AREIT: Should you Buy the Stock of Ayala REIT?

Pinoy Money Talk

Is it good to buy REIT or Real Estate Investment Trust during this time of COVID-19 pandemic?

AREIT Inc. or Ayala REIT is the first company in the Philippines that forayed into this brand-new asset class in the Philippines, so continue reading if you want to learn more about this investment opportunity.

(UPDATE October 2020): As of October 2020, AREIT’s stock price has still not returned close to its IPO price of P27.00.

AREIT Stock Price

(UPDATE August 13, 2020): Today is AREIT’s first trading day in the PSE and the stock failed to close above its offer price. AREIT stock price actually dropped 7.8% on its first trading day, versus its offer price of P27.00, to close at P24.90 per share.

(UPDATE July 22, 2020): AREIT announced that its Final IPO price has been set at P27.00 per share. The company said that they will offer to the public 47.864 million primary shares and 409.019 secondary shares, with an overallotment option of up to 45.69 million shares.

Based on the AREIT IPO prospectus, the offer period will run from July 27 to Aug 3, 2020. Interested investors can buy shares of AREIT Inc. through their preferred stock broker.

The listing date in the PSE and start of trading of AREIT stocks is on August 13, 2020.

What is REIT?

ALI REIT: Good to buy?

REIT or Real Estate Investment Trust is a collective investment scheme which pools money from various investors and uses the pooled funds to acquire, manage, or sell real estate properties (which may be residential or commercial).

A REIT investment is essentially the same as a regular stock investment, but with some interesting features. Just like stocks, REIT is an equity product with a potential for capital gains but, unlike common shares, it has a defined return or yield. In the Philippines, REITs are required by law to distribute to shareholders dividends of at least 90% of distributable income.

What are the benefits of investing in REIT?

REIT offers three primary benefits to its investors.

1. Current Cash Flow Yield. As required by the REIT Act of 2009, REITs in the Philippines are required to distribute at least 90% of distributable income as dividends to shareholders every year.

In case the REIT’s earnings are to be restricted, which means some earnings might not be considered as “distributable dividends”, this will need to be approved by a majority of the board and requiring the unanimous vote of all independent directors. This provision was included in the IRR of the REIT law as a way to protect minority investors of a REIT company.

2. Liquidity. Compared to actual real estate, REITs are more liquid because they are traded in the Philippine Stock Exchange (PSE). Just like stocks, REITs can be easily bought and sold in the PSE with a known market price at any time.

3. Investment Diversification. REIT is a brand-new asset class in the Philippines, offering equity ownership in an income-producing real estate. It can help diversify a portfolio, complementing investments in stocks, bonds, mutual funds, UITF, and also real estate.

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First REIT company in the Philippines

The REIT law was approved and passed way back in 2009 but several issues hampered its implementation. The final IRR was released in January 2020 after industry concerns on minimum public ownership (MPO) and VAT issues on initial transfer of real properties were finally resolved.

Immediately after that, in February 2020, Ayala Land was the first company in the Philippines to announce that they will conduct an IPO for their REIT company, AREIT Inc.

In the IPO filing submitted to the SEC in February earlier this year, AREIT said they plan to raise as much as P14.4 billion by selling up to 507.57 million shares of the company at a maximum price of P30.05 per share. The AREIT Initial Public Offer (IPO) will consist of 47.864 million primary shares and 430.775 million secondary shares of AREIT Inc., with an option to issue additional 23.93 million shares based on demand.

Real Estate Properties of AREIT

What are the properties owned by AREIT?

AREIT Inc. currently owns three (3) commercial buildings transferred to it by parent company Ayala Land Inc. (ALI) — Solaris One, Ayala North Exchange, and McKinley Exchange — all PEZA-accredited establishments located in the Makati Central Business District, the country’s financial hub.

AREIT PropertyLocationDescriptionGross Leasable AreaOccupancy Rate
1. Ayala North ExchangeLegaspi Village, MakatiPEZA accredited office building, with Seda Residences95,554 sqm100%
2. Solaris OneLegaspi Village, MakatiPEZA accredited office building, with commercial establishments46,768 sqm100%
3. Mckinley ExchangeEDSA cor. McKinley Road, MakatiPEZA accredited office building, with commercial establishments10,689 sqm98.4%
4. Teleperformance Cebu *Apas, CebuPEZA accredited office building, with commercial establishments17,948 sqm* To be acquired by the end of 2020

The 3 projects have a combined gross leasable area (GLA) of almost 153,000 sq. m. After the IPO, the company plans on acquiring another building, Teleperformance Cebu, from another Ayala affiliate company.

The biggest of the 3 AREIT holdings is the Ayala North Exchange along Ayala Avenue in Legaspi Village, Makati City.

This development (Ayala North Exchange) consists of two office towers, built on top of a three-story retail center with 10,000 sq. m. of restaurants and shopping spaces. The first tower is a 12-storey building for a company looking for a headquarter-type office, while the second tower is a 20-storey Philippine Economic Zone Authority (PEZA)-accredited building catering to the business process outsourcing (BPO) sector. Also located in the Ayala North Exchange development is the 35-storey Seda Residences Makati, the first serviced apartment under the Ayala-owned hotel brand, consisting of 293 units ranging from studio units up to 3-bedroom units. The entire Ayala North Exchange project has a total GLA of 95,554 sq. m. At present, the occupancy rate of Ayala North Exchange is 100%.

Another property transferred to AREIT by Ayala Land Inc. (ALI) and will now be owned by AREIT is Solaris One, a PEZA-accredited building located at Dela Rosa St., Legaspi Village in Makati.

It is a 24-storey building built on over 3,000 sq. m. of prime Makati property, with total Gross Leasable Area of 46,768 sq. m. catering to the BPO industry. The Solaris One project includes a mini park and is in the vicinity of commercial shops, retail outlets, and dining establishments at People Support Center IT Building and Convergys One Building. At present, Solaris One is fully utilized with occupancy rate of 100%.

The third AREIT property is McKinley Exchange Corporate Center, a five-story PEZA-accredited project located along EDSA highway corner McKinley Road.

It has total GLA of 10,689 sq. m., of which 9,633.32 sq. m. are assigned to commercial office leasing. It currently houses the offices of Telus International’s BPO customer support operations in the Philippines. At present, the building’s occupancy rate is 98.4%.

After the initial offering, AREIT plans on using the cash proceeds to acquire another property that it will add to its portfolio. It plans to acquire Teleperformance IT Park Cebu from another Ayala company. The building is located in Cebu City’s IT Park and has a total GLA of 17,948 sq. m.

Buildings and properties owned by AREIT

AREIT Analysis and Recommendation

Is it wise to invest in REIT given the COVID-19 pandemic that could lead to lower revenues and reduced income of real estate properties? Here are the analyses of stock brokerage firms and property consulting companies in the country regarding investing in AREIT.


From stock brokerage AP Securities:

“Around 63% of the gross leasable area (GLA) of AREIT is occupied by companies in the BPO sector, which has been a resilient sector amid COVID-19 health crisis. Still, expect lower office rents if the POGO exodus happens and the proposed CREATE bill by the Department of Finance (DOF), which poses a risk to the BPO sector, is approved.

Based on AREIT’s latest indicative price range of P25.00 to P29.50, AREIT’s gross dividend yield ranges from 5.4% to 6.3%. Take note that the land in which AREIT’s properties and buildings stand is not owned by AREIT Inc. This means any capital appreciation of the land will not accrue to investors of AREIT (but to Ayala Land Inc. because ALI owns the land) and income of the company is dependent purely on rental revenue.”


From stock brokerage firm Unicapital Securities:

“Our initial impression of the properties under AREIT are of good quality. The three properties are located in the premiere Makati CBD area, have a total of 153,000 sqm of gross leasable area, and have occupancy levels of 100%, 100% and 98.4%, respectively, as of the first quarter of 2020.

The combined occupancy rate of the three properties is at 99.9%, higher versus the average commercial office space occupancy in Makati CBD, according to Colliers data. These properties have step-up provisions, where the rental fee is increased by a range of 3-10%.

All three properties are also PEZA-accredited, in which tenants enjoy tax incentives including income tax holidays, making the properties attractive to BPO companies. As for the dividends, AREIT is required to give out 90% of its annual distributable income under the REIT Law. According to AREIT’s initial forecast and projected statements of income found in the AREIT prospectus, the dividend yield is 4.36% at the IPO maximum price of P30.05 per share.

For the final IPO price of P27.00 per share, we estimate AREIT’s dividend yield at 4.85%. This yield will be lower versus the average yields of REITs in Singapore, Malaysia, India, Hong Kong and Indonesia; but higher versus Japan, Taiwan and Korea.”


From property consultants Santos Knight Frank:

“We believe that REITs will unlock a number of opportunities in the property market, such as greater access to real estate investment and revitalization of capital markets. REITs bring about a significant opportunity to democratize the Philippine property market, allowing the small investor to participate in high-value real estate assets alongside major corporate institutions.

REITs have the power to sustain long-term growth for the Philippine economy through investments. We anticipate that REITs will drive an increase in acquisition, consolidation, and property development activities across the Philippines in the coming years. New capital raised by the developers through REITs will enable expansion of the real estate sector not only in Metro Manila but also in the provinces, and with it generate jobs across many sectors.”


From stock brokerage firm Regina Capital Development Corp.:

“Several property consultants have stated that now remains as good a time as any to launch REITs in the Philippines. The country’s low interest rate environment is supportive of REITs. Further, the Asia Pacific (APAC) region is a thriving region for these instruments.

According to Goldman Sachs, Australia, Japan, and Singapore are some of the most established REIT markets globally — attracting investors largely due to their highly visible and relatively stable income streams. With the value of the local property market only appreciating and gaining more traction as the years go by, the listing of AREIT can be considered timely.

Majority of the proceeds will be used primarily to acquire Teleperformance Cebu. This will add to AREIT’s current portfolio of three PEZA-accredited office buildings:

  1. Solaris One
  2. Ayala North Exchange; and
  3. McKinley Exchange

The potential upside near-term lies in AREIT’s rental escalation, which management pegs at an average of 3-5% annually.

AREIT’s net income during the first 9 months of 2019 stood at P1.02 billion, more than triple the amount in the same period in 2018, at the back of strong leasing income. Note that this figure does not reflect operations of McKinley Exchange which was not yet fully operational during the period of financial reporting.

The listing of a REIT vehicle ideally benefits the developer through the possibility of reinvesting capital, improving capitalization rates through lower cost of capital, and overall improved sentiment thus leading to higher perceived valuation.”

ALI’s Financial Performance (1st Quarter 2020)

(UPDATE May 13, 2020): Although the Philippines is currently in the government-imposed Enhanced Community Quarantine (ECQ) because of the COVID-19 pandemic, Ayala Land Inc. (ALI) reiterated that they are pushing through with the planned launch of Ayala Real Estate Investment Trust Inc. (AREIT), although the timetable will have to be modified because of the current coronavirus public health crisis.

ALI confirmed reports that they are still coordinating with the Securities and Exchange Commission (SEC) for the application of AREIT Inc., the country’s first REIT, but the timing of the offering will depend on when the economic environment will stabilize, as many investors are assumed to keep cash and stay liquid for now given current market conditions.

During the 1st Quarter (1Q) of 2020, AREIT’s parent company Ayala Land reported that its earnings fell by 41%. Net income reached P4.3 billion but is 41% lower compared to the same period last year. This was primarily due to soft residential revenues, lower project bookings, and construction interruptions.

Revenues topped P28.4 billion, but also lower by 28% year-on-year. Commercial leasing (i.e., malls, offices, and hotel business) which declined by 5% and sales reservations which hit P25 Billion but lower 27% compared to last year contributed to the decline in revenue.

For the 2nd Quarter, analysts are expecting a bigger decline in earnings as the ECQ covered the whole months of April and May. The decline will again be led by residential revenues as construction works are temporarily halted and supply chain of construction materials disrupted during the lockdown period.

The only positive news seems to come from Office leasing revenues due to continued cash flows from office space tenants, while ALI’s Malls and Hotels business will likely experience bigger declines as the lockdown continued to be extended.

NOTE: This report is published in partnership with PinoyInvestor.com. PinoyInvestor is a Philippine-based stock reports subscription service that provides detailed analysis and recommendations by various stockbrokers on how to profitably trade the Philippine Stock Exchange (PSE). Sign up here to get your free PSE stock reports!

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Disclaimer: The report above is merely provided for information and should be construed solely as statements of opinion and not statements of fact. The information presented should not be seen as and does not constitute an offer or solicitation to buy any securities. Before making a decision to trade or to invest, you should perform due diligence and practice sound decision-making. Invest only in products and instruments that you understand.

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Pinoy Money Talk is an educational website about money, banking, investments, and personal finance which started in 2005. Its group of five writers consists of one equity research analyst, one fintech startup owner, one finance educator, and two investment professionals.