REITs own income generating real estate. You may find that in some properties, the REIT owns the building and leases the land (usually from the sponsor). In others, it wholly owns the entire property, including the freehold land. Is one better than the other?

At first glance, it may seem beneficial for a REIT to always own both the building and land but sometimes, it may not be the best course of action. We need to remember that the fund managers of a REIT aim to deploy capital in such a way that when they buy property (or in most cases a property-for-share swap with the sponsor), the rental income will be accretive and not dilutive to dividends per share. For example: a REIT has 2 billion pesos to deploy. Option 1: it can use that money to buy 1 building and the freehold land. Option 2: it can buy 2 buildings and just lease the land. If the second option will result in an increase in dividend per share, then that would be the better option.

It is true that land is an appreciating asset and some REITs, like DDMP REIT, actually emphasize the fact that it owns the freehold land. Another advantage of owning the land is that the REIT would not need to pay lease on it, thereby keeping more of the rental income.

As an investor however, my priority is an increasing quarterly dividend and whether the REIT achieves that with leasehold or freehold land is, quite frankly, not that important to me.