In all but one of our Philippine REITS, the parent or sponsor companies are also publicly listed. It then begs the question of where best to invest, in the parent or the REIT?

We first need to be clear on what we are investing in. Let’s compare Ayala Land / Robinsons Land vs their children, AREIT and RCR. Investing in the REIT is ownership of  income generating properties  which includes offices, malls, land, hotels, warehouses etc. As an investor, you become a landlord and collect quarterly dividends as your share of the REIT’s rental income. By the law, REITs are required to distribute at least 90% of income to shareholders.

If you decide to invest in Ayala Land or Robinsons Land, you are investing in a property developer. They derive their income from many business activities such as the sale of condos / houses / commercial lots; rental income from various properties and from their own REIT; hotel and mall operations; property management services; construction and land development and many more. Investors also get dividends from them but they are not guaranteed and is up to the discretion on their board. There is however, potential for their stocks to appreciate faster than the REIT should the business continue to grow.

The difference is even more pronounced when we try to compare CREIT with its sponsor CREC. CREIT owns  land and some equipment, rents it out to solar plant operators and collects the income. CREC, on the other hand, earns income from the sale of electricity and to a lesser extent, a share in CREIT’s rental income as the majority shareholder. CREC has plenty of growth runway with plans to go into onshore / offshore wind power, run of river hydro power and also expand overseas. These are two related but very different business models and there is no guarantee that CREC will infuse all of their assets into CREIT. Investors looking for growth are better off with CREC while income investors should stick with CREIT. It is interesting to note that SM Investments (SMIC) chose to invest in CREIT while Indonesian giant Pertamina chose to invest in CREC.

Comparing the sponsor with the REIT is like comparing apples to oranges. You can invest in one or even both but always do your due diligence before doing so.