Property consultant Colliers International said Ayala Land Inc.’s decision to pioneer the real estate investment trust (REIT) issuance should open encourage other provincial and national real estate players to follow suit.
“The full implementation of REITs places the Philippines at par with other Asian economies that have well developed and integrated capital and real estate markets. Colliers believes that REIT implementation in the Philippines will likely result in the further differentiation and innovation of domestic property development projects which should eventually benefit Filipino investors and end-users,” Colliers said.
Developers should use REITs “to access a cheaper source of capital and renovate and reposition assets such as offices, malls, and warehouses,” it added.
It also said given the dearth of developable land and surging land values in Metro Manila, firms may use REIT proceeds to develop integrated communities in key cities outside the country’s capital such as Cebu, Davao, Iloilo, Bacolod and Pampanga.
According to Colliers, the Philippines’ REIT could now fly after the government relaxed the law’s restrictive rules.
“In our opinion, now is the most opportune time to launch REITs as the Philippine property market has been on an upswing. The Philippines’ office market, for instance, is one of the most active in the region, with about a million sq metres (10.8 million sq feet) being completed every year and an annual take-up of more than 900,000 sq metres (9.7 million sq feet). We project Metro Manila office lease rates to be among the fastest-growing in Asia from 2020 to 2022,” it said.
Aside from traditional asset classes such as office, retail, warehouses and hotels, Colliers said other segments of the economy are likely to benefit from the launch of REITs in the Philippines.
With the government actively attracting private sector investment, property firms should also explore possible public-private partnership projects that cover hospitals, schools and toll roads as these assets meet the requirement to generate recurring income, it added.
“With Ayala Land filing their application to launch a REIT, we are keeping a close eye on the market to see which developers follow suit. The Philippine REIT landscape can now truly develop, which should entice homegrown developers such as those in Cebu and Davao to participate in this new capital fund-raising option,” Colliers said.
Ayala Land eyes to raise P15.1 billion through the sale of 49 percent of its REIT vehicle, AREIT Inc., to investors.
Ayala Land is divesting three office buildings in Makati central business district (CBD) for its REIT initiative — Ayala North Exchange, Solaris One and McKinley Exchange which have a combined gross leasable area of 153,000 sq.m. (1,646,300 sq. ft.).
“These are Grade A office towers that also house retail and hotel components. The offices have Philippine Economic Zone Authority accreditation that enable occupiers to enjoy both tax and non-tax incentives. These buildings have an average occupancy of 98.2 percent.
Among their occupants are large outsourcing and shared service firms such as Telus International Philippines, Shell Shared Services, and Concentrix,” Colliers said.
Ayala Land already announced that part of the proceeds will be used to acquire an office building in Cebu.
Colliers said this plan “indicates the viability of office as a REIT asset class.”
“In 2019, Makati CBD office lease rates grew by an average of 8 percent, higher than the metro-wide growth of 7 percent. Colliers sees Ayala Land’s move as a catalyst in enticing Philippine developers to utilize REITs as an alternative source of fresh capital,” it said.
