What is REIT?
What is a REIT?
The Real Estate Investment Trust (REIT) Act of 2009 defines REIT as:
Real Estate Investment Trust’ or “RElT’ is a stock corporation established in accordance with the Corporation Code of the Philippines and the rules and regulations promulgated by the Securities and Exchange Commission principally for the purpose of owning income-generating real estate assets. For purposes of clarity, a REIT, although designated as a “trust”, does not have the same technical meaning as “trust” under existing laws and regulations but is used herein for the sole purpose of adopting the internationally accepted description of the company in accordance with global best practices.
Trust vs Corporation
Don’t be confused. As stated above, REIT is 100% a corporation. The word “Trust” is only there purely for the compliance of what the law calls “internationally accepted description“. For your indulgence, below are the side-by-side definition of a Trust and a Corporation according to Philippine law.
TITLE V – Trusts (n)
ARTICLE 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.
ARTICLE 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.
TITLE I – General Provisions
DEFINITIONS AND CLASSIFICATIONS
Section 2. Corporation defined. – A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
Section 3. Classes of corporations. – Corporations formed or organized under this Code may be stock or non-stock corporations. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations.
What are the requirements to become a REIT?
Total annual compensation of all directors and principal officers must not exceed 10% of the net income before regular corporate income tax.
Fees paid by the REIT to the Fund Manager and Property Manager must not exceed 1% of the Net Asset Value of the assets under their respective management.
What properties do REITs own?
REITs invest in a variety of income-generating real estate assets. These can be shopping malls, condominiums, hospitals, toll plazas, parking areas, storage buildings, warehouses, hotels and cell towers.
There are 11 possible REIT sectors in the Philippines:
How do you profit from investing in REIT?
Investors in REIT can make a profit in two ways;
- First, through the sale of REIT stocks. Just like a regular publicly traded company, REIT shareholders can make money by selling their stock holdings at a higher price that what they bought it for. This is commonly known as the Buy-Low, Sell-High strategy.
- The second way is through the dividends. Unlike regular publicly traded companies, REITs are required by Philippine law to distrubute annually a total of at least 90% of its distributable income to all the shareholders. In a regular publicly traded company, the directors and executives decide if the company will give dividends, while in REITs, shareholders are 100% guaranteed to earn a share of the income.
- The dividends in REIT companies are higher than that of regular publicly traded companies.
How can you invest in REIT?
Investing in REIT is the same as investing in a regular publicly traded company in the Philippine Stock Exchange. You can easily and conveniently buy REIT shares from your local stock broker.
You may find the 131 active stock brokers in the Philippines in this list: PHILIPPINE STOCK EXCHANGE, INC. ACTIVE TRADING PARTICIPANTS PUBLIC DIRECTORY AS OF FEBRUARY 24, 2020