REITs for energy to broaden investment opportunities

Published December 21, 2021, 3:03 PM

by Myrna M. Velasco

The expansion of real estate investment trust (REIT) to other industries, to include the renewable energy sector, will broaden opportunities for income generation that the investing public can tap into.

Atty. Francis Lim, former president of the Management Association of the Philippines (MAP) and a prime mover of the REIT Law’s enactment, said “renewable energy assets are considered real properties under our Civil Code. And since they generate income on a regular basis, they are considered income generating real estate assets within the purview of the Real Estate Investment Trust Act (REITA)” or Republic Act 9856.

He explained “the companies owning them can be listed as REITs as they own or hold these income generating real estate assets,” with him qualifying that under REITA’s prescription, “the REIT company need not be the owner of the land on which these assets are located.”

Lim said the investing public will benefit from REITs covering other industries “because REITs are new investment assets from which the investors can expect regular dividends at least once a year as mandated by REITA.”

As provided under the law, REITs will provide investors with inflation-hedged investment instrument with attractive returns supported by dividend yields and dividend growth.

Under Rule 3 (r) of the implementing rules and regulations (IRR) of the REIT Law, income-generating assets have been broadly defined as “real property which is held for the purpose of generating a regular stream of income, such as, but not limited to rentals, toll fees, user’s fees, ticket sales, parking fees and storage fees.”

In other markets, according to Lim, offers to investors are often packaged as either energy or infrastructure REITs, hence, he noted that “we envisioned them (infrastructure projects) to be included when we were drafting the REITA.”

Contextually, infrastructure projects have been defined as “construction, improvement or rehabilitation of roads and highways, airports and air navigation facilities, railways, ports, flood control and drainage, water supply and sewerage, irrigation systems, dams, buildings, communication facilities, dredging and reclamation, power generating plants, power transmission and distribution facilities and other related construction projects.”

As explained, infrastructure REITs will “enable investors to diversify their investment portfolio by adding unique assets like communication towers and energy pipelines, among others.”

Listing an infrastructure REIT, in particular, will allow a company “to unlock the value of its property portfolio and raise new capital for potential acquisitions and/or other growth prospects.” As the REIT company grows, this will also entail higher revenue stream that in turn will benefit its investors.

As had been experienced with varied REIT offerings, it was reckoned that this will allow investors “to be able to add a steady income source – with capital appreciation potential, yet the investor is not risking on heavy capital requirement or having to directly manage the assets.”

In the Philippines, it is envisioned that infrastructure REITs will be well-positioned to benefit investors over the long term as the country’s demand for more energy and other infrastructure facilities will increase as the economy recovers from the COVID-19 pandemic and for it to eventually brace for longer term GDP growth.

Taking cue from the experience of other markets, such as Singapore which is touted as the Global Hub for REIT, listings had been done on very specialized offerings, such as Keppel DC REIT, the first data center REIT in Asia, and that particularly targeted investors keen on supporting the growth of digital economy in the lion state.

Another landmark REIT offering in Singapore had been that of Mapletree Logistics Trust, which is the first Asia-focused logistics REIT, as the sponsor-company has 163 properties located in key logistics hubs, including those in Hongkong, Singapore as well as in other Asia Pacific markets like Australia, China and Japan.

In the United States, pioneer listings had been those of InfraREIT, which is a Texas-headquartered company that is engaged in owning and leasing rate-regulated electric transmission and distribution assets; and the other was undertaken by Utini Group Inc., which is a REIT engaged in the acquisition and construction of communication infrastructure and is a leading provider of wireless infrastructure solutions.

Experts primarily noted that “the key lesson we can learn is that REITs don’t need to be composed of traditional office or commercial real estate to be successful. Well-managed assets that deliver recurring cash flows can be packaged to form an attractive REIT investment opportunity.”

 
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