Ayala Land Investments: Understanding the REIT
A landmark listing ceremony for the country’s first Real Estate Investment Trust was held on August 13, 2020 at the Philippine Stock Exchange (PSE) in Bonifacio Global City. AREIT debuted after it successfully completed its PHP13.6 billion initial public offering following the close of the offer period on August 3.
Philippine Rating Services Corporation (PhilRatings) has assigned an Issuer Credit Rating of PRS Aaa, with a Stable Outlook, to AREIT which aims to promote and strengthen the country’s capital markets.
"With the Ayala Land REIT, we hope to provide investors with a solid investment instrument. It is aligned with the best REIT practices in the region...As a company, AREIT will embody Ayala Land’s time-honored principles of corporate governance. This is a commitment to our Shareholders in ALI and now to our shareholders in AREIT."
- Fernando Zobel de Ayala, Ayala Land Chairman
At the bell-ringing ceremony at the PSE floor were : (top photo from left to right) ALI CFO Toti Bengzon, ALI President and CEO Bobby Dy, AREIT Chairman Junie Jalandoni, SEC Chairman Emilio Aquino, PSE President Ramon Monzon, AREIT President Carol Mills, and SEC Commissioner Ephyro Luis Amatong. Ayala Land Chairman Fernando Zobel de Ayala, together with officers of the PSE and SEC, as well as BPI and BPI Capital executives, AREIT officers and legal counsels, joined the milestone event through a virtual platform.
What is a REIT?
REIT stands for Real Estate Investment Trust, which means that companies and real estate developers, like Ayala Land, generate income through a range of property sectors that allow people to invest the same way they do through the stock market. AREIT, in this sense, is a way towards diversifying an investment portfolio through Ayala Land investments. By definition, a REIT offers investors an opportunity to own real estate, produce dividend-based income, and give back by growing the community.
How do REITs make money?
Most REITs work through similar business models – leasing out properties and collecting rent then distributing the income as shareholder dividends. Since the focal point of a REIT is real estate, the investment moves in a variety of property types. Listed below are the types of properties that fall under the 13 REIT assets:
• Office REITs
• Industrial REITs
• Retail REITs
• Lodging or Resorts REITs
• Residential REITs
• Timberland REITs
• Health Care REITs
• Self-storage REITs
• Infrastructure REITs
• Data Centers REITs
• Diversified REITs
• Specialty REITs
• Mortgage REITs
Given that REITs are publicly traded on major security exchanges, an Ayala REIT enables investors to buy and sell their shares similar to trading stocks, like a mutual fund. They are perceived to be quite liquid assets due to this capability. Here are the three types of REITs:
• Equity REITs are the most common type, as they are owned, financed, and managed by income-generating companies.
• Mortgage REITs, meanwhile, comes in the form of lending money to real estate owners through mortgages, loans, or the acquisition of mortgage-backed securities.
• Hybrid REITs, on the one hand, is a combination of investments in both Equity and Mortgage REITs.
A reason to invest in REITs
Historically speaking, REITs are opportunities for diversifying an investment portfolio – one that presents steady dividends and long-term capital appreciation. Among its advantages, Ayala Land REIT is relatively easy to trade on public platforms, because of its attractive returns that mitigate risk and steady income stream. Unlike most other assets, the dividends are often much higher, too.
How have REITs performed in the past?
Despite its disadvantages, such as income taxes and sluggish capital growth, the total return performance of REITs in the last two decades have been exceeding the S&P 500 index and the rate of inflation, among others. Its track record shows signs of reliability and an upstream growth in dividends. In over 45 years, REITs have enabled investors to reap generous returns when compared to the stock market and other assets.
That said, REITs are oftentimes managed by real estate companies and property developers that intend to grow and maximize shareholder value. This means that a REIT like Ayala Land provides an investor all the potential for growth – whether through creating more rental income, attracting more tenants, or building value for your investment.
How can I invest in REITs?
You can start investing in listed REITs, such as Ayala Land REIT, by purchasing shares like any public stock through a broker on the PSE. Anyone is also allowed to invest through a REIT mutual fund or ETF. You can discuss your financial goals and objectives with an investment advisor to get the best recommendations for REIT investments. It is important to do the necessary research as there are things to consider prior to investing, such as the potential growth in earnings per share and concurrent dividend yields.
There are also public non-listed REITs and private REITs that are open to investors, but make sure to check if a company does indeed qualify as a REIT:
• A company has to invest at least 75% of its total assets in real estate
• A company has to get at least 75% of its gross income from rental income, mortgage financing interests, or real estate sales
• A company has to comply by paying at least 90% of its taxable income as annual shareholder dividends
• A company has to be a taxable entity, such as a corporation
• A company has to be managed by a BOD or BOT
• A company has to have a minimum of 100 shareholders
• A company has to have no more than half or 50% of its shares owned by five people or less
At the heart of all this is that AREIT – the first real estate investment trust in the Philippines – owns, operates, and finances a stable income stream through its wide range of properties. From condominium buildings to office spaces, retail establishments, and many more – Ayala Land is here to enable and empower Filipinos in building the nation’s capital market.