These past few weeks, we have learned more about an investment opportunity that recently entered the Philippine market.

We’re talking about real estate investment trust, or more commonly known as REIT. It is a stock corporation established for the purpose of owning income-generating real estate assets such as apartment buildings, office buildings, hotels, resorts, warehouses, shopping centers, among others. Ninety percent (90%) of a REIT’s distributable income is required to be distributed to investors as dividends annually. [READ: Ready to invest? You can earn from commercial real estate through FILREIT]

If you’re here, then chances are you’ve already chosen REIT as one of your investments. But since any investment is a huge undertaking, it is understandable that you need to make sure you’re making the right decisions. 

We have prepared a guide that can help you evaluate REIT. Before investing, ask yourself the following questions: 

What is the earning potential?

A REIT is mandated by law to distribute 90% of distributable income to investors as dividends annually. Let’s take Filinvest REIT Corp. or FILREIT as an example. FILREIT estimates a 100% payout ratio for 2021 and 2022. This provides a rare opportunity for investors to earn from this investment. 

For FILREIT’s offer price at 7 pesos per share, the projected dividend yield is 6.3% for 2021 and 6.6% for 2022.

Where is the location and what are the key qualities of the properties?

When it comes to REIT, location is key. High-growth spaces can lead to more income as the number of high-profile tenants, rental escalations, and the like are more likely to be guaranteed. These properties are the assets that determine the quality of the investment’s portfolio. 

FILREIT’s 17 buildings in the portfolio totaling 301,362 square meters of gross leasable area are all rated Grade A (highest quality) by Jones Lang Lasalle. Sixteen buildings are in the PEZA-accredited Northgate Cyberzone in Filinvest City, Alabang, and one in Cebu Cyberzone, also a PEZA-registered economic zone in Lahug, Cebu City. FILREIT also has strong growth potential from inorganic sources such as the Sponsor Filinvest Land’s deep portfolio and extensive CBD land bank in major hubs, which includes 315,000 sqm of GLA that can potentially be added to FILREIT.

On top of the location, you must also get to know the key qualities of the properties. With its green features, FILREIT can be aptly called a sustainability-themed REIT. Filinvest City is the country’s first Central Business District (CBD) to receive a LEED® v4 Gold for Neighborhood Development Plan certification. If you are not familiar, LEED or Leadership in Energy and Environmental Design is the most widely used green building rating system in the world. 

FILREIT also has LEED Gold certified office buildings in its portfolio. Northgate Cyberzone’s buildings are cooled by the country’s largest district cooling system that reduces carbon emissions and energy consumption.

What is the length of the lease terms?

Another important thing to consider are the lease terms. Lease lengths are varied, with some companies offering long-term leases while others prefer shorter leases. 

Note that the length of lease terms is one of the factors that can help ensure that the REIT may be an inflation-hedged investment. Because REIT pays a dividend and they grow over time, a longer lease may be advantageous.

Are there rental escalations?

Since REIT takes its dividends from the rental income of the real estate asset, rental escalations should be one of the factors to consider. FILREIT boasts of a strong revenue growth potential from fixed contracted rent increases of about 5% per year. 

What are the occupancy rates?

Another important factor is the occupancy rates. Before investing in a REIT, you need to make sure that there is a healthy rate for the properties in the portfolio. This ensures rental income and thus dividends.

FILREIT has a 90.3% occupancy rate as of April 2021. It also has a 97.6% renewal rate for its top 20 tenants as of March 2021.

What is the tenant mix and how is the financial health of these tenants?

As you may have already noticed, rent is a deciding factor when it comes to REIT. Connected to this, of course, are the tenants who pay rent. You may want to learn more about the tenants: where do they work? Do they have a stable income? 

FILREIT banks on the upside potential from the pandemic-resilient IT-BPO sector. 88.4% of its portfolio is leased to globally renowned tenants in banking and financial services, e-commerce, knowledge and business process outsourcing services. Meanwhile, 8.8% is leased to traditional office and retail tenants.

What do you know about the reputation of the sponsor in property management?

One of the key positives of REIT is it allows you to become part-owners of one or more income-generating real estate. Because your real estate is managed by a set of professional leasing and building managers, you need to make sure that they are credible and proficient in property management.

FILREIT is sponsored by Filinvest Land, a leading Philippine developer with a strong track record of over 50 years in real estate. It is a highly reputable company and one of the largest providers of modern, world-class office spaces in the country.

Are there any macroeconomic factors that can affect the investment?

Finally, you might also want to consider macroeconomic factors such as the real estate market, interest rates, economic growth or changes in supply and demand, and such. These factors vary depending on your chosen company and its portfolio.

Note that the office space demand from the IT-BPO sector grew by 22.5% in the first quarter of 2021 compared to the end of 2020. Because of this, there is a guarantee that office space rental for this sector will continue to grow. FILREIT is an office REIT and it is this steady demand that can give FILREIT a stable cash flow.

Choosing a credible company is the first step towards a fulfilling investment. If you’re convinced that FILREIT may be the one for you, you can own a piece of FILREIT through its initial public offering of shares via the Philippine Stock Exchange at an offer price of P7 per share. The offer period is ongoing until August 3, 2021. 

For more information on FILREIT and its initial public offering, please visit http://www.filinvestreit.com/ipo-information-center. – Rappler.com

This document is not an offer of securities for sale in the United States or elsewhere. The securities of the Company are not being registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and may not be offered or sold in the United States unless registered under the Securities Act or pursuant to an exemption from such registration. There will be no public offering of the securities of the Company in the United States. No money, securities or other consideration is being solicited by this document or the information contained herein and, if sent in response to this document or the information contained herein, will not be accepted.

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