Philippine property to benefit from REIT expansion, diversification

Colliers Philippines has been seeing exciting and innovative developments in the Philippine real estate investment trust (REIT) sector.

Property firms are maximizing REIT benefits and we see more property firms utilizing REITs to fuel their expansion within and outside Metro Manila as well as extend their exposure into other property segments.

The Philippine REIT market is primed for further diversification and developers should be on the lookout for other assets that can be divested into their REIT companies.

Colliers believes that the further diversification of the Philippine REIT market bodes well for property firms, investors, and the Philippine property market in general.

Moving forward, Colliers sees an aggressive expansion of REIT companies in the Philippines. We even see some firms exploring the feasibility of divesting other asset classes including business parks, data centers, as well as co-working and co-living facilities. We even recommend that firms explore the viability of infrastructure and renewable energy projects.

In our view, further expansion and diversification of the Philippine REIT landscape is likely to benefit the country’s infrastructure development plan. We even see it supporting the Marcos administration’s push to ‘Build, Better, More.’

REIT firms and stakeholders should be mindful of the regulatory environment that they are operating in and should be updated of the proposed amendments to the REIT Law and how new measures and provisions are likely to stall or advance the sector.

Colliers encourages property firms to further test the market to capture opportunities from a constantly evolving and developing Philippine REIT sector. Diversification will be the name of the game.

Colliers encourages the government to be more supportive of developers’ REIT undertaking. The challenge for lawmakers and members of Executive department is to foster an accommodating and inclusive regulatory framework to ensure that  Philippine REITs become among the most competitive in the region. The advancement of Philippine REIT should not be stalled by any regulatory gridlock.

MONITOR REIT LAW AMENDMENTS

The House of Representatives has approved on third and final reading a bill seeking to amend the REIT Law of 2009. The bill’s features include requiring REITs to reinvest their proceeds “within one year from receipt of proceeds realized by the sponsor or promoter.” REITs are also required to submit a reinvestment plan to the Securities and Exchange Commission and Philippine Stock Exchange and secure a certification annually to prove that it is compliant with its reinvestment plan.

Colliers encourages REIT developers to constantly monitor the progress of these proposed amendments. A counterpart bill has yet to be filed in the Senate.

DIVERSIFY PORTFOLIO

Developers with REIT firms have been divesting other asset classes into their REIT vehicles to take advantage of the property market’s rebound. At the height of the pandemic, developers only divested office assets. As the government relaxed COVID-related restrictions and more economic segments reopened, other property sectors such as retail, hotel, and industrial also saw gradual recovery, making them viable asset classes to be utilized for REIT listing.

Non-traditional asset classes such as infrastructure projects (including toll roads), cold and self-storage facilities, data centers, and hospitals can also be infused into the property firms’ REIT vehicles to further attract more investors.

Developers should also explore the viability of other asset classes that generate recurring income such as co-working spaces and co-living facilities. Firms in other Asian countries even infuse business parks into their REITs and the feasibility of this asset class should also be explored moving forward.   

ASSESS OPTIMAL REIT PORTFOLIO MIX

Colliers believes that developers should assess the ideal portfolio mix that will provide the optimal yield for investors. Property firms should consider divesting asset classes that will provide highest dividend to investors based on these asset classes’ performance in the market.

Office and industrial are usually part of developers’ portfolio mixes but property firms should also look at other viable assets in the future, including retail and hotel.

LAUNCH OF RETAIL REITs

Colliers believes that property developers with retail footprint should consider divesting malls into their REIT portfolio especially now that the retail segment is recovering.

Malls generate recurring income and are now a viable REIT asset class as vacancies are declining and lease rates are starting to increase.

In our view, developers should carefully assess which retail outlets to add to their REIT portfolio and should consider projected mall space absorption as well as profiles of retailers willing to take up brick-and-mortar spaces.

Developers should take advantage of renewed interest from foreign retailers as well as continued growth of Philippine economy, mainly driven by personal consumption.

Source: Business World

Gov’t urged to invest in offshore wind projects

The Government needs to consider coming in as an investor in offshore wind energy projects, an industry official said.

“Offshore wind is a big undertaking. Maybe the government wants to also have a stake there because… it’s huge in scale,” Jose M. Layug, Jr., president of the Developers of Renewable Energy for Advancement, Inc., said on the sidelines of a launch event last week.

Mr. Layug noted that PNOC Exploration Corp., a subsidiary of the state-owned Philippine National Oil Co., holds a 10% interest in Service Contract 38, or the Malampaya gas field development project.

“Maybe, government might want to be part of that first offshore wind project. I raised that earlier so the government could consider it,” he said.

Asked to comment, Energy Secretary Raphael P.M. Lotilla said any government venture into offshore wind would depend on the availability of funds.

“It depends on the availability of financing, but there are other ways where government can assist,” he said at the same event.

Mr. Lotilla said that the government can assist in terms of rights acquisition for users of submarine resources, the sea floor, and offshore areas.

“Where government can facilitate, we should be open to consider facilitating,” he said.

The Department of Energy (DoE) has awarded 82 offshore wind energy service contracts, with a potential capacity of 63.359 gigawatts (GW).

These projects are located in the north of Luzon, west of Metro Manila, north and south of Mindoro, Panay, and the Guimaras Strait. All these projects are currently in the pre-development stage, with proponents conducting assessments on resource volumes, site suitability, and project viability.

The DoE and the Asian Development Bank initially identified at least nine ports which can be upgraded or repurposed to service offshore wind operators.

Under the Philippine Offshore Wind Roadmap, the Philippines has an estimated potential capacity of 178 GW from offshore wind resources.

This is expected to help the Philippines achieve its aim of increasing the share of renewables to 35% by 2030 and 50% by 2040.

Universal water access to depend on governance, incentive policies

The Philippines must address concerns about institutions, incentives, and investments — the so-called “three I’s” — in order to expand universal access to safe water and sanitation, according to a specialist from the World Bank.

“We need to strengthen policies and governance within institutions. And these are policies and governance not just in water supply but also equally importance on water resource management,” Fiorella Delos Reyes Fabella, senior water supply and sanitation specialist from the World Bank, said during a forum in Quezon City on Thursday.

With over 30 agencies responsible for water resources, Ms. Fabella said that there is a need to strengthen institutional governance, “not just in water supply but also equally important on water resource management,” she said.

Regarding incentives, she said that the lack of clear regulation has caused “overlaps” in regulatory authority.

“Different delivery standards and a different rate setting principles across many water service providers in the Philippines are subjected to different regulatory standards and this has led to water pricing that does not recover the costs. And then it has also led to an unsustainable trajectory,” she said.

She said that service providers will need tariffs that “accurately reflect the cost of services,” which includes capital, operating and maintenance costs.

“Regulation will push water service providers to meet certain targets and standards as well as to get the correct tariffs,” she said.

According to the World Bank, only 48% of the population are currently receiving piped water services, and approximately 63% have access to safely managed sanitation services or proper collection, treatment, and disposal of human waste.

“These figures are significantly lower than the regional East Asia Pacific (EAP) average, which stands at around 74% for safe water access and 69% for access to sanitation,” the World Bank said.

On the investment side, it said that municipalities and cities need strong support from the National Government to achieve universal access to safe water and sanitation.

“We have a decentralized setup in the country. It is the LGUs (local government units) that are ultimately responsible but when you look at the LGUs and their capacity. If they could actually, with their funding that they will get from the Mandanas Ruling, they can actually do the expansion to meet universal access to safe water and sanitation in their areas,” Ms. Fabella said.

Source: Business World