Real Estate

Philippine REITs: A Guide in Investing in Real Estate Investment Trust

Wealth ManagerLast Updated: September 26, 2024

Philippine REITs have been gaining attention lately, but what exactly makes them so appealing to investors? Imagine earning regular income without the hassle of managing physical properties, all while benefiting from the booming real estate sector. Curious how this works? Let’s dive into the world of Real Estate Investment Trusts (REITs) and discover why they might be the key to growing your wealth in the Philippine market.

Table of Contents:

Why Investing in Philippine REITs Can Be a Smart Move

In recent years, Real Estate Investment Trusts (REITs) have become one of the most talked-about investment options in the Philippines. As more Filipinos look for ways to grow their wealth, REITs offer a unique opportunity to tap into the booming real estate market without the need for large capital or direct property management. Let’s explore why investing in Philippine REITs could be a smart move for your portfolio.

What Are Philippine REITs?

Before we dive into why you should consider investing in REITs, let’s define what they are. A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate. These properties can range from office buildings, shopping malls, hotels, and even warehouses. In the Philippines, REITs allow investors to own shares in large-scale real estate assets while receiving a portion of the profits through dividends.

Philippine REITs must comply with local regulations, such as distributing at least 90% of their taxable income to shareholders. This makes them an attractive option for investors seeking regular income.

Why Invest in Philippine REITs?

1. Steady and Reliable Income

One of the biggest draws of investing in REITs is the potential for steady and reliable income. As required by law, Philippine REITs distribute a significant portion of their income to investors in the form of dividends. This income usually comes from rent payments from tenants occupying their properties. For those looking for passive income, this can be a reliable source of cash flow.

How Does It Work?

REITs generate rental income from properties such as malls, office buildings, and residential complexes. As a shareholder, you get a share of this income, which is typically distributed quarterly or annually. The dividend yield for REITs in the Philippines has been competitive, often offering higher returns compared to traditional fixed-income investments like bonds or savings accounts.

2. Exposure to the Booming Real Estate Market

The Philippine real estate market has been experiencing significant growth, driven by increasing urbanization, a growing population, and rising demand for office spaces and residential properties. By investing in REITs, you gain exposure to this booming sector without the need to purchase or manage physical properties yourself.

Real Estate as a Hedge Against Inflation

Real estate is often considered a hedge against inflation. Property values and rental income tend to increase over time, especially in high-demand areas. By investing in REITs, you benefit from potential property appreciation and rising rental income, helping to protect your purchasing power in times of inflation.

3. Diversification

Diversification is a key principle in reducing investment risk. By investing in Philippine REITs, you diversify your portfolio, gaining exposure to the real estate sector without concentrating all your assets in one area.

Lower Risk Than Direct Real Estate Investment

Directly buying properties requires large capital, and you may face risks like property damage, vacancy, or market downturns. With REITs, your investment is spread across multiple properties, reducing the impact of any single property’s performance on your returns. This makes REITs a more accessible and lower-risk way to invest in real estate.

Philippine REITs vs. Traditional Real Estate Investment

1. Affordability

One of the main barriers to direct real estate investment is the high capital requirement. Buying a property in prime areas can be extremely expensive, often requiring millions of pesos. On the other hand, REITs allow you to start investing with just a few thousand pesos, making them more accessible to a broader range of investors.

The Role of Stock Exchanges

Philippine REITs are traded on the Philippine Stock Exchange (PSE), just like regular stocks. This means you can buy and sell shares based on the current market price, with relatively low minimum investments. This affordability is a game-changer for investors who want exposure to real estate but don’t have the funds to purchase property outright.

2. Liquidity

One of the disadvantages of direct real estate investment is its lack of liquidity. If you own a property, selling it can take weeks, months, or even longer, depending on the market. In contrast, REITs are highly liquid because they are traded on the stock exchange. You can sell your REIT shares at any time during trading hours, giving you flexibility and quick access to cash if needed.

REITs as a Long-Term Investment

1. Capital Appreciation Potential

While REITs are primarily income-focused, they also have the potential for capital appreciation. As property values increase, the overall value of the REIT’s portfolio grows, which can result in higher share prices over time. If the real estate market continues to thrive, REIT investors could benefit from both regular dividends and share price appreciation.

Growth in Philippine Real Estate

The Philippines’ real estate sector is expected to continue growing, driven by factors such as infrastructure development, business process outsourcing (BPO) expansion, and a strong demand for residential and commercial spaces. These trends point toward the long-term potential for Philippine REITs to appreciate in value.

2. Compounding Returns

By reinvesting your dividends back into REIT shares, you can take advantage of the power of compounding. Over time, your dividend income increases as you own more shares, boosting your overall returns. This makes REITs an attractive option for long-term investors who want to grow their wealth steadily.

Risks of Investing in Philippine REITs

Like any investment, REITs come with their own set of risks. It’s essential to understand these risks before diving in.

1. Market Volatility

Because REITs are traded on the stock exchange, their prices can fluctuate based on market conditions. External factors such as changes in interest rates, economic slowdowns, or changes in real estate demand can affect the value of REIT shares. However, for long-term investors, these short-term price swings may not significantly impact overall returns.

2. Interest Rate Risk

Interest rates play a crucial role in real estate investments. When interest rates rise, borrowing costs increase, which can affect a REIT’s profitability. Higher interest rates may also lead to lower property values, as potential buyers face higher mortgage payments. Investors should keep an eye on the interest rate environment when considering REITs.

3. Tenant Risks

Since REITs rely on rental income from tenants, there’s always the risk that tenants may default on their payments or choose not to renew their leases. This can reduce the REIT’s income and, consequently, the dividends paid to investors. A well-diversified REIT with multiple tenants and properties can help mitigate this risk.

Key Factors to Consider Before Investing in Philippine REITs

1. Dividend Yield

When evaluating REITs, one of the key metrics to consider is the dividend yield. This is calculated by dividing the annual dividend per share by the current share price. A higher dividend yield indicates that the REIT is paying out more income relative to its share price. However, investors should also look at other factors, such as the REIT’s growth prospects and property quality.

2. Quality of the REIT’s Portfolio

The performance of a REIT is heavily dependent on the quality of the properties it owns. Investors should research the location, occupancy rates, and tenant profiles of the REIT’s assets. REITs with properties in prime locations or high-demand sectors like commercial offices or retail spaces may offer better long-term growth and income potential.

3. Management Team

The success of a REIT also depends on the expertise of its management team. A strong management team with a proven track record in real estate development and operations can significantly impact the REIT’s ability to generate income and manage risks effectively.

The Bottom Line: Philippine REITs Investing

Investing in Philippine REITs offers a unique opportunity to gain exposure to the real estate market without the high capital requirements and risks associated with direct property ownership. With the potential for steady income, capital appreciation, and portfolio diversification, REITs are a valuable addition to any investor’s portfolio.

But, like any investment, REITs come with risks, such as market volatility, interest rate fluctuations, and tenant risks. It’s essential to carefully assess the REIT’s dividend yield, property quality, and management team before making a decision.

For long-term investors looking to grow their wealth while enjoying passive income, Philippine REITs can be a smart and accessible investment choice.

As of recent updates, several Real Estate Investment Trusts (REITs) have been listed in the Philippine Stock Exchange (PSE). Here’s an overview of the major REIT companies in the Philippines, along with key information about each one:

List of Philippine REITs

Here’s an overview of the major REIT companies in the Philippines, along with key information about each one:

1. Ayala Land REIT (AREIT)

Ticker Symbol: AREIT
Parent Company: Ayala Land, Inc.
Portfolio: AREIT was the first REIT listed in the Philippines. It primarily consists of office spaces and commercial properties in major business districts like Makati City.
Key Properties: Ayala North Exchange, Solaris One, and McKinley Exchange.
Dividend Yield: Known for a steady dividend payout, typically offering a yield around 4-5%.

2. DoubleDragon Meridian Park REIT (DDMPR)

Ticker Symbol: DDMPR
Parent Company: DoubleDragon Properties Corp.
Portfolio: Focused on office spaces, particularly in the Bay Area in Pasay City. DDMPR’s portfolio caters to the business process outsourcing (BPO) industry.
Key Properties: DD Meridian Park, a commercial office development near Mall of Asia.
Dividend Yield: Offers a competitive yield, often ranging between 4-6%.

3. Filinvest REIT Corp. (FILRT)

Ticker Symbol: FILRT
Parent Company: Filinvest Land, Inc.
Portfolio: FILRT focuses on office leasing with a strong presence in the Alabang area. The company targets both BPO and multinational tenants.
Key Properties: Northgate Cyberzone in Filinvest City, Alabang.
Dividend Yield: Yields around 5-7%, with regular dividend payments based on rental income from its office properties.

4. Megaworld REIT (MREIT)

Ticker Symbol: MREIT
Parent Company: Megaworld Corporation
Portfolio: MREIT features a diverse portfolio of office spaces located in prime locations across Metro Manila, particularly in Eastwood City, McKinley Hill, and Iloilo Business Park.
Key Properties: World Finance Plaza, One Techno Place, and Two Techno Place.
Dividend Yield: Known for stable dividends, often yielding around 5-6%.

5. RL Commercial REIT (RCR)

Ticker Symbol: RCR
Parent Company: Robinsons Land Corporation
Portfolio: RCR has one of the largest office portfolios in the REIT sector, with properties across key cities in Metro Manila and other provinces. The properties are mainly office spaces catering to BPO and multinational companies.
Key Properties: Cyberscape Alpha, Robinsons Cyberscape Gamma, and Robinsons Summit Center.
Dividend Yield: Strong dividend payout, often in the range of 5-6%.

6. VistaREIT (VREIT)

Ticker Symbol: VREIT
Parent Company: Vista Land & Lifescapes, Inc.
Portfolio: Primarily focuses on retail and commercial real estate properties, many of which are situated in residential communities developed by Vista Land.
Key Properties: Vista Malls and Starmalls across the Philippines.
Dividend Yield: Yields around 5-6%, mainly based on rental income from its retail assets.

Key Points to Consider When Investing in Philippine REITs:

Dividend Yield

My favorite thing to consider when I started investing in Philippine REITs. But it just became a part of my criteria in selecting REITs since then. REITs are known for providing regular dividend payouts, and the yield typically ranges between 4-7%, depending on the REIT and market conditions.

In my opinion, same lang if you have a rental properties wherein you can make 4% per annum. But, considering the maintenance of the billing, including stress of stubborn tenants, well, REITs will be a winning pick. And rental properties will good when it comes to value appreciation, REITs will be on stock price appreciation. Say for example, you bought AREIT at 18 pesos and became 36, it double your money. Boila! REITs is for me, that’s what I want in investing. Passive income, less stress, and capital appreciation for long term.

Portfolio Composition

Some REITs focus on office spaces (like AREIT, FILRT, and RCR), while others focus on commercial and retail properties (like VREIT). Consider which sector aligns with your investment goals.

Tenant Mix

The strength of a REIT depends on the quality of its tenants. REITs that cater to BPOs and multinational companies often have more stable income sources.

Geographic Focus

Look at the location of the REIT’s properties. Prime areas in Metro Manila, such as Makati, BGC, and Ortigas, typically have higher demand for office and commercial spaces.

Parent Company

The backing of a strong parent company can provide confidence in the REIT’s management and growth potential. Most of these REITs are supported by major real estate developers in the Philippines.

Philippine REITs Performance

Ticker	Market Cap	Divi Yield	All Time Performance
VREIT	13.3B	12.2%	+2.31%
DDMPR	17.8B	10.0%	-55.75%
FILRT	14.8B	8.2%	-56.53%
PREIT	6.4B	8.0%	+32.65%
MREIT	36.8B	7.5%	-18.24%
CREIT	19.8B	7.2%	+8.63%
RCR	62.0B	6.9%	-12.21%
AREIT	85.0B	6.2%	+32.96%