Market liquidity seen key to REIT success

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PROPERTY analysts and industry participants said the key for the success of real estate investment trusts (REITs) will be liquidity, with office assets expected to be the most suitable product for these investment instruments.

Speaking at a panel at online real estate marketplace Lamudi’s media roundtable Tuesday, DoubleDragon Properties Corp. Chief Investment Officer Marianna H. Yulo said the key for new REIT markets such as the Philippines is to ensure liquidity for investors.

“That’s how I personally would like to see the REIT market. We need to see enough names, more baskets of assets, well-managed assets, and quality assets,” Ms. Yulo said at a panel discussion at the Makati Shangri-La yesterday.

BPI Head of Corporate Banking Strategy, Products, and Support Reginaldo Anthony B. Cariaso said investors have been waiting for an investment product that is hedged against inflation, noting how REITs “really fit the bill.”

Mr. Cariaso sees office assets as the prime candidate for packaging into REITs given the long-term leases involved for such spaces, as well as the large amounts of information available in the market.

“Office leases are typically longer-term — about 10 years. And then the commercial market particularly in Metro Manila is extremely well documented, it’s covered by property consultants so there’s a lot of transparent information going around,” Mr. Cariaso said in the same panel.

Real estate consultancy Colliers Philippines Senior Research Manager Joey Roi Bondoc said investors should look at vacancy rates in a sub-location to gauge how well office buildings are performing.

“It would be very attractive if you divest office buildings that are in sub-locations with very low vacancy. For example, Bay Area has 0.5% vacancy, Makati CBD (Central Business District) has 1% vacancy. So those are very interesting locations,” Mr. Bondoc said.

Aside from office assets, companies can also package retail spaces into REITs, although this could be affected by consumer sentiment.

“Retail is a bit more volatile than commercial because it gives you a little more consumer exposure to the market, but it can also give you greater upside because many of these don’t just (benefit from) the cash flow, you might get a partial share of the revenues so there’s a potential for higher growth,” Mr. Cariaso said.

Mr. Cariaso also sees infrastructure projects such as toll roads, airports, and bridges as potential REITs.

Meanwhile, Mr. Bondoc expects REITs to generate average dividend yields of about 4.8% in the Philippines.

“That’s just the average in the region, it can go up to 5-6%. In the PH, especially if you use office as an asset class, and given that it is growing at a very fast pace, it can even go beyond 4.8%,” Mr. Bondoc said.

While the REIT law was enacted in 2009, no company has taken advantage of the product due to unfavorable provisions, such as the high minimum public ownership (MPO) requirement of 40-67% and the independence of the REIT’s property manager.

The Securities and Exchange Commission is now refining the law’s implementing rules and regulations (IRR), including the reduction of the MPO to within the 20-33% range of REITs in other Asian countries.

Ayala Land, Inc has expressed its intent to launch a REIT within the year or early next year, even without revisions to the IRR. Other companies such as DoubleDragon, Megaworld Corp., and Robinsons Land Corp. said they will wait for the final rules before introducing their own REITs. — Arra B. Francia