp 5,000https://alpha.psetradex.ph
AP Securities IncorporatedPhp 50,000https://www.aps.com.ph
Astra Securities CorporationPhp 500,000https://astraseconline.psetradex.ph
BA Securities, Inc.Php 5,000https://baseconline.psetradex.ph
BPI Securities CorporationNo minimum deposit requiredhttps://www.bpitrade.com
Coherco Securities, Inc.Php 50,000https://cohercotrade.psetradex.ph
COL Financial Group, Inc.Php 5,000https://www.colfinancial.com
DA Market Securities, Inc.Php 50,000https://itrade.ph
Eastern Securities Development CorporationPhp 5,000https://eastern-sec.com
F. Yap Securities, Inc.Php 25,000https://www.2tradeasia.com
First Metro Securities Brokerage CorporationNo minimum deposit requiredhttps://www.firstmetrosec.com.ph
Globalinks Securities and Stocks, Inc.Php 20,000https://gtrade.ph
HDI Securities, Inc.Php 25,000https://hditrade.psetradex.ph
Investors Securities, Inc.Php 50,000https://www.investorsonline.ph
JAKA Securities CorporationPhp 25,000https://jakaseconline.psetradex.ph
Lucky Securities, Inc.Php 5,000https://luckyseconline.psetradex.ph
Maybank ATR Kim Eng Securities, Inc.Php 1 millionhttps://maybanktrade.psetradex.ph
Mercantile Securities CorporationPhp 5,000http://msc.com.ph
Meridian Securities IncorporatedPhp 20,000https://msitradeonline.psetradex.ph
Optimum Securities CorporationPhp 25,000https://optimumonline.psetradex.ph
Philstocks Financial, Inc.Php 5,000https://www.philstocks.ph
RCBC Securities, Inc.Php 10,000https://www.rcbcsec.com
Regina Capital Development CorporationPhp 25,000https://www.reginacapital.com
Timson Securities, Inc.Php 20,000https://timson.com.ph
Triton Securities CorporationPhp 10,000https://triton.psetradex.ph
UCPB Securities, Inc.Php 10,000https://www.ucpbsec.com
Unicapital Securities Inc.Php 10,000https://utradeph.com
VC Securities CorporationPhp 10,000https://vcsecurities.biz
Wealth Securities, Inc.Php 20,000https://wealthsec.com

Sources

  1. SEC
  2. PSE
  3. Camella Homes
  4. PSE Academy
  5. Business World
  6. Inquirer
  7. Inquirer
  8. Business World
  9. Manila Times
  10. Rappler
  11. PSE

About Venus Zoleta

Venus Zoleta is an experienced writer and editor, specializing in personal finance and digital marketing. Hoping to retire early, she started investing and bought a home in her early 20s. This crazy cat mom eats ramen like there's no tomorrow. Stalk her on LinkedIn.

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Comments

  1. says

    Hi Jason, JP, and Venus! I trust all is well and I hope you don’t mind me sharing this info with your audience. I think it helps.

    REIT performance is best measured with what’s called the Funds from Operations (FFO) and the adjusted FFO (AFFO). It’s basically like the Price-to-Cash Flow metric. For REITs, this is favored over Price-to-Earnings due to the significance of depreciation in real estate properties.

    WALE, or weighted average lease expiry, is another metric that’s useful for people looking to invest in REITs. It’s just as it sounds, the number of years existing lease contracts expire, and is a useful metric in gauging a REIT’s risks. 

    https://freedomlocker.ph/real-estate/reits-in-the-philippines/

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