REIT 101 | Introduction to Real Estate Investments Trusts
Real estate investment trusts are modeled after mutual funds. It is a stock corporation established in accordance with the Corporation Code of the Philippines, while its rules and regulations were promulgated by the SEC or the Securities and Exchange Commission for the purpose of owning income-generating real estate assets. The law that governs REITs in the Philippines is Republic Act No. 9856, otherwise known as the Real Estate Investment Trusts Act of 2009.
Why Invest in REITs?
There are several benefits to investing in REITs and the chief reaons among them are the following:
Portfolio diversification
REITs are invested in different real estate properties such as commercial centers, office buildings, hotels and resorts, shopping malls, utility companies, infrastructure, and the likes. If you want to allocate a percentage of your portfolio with real estate business and want to minimize the risk of relying on a single property or tenant, REITs is an excellent way to make tactical adjustments with your real estate portfolio.
Higher yield potential
Real estate properties grow in value over time. Their value does not depreciate in value easily and they also produce more income through regular rental revenue. The appreciation in value is then reflected in REIT stocks.
Affordability of capital
There’s a much larger opportunity for investors of REITs compared to what one can achieve from a personal capital alone. To be part of a pool of capital that acquire higher profit allow one to afford a direct investment in a giant asset. The only catch is, one can only invest in it via REITs.
Liquidity of assets
It eliminates illiquidity risk. There is the comfort that one can convert his assets into cash unlike shares. Meaning, you have the option to extend your earning potential to a variety of asset classes and allocation.
How to invest in REITS?
Step 1. Open a trading platform
Step 2. Choose the option that offers REITs
Step 3. Invest in REIT via PSE EASy or PSE Electronic Allocation System
Step 4. Trade REIT thru an online broker
Step 5. Choose the best performing REITs
NOTE: Select companies with great properties and tenants when deciding on which REIT to invest on.
REITs Compliance
A REITs investor must register his shares of stock with the SEC as required by the Securities and Regulation Code, and in accordance with the rules of the Exchange. To comply, here’s what must be followed:
- Body Corporate
Minimum Public Ownership. A REIT shall be a public company and to be considered as such, a REIT shall maintain its status as a listed company, and upon and after listing, must have at least 1,000 public shareholders each owning 50 shares of any class of shares, and who at least own 1/3 of the outstanding capital stock of the REIT.
NOTE: REIT shall issue shares to or record the transfer of all its shares into the name of its shareholders, investors, or securities intermediary in the form of uncertificated shares.
Capitalization. A REIT shall have a minimum paid-up capital of 300,000,000 pesos at the time of incorporation which can either be in cash and/or property.
Independent Directors. At least 1/3 or 2, whichever is higher, of the board of directors of a REIT shall be independent directors.
Organization and Governance. The REIT shall have such organization and governance structure that is consistent with the Revised Code of Corporate Governance and pertinent provisions of the SRC and its IRR.
- Executive Compensation.
Total annual compensation of directors and Principal Officers of the REIT must not exceed 10% of the net income before regular corporate income tax of the REIT during the immediately preceding taxable year. It shall be governed by the disclosure requirements.
- Fund Manager and Property Manager Fees.
REIT must be handled by a Fund Manager and a Property Manager. The fees they receive should not exceed 1% of the Net Asset value of the assets assigned to them.
source: https://ndvlaw.com/on-real-estate-investment-trust-reit-how-to-engage-in-a-reit-business-in-the-philippines/