Real Estate Investment Trust- FAQs
What are Real Estate Investment Trusts (REITs)?
Why invest in REITs?
- A real estate investment trust (REIT) is a stock corporation which owns and operates large-scale, income-generating real estate assets such as hotels, apartment buildings, shopping centers, office buildings, hospitals, highways, airports, among others. With REITS, investors can earn a share of the regular stream of the real estate’s income on rentals, toll fees, user’s fees, and storage fees, among others, without having to buy the commercial real estate.
Who can invest in REITs?
- Through REITs, both small and large investors can participate in the direct ownership of a real estate. Some perks include:
- Minimum capital;
- Investors can receive at least 90% of the REIT’s distributable income as dividend per annum;
- REIT shares can be bought and sold easily, thus, readily convertible to cash;
- Diversifies the investor’s portfolio; and
- Transparent as REITs are subject to increased disclosure requirements
What should you consider before investing in REITS?
- Any Filipino or foreigner residing in the Philippines (subject to applicable ownership limits) and corporations licensed to operate in the Philippines
How are REITS similar or different from common stocks?
- First, consider the risks. Despite the minimum 90% dividend payout, the dividend rate will still depend on the income of the REIT. Moreover, because REIT shares are tradeable, they are subject to price volatility.
- You should also know the underlying assets of the REITs, which will be the basis of its valuation.
- Broaden your research on earnings growth projection, rental rate escalation, capitalization rates, vacancy rates, and expansion plans
Are dividends guaranteed?
- REITs are modeled after mutual funds (collective investment scheme) but can be traded like common stocks. With stocks, you get ownership shares from various companies and industries, whereas REITs are restricted to real estate. Regular stocks may or may not pay shareholders dividends, but REITs are required by law to pay dividends.
What are the risks in investing in REITs?
- REITs are required by law to pay at least 90% of its income as dividends, although, the dividend rate will depend on the REITs’ income. Dividends may be in the form of cash, property, or stock dividends.
What determines the price movement for REITS?
- Investing in REITs is generally less risky than regular stocks due to the regular stream of cash flows from the dividends. However, REITs can still lose value as interest rates rise, and prices depend on market supply and demand, especially when bought after the offer period.
- It also depends on the REITs you choose to invest in. For instance, if the rental rates of the REITs decrease due to vacancies, dividends will also be affected.
How are REITS affected by changes in interest rates?
- Like stocks, prices of REITs are affected by market trading activities, as well as asset-specific risks:
- Dividend payout;
- Stock market prices and volume;
- Market value fluctuations among other stocks in similar industries;
- Fluctuations in revenue, cash flow, and earnings of REITs;
- Operational and business risks of REITs; and
- Changes to government policies, legislation, or regulations, among others
When can I buy REITs?
- REITs, like other investment assets, are sensitive to interest rate fluctuations.
- When interest rates go up, REITs value goes down, and vice versa.
How can I invest in REITs?
- REITs are offered via Initial Public Offering (IPO) during a specified period.
- However, you can still buy REITs like regular stocks in the secondary market.
- You can participate in the IPO online through a FirstMetroSec account and a PSE Easy account.
- Create a PSE Easy online account and choose FirstMetroSec as your trading participant. Verify your account using the link sent to your email. FirstMetroSec will also verify your status upon creation of account.
- Allow FirstMetroSec to create a Name-on-Central Depository (NoCD) account on your behalf, where your REIT shares will be maintained, as mandated by the SEC.
- Once available, search for REIT IPO and order your desired number of shares. Afterwards, click the subscribe button.
- Pay your purchase via bank transfer/deposit. Payment instructions will be emailed to you by PSE Easy.
- You can also trade REITs like common stocks in the secondary market using the FirstMetroSec trading platform.
What is required for FirstMetroSec to create a Name-on-Central Depositor (NoCD) account on my behalf?
How much is the broker’s fee?
- In order to buy REITs, FirstMetroSec, as your stockbroker, will create an account for you in the NoCD facility of the Philippine Depository & Trust Corp (“PDTC”) in compliance with regulation. This will entail sending them your personal information, including but not limited to name, mailing address, date of birth, gender, and email address.
- Currently, peso denominated securities are registered under the Broker’s Omnibus Client Securities Account that aggregate the holdings of investors with the stockbroker.
- If you wish to trade REITs, you may click HERE to authorize FirstMetroSec to create a NoCD account for you. Your access to REIT will be activated the following day.
Where can I find REIT listings?
- During IPO, none. For trading in the secondary market, regular brokers fees apply. See this link.
- Approved REITs are released by the Philippine Stock Exchange (PSE).
- As of July 2020, AREIT Inc. (Stock Symbol: AREIT) of Ayala Land Inc. is the first and only REIT to be listed in the country.