Everyone dreams of owning and earning prime real estate. Unfortunately, before 2020, it took a lot of money to do that. But do you know that today it only takes a few thousand people to enjoy the benefits of owning these prime properties, and take notice, without the headaches normally attached to such a property? This is thanks to a relatively new vehicle in our country called REIT.
What is the REIT?
REIT stands for Real Estate Investment Trust. It is a company that owns, operates and finances income-generating real estate. It is inspired by mutual funds because it also pools the capital of many investors, large and small. This allows you and me to earn dividends on 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 appealing to you? That hurts me.
A little history
In the United States, which is generally our model for our financial instruments, the REIT was created as early as 1960, when most of us were not yet alive. If it was a person, it would already be an old person now! The law was enacted to give investors, especially small ones, access to income-generating real estate. Today, the total market capitalization of publicly traded REITs is over US$1.4 trillion.
What 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 Act. The law was enacted in 2009 but the first REIT wasn’t born until 2020. So yeah, we’re pretty new to this game and have a lot of catching up to do.
The Gokongwei Group is now offering shares of its REIT, the RL Commercial REIT inc. (CPR). The price per share is P6.45allowing you to participate in the income of this investment with only a few thousand pesos, as promised in the title of this article.
The offering period starts today, from August 25, 2021 to September 3, 2021. After that, it will be listed on September 14, 2021 on the Philippine Stock Exchange (PSE).
The offering size is 3.34 billion shares with an over-allotment option of up to 305 million common shares. In total shares, the company will be worth 64.2 billion pesos in market capitalization, making it the largest REIT in the country, among the upcoming listed and disclosed Philippine REITs.
What exactly are you buying?
If you buy shares of RCR, you are buying the real estate investments of Robinson Land Inc. (RLC), one of the nation’s leading property and real estate developers with 41 years of experience in the industry. Although RLC remains the landowner, the leasehold rights belong to RCR, with lease terms of up to 99 years, making RCR the REIT with the longest ground lease term. As shareholders of RCR, you are entitled to receive annual dividends. By law, REITs are required to pay dividends of at least 90% of their profits to their shareholders. This means you have assured dividend income every year.
RCR’s initial portfolio comprises 14 commercial properties with a total area of 425,000 square meters, making it the largest REIT by 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 nearly 70% BPOs, 19% traditional tenants, 8% retail and seating rentals, and less than 3% POGOs. This diversity secures the payment of rents in the years to come.
In addition to the above, potential additions to the RCR portfolio are RLC’s Cyberspace Gamma in Ortigas and/or Robinson’s Cybergate Center 1 in Mandaluyong.
Why should you consider investing in this REIT
Do you already have real estate investments? If you already have it, how much money did you have to spend to buy it? Did you have to take out a loan? If you invested in a property for the purpose of earning rental income, what return are you getting right now? Here’s how you get your actual yield: add all your rental income for the year, then deduct all the expenses you incur to operate it for a year (property tax, maintenance, dues, etc.). Divide this amount by your total investment (your purchase price and other costs associated with acquiring the asset). What number do you get?
Are you getting more than 5.96%? If you include all of your recurring expenses and all of the costs you incurred to have your rental property, and also assume whatever vacancy rates you have, chances are you’ll be lower than that. The dividend of 5.96% per year is what you will get from your RCR investment, minus the headaches of securing a tenant, maintenance and other landlord issues. This is because the properties are managed by the REIT. If you want to know the promoters of this company, here they are:
I personally know the President and CEO, Jericho Go. Our sons were on the same dance team. They competed and won not only locally 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 other members of the management team and board of directors led by Frederick Go are all respected names in the industry.
Another potential return you can get from your investment in RCR is capital or share price appreciation that is traded on the PSE.
Plus, once you need cash or just want to liquidate your RCR investment for whatever reason, you’re free to do so, no questions asked, no need to procure real estate brokers, no need to stage your property to get the best price. for this, no need to sign deed of sale and other documents.
What are the risks ?
As with any investment, there are risks associated with investing in REITs in general. Remember, I always tell you that if an investment claims to be risk free, you should run away. The risks involved are the share price falling due to stock market sentiment, or interest rates rising making bonds more attractive, or REIT-specific issues such as falling occupancy rates. and company rental rates. All of these factors can lead to a potential loss of capital and lower dividend yields.
Fortunately, the prevailing conditions indicate that the above is unlikely to occur and the odds are in your favor if you decide to invest in the RCR on offer at this time.
To summarize, here are the reasons why this investment is worth it right now.
- You can enjoy the benefits of top-notch real estate investments for just a few thousand.
- If you have millions to invest, you can do that too. RCR is the largest Philippine REIT to date by market capitalization, portfolio valuation and asset size, which leaves room for large local and overseas funds. So technically you’re co-owners of these big funds, naks!
- RCR has the most diversified REIT with the widest geographic coverage. You have the chance to enjoy the benefits of prime properties in various locations with the investment money you currently have.
- No need to worry about the occupancy rate of your real estate investment. RCR has a very high average occupancy rate of 99%. The PEZA accreditation of its buildings also facilitates the search for new tenants.
- RCR has great growth potential as its sponsor, RLC, has a strong balance sheet and inventory of assets that should be part of the RCR portfolio in the future.
- RCR is professionally managed, as shown by the management team above.
- The asset is liquid, which is not true in traditional real estate investment ownership.
- For proper asset allocation of your personal portfolio, you can complete this real estate portion with RCR REIT for only a fraction of the cost and without the need to take out a mortgage.
I hope you now understand REITs and how you can feel like a don or donya with top-notch real estate investments for just a few thousand pesos by acting now. Cheers to high FQ!
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