Everyone dreams of owning and earning from prime real estate properties. Unfortunately, prior to 2020, it took a lot of money to do so. But do you know that today, it only takes a few thousands to enjoy the benefits of being an owner of these prime properties, and take note, without the headaches normally attached to such ownership? This is through a relatively new vehicle in our country called REIT.
What is REIT?
REIT stands for Real Estate Investment Trust. It is a company that owns, operates, and finances income-generating real estate. It is modeled after mutual funds as it also pools capital from numerous investors – big and small. This makes it possible for you and me to earn dividends from real estate investments without having to buy, manage, and finance the properties ourselves. REITs are required to distribute at least 90% of profits to their shareholders. Does that sound attractive to you? It does to me.
A bit of history
In the US, which is usually our model for our financial instruments, REIT was established as early as 1960, when most of us were not yet alive. If it were a person, it would already be a senior citizen by now! The law was enacted to give investors, especially the small ones, access to income-producing real estate. Today, total capitalization of publicly traded REITs amount to over US$1.4 trillion.
How about the Philippines, when did REITs start? I remember my husband Marvin, who is the founding president of the Fund Managers Association of the Philippines (FMAP), attending congressional hearings on the REIT law. The law was enacted in 2009 but the first REIT was born only in 2020. So yes, we are pretty new in this game and have a lot of catching up to do.
The Gokongwei Group is now offering to the public shares of its REIT, the RL Commercial REIT Inc. (RCR). The price per share is P6.45, allowing you to participate in the earnings of this investment with just a few thousand pesos, as promised in the title of this article.
The offer period starts today, Aug. 25, 2021 until Sept. 3, 2021. Then, it will be listed on Sept. 14, 2021 at the Philippine Stock Exchange (PSE).
The offer size is 3.34 billion shares with an over-allotment option of up to 305 million common shares. At the total shares, the company will be worth P64.2 billion in market capitalization, making this the largest REIT in the country, among the listed and upcoming disclosed Philippine REITs.
What exactly are you buying?
If you buy shares of RCR, you are buying the real estate investments of Robinson’s Land Inc. (RLC), one of the leading real estate and property developers of the country with a track record of 41 years in the industry. Although RLC remains as the land owner, the leasehold rights are owned by RCR, with lease tenures as long as 99 years, making RCR the REIT with the longest land lease tenure. As shareholders of RCR, you are entitled to earn annual dividends. By law, REIT companies are required to pay out dividends of at least 90% of its earnings to its shareholders. This means that you have an assured dividend income every year.
The initial portfolio of RCR are 14 commercial properties with a total of 425 thousand square meters, making it the largest REIT in terms of asset size, located in nine areas – Makati, Taguig, Quezon City, Pasig, Mandaluyong, Cebu, Tarlac, Naga and Davao. This makes RCR the most geographically diverse REIT. Tenants of these properties consist of almost 70% BPO, 19% traditional tenants, 8% retail and seat leasing, and less than 3% POGO. This diversity secures payment of rent in the coming years.
Here are some of the commercial property investments included for every share of RCR you buy.
On top of the above, the potential additions to the RCR portfolio are RLC’s Cyberspace Gamma in Ortigas and/or Robinson’s Cybergate Center 1 in Mandaluyong.
Why you should consider investing in this REIT
Do you have real estate investments already? If you already have, how much money did you have to cough up to buy it? Did you have to take a loan? If you invested in a property for the purpose of earning rent income, what return are you getting right now. Here’s how you get your actual return: Add all your rent income for the year then deduct all the expenses you incur to run it for a year (real estate tax, maintenance, dues, etc.) Divide that amount by your total investment (your purchase price and other costs related to the acquisition of the asset). What number do you get?
Do you get more than 5.96%? If you include all your recurring expenses, and all the costs you incurred to have your rental property, and also assume the vacancy rates you have, chances are, you will get lower than that. The 5.96% p.a. dividend is what you will get from your RCR investment, without the headache of getting a tenant, maintenance and other landlord-related issues. It’s because the properties are managed by the REIT. If you want to know the proponents for this company, here they are:
I personally know the president and CEO, Jericho Go. Our sons belonged to the same dance team. They competed and won not just in local but also international dance competitions. Director Lance Gokongwei is among the successful Pinoy boys I featured in my very first book “Raising Pinoy Boys”. Of course, the rest in the management team and board headed by Frederick Go are all respected names in the industry.
Another potential return you can get from your investment in RCR is capital or price appreciation on the share that is traded at the PSE.
What more, once you need cash or just want to liquidate your RCR investment for whatever reason, you are free to do so, no questions asked, no need to get yourself real estate brokers, no need to stage your property to get the best price for it, no need to sign Deed of Sale and other documents.
What are the risks?
As in any investment, there are risks attached to investing in REITs in general. Remember, I always tell you that if an investment claims to have no risks, you have to run away. The risks involved are decline in share price due to stock market sentiments, or increase in interest rates making bonds look more attractive, or REIT-specific issues such as the company’s declining occupancy rates and rental rates. All of these factors can lead to potential loss in principal and declining dividend yields.
Fortunately, existing conditions point to the above being unlikely to happen and making the odds in your favor if you decide to invest in RCR being offered right now.
To summarize, here are the reasons why this investment is worth your while right now.
- You can enjoy the benefits of prime real estate investments for just a few thousands.
- If you have millions to invest, you may also do so. RCR is the largest Philippine REIT to date in terms of market capitalization, portfolio valuation, and asset size, giving room for big local and foreign funds to come in. So, technically you are co-owners with these large funds, naks!
- RCR has the most diversified REIT with the widest geographical coverage. You get the chance to enjoy the benefits from prime properties in various locations with whatever investment money you have right now.
- No need to worry about occupancy rate for your real estate investment. RCR has very high average occupancy rate of 99%. The PEZA-accreditation of its buildings also makes it easier to find new tenants.
- RCR has great growth potential as its sponsor, RLC, has a sound balance sheet and inventory of assets that are expected to form part of the RCR portfolio in the future.
- RCR is professionally managed as seen in the above management team.
- The asset is liquid, something that is not true in the traditional ownership of real estate investments.
- For a sound asset allocation of your personal portfolio, you can fill in that real estate portion with RCR REIT for just a fraction of the cost and with no need to take a mortgage.
I hope you now understand REITs and how you can feel like a don or donya with prime real estate investments for only a few thousand pesos by taking action now. Cheers to high FQ!
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