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REITs Chapter 1 Revised
REITs Chapter 1 Revised
CHAPTER 1
INTRODUCTION
In this chapter, the problem and its background and the statement of the problem are
introduced. It also includes discussions on the hypotheses, significance of the study, scope and
"Make your money work for you" is a principle that Robert Kiyosaki and many other investors
promote (Munster, 2022). This involves investing in assets that will grow (Security Bank, 2022). Sweta
(2023). Defines investing as allocating resources, generally money, to make a profit. It includes buying
assets intended to appreciate or create income from interest, dividends, or rent, that aims to achieve
financial security and growth. Moreover, " While money doesn’t grow on trees, it can grow when you
save and invest wisely," (COMMISION) which is why intelligent investment choices are essential
(United States Securities and Exchange Commission, n.d.a). In addition, investing increases wealth
over time; protects us against from inflation, and helps individuals save for retirement, college, and
Additionally, every reasonable investor wants to maximize investment returns and reduce
investment risk (Leković, 2018). However, investing is risky and requires investigation and expert
counsel before one makes financial decisions (Consumer Financial Protection Bureau, n.d.). Due to
uncertainty and potential future risk, Bhutto et al. (2020) recommend the diversification of investment
strategy for modern investors because diversifying their holdings rather than concentrating their
investments in a single type of security reduces risk and generates higher returns compared to other
investment strategies Bhutto et al. (2020) also mention that investing in equities, bonds, real estate,
and other asset types diversifies. It also needs to choose assets with varying risks and locations.
Droms (n.d.) calls this mix of investments "asset allocation,” which is the first and most essential
decision in investment. Droms (n.d.) also argued that gold and real estate hedge against hyperinflation
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best when diversifying holdings. He and several financial experts stressed that real estate provides
higher long-term returns than gold. However, it is also important to note that diversification benefits
increase with decreased correlation. This means diversification works better, portfolio risk is reduced
Also, investing can come in many forms, such as stocks, bonds, mutual funds, commodities, or
derivatives (Texas State Auditor’s Office, 2016). Stocks, also called equities, indicate company
ownership and are the most common and straightforward investment (Welu, 2021). Bonds, on the other
hand, are loans to a government, municipality, or corporation. While MUTUAL FUNDS AND INDEX
FUNDS produce a pool of money from many investors they invest the funds in numerous firms,
commodities or derivatives. On the other hand, stipulate a future asset sale price, and investors that
buy derivatives wager that the value will not drop (Money Helper, n.d.).
Moreover, those willing to take the necessary risks can make much money by investing in
stocks. Investors have the best chance of increasing money with stocks, especially in the long run
(United States. Securities and Exchange Commission, n.d.b.). Although the stock market is riskier than
real estate, Siegel (n.d.) argued that it could also make one more money. On the contrary, real estate
investment has been and will continue to be a reliable investment tool in times of crisis. It offers
protection. It generates value over time. It is passed along from generation to generation. Admittedly,
not everyone has the financial means to participate in the real estate industry because of the high
cost of entry. Only people who can afford to invest vast sums tend to dominate it (Pinnacle, n.d.).
Fortunately, investors can now invest in real estate without owning it through a new investment
instrument, the real estate investment trusts (REITs). These companies manages revenue-generating
properties - including malls, hotels, and office buildings - and delivers rental income to stockholders as
dividends. Compared to direct property ownership, real estate investment trusts (REITs) provide real
estate investments with lesser financial and management needs. Apart from high dividend yields,
liquidity, and diversity are some benefits of REITs (Beltran, 2022). REITs were created in 1961 in the
United States as an alternative to direct real estate investing. The initial legislative objective was that
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REITs would be inclusive and allow all residents to profit from investing in high-quality commercial real
estate without actually buying commercial real estate. Legally, these companies must pay at least 90%
of their profits in dividends, making them a key source of income for investors. Thus, REITs allow
investors to include real estate in their portfolios and may pay greater dividend rates (U.S. SEC, n.d.b.).
However, the Philippine REIT sector has just started, even though the law governing REITs was
established over a decade ago. REITs were established in the Philippines in 2009 but became popular
in 2020 because of regulatory improvements and investor demand (Sallan & Gemida, 2022).
So, despite the expanding number of REITs globally, there is still plenty of need to study this
relatively new security, especially in the Philippine REIT market (Sallan & Gemida, 2022). Moreover,
recognizing the scarcity of REIT research in developing countries cause consumers to doubt these
assets. Since an information comes from well-established international REITs businesses, the
perceptions and performance of REITs from Asian and developing countries are speculative (Victor &
Razali, 2019). Notably, diversification is best achieved with less correlated assets. Moreover, since data
regarding the correlation between the Philippine REITs and the PSEi is not available and related
studies abroad are contradicting, this research is geared towards addressing this knowledge gap.
This study generally aims to identify the relationship and degree of correlation between
investments. Prospective investors may use these information in deciding whether it is advisable to
invest in REITs or stocks because diversification works better and portfolio risk is reduced when assets
are less correlated. Thus, we determined the answers to the following research questions:
1. What are the average daily closing prices of the PSEI or Philippine Stock Exchange Index?
2. What are the average daily closing prices of the following REIT companies:
(a) Ayala Land REIT (AREIT), (b) DoubleDragon Properties REIT (DDMPR), (c)
Filinvest REIT (FILRT), (d) Robinsons Land Commercial REIT (RCR), (e)
3. Is there a significant relationship between the average closing prices of the PSEi and the
(f) Ayala Land REIT (AREIT),(g) DoubleDragon Properties REIT (DDMPR), (h) Filinvest
REIT (FILRT), (i) Robinsons Land Commercial REIT (RCR), (j) Megaworld REIT (MREIT)
4. How much of the variations in REITs are due to the price movement in PSEi for the following
companies:
a) Ayala Land REIT (AREIT), (b) DoubleDragon Properties REIT (DDMPR), (c) Filinvest
REIT (FILRT), (d) Robinsons Land Commercial REIT (RCR), (e) Megaworld REIT
(MREIT)
Hypotheses
macroeconomic influences on real estate prices, random walk behavior, and various financial and
H01: There is no significant relationship between the average closing prices of the PSEi and the
Ha1: There is a significant relationship between the average closing prices of the PSEi and the average
H02: The price movement in PSEi does not significantly influence the variability of prices in REITs.
Ha2: The price movement in PSEi significantly influences the variability of prices in REITs.
This research will contribute essential information to investors and the larger financial industry.
Moreover, its purpose is to provide crucial information and knowledge regarding the topic under study
1. Investment Managers: This research may give investment managers enough information to
understand market trends, different sectors' performance, and each stock's performance. This
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information can be used to inform investment strategies and asset allocation decisions. In
addition, it can be essential for Investment Managers in achieving superior investment returns
2. Investors: The Investors may benefit from this study since knowing the correlation between
PSEi and REITs will help them diversify their portfolios, reduce their exposure to market risks,
and potentially give them better returns. Furthermore, investors may assess whether they are
performing better or worse than the market and change their investment strategies as needed.
They can use information in this study to identify stocks likely to perform well in a particular
market environment and avoid those likely to underperform (de Langhe et al., 2016).
3. Financial Advisers: Financial advisers amy benefit from this study as it provides essential
insights into the behavior of the Philippine stock market, which can help them provide practical
investment advice and risk management strategies to their clients. This information can also be
used to develop investment strategies tailored to their client’s specific needs and risk tolerance.
Moreover, financial advisers can use the PSEi as a benchmark for evaluating the performance
The variables considered in this study are the daily closing prices of five REITs, namely,
(AREIT, DDMPR, FILRT, RCR, and MREIT) and the PSEi. More specifically, we will identify the
relationship between these two investments and, the degree of correlation between the two.
Additionally, we will only be analyzing a year’s worth of daily closing prices from the date the REIT
company became publicly listed and relate it to the corresponding date in the PSEi.
To understand this study better, the following terms, which are extensively used in this study
and should be interpreted according to their operational definition given in this section:
Philippine Stock Exchange Index (PSEi): It is a stock market index that measures the performance
of the 30 largest companies, chosen for their ability to represent the general movement of the
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Philippine stock market (Earnest, 2021). However, in this study, we refer to a year-worth of prices of
PSEi at the end of each trading day from the start of the public listing of the following companies:
Real Estate Investment Trusts (REITs): Are companies that own, manage, or finance real estate
properties. However this study pertains to the prices of AREIT, DDMPR, FILRT, RCR, and MREIT
at the end of each trading day since the start of their public listing.
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