Have you ever dreamed of investing in your own real estate property?
You’ve always known how real estates are the way to go when it comes to passive income. It can boost your savings, helps you invest more and even retire early. But, real estate investment is not as accessible to common people. It requires capital and time and effort of research.
Fortunately, there’s Real Estate Investment Trust (REITs).
REITs is new addition to the product offerings of Philippine Stock Exchange or PSE which makes it possible for individual investors to earn dividends from real estate investment without having to buy, manage, or finance any properties themselves.
In this post I will share with you the Who, What, Where, Why and How of Real Estate Investment Trusts (REITs).
What is Real Estate Investment Trusts or REITs
A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors.
If you are familiar with how mutual funds work, it will be easier for you to understand how REITs work.
To understand simply, REIT is like a mutual fund but instead of stocks, bonds or other securities, your money will be invested in properties.
These properties that a real estate investment trust owns can be residential or commercial like hotels, buildings, malls or commercial spaces. Even mortgage loans can be considered as REIT.
Through REITs, you can earn from the real estate market without spending a ton of money that is usually needed when directly purchasing a property.
Interesting isn’t it?
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How Real Estate Investment Trusts or REITs work
By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends.
REITs must pay out at least 90 % of their taxable income to shareholders—and most pay out 100 %. In turn, shareholders pay the income taxes on those dividends.
How much you can earn in Real Estate Investment Trusts or REITs
Making money through REITs is easy.
Real Estate Investment Trusts or REITs are mandated by law to distribute to its investors 90% of its net income.
Because REITs perform like a stock, you earn in two ways:
An increase in the value of your investments due to increase in the potential value and demand of shares in the company you invested.
Example : Let's say in 2020 you bought 100 shares of REIT 1 at Php 107/share. The total value of your investment is Php 10,700. In 2021 REIT 1 grew at whooping 189pesos/share. Meaning you make Php 18,900 out the 100 shares you own. That is Php 8200 earned within a year of passive investing without you actively participating or working for it.
A payout issued by some profitable companies to its shareholders/investors that reflects the company's respective earning. This can be by additional cash to the shareholder's accounts and
Example: Given the example above let's say REIT 1 also gave a 1peso/share dividends to its shareholders sometime in 2021. This means aside from the Php 8200 you earned from the capital appreciation of the money you invested, you also gained a dividend of Php 100.
However, just like any investment vehicle, investing in REITs has risks involved. You earn primarily from the rental incomes of properties that the REIT buys, manages and operates.
Related read – 8 Things You Should Do Before You Invest
Features and Benefits of Real Estate Investment Trusts or REITs
- Market exposure. If you’ve always wanted to try real estate investing but don’t have the money for it, you may invest via owning shares instead through REIT.
- Diversification. Your money is already invested in income-generating real estate properties.
- Liquidity. Because REITs are commonly publicly traded like a stock, you can sell your REIT shares whenever you want unlike owning an actual property.
How to Invest in Real Estate Investment Trusts or REITs
The instructions below is for the upcoming Ayala Land-sponsored AREIT Inc., the first real estate investment trust (REIT) to debut on the local stock exchange, has priced its initial public offering at P27 per share.
You can invest in two ways – through a brokerage account and or through the Local Small Investors (LSI) Program of PSE.
Let’s talk more about the two below:
Invest in Real Estate Investment Trusts or REITs through Online Broker
Step 1. Choose your broker. Here in the Philippines you can only buy stocks, such as the REIT IPO through a broker.
Accredited Philippine Stock Exchange brokers are paid to trade stocks on your behalf. Brokers provide you with a platform where you fund your account and start investing or trading. This same platform is used to manage your investments. Every time you buy a stock as well as every buying or selling you do your broker gets a commission.
Now there are plenty of brokers you can choose from depending on your budget and confidence.
COL Financial is one of the leading and recommended brokerage firm in the country. BPI Trade is BPI's own broker platform. If you are already a BPI user then this could be a better option for you. They have easier application for BPI card holders. Philstocks is another platform available for those who want to invest in the stock market. And of course First Metro Securities, my choice of broker, which is Metrobank's investment firm.
Step 2. Open your brokerage account. Just follow the account opening instruction, answer important investor surveys and submit the needed requirements. You will receive an email confirmation once your account application is successful.
Step 3. Fund your account and start investing. Decide on how much you will invest to the stock market. You can buy your first stocks via the payment method/s provided by your broker.
Here’s how I opened an account with First Metro Securities as an example.
Invest in Real Estate Investment Trusts or REITs through LSI Program
The Local Small Investors Program (LSI) Program of PSE is an initiative to make investing with newly-listed companies in the stock exchange easier.
Under the LSI Program, a company conducting an IPO is required to allot a certain percentage of its available shares to local small investors.
PSE developed an online system called PSE Easy where you can invest specifically in any upcoming IPOs conveniently.
Here the complete instructions on how to invest through PSE Easy:
Step 1. Go to https://easy.pse.com.ph/ and click Register. Fill out the pop-up form with the information needed. Please note that you will not proceed with the next steps unless you have a brokerage account available to act as your Trading Participant.
Step 2. You will receive a PSE Easy account verification email. You will need to click the link and wait for your account to be validated by your designated Trading Participant. Once your account has been validated by your Trading Participant, you can now use the PSE Easy platform easily.
Step 3. Go to your PSE Easy account. Once an IPO is available, you will see the notification your PSE Easy account dashboard. You can easily click the subscribe and input the number of shares you wish to order.
Step 4. You will receive an email with the summary of your intended subscription plus instructions on how to pay. Make sure that you pay before the given deadline.
Step 5. Wait for your shares to be credited to your Trading Participant’s account.
Now that I’ve shared a primer on how Real Estate Investment Trusts or REITs work it’s time to give you an idea about the Ayala Land REIT, which is the first ever REIT to be launched in the country.
About Ayala Land REIT
Finally, the Securities and Exchange Commission (SEC) has approved the listing of Ayala Land REIT.
This will officially be the first REIT in the country.
Here’s a quick run down on the important information you need to know about Ayala Land REIT:
- Ayala Land REIT will be listing with the trading symbol AREIT.
- AREIT is a subsidiary of Ayala Land that owns three commercial properties in Manila namely, Solaris One, Ayala North Exchange and McKinley Exchange.
- The IPO aims to raise up to P1.4 billion for AREIT, which will help the company fund the acquisition of Teleperformance Cebu.
- For AREIT, the IPO period will be from July 27 to August 3. The first actual trading or listing date of the REIT is on August 13.
- AREIT price per share is at Php 27. Based on it's board lot, you need at least 100 shares to order. That’s Php 2700 starting capital. You can buy as many shares of AREITs but in multiples of 100 shares for now.
- According to a Manila Bulletin article, AREIT Fund Managers, Inc., formerly AyalaLand Commercial REIT, Inc., will manage the assets of AREIT with a focus on generating rental income and increasing the company’s assets over time.
To invest or not to invest in Ayala Land REIT
As mentioned above the Ayala Land REIT will be in its IPO stage. IPO stands for Initial Public Offering, a process of offering shares of a private corporation to the public as a new stock listing.
You can learn about IPOs in this post – IPO for Beginners.
There are many benefits of investing in Ayala Land REIT. Here are some:
1. ARIET is considered as a subsidiary of Ayala Land.
Ayala Land as we know, has been widely-recognized in the real estate business. It is one of the largest property developers in the country and is even part of the Philippine Stock Exchange index (PSEi). Backed with this track record, ARIET will be an attractive investment for sure plus it is the first REIT ever which makes it more enticing to the public.
2. ARIET’s portfolio consists of PEZA or Philippine Economy Zone Authority accredited.
What does this mean?
PEZA accredited facilities are selected areas of highly developed or which have the potential to be developed into agri-industrial, tourist, recreational, commercial, banking, investment and financial centers.
Source – Inquirer
3. ARIET offers a contract-free real estate investment
When you invest in ARIET, you are buying shares for a real estate property less the contracts and monthly mortgage.
Although you can’t live or use the property for your own good, you can still participate in the growth of the property with minimal to no effort on your part. You simply buy shares, trade the shares your own or buy it, hold it and forget it.
Without the contract makes your investment liquid. Buy and sell your shares and you will have your money. Unlike buying a real estate property where you will go through extensive process to own and more to sell!
As for the disadvantage, with the current pandemic rental properties such as offices are pretty much on a limbo. Lower number of tenants, rents and leases many affect the company’s earnings on a negative side.
When it comes to IPOs your strategy is very important. Not all IPOs perform higher than their IPO price on the first days of trading.
Also note that DoubleDragon Properties, is also eyeing to release it’s REIT this year. According to an Esquire article, DoubleDragon said it is preparing to file its REIT listing application with the SEC and the PSE in August 2020 and is targeting to list the DDMP REIT by October 2020.
You may want to wait for the DoubleDragon property or do an half and half asset allocation. It all depends on you!
Final Notes from SavingsPinay
As this post goes live, the first real estate investment trust (REIT) to debut on the local stock exchange Ayala Land-sponsored AREIT Inc., has officially began it's IPO stage.
If you already have your brokerage account, or have opened your PSEasy account, you should get a notification to order.
The IPO stage will run until August 3, 2020 so you still have ample time to think about if this investment is for you and how much you will invest.
Remember to check your risk- appetite first. REITs are mostly for moderately aggressive investor. Since it is a stock, there is a market risk or volatility involved. The amount you paid for the stock may go up and down.
Returns are not guaranteed.
The price per share is Php 27 and based on the Philippine Stock Exchange Board you can buy by multiples of 100 shares.
If you have a smaller amount of money that you want to play with, this can be for you. Your initial investment capital based on above is only Php 2700.
This is also a good investment if you are into real estate and you believe in real estate.
As always, invest only what you are ready to lose. Make sure you have your emergency fund secured.
If this post helps you, share it to others!
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