Not all REITs are created equal and as investors, we need to carefully weigh where to put our hard earned savings. Afterall, it’s difficult to find that extra money in the first place. It also pays to heed Warren Buffett’s two investing rules: 1. Don’t lose money; 2. Don’t forget rule number one.

Five of the seven Philippine REITs are primarily office REITs so most of the discussion below will center around those. Here are the things that I look for in a great REIT:

1. Quality of the sponsor

There are currently 7 Philippine REITs and the sponsors behind them are well known. However some carry a premium behind their brand built by decades of good business practice. If you are a corporation looking to lease office space and are presented with several options, you’d probably choose one that is owned and managed by a REIT with impeccable reputation.

2. Quality and location of the buildings

I still get a bit of shock everytime I set foot in Bonifacio Global City (BGC). It’s hard to believe that one is still in the Philippines and not in Singapore. Check out the buildings in the REIT that you want to invest in. If they are located in places like BGC, chances are tenants would want to rent them. Other factors that attract tenants are Philippine Economic Zone Authority (PEZA) accreditation; green-certified and health-certified buildings.

3. Dividend yield

The current crop of REITs have an estimated 2022 dividend yield of between 5-8%. But please don’t just pick the highest yielding REIT. You are not choosing a bank deposit account! Quarterly dividends are derived from rental income so you also need to consider occupancy rates, weighted average lease expiry (WALE), and rental collection.

4. Size and growth

Size matters when it comes to REITS. Those with a large market capitalization will attract institutional investors. If a REIT becomes part of global indexes, it will also attract passive index funds and ETFs. This is important because instititutional money tempers the price volatility of the REIT, so you don’t become dizzy with wild price swings.

I also consider the growth of the REIT in terms of gross leasable area (GLA), the number of properties it acquires, net income and my favorite metric of all: DIVIDEND PER SHARE (DPS) GROWTH. Our listed REITS are relatively young and we don’t yet have enough data on their growth. We can however look at AREIT which issued a dividend of P1.32 per share in 2020, P1.77 per share in 2021, P2.05 per share in 2022 (estimated) and P2.21 per share in 2023 (estimated). These are very healthy dividend per share growth numbers.

5. Price***

It’s hard to pick the bottom and peak of a REIT’s price consistently. I for one certainly cannot. If you think the price is high waiting for it to go down, you could be waiting years and in the mean time lose out on the quarterly dividends. Same thing if there’s a market decline and you become fearful of buying REITs and wait. At the moment, rising interest rates is causing REIT prices to be depressed. For long term REIT investors like myself who hold it for passive income, it’s actually a great time to buy.

***I’ve listed price as the 5th criteria but it probably isn’t entirely accurate because I simply buy what I can regularly regardless of the price – cost averaging strategy. A great REIT would have excellent price appreciation and this is important when you do sell your REIT shares. However my goal is to live off the quarterly dividends and have no plans of selling my REITs anytime soon.***