REIT diversification to benefit property sector

CEBU, Philippines — The Philippines Real Estate Investment Trust or REIT market is primed for further diversification. Developers are warned to look for other assets that can be divested into their REIT companies.

According to Colliers Philippines, the expansion and diversification of REIT in the Philippines is poised to benefit property stakeholders and it expressed confidence that the further diversification of the Philippine REIT market bodes well for property firms, investors, and the Philippine property market in general.

REITs are companies that own or finance income-producing real estate across a range of property sectors.

“Moving forward, Colliers sees an aggressive expansion of REIT companies in the Philippines. We even see some firms exploring the feasibility of divesting other asset classes, including business parks and data centers, as well as co-working and co-living facilities,” said Joey Roi Bondoc, Colliers Director and Head of Research.

“We even recommend that firms explore the viability of infrastructure and renewable energy projects,” Bondoc added.

Colliers, a diversified professional services and investment management company encourages property firms to further test the market to capture opportunities from a constantly evolving and developing Philippine REIT sector. “Diversification will be the name of the game.”

Bondoc emphasized that REIT firms and stakeholders should be mindful of the regulatory environment that they are operating in and should be updated on the proposed amendments to the REIT Law and how new measures and provisions are likely to stall or advance the sector.

The House of Representatives has approved on the third and final reading the posed amendments to the REIT Law of 2009. Among the amendments include requiring REITs to reinvest their proceeds “within one year from receipt of proceeds realized by the sponsor or promoter.”

REITs are also required to submit a reinvestment plan to the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) and secure a certification annually to prove that it is compliant with its reinvestment plan. Colliers encourages REIT developers to constantly monitor the progress of these proposed amendments. A counterpart bill has yet to be filed in the Senate.

Diversify portfolio

Developers with REIT firms have been divesting other asset classes into their REIT vehicles to take advantage of the property market’s rebound. At the height of the pandemic, developers only divested office assets.

As the government relaxed COVID-19 restrictions and more economic segments reopened, other property sectors, such as retail, hotel, and industrial also saw gradual recovery, making them viable asset classes to be utilized for REIT listing.

Nontraditional asset classes, such as infrastructure projects (including toll roads), cold and self-storage facilities, data centers, and hospitals, can also be infused into the property firms’ REIT vehicles to attract more investors. Developers should also explore the viability of other asset classes that generate recurring income, such as coworking spaces and coliving facilities. Other Asian countries even infuse business parks into their REIT vehicles and the feasibility of this asset class should also be explored moving forward.

Colliers believes that developers should assess the ideal portfolio mix that will provide the optimal yield for investors. Property firms should consider divesting asset classes that will provide the highest dividend to investors based on these asset classes’ performance in the market.

Office and industrial are usually part of developers’ portfolio mixes but property firms should also look at other viable assets in the future including retail and hotel.