The Philippines’ Social Security System (SSS) more than quadrupled investments in real estate investment trusts this year in anticipation that the dividends will give a “significant” boost to its portfolio.
The pension fund for private sector employees has poured 6 billion pesos (US$100 million) into almost all of the REITs that are now available in the Philippines, with more than three-quarters of the investments made this year, according to SSS President and Chief Executive Officer Rolando Macasaet.
The trusts’ yield of about 8% would “significantly boost the SSS investment portfolio”, he says in a statement on June 3.
The pension fund posted a lower investment gain of 5.1 billion pesos in the first quarter compared with 5.7 billion pesos a year ago.
The SSS is also banking on domestic rate cuts and favourable market conditions to bolster its investments.
The Philippine central bank said on May 16 that it will consider lowering interest rates by August, or the fourth quarter at the latest.
“The SSS’ bullish outlook on REITs is underpinned by the expected rate cut in the second half of the year and the increasingly favourable market conditions,” Macasaet says. “This positive outlook sets the stage for potentially higher returns on the SSS’ investments.”
Meanwhile, Ernesto Francisco Jr., acting head of the fund’s investments sector, says the SSS has been investing 5% of its equity funds in REITs and wants to raise the share further since it’s mandatory for the trusts to distribute 90% of their lease income.
He says REITs are likely to be one of the top contributors to the fund’s investment income this year because of their attractive dividend yields.
“The SSS will continue investing in REITs in the upcoming years because they can earn decently from steady rental income and growth. The more robust and diversified the cash flow of the REITs asset, the more we will invest in them,” he says in the statement.
With REIT managers expected to add more quality assets into their portfolios, he says the SSS sees “a promising future for the Philippine REIT sector, which could potentially become a major contributor to the capital market”.
According to Francisco, the absence of REITs in the Philippines’ benchmark stock index “presents a significant growth opportunity”, pointing to Singapore where such property trusts make up 20% of the key index.
“Singapore’s vibrant individual investor base, a key growth driver of their REITs, serves as an inspiring model for us. The Singapore experience on REIT development only shows that REITs can become a very significant growth driver in the Philippines,” he says.
