(T)he combination of a strong business process outsourcing (BPO) industry in the Philippines and the developers’ portfolio of office spaces that cater to the sector make the country ripe for a booming REIT industry.
Investors poured a combined P78.42 billion in capital into the first five real estate investment trust (REIT) companies that braved the stock market in the past two years.
And they were not disappointed.
Based on available data from the Philippine Stock Exchange (PSE), these investments have grown an average of 130.9 percent percent over the past three years when the first REIT IPO was launched, resulting to a P258.93- billion combined capitalization for the REIT sector in the PSE.
REIT has long been touted as an alternative vehicle for investing in the country’s property sector but only recently did it become a buzz word for investors in the stock market.
Hotspot
Last year, the Asia Pacific Real Estate Association (APREA) described the Philippines as the REIT IPO hotspot in Asia-Pacific amid an expected wave of REIT listings.
Sigrid Zialcita, APREA chief executive officer, said the combination of a strong business process outsourcing (BPO) industry in the Philippines and the developers’ portfolio of office spaces that cater to the sector make the country ripe for a booming REIT industry.
But it took a revamp of the law’s implementing rules — lessening taxes for REIT issues and their sponsors and lowering the minimum ownership that a REIT sponsor has to concede to outside investors — to make the current structure of REIT more palatable to potential issuing companies, and attract the first brave souls to raise funds through the REIT vehicle 12 years after the REIT law was passed.
First it was the Ayala Group’s AREIT Inc., which listed in 2020 and raised P12.33 billion through an initial public offering (IPO).
This was followed by a flurry of IPOs last year starting with the DoubleDragon Property Group- sponsored DDMP REIT raised P14.71 billion in March; the Filinvest Group’s Filinvest REIT, which raised P12.6 billion in August; the Gokongwei Group’s RL Commercial REIT, which raised P23.51 billion in September; and the Megaworld Group’s MREIT Inc. which raised P15.29 billion also in September.
This year, the REIT offering is bannered by the Megawide Group’s Citicore Energy REIT Corp., which is looking to sell to the public 3.63 billion shares at P2.55 per share and raising a potential P9.25 billion in proceeds.
A number of notable companies also expected to do their own REIT sale.
Each REIT IPO requires the REIT-sponsoring entity to commit to reinvesting the proceeds of the share sale.
A REIT is required by law to declare 90 percent of its unrestricted earnings for a year.
Since the first IPO in 2020, REIT investors have received a cumulative P6.08 billion in dividends for the past two years, complementing the share price appreciation of each REIT since its first trading day: AREIT has declared a total of P2.65 billion for the past two years; DDMP REIT, P1.72 billion for last year; RL Commercial REIT, P633.79 million; Filinvest REIT, P1.1 billion and; MREIT, P607.71 million.
“The REIT is the new asset class to choose to be able to invest, because (REITs are) the ones with a very promising future in terms of the dividends and their potential for price appreciation…’big asset injections’ that can further drive price appreciations for REIT are set to happen “this year and onwards.”
Big assets
Investment bank First Metro Investments Corp. (FMIC) which is part of the underwriting process for many of the REIT IPOs, said REITs performed “extremely well” compared with their mother companies.
Numbers “not seen before in terms of the price appreciation right after an IPO” was how Cristina Ulang, FMIC head of research described it.
“The REIT is the new asset class to choose to be able to invest, because (REITs are) the ones with a very promising future in terms of the dividends and their potential for price appreciation,” Ulang said, adding that “big asset injections” that can further drive price appreciations for REIT are set to happen “this year and onwards.”
This entrenches the position of REITs as an alternative means of investing in the property sector, according to Francisco Sebastian, FMIC chairman.
“REITs are a very specific way of investing in the property market. They’re all BPOs. You’re actually buying BPOs through a listed company called the REIT. That’s only the beginning.
Because later on we will have offices, we will have … malls, we will have rates that are more oriented. We will have logistics malls also. This is the beginning of a new way of investing in the property market,” Sebastian said.
April Tan, head of research at online stockbroker Colfinancial.com, said investing in REIT is also a way to hedge risks in investing against challenges the economy will be facing, particularly given the still limited movement due to COVID-19 pandemic.
“If you’re concerned about the government still not reopening the economy, you could invest in REITs,” she said.
Tan, however, said as REITs mature, investors might be forced to be content with a high single-digit growth in the future given that REITs are required to pay out 90 percent of their annual income.
Since the first IPO in 2020, REIT investors have received a cumulative P6.08 billion in
dividends for the past two years, complementing the share price
appreciation of each REIT since its first trading day
Demand sustained
Joey Roi Bondoc, Colliers head of research, has noted pent-up demand in the property sector despite the challenges brought by pandemic.
“Improvement in business sentiment in the next 12 months complemented by greater vaccination rates will likely lead to potential rebound in office space absorption in 2022,” he said.
In the first nine months of the year, takeup hit 302,600 square meters (sq.m.), up 2 percent from the 295,800 sq.m. last year. Traditional occupiers took 61 percent of the total transactions, with notable companies among them Shopee, Chinabank, Grab Philippines, Asian Carmakers, Nu Skin Philippines, and logistics firms.
Bondoc said the adoption of sustainable office spaces will play a crucial role in future-proofing office towers beyond 2022, with occupiers likely to prefer more “sustainable buildings that provide natural lighting and optimize air quality, among other features.”
“Over the next three to five years, these features should result in utility and talent acquisition cost savings and contribute to healthier and more productive workforce,” he said.
The retail segment is also seen to benefit from the revitalization of economic activity, as more people go out and about in their daily life outside their homes.
This is expected to reverse the cautiousness of developers which only completed 53,100 sq.m. of new space this year, down from the annual average of 323,200 sq.m. between from 2017 and 2019, according to Bondoc.
For 2022, Colliers forecasts vacancy in the retail sector rising to about 17 percent, partially due to the substantial new supply of about 523,700 sq.m. likely to be delivered and tepid demand because of the changeable lockdown situation in Metro Manila.
Filipinos’ growing propensity to shop online remains an important factor that will likely influence physical mall space absorption beyond 2022.
Colliers recommends that retailers expand their e-commerce presence and maximize technological advantages.
In the first 9 months of 2021, retail rents dropped 5 percent, from a 10- percent decline in the same period in 2020, Colliers said.
