REITs for energy to broaden investment opportunities 2022

The expansion of real estate investment trusts (REITs) to other industries, including the renewable energy sector, will broaden opportunities for income generation that the investing public can tap into. REITs offer a viable platform for investors to participate in the growth of the renewable energy sector without the need for direct asset ownership. This expansion can also help accelerate the country’s transition to sustainable energy by attracting more capital into clean power projects.

Legal Basis for Renewable Energy REITs

Atty. Francis Lim, former president of the Management Association of the Philippines (MAP) and a prime mover of the REIT Law’s enactment, explained that renewable energy assets qualify as real properties under the Civil Code. Since these assets generate income regularly, they fall under income-generating real estate assets as defined in the Real Estate Investment Trust Act (REITA) or Republic Act 9856.

He further clarified that companies owning these assets can be listed as investment trusts because they hold or manage income-generating real estate properties. Importantly, REITA does not require the trust entity to own the land on which these assets are located, allowing flexibility in structuring offerings for renewable energy projects.

The inclusion of renewable energy assets in these investment structures provides a new avenue for capital raising while supporting the country’s transition to sustainable energy. By attracting both institutional and retail investors, this expansion can accelerate the development of solar farms, wind farms, and other clean energy facilities, helping meet the growing demand for electricity while reducing reliance on fossil fuels.

Moreover, the ability to package renewable energy assets into investment vehicles makes it easier for companies to monetize their infrastructure while ensuring long-term operational stability. This approach enables project developers to secure funding for new energy initiatives without incurring excessive debt, while investors benefit from stable returns backed by consistent revenue streams from energy sales.

Benefits to Investors and the Market

The inclusion of renewable energy assets in REITs presents a new investment opportunity for the public. Investors can expect regular dividend payouts at least once a year, as mandated by REITA. Furthermore, REITs provide an inflation-hedged investment instrument with attractive returns, supported by dividend growth and consistent cash flows.

According to Rule 3 (r) of the REIT Law’s implementing rules and regulations (IRR), income-generating assets include properties that produce a steady revenue stream, such as rentals, toll fees, user fees, ticket sales, parking fees, and storage fees. Renewable energy assets, which generate income through power sales, can fit within this framework, making them ideal candidates for REIT listings.

Beyond individual investors, the broader market stands to benefit from the introduction of renewable energy investments in publicly traded trusts. By providing an accessible way to invest in clean energy projects, this development encourages capital inflow into the renewable sector, accelerating the growth of infrastructure essential for sustainable power generation. This, in turn, helps reduce dependence on traditional financing methods that may pose higher interest rates or longer approval processes.

Additionally, listing renewable energy assets enhances market liquidity, as investors can easily buy and sell shares in these income-generating assets without requiring direct ownership or large capital commitments. The ability to trade shares in publicly listed companies also promotes greater transparency and governance since these entities must adhere to regulatory and reporting standards, ensuring investor confidence in the financial health and operations of the companies they invest in.

From a long-term perspective, integrating renewable energy into this investment structure supports the country’s sustainability goals while strengthening the energy sector. As the demand for clean power continues to rise, companies with established energy assets can unlock value by raising funds through public offerings, ultimately leading to further expansion and modernization of renewable energy facilities. This aligns with the government’s push toward greener alternatives while offering investors a stable and socially responsible investment option.

Infrastructure REITs as a Model for Growth

Globally, REIT structures for energy and infrastructure projects are well-established. According to Lim, infrastructure projects such as power generation plants, transmission and distribution facilities, and communication towers can also be structured as REITs. These allow companies to unlock the value of their property portfolios and raise new capital for expansion.

Infrastructure REITs provide a steady income source with capital appreciation potential, without requiring investors to commit large upfront capital or actively manage assets. Given the Philippines’ growing demand for energy and infrastructure development, infrastructure REITs are expected to offer long-term benefits as the country recovers from the COVID-19 pandemic and prepares for sustained economic growth.

The success of infrastructure-based REITs in international markets provides a strong precedent for the Philippines to follow. Countries such as the United States and Singapore have seen significant capital raised through listed infrastructure assets, with investors drawn to the reliability of income streams generated by essential services. By adopting a similar model, the Philippine market can attract both domestic and foreign investments, fueling the expansion of critical infrastructure while ensuring liquidity and efficiency in capital markets.

Moreover, infrastructure-focused investment structures encourage public-private partnerships (PPPs), which can accelerate infrastructure development without overburdening government resources. By allowing private investors to participate in large-scale projects such as renewable energy plants and transport networks, infrastructure REITs can help bridge funding gaps, ensuring that essential projects move forward while distributing investment risks across a broader base.

From a sustainability standpoint, integrating renewable energy assets within infrastructure REITs promotes long-term environmental and economic resilience. As the global push for decarbonization intensifies, having publicly traded energy assets encourages transparency and innovation in the sector. This not only enhances investor confidence but also aligns with the country’s commitment to reducing carbon emissions and transitioning to cleaner, more sustainable energy sources.

Global Success of Specialized REITs

The Philippines can take inspiration from the success of specialized REITs in global markets. Singapore, for instance, has positioned itself as a global hub for REITs, with unique offerings such as:

• Keppel DC REIT – Asia’s first data center REIT, catering to investors supporting the growth of the digital economy.
• Mapletree Logistics Trust – The first Asia-focused logistics REIT, with 163 properties across major logistics hubs in Hong Kong, Singapore, Australia, China, and Japan.

In the United States, notable infrastructure REITs include:

• InfraREIT – A Texas-based REIT focused on owning and leasing rate-regulated electric transmission and distribution assets.
• Utini Group Inc. – A REIT specializing in communication infrastructure, providing wireless infrastructure solutions.

The success of these specialized REITs demonstrates the viability of non-traditional real estate assets in attracting investor interest. By expanding REIT offerings beyond office spaces and malls, these markets have unlocked new opportunities for capital appreciation and stable income generation. The Philippines can leverage this strategy by introducing REITs for renewable energy, data centers, and logistics hubs, aligning with emerging trends in global investment preferences.

Additionally, the growth of specialized REITs fosters economic resilience and diversification, particularly in times of market volatility. By investing in infrastructure-backed assets such as energy and telecommunications, investors gain exposure to industries that remain essential regardless of economic cycles. This model not only strengthens the investment landscape in the Philippines but also supports national development goals by channeling funds into critical sectors that drive long-term economic growth.

The Future of REITs Beyond Traditional Real Estate

The key takeaway from global REIT markets is that successful REITs are not limited to traditional office or commercial real estate. Well-managed assets that generate recurring cash flows—whether in energy, logistics, or digital infrastructure—can be structured into attractive REIT investment opportunities.

As the Philippines embraces this trend, renewable energy and infrastructure REITs have the potential to reshape the investment landscape, providing new avenues for capital raising while supporting the country’s transition to sustainable and resilient infrastructure development.

Beyond financial gains, expanding REIT offerings to sectors like renewable energy and infrastructure can accelerate national progress in achieving long-term sustainability goals. By encouraging investments in clean energy projects, the Philippines can reduce its dependence on fossil fuels, enhance energy security, and create a more stable power grid—all while offering investors a reliable source of income. Infrastructure REITs can also drive improvements in transportation, telecommunications, and utilities, addressing key bottlenecks in economic growth and development.

Moreover, the continued evolution of REITs can attract foreign investments, positioning the Philippines as a competitive market for innovative investment vehicles. As more investors seek sustainable and impact-driven assets, the expansion of REITs into emerging sectors can strengthen the country’s financial markets, increase market liquidity, and contribute to a more dynamic and inclusive investment environment. With the right policies and regulatory support, the Philippines can unlock the full potential of REITs, fostering a future where real estate investments go beyond conventional boundaries to support national progress.

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