The first real estate investment trust to debut on the local stock exchange has priced its initial public offering(IPO) at P27 per share. Ayala Land-sponsored AREIT IPO will offer a total of 502.57 million shares, inclusive of the over-allotment option of around 45.69 million. The offering consists of 47.86 million primary common shares and 409.02 million secondary common shares. The IPO will run from July 27 to August 3 and will be listed on August 13, 2020. In total, this represents up to 49% of AREIT’s capital stock.
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Real Estate Investment Trust (REIT)
The legal framework for REITs in the Philippines has been existing since 2009 through the Real Estate Investment Trust Act of 2009. However, certain provisions in the law covering aspects like public ownership levels and the application of VAT on the transfer of properties to REITs failed to entice real estate companies in participating. In 2020, the government decided to do revisions on the REIT law and as a result, major real estate companies have expressed intent to do REITs. More are expected to follow.
Based on the Securities and Exchange Commission, a REIT is a stock corporation established principally for the purpose of owning income-generating real estate assets such as apartment buildings, office buildings, medical facilities, hospitals, resorts, highways, warehouses, shopping centers, railroads, among others. It is a type of investment instrument that provides a return to investors derived from the rental income of the underlying real estate asset. The public will have access to the REITs through the Philippine Stock Exchange.
There are four benefits associated with REITs:
1. There is earning through dividends. Investors are entitled to receive 90% of distributable income annually.
2. There is liquidity since the shares of REITs are relatively easy to convert to cash.
3. Risk can be managed better through diversification. Through the REITs, investors can invest in a wide variety of real estate properties at affordable levels.
4. There is transparency since REITs are required to disclose information for the general public.
In choosing what REIT to invest in, there are a couple of things that investors should consider. One key consideration would be the location of the properties. Different real estate locations have varying real estate values even within Metro Manila. Being cognizant of the thriving locations today can help investors decide prudently. It would be worthwhile to get key information on the planned infrastructure projects of the government in order to get a good glimpse of what locations are going to do well in the future.
Another key consideration would be the track record and reputation of the real estate company. Revenue growth and financial strength boost confidence in the company. Credibility is enhanced if the performance of past real estate projects in terms of capital appreciation and rental income appreciation would be positive.
AREIT Inc. by Ayala Land
The two properties owned by AREIT consist of Ayala North Exchange (ANEx), which houses a BPO, Seda Residences, a serviced apartment, and an HQ tower suitable for head offices and Solaris One, a PEZA commercial building. Both are situated in the prime central business district of Makati. ANEx is however expected to be a major income contributor for AREIT.
Ten-percent of the proceeds from the AREIT IPO will be used by AREIT to fund the acquisition of the fourth commercial leasing asset in its portfolio, Teleperformance Cebu, a Grade-A, PEZA-accredited BPO development located in Cebu I.T. Park. Meanwhile, 90% of the proceeds will be used by the sponsor, Ayala Land, Inc. (“ALI”), for reinvestment into its real estate projects in the Philippines, within one year from the receipt of proceeds, pursuant to the revised implementing rules and
regulations of the Philippine REIT Act of 2009.
Summary
There are many reasons why AREIT makes an attractive investment. First, all of its assets are office buildings and most of its tenants belong to the business process outsourcing or BPO industry. Out of its total GLA of 152,756 sqm, about 59% is leased out to BPOs. Note that despite the COVID-19 pandemic, demand for office space from BPOs remain resilient as foreign companies based in developed countries continue to outsource their operations to reduce labor cost. Moreover, because of social distancing requirements, BPOs now require a larger floor area for the same number of employees.
While AREIT looks like an attractive investment, there are also some risks. According to the Philippine Amusement and Gaming Corp., two Philippine Offshore Gaming Operator (POGO) licensees and 13 service providers offering call center operations, telemarketing, systems and hardware support, live dealer video streaming and other online games recently left the Philippines due to unresolved disputes with tax authorities.
Given the Ayala name, the fact that all three properties are situated in Makati and follow proper tenets of the REIT as prescribed the laws in the country. Being in Makati, these properties are expected to remain relevant over the next 30 to 50 years. Also, with the novelty of being the maiden REIT offering, AREIT IPO demand is expected to be good, driven particularly by institutional investors.
Read More: Complete IPO Guide ; Inquirer ; Manila Bulletin
-Stockbytes PH, July 23, 2020,
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