iRealtee OS Glossary

Real Estate Investment Trust

In the Philippines, REITs are governed by Republic Act No. 9856 (REIT Act of 2009) and regulated by the Securities and Exchange Commission (SEC). Unlike the tra...

Real Estate Investment Trust

Real estate investment trust (REIT) is a stock corporation established to own and operate income-generating real estate assets that distributes at least 90% of its annual distributable income as dividends to shareholders.

In the Philippines, REITs are governed by Republic Act No. 9856 (REIT Act of 2009) and regulated by the Securities and Exchange Commission (SEC). Unlike the traditional meaning of "trust" under Philippine law, REIT adopts global terminology while operating as a corporation covered by the Securities Regulation Code (SRC).

Key Components

  • Sponsor: The entity that transfers income-generating real estate assets into the REIT corporation in exchange for equity ownership
  • Fund Manager: Implements investment strategy, oversees property acquisition, and coordinates financial reporting
  • Property Manager: Plans tenant mix, formulates leasing strategies, and maintains physical structures
  • Property Valuer: Performs annual full valuation of REIT assets and provides valuation reports for acquisitions or sales
  • Income-Generating Real Estate: Properties generating regular income streams such as rentals, toll fees, parking fees, or storage fees

How it Works

  1. A Sponsor establishes a REIT corporation and transfers income-generating properties into it
  2. The Sponsor receives equity ownership in exchange for the contributed properties
  3. At least one-third (1/3) of the outstanding capital stock must be sold to the public per SEC requirements
  4. Proceeds from public sale must be reinvested within the Philippines
  5. The REIT collects rental income and other revenues from its properties
  6. Management fees are capped at 1% of the Net Asset Value of assets under management
  7. At least 90% of distributable income must be distributed annually as dividends to shareholders

Pros & Cons

Advantages:

  • Access to real estate investing without large capital outlay
  • Professional asset management by licensed real estate service practitioners
  • Regular dividend payouts (minimum 90% of distributable income)
  • Information transparency through PSE disclosure requirements
  • Portfolio diversification for investors
  • OFWs enjoy dividend tax exemption for the first seven years

Disadvantages:

  • Dividend yields fluctuate based on occupancy rates and rental fee changes
  • Subject to real estate market risks and economic downturns
  • Management fees reduce overall returns
  • Limited control over property decisions compared to direct ownership
  • Requires NoCD (Name-on-Central Depository) account for trading

Real-World Application

For brokerages and agents scaling from individual portfolio tracking to managing hundreds of properties, the REIT model provides a proven framework for institutional-grade property portfolio management. You can apply REIT principles to structure your property holdings using:

Whether you manage residential condominiums paying monthly association dues or commercial properties generating rental income, understanding REIT structures helps professionalize your real estate development approach.

References

Looking for another term? Browse the full glossary.

Back to Glossary