How to Invest in REITs in the Philippines – Grit PH (2024)

Last Updated – Nov 5, 2023 @ 12:28 pm

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.

Related: How to Invest your Money

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.

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.

Related: How to Invest in Hotel Units in the Philippines

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.

RCR 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%

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 meters5.

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 2022

4. Filinvest REIT (FILREIT)

Another REIT in the Philippines is Filinvest REIT or FILREIT. 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.

FILREIT’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 2022

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 investors6.

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%7.

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.

6. Citicore Energy REIT (C-REIT)

The parent company and sponsor of this REIT, Citicore Renewable Energy Corporation, is bound to reinvest its proceeds into the development of a renewable energy projects portfolio.

This is the first real estate trust in the country that is focused on renewable energy, specifically solar power assets. The REIT which is in its third initial public offering (IPO) has raised P6.4 billion.8

According to CEO Oliver Tan, C-REIT aims to increase its power generation capacity to 1,500 megawatts within the next five years from its existing 145 megawatts.

This is bound to meet the growing needs for clean energy in the Philippines, especially in metropolitan areas that have a steady demand for electricity.

Benefits of investing in Citicore Energy REIT:

• Unique opportunity to invest in a REIT with a green-revenue portfolio
• Superior operational track record of tenants
• Well-positioned to capture the growing demand for renewable energy
• Expansive group of synergies
• Pioneer of sustainable investing
• Good social responsibility

7. VistaREIT

Launched by Manny Villar, VistaREIT has filed for an initial public offering that aims to raise almost P9.18 billion.9

Its maiden offering will be composed of 3.33 billion secondary common shares, each priced at only P2.50. VistaREIT also has an overallotment option of 333.75 million shares.

According to its prospectus, this REIT is envisioned to become the flagship office and mall of Vista Land, one of the biggest integrated real estate developers in the country.

It aims to become one of the leading diversified commercial REITs in the Philippines in terms of sustainability, growth, dividend yield, and portfolio.

Its portfolio includes two office buildings and 10 community malls with a gross leasable area of 256,403.95 square meters. Its collective appraised value is P35.95 billion.

The malls are located in Las Piñas City, Bacoor City, Municipality of Tanza, General Trias City, Imus City, San Fernando City, Antipolo City, City of San Jose del Monte, and Talisay City.

Meanwhile, the offices are located in Taguig City and Bacoor City. These two offices, Vista Hub BGC and Vista Hub Molino, are sustainable by BPO tenants.

Its joint lead underwriters and bookrunners are BDO Capital & Investment Corp., PNB Capital Investment Corp., China Bank Capital Corp., RCBC Capital Corp., and SB Capital Investment Corp.

The shares will be offered from April 22 to April 28. It will be listed on the main board of the Philippine Stock Exchange on May 6 under VREIT.

Benefits of investing in VistaREIT:

• Strong portfolio
• Attractive risk-benefit ratio
• Spearheaded by one of the country’s largest homebuilders
• Strong digital initiatives

How to Invest in REITs in the Philippines

Investing in REITs is one of the best ways to earn passive income and grow your wealth. Here’s how you can do it.

Step 1: Open an account in an accredited broker that sells REITs

The most convenient way for you to buy and sell REITs is through opening an account in an online trading platform such as BDO Securities, COL Financial, BPI Trade, and First Metro Securities. Most mainstream brokerage platforms in the country offer REITs.

For more information on online trading platforms, check out this guide.

You may also make a subscription during an Initial Public Offering or IPO through the PSE Electronic Allocation System. This is a platform launched by PSE to serve local investors like you who want access to IPOs.

Step 2: Research which REIT companies you should invest in

There are many REITs in the Philippine market to choose from. It’s best to pick reputable ones that have a good track record, and will make a good return on investment.

It’s also important to consider your risk profile and financial objectives when deciding if REITs are best for you.

Step 3: Stick to your investment strategy

When it comes to REITs, there are two ways you can make money out of them. First is through dividends, and next is through value appreciation.

Step 4: Sell to lock in your profit

The right investor knows when to let go of an investment. It’s recommended to sell your REITs to lock in your profit after some time.

However, your REIT investment journey doesn’t end there. Use the proceeds to follow the next step.

Step 5: Reinvest your dividends

The key to making money with REITs is staying consistent with your investments. This will provide you with the best return on your money.

How to Participate in a REIT IPO through PSE EASy

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

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.

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 broker10.

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

REIT FAQs

Still got questions about REITs? We’ll answer them below.

What are the different types of REITs in the Philippines?

In the Philippines, you can invest in the following REITs:

• Retail REITs
• Residential REITs
• Mortgage REITs
• Office REITs
• Healthcare REITs

How are REITs taxed in the Philippines?

REITs have tons of tax incentives, including deductions on dividends. This is because REITs are required to declare 90% of the distributable income as dividends.

This leads to lower taxes, as well as higher payouts and yields to investors. That said, investors like you must factor in the 12% VAT of the commission, and 0.006% sales tax if you sell shares.

How does the performance of REITs compare to other investment options?

REITs generally have lower volatility compared to other investment avenues. It is also relatively more stable when compared to other investment options.

This means that even when the market crashes, or if you are having a bad day trading, you can always count on your rental properties to keep you afloat.

What factors can impact the performance of a REIT?

Many factors go into determining the performance of a REIT. Among them are property type and location, occupancy rate, rental rate, and the current market condition.

How are REITs different from traditional real estate investments?

Unlike traditional real estate investing in the Philippines, investing in REITs helps you minimize risks and responsibilities.

Instead of having to buy properties, rent them out, deal with issues among tenants, and much more, you get to enjoy all these benefits with a rental income that can help you grow your wealth.

How are REIT dividends paid and how often?

Cash dividends are paid quarterly and they will be credited to your account on the payment date. You can use this to buy more REITs.

Can REITs be a good choice for short-term or long-term investing?

REITs perform better as long-term investments. If you have the luxury of time to hold them, you can benefit from higher dividends.

How are REITs regulated and monitored?

REITs are regulated by the Securities and Exchange Commission (SEC).

Do REITs have fees?

Just like other investments, REITs also come with fees. Aside from taxes, prepare to pay a commission fee of 0.25% of the gross trade, a 0.005% PSE Transaction Fee, as well as a Securities Clearing Corp. of the Philippines fee of 0.01%.

Can you lose money investing in REITs?

Just like other investments, REITs also come with risks. The value of this investment depends on market movements, its cash flow, the value of properties under it, and its dividend payments.

Therefore, if any of these factors are underperforming, the REIT you own may drop in value and you may lose money.

How to trade or sell REITs in the Philippines?

Just open a PSE-credited stockbroker account. After funding your account and buying shares of REITs, you can sell them after you reach your target profit. Selling can be done in just a few clicks.

Sources

1. SEC
2. PSE
3. Camella Homes
4. PSE Academy
5. Inquirer
6. Manila Times
7. Rappler
8. Reuters
9. CNN Philippines
10. PSE