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[B-SIDE Podcast] REITs 101: Understanding real estate investment trusts

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Real estate investment trusts (REITs) have been called democratizers of wealth, allowing small investors to invest in big real estate projects.

The Philippines has two REIT listings on the market, with the second listing holding the record for the most number of retail investors. Officials from the exchange have expressed hope that more real estate developers will consider offering REITs. 

In this B-Side episode, Christopher John J. Mangun, research head of AAA Southeast Equities, Inc., introduces BusinessWorld reporter Keren Concepcion G. Valmonte to REITs and their advantages.

TAKEAWAYS

REIT is a unique financial vehicle that has features of different types of investments.

A REIT can be traded in the stock market, which means investors may earn through price appreciation when share prices go up. However, because it is traded on the public market, REITs are “subject to volatility and price fluctuations.”

Similar to time deposits or investing in government bonds, REIT investments also guarantee cash dividends. 

“It gives a guaranteed cash dividend, this is similar to what you would receive in a time deposit or in government bonds or treasury bills. So these are investments that have a fixed dividend yield and although it isn’t fixed for the REITs, they are required to submit or distribute the earnings of the company on a yearly or a quarterly basis so you get the best of both worlds,” Mr. Mangun explained. 

These dividends will come from the earnings posted by REITs, 90% of which will be distributed to its shareholders. 

“The main difference between REITs and regularly listed property companies is that REIT companies are required to distribute those earnings as a dividend,” Mr. Mangun said.

It is one of the best investments, especially for retail investors.

Retail investors will be given the opportunity to invest in dividend income-earning properties. Mr. Mangun noted that real estate is considered one of the safest assets in the world, but an investor would need capital to develop properties before earning returns. 

“But from the REIT, you can just buy the REIT and make money off of the dividends already from these big companies,” Mr. Mangun said.

REIT offerings help companies maximize the value of their properties. 

Mr. Mangun pointed out that current REIT offerings include properties that are already assets of listed companies.

Through a REIT listing, these companies were also able to raise more capital. 

“They were able to raise more funds which would allow the parent companies to develop more real estate or more landbank so I think this is a win-win for investors and for companies,” Mr. Mangun said. 

Investing in a REIT can tell you a lot about how markets work. 

REITs are “an easy way to learn about how markets work,” while also allowing investors to earn money.

Before investing in a REIT, investors should take a look at the company’s prospectus to check what the company is doing with the proceeds, if it will acquire new properties through debt or through higher leases. Investors should also see how much these companies earn on a yearly basis.

“It is important that we know how much these companies are making because that translates into the dividend yield, this tells you how much you will be earning on a yearly basis,” Mr. Mangun said. 

This B-Side was recorded remotely on March 25, a day after the REIT of DoubleDragon Properties Corp., DDMP REIT Inc., debuted at the Philippine Stock Exchange, making it only the second listing after Ayala Land’s REIT offering in 2020. Produced by Paolo L. Lopez and Sam L. Marcelo.

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