As one of the 13 emerging markets included as part of the FTSE EPRA/NAREIT Emerging Markets Index, the Philippines is drawing a lot of attention from investors and REIT industry professionals. Recently, the Philippine Stock Exchange (PSE) rendered its full support behind legislation establishing REITs in that country. REIT.com spoke with Val Antonio B. Suarez, president and chief executive officer of the PSE, about how REITs were introduced to this developing market and what type of impact he expects they will have for investors.

REIT.com: When did you start considering adopting REIT legislation, and what was the process to have it formally adopted by your stock exchange? Who introduced it to the exchange?

Suarez: Inspired by the success of REITs in several markets, the PSE started its study on REITs in 2003. Based on that study, the PSE noted that in most countries, legislative measures were enacted prior to launching REITs into their markets.  

After a series of discussions with market players and regulators, we formed a technical working group to push for a REIT bill which was filed with the Philippine Congress in 2007. We actively participated in the technical working group meetings in Congress until the proposed bill was passed into law in December 2009. With the REIT law in place, and the finalization of its Implementing Rules and Regulations by the Securities and Exchange Commission (SEC), we are now looking forward to the approval of the PSE REIT Listing Rules as well as the Revenue Regulations that will be issued by the SEC and Bureau of Internal Revenue (BIR), respectively, prior to formally launching the Philippine REIT.

REIT.com: REITs are growing internationally right now. What makes the REIT approach to real estate investment so popular around the world?  

Suarez: REITs have been in place in the U.S., Europe, Australia and other parts of the world for the past five decades. However, it was only introduced in the Asian region in 2000. Despite its relatively short history in Asia, it has swiftly gained popularity because investors can easily understand the concept of REITs.

The benefits to both investors and the property companies are simple. REITs provide property companies an access to fresh capital for future projects. Meanwhile, it allows small investors to own real estate properties at a lower cost. Moreover, our investors can expect to receive at least 90 percent of the REIT’s rental income as dividends annually.

Another reason why we think REITs have gained popularity in the Philippines is that both the investor and the REIT enjoy tax benefits on capital gains, dividends and corporate income.

REIT.com: Do you know of any IPOs that will launch soon on your exchange?

Suarez: A number of property companies have approached the PSE and expressed their intention to list as soon as all the rules and regulations are in place. Most of them have already set up their team of experts - composed of financial advisers, fund managers, property managers, legal consultants and others - to assist them.

REIT.com: How quickly do you think REITs will be adopted in your financial markets?

Suarez: With the REIT law and its implementing rules and regulations in place, we are waiting primarily for the tax authorities to issue the revenue regulations within the next few months, as well as the approval of the PSE’s REIT Listing Rules by the SEC. We are optimistic that after a favorable decision by regulators, there will be a listing wave by REITs as early as the first quarter of next year.

REIT.com: What do you think is the cornerstone of a successful REIT?

Suarez: We believe that the regulators play a critical role in creating an environment that is conducive to investing in REITs. Of particular importance are the availability of tax benefits granted to market participants that will encourage investments in REITs and lead to the expansion and growth of the real estate industry.

On the firm level, the success of REITs depends on various factors. The officers behind the REIT are integral. The fund manager and the property manager should be consummate professionals and experts in their fields.

Prior to listing, a REIT should line up its assets for listing and design a business plan which clearly sets out its goals and strategies. The challenge for REITs and REIT fund managers is to continuously strive to create shareholder value by channeling resources into profitable investments and maximize shareholder return by way of dividends and capital gains.