Is it wise to invest in Real Estate Investment Trusts (REITs) during the COVID-19 pandemic? Ayala REIT, also known as AREIT Inc., is the first company in the Philippines to venture into this exciting new asset class. In this article, we'll explore the potential of this investment opportunity and analyze various expert opinions to help you make an informed decision.
What is REIT?
REIT, or Real Estate Investment Trust, is a collective investment scheme that pools money from multiple investors to acquire, manage, or sell real estate properties, whether residential or commercial. Similar to stocks, REITs offer the potential for capital gains, but with the added benefit of a defined return or yield. In the Philippines, REITs are legally required to distribute at least 90% of their income as dividends to shareholders.
The Benefits of Investing in REIT
Investing in REIT offers three primary benefits:
1. Current Cash Flow Yield
Under the REIT Act of 2009, REITs in the Philippines must distribute at least 90% of their income as dividends to shareholders annually. This ensures a consistent cash flow for investors, even during challenging times.
2. Liquidity
Unlike actual real estate, REITs are highly liquid as they are traded on the Philippine Stock Exchange (PSE). Just like stocks, REITs can be easily bought and sold with a known market price at any time.
3. Investment Diversification
REITs introduce a brand-new asset class in the Philippines, offering equity ownership in income-producing real estate. This diversification opportunity complements investments in stocks, bonds, mutual funds, UITFs, and traditional real estate.
Ayala REIT: The Pioneer in the Philippine Market
Ayala Land was the first company in the Philippines to announce its intention to conduct an Initial Public Offering (IPO) for their REIT company, AREIT Inc. The IPO filing submitted to the Securities and Exchange Commission (SEC) revealed a plan to raise as much as P14.4 billion by selling up to 507.57 million shares of the company. AREIT's portfolio currently includes three commercial buildings: Solaris One, Ayala North Exchange, and McKinley Exchange, all located in the Makati Central Business District.
Expert Analysis and Recommendations
Given the uncertainties brought about by the pandemic, let's analyze various opinions from stock brokerage firms and property consulting companies regarding investing in AREIT:
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AP Securities suggests that although the BPO sector, which occupies around 63% of AREIT's gross leasable area (GLA), has shown resilience during the pandemic, any potential exodus or unfavorable legislation could impact office rents.
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Unicapital Securities notes that AREIT's properties have high occupancy rates and step-up provisions, making them attractive to BPO companies. They project a dividend yield of 4.36% to 4.85%, which is competitive compared to other REIT markets.
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Santos Knight Frank believes that REITs have the power to democratize the Philippine property market, allowing small investors to participate alongside major institutions. They anticipate increased acquisition, consolidation, and property development activities across the Philippines.
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Regina Capital Development Corp. highlights the timing of AREIT's listing, considering the low interest rate environment and the thriving REIT markets in the Asia Pacific region. They also emphasize AREIT's potential for rental escalation.
Ayala Land's Financial Performance
Ayala Land Inc., the parent company of AREIT, reported a decline in earnings during the first quarter of 2020 due to the pandemic's impact on residential revenues, project bookings, and construction interruptions. However, the commercial leasing sector, including offices, demonstrated more resilience.
Conclusion: A Promising Investment Opportunity
While the pandemic poses challenges for the real estate sector, Ayala REIT offers investors an opportunity to diversify their portfolio and potentially earn consistent dividends. It is crucial to consider the expert opinions provided and conduct further research before making any investment decisions.
Remember, investing always carries risks, so ensure you fully understand the nature of REITs and consult with a financial advisor before investing.
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