What is the difference between an industrial REIT and a 'regular' REIT?
/u/electrocyberend’s
REITs, as we’ve come to know in the first year of their life on the PSE, have been bundles of commercial towers that are subdivided into offices and leased to companies in the BPO and IT sectors. For the purposes of this answer, let’s call those “regular” REITs (like AREIT [AREIT 36.25 0.41%] and DDMP [DDMPR 1.99 1.00%]). The “industrial” REIT proposed by Jollibee [JFC 203.00 3.43%] and DoubleDragon [DD 12.08 0.17%] features properties that have been developed to contain warehouses, cold storages, processing facilities, distribution hubs, and other logistics-related functions. These building types are considered “industrial”.
We would probably consider the tenants and activities that use industrial lots to be quite different from the tenants and activities that use commercial towers, and yet, from the perspective of the REIT law and its implementing rules, they’re basically the same thing: real estate that has been developed to be income-generating. From a short-term perspective, the JFC/DD REIT will collect rents from its industrial tenants and pay out 90% of qualifying net income in the form of dividends just as the regular REITs would with qualifying net income from their commercial tenants.
The differences between the JFC/DD REIT and the regular REITs are long-term in nature. Will the demand for warehousing services and cold storage space grow as quickly as demand for BPO, IT, or POGO office space? Are there any current or future risks or opportunities that might make either approach more or less in demand? That’s the only difference.
MB BOTTOM-LINE
The REIT law allows for a very broad range of property types to be included inside of a REIT -- basically, anything that is income-generating. The implementing rules of the law specifically refer to properties that generate “rentals, toll fees, user's fees, ticket sales, parking fees and storage fees” as ones that may be included in a REIT.
I’m looking at Metro Pacific Investments [MPI 3.75 2.60%] as the potential sponsor of a tollways REIT, or of a Metro Pacific Hospitals REIT. I’m looking at Aboitiz Equity Ventures [AEV 41.50 1.66%] to potentially bundle its common cell towers into a REIT. I’m looking at SM Prime Holdings [SMPH 36.00 1.64%], ALI, and Vistamalls [STR 3.95 unch] as the potential sponsors of shopping mall REITs. Anything that generates regular income, and that could be bundled together to reach the minimum capitalization threshold of P300 million.
The “old money” on the PSE will have ample opportunities to recycle capital and deploy it locally, and my hope is that in a few years’ time we’ll have a variety of REITs to learn about and invest in. Even if we had 20 REITs, they’d all be the same in that they generate predictable, recurring revenue... and they’d all be different in that they all cater to different tenants and sectors of the Philippine economy.
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