Great Investment Opportunities in REIT or Real Estate Investment Trust

How about investing in real estate without the hassle and risks of doing it on your own? How about having it managed by professional managers in the industry?

Is this your first time to hear about REIT? Let me share some backgrounder here. Real Estate Investment Trust or REIT is pretty much the same as the corporate stock or security that is also sold in the Stock Exchange. These are stocks of commercial corporations directly involved in the real estate business either by developing or building real estates and selling them upfront or under mortgage, or by offering them for rental or lease. These real estates can either be for tourism and leisure such as hotels, resorts and other tourist destinations; residential use such as residential subdivisions, residential condominiums, villas, lodging houses and apartments; or for commercial use like commercial malls, hospitals, and the whole range of commercial property operations.

Profit corporations that qualify as Real Estate Investment Trust are exempt from corporate income tax. However, its shareholders are still subject to individual income tax based on the dividends they receive from their REIT investments.

Any corporation directly involved in the real estate business may qualify to enroll as a Real Estate Investment Trust corporation. There are however some requirements that a commercial corporation should be willing to be subject to in order to qualify. These qualifying criteria may slightly differ from country to country. These are all quite favorable to investors like us.

1. REITs must be established as a commercial, profit corporation.
2. REITs are required to list in the Stock Exchange, and at least 30% - 50% of the corporate ownership be sold to the public.
3. At least 75% - 90% of its assets should be solely invested in real estate businesses.
4. That also follows that 75% of its revenues is expected to be derived from its main businesses in real estate.
5. Not less than 90% of its income before tax should be distributed to its shareholders as dividends.

REITs can either be Equity REITs, Mortgage REITs or both, and they differ on the kind of commercial activity that they invest in but all are related to real estate business.

EQUITY REITs
Equity REITs are those that invest and directly own real estate properties for residential, commercial, tourism and leisure use; and their revenues are mostly derived from property sales and rentals.

MORTGAGE REITs
Mortgage REITs on the other hand are those REIT corporations that are into investments and ownership of property mortgages, who offer mortgage loans to owners or buyers of real estate properties, and they generally make money out of the interest earnings derived from mortgage loans just as how mortgage banks operate.

HYBRID REITs
Hybrid REITs are basically a combination of the investment strategies of the first two types of REITs, and this is where most of the REITs are categorized because it gives them more flexibility with their investments and maximize their returns as they can both develop, sell, rent, lease their real estates or offer real estate mortgage loans to their own buyers.

BIG INVESTMENT OPPORTUNITIES IN REITs
The investing public can invest money in Real Estate Investment Trusts through the Stock Exchange just as how you normally buy corporate shares of stocks of publicly listed and owned corporations. Sophisticated investors in stocks may want to check the fundamentals of the REIT corporation by looking at its corporate performance index in terms of Cash Available for Distribution, its Net Operating Income and its Net Asset Value Per Share because after all you want to maximize your returns.

Now is the best time to invest in REITs because REIT shares are currently at bargain prices, shedding off at least 40% to 70% of its market value since the sub-prime mortgage crisis have blown out of proportion in the US. REITs stocks are now at rock-bottom prices, at around 70% discount courtesy of the Global Financial Crisis. There is no way but up. But it is quite a different story here in the Philippines. The Philippines is one of the few countries in Asia and around the world that did not suffer any recession despite the lingering Global Financial Crisis. In fact the REITs are just beginning to shine up here in the Philippines.

Real Estate Investment Trusts are expected to become one of the active issues in the Philippine Stock Exchange since the Philippine Congress already passed into law the Real Estate Investment Trust of 2009 or otherwise known as Republic Act 9856 (RA 9856) which became part of the law of the land on December 17, 2009. Its Implementing Rules and Regulations (IRR) was also approved by the country's Securities and Exchange Commission last May 2010. Its final implementation is however postponed a bit as Philippine Government under the new administration of President Benigno Simeon C. Aquino III wants to improve the benefit and access of the investing public by increasing the required ownership volume to be offered to the public as indicated in the IRR, from the current 30% to a high of 50% public ownership, to improve the voting power of the public shareholders and ensure that their voice is heard. Improved wealth redistribution is one of the key factors for the IRR revision. This is really a welcome and positive improvement once it is finally carried out as it will draw more attention from the investing public.

RIDE ON WITH THE REAL ESTATE GIANTS!
Major real estate companies in the Philippines have already publicly announced their keen interest in participating in the REIT. Philippine real estate giants such as SM Prime Holdings Inc., the largest developer and shopping mall operator in the Philippines already announced to raise at least $600M from REIT; while Ayala Land Inc. is also eyeing to generate some $400M thru REIT. Other equally big real estate companies that have already expressed interests are Robinsons Land Corporation, Rockwell Land Corporation and Megaworld Corporation.

In fact according to many news accounts, big REIT investors around the world are keenly waiting for the final implementation because they are very eager to invest their money in REITs here in the Philippines.

REITs offers the opportunity to make money in real estate even to small investors who do not have the financial capacity yet to directly invest in real estate, or to those who have the capital to invest in real estate but lack the basic know-how to real estate investing since REITs are managed by professionals in this field.

Real Estate Investment Trusts are also equally advantageous for those who both have the capital and the skills to make money in real estate investing because they do not need to do it by themselves, like rehabbing the units or flipping them in the market or renting them out or collecting rentals and handling eviction of tenants by themselves, because with REITs you just have to pitch in your money in exchange for some REIT stock certificates and wait for your earnings every year, and mind you it comes with the luxury of having the best minds in the industry managing it for you.