REITs, a Success Formula / For PH: When? If ever?

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REITs for PH: When? If ever?

 

New PSE head plans to reinvigorate real estate investment trust push

Posted on May 29, 2017

THE NEW HEAD of the Philippine Stock Exchange (PSE) is leading the revival of the real estate investment trust (REIT), with the Bureau of Internal Revenue (BIR) expected to come up with a compromise in two months that will bring the new asset class to life after being stalled for more than seven years.

 

Ramon S. Monzon, PSE’s newly seated president and chief executive officer, told reporters on Friday last week that the bourse has made progress in discussions with the Finance department to “repeal” the existing implementing rules and regulations (IRR) of Republic Act No. 9856, or the The Real Estate Investment Trust Act of 2009.

“We’d like to get the launched products back on track like the REITs so we’re doing some representation with the Congress now if they can reconsider passing something to amend the IRR that was passed by (former Bureau of Internal Revenue Commissioner) Kim Henares,” Mr. Monzon said.

The new investment product has yet to take off since the REIT act lapsed into law in December 2009 after issues on ownership and taxation on asset transfers prompted the major property developers to shelve their respective issuance.

For instance, the government subjected the transfer of assets into REITs to taxation and levied a 12% rate on additional income generated. It also set the minimum public ownership of such trusts at 40% for the first two years of listing and 67% thereafter.

The administration of former president Benigno S. C. Aquino III had imposed these stringent REIT rules to limit revenue leaks caused by laws that grant generous tax perks.

“They are listening... We also have to be creative as to what can replace the lost income of the government,” Mr. Monzon said.

- See more at: http://www.m.bworldonline.com/m_content.php?section=TopStory&id=145905#sthash.Dw2MoXad.dpuf

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GENERALLY Speaking... and Globally...

 

(But perhaps not yet for PH):

Are REIT's really better ?

Asks Maggie from Atlanta :

This recent article in Forbes argues that Data proves REITs are better than buying real estate: https://www.forbes.com/sites/marcprosser/2017/07/1...

I've been following Bigger Pockets and planning to buy my first rental property sometime this year...but this article made me wonder if I should be rethinking that decision, and investing in REITs instead!

So, I'd love to hear what Bigger Pockets members with more firsthand experience with real estate think about this article.

Data proves REITs are better than buying real estate?

FLIPPING is a short-term strategy where an investor uses a fix-and-flip loan to purchase, renovate, and then sell the property for a profit. In this scenario, the profit earned is the difference between the sale price and the purchase price plus holding costs, which include renovations. Fix-and-flip investors will typically try to sell a property within 6 - 12 months.

For fix-and-flip investors, a rule of thumb is that you need to make at least 30% above the purchase price in order to be profitable. This is due to the repair costs and other holding costs. This means that while fix-and-flippers make $58k, on average, it can be a risky investment. For example, as much as 40% of all short-term house flippers sell at either a breakeven or loss.

The second is through a long-term strategy where an investor uses a permanent loan to purchase a property before renting it out to long-term tenants. Profit is earned from the monthly rental income and asset price appreciation, minus any maintenance and upkeep. Buy-and-hold investors willy usually keep a property for more than 10 years.

For buy-and-hold investors, it’s common to see average annual returns between 7% - 10%, depending on the type of property and its area. However, some investors have been able to generate upwards of 20% annual returns in hot markets while others have seen losses due to low occupancy rates and rising costs of maintenance.

. . .

Direct real estate investing is very time intensive and often requires a lot of work. For short-term investments, a fix-and-flipper is usually required manage the renovation timeline and sell the property within 12 months. For long-term investments, investors are required to find tenants, deal with maintenance and upkeep, and sometimes even renovate the property before renting it.

 

This is why real estate investment trusts (REITs) have become so popular lately. REITs offer many of the same benefits of direct real estate investment, such as rental profits, as well as solve many of the problems, such as a lack of liquidity and diversification. Until recently, however, REITs have gone by largely unnoticed by real estate investors.

But the cat’s out of the bag. REITs have a long history of outperforming direct real estate investing and the trend is expected to continue. For example, from 1977 to 2010, REITs have returned more than 12% annually. This is in comparison to the roughly 10% return of the S&P 500 and the 6% - 8% return of private real estate funds during the same period.

And over the past 5 years, REITs have an average annual return around 9% while the average annualized return of direct real estate investing is at-or-below 8%. These are impressive performance numbers that all investors should find interesting. But before you jump the gun...

 

==

> article: https://www.forbes.com/sites/marcprosser/2017/07/19/data-proves-reits-are-better-than-buying-real-estate/#1c579ddad6b7

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NOW...

Ayala Land plans to raise P25-26B in country’s first REIT offer

AYALA LAND, Inc. (ALI) is preparing what could turn out to be the country’s first real estate investment trust (REIT) offering, where it plans to raise about P25-26 billion.

“We filed with the SEC (Securities and Exchange Commission) an Ayala Land REIT; we’re still thinking what the name should be. The intent is to list based on the current regulations which is a minimum public ownership of 67%,” ALI Commercial Business Group Head Jose Emmanuel H. Jalandoni said in a media briefing after the company’s annual shareholders’ meeting in Makati Wednesday.

Mr. Jalandoni said the company has filed for the name change of an existing company, One dela Rosa Development, Inc., into Ayala Land REIT Inc., which will now serve as the vehicle for the REIT listing. ALI has also filed amendments to its articles of incorporation to reflect its intention to file for REITs.

“We feel like it’s a very good vehicle for us. We’ll be able to recycle some capital, but we’re also looking at it as a new business model for us to be able to grow this REIT into another leg for the organization,” ALI President and Chief Executive Officer Bernard Vincent O. Dy said in the same briefing.

The REIT will be anchored on ALI’s office towers located in the Makati Central Business District.

Mr. Jalandoni said they can also use the firm to acquire third-party assets.

“It doesn’t mean that the only assets that we will put in this vehicle are the Ayala Land assets. We could actually explore third-party assets as well to be used into this REIT vehicle,” Mr. Jalandoni said.

The company has engaged the Bank of the Philippine Islands as the transaction’s underwriter.

‘LET’S JUST GO AHEAD AND DO IT’
Should the listing push through, this will be the first REIT vehicle in the country 10 years after Republic Act No. 9856, otherwise known as The Real Estate Investment Trust (REIT) Act of 2009, was enacted.

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AyalaLand's stock price JUMPED on this news

ALI / Ayalaland .... update : Last : P 49.50 +1.50

Market players previously raised concerns about the high level of public ownership and taxation issues required for REITs.

The SEC has since favored a lower public float of 33%, while the 12% tax on transfer of real properties has been removed under RA 10963, or the Tax Reform for Acceleration and Inclusion Act that took effect in January last year.

However, the SEC has yet to come out with the revised guidelines as the Department of Finance wanted assurance that the funds raised through REITs will not be spent outside the country.

“If they don’t revise, we’re fine because we’re ready to accept. If they do revise we’re also fine. As a company, we said let’s just go ahead and do it,” Mr. Jalandoni said when asked whether they will still push through should the SEC release new guidelines.

“The primary reason is we just want to move forward and test the framework. It’s good for the investing public to have these options.”

Shares in ALI jumped 2.13% or P1 to close P48 each at the stock exchange on Wednesday.

> https://www.bworldonline.com/ayala-land-plans-to-raise-p25-26b-in-countrys-first-reit-offer/

2010 : A previous effort was not fruitful : link

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Good news coming? ...

REIT rules to be released by July

THE Securities and Exchange Commission (SEC) said it can release guidelines on the issuance of real estate investment trusts (REITs) as early as July, without changing the minimum public ownership (MPO) requirement.

The commission is set to conduct another round of public discussions this month to finalize the qualification requirements of a REIT fund manager, which is one of three provisions that has dissuaded property players from issuing such a product.

“Kung wala masyadong tanong on the rules… by July finalize na (If there are not many questions on the rules… by July, we can finalize it),” SEC Commissioner Ephyro Luis Amatong told BusinessWorld on the sidelines of the 3^rd Asia Pacific REIT Investment Summit in Parañaque on Tuesday.

Mr. Amatong said there is a pending issue regarding how much interest a fund manager can have in a REIT. The fund manager is tasked to implement the investment strategies of the REIT, oversee and coordinate its property acquisition, leasing, and operational and financial reporting, among others.

Rule 6 of the Implementing Rules and Regulations of Republic Act No. 9856 or the REIT law states that a fund manager must be independent of the REIT, its promoters, or sponsors.

“Nakalagay sa batas ay independent, but I think what it really meant was external, na yung fund manager ay hiwalay from the REIT…so pwede naman palang may ownership stake yung REIT or yung sponsor in the property (Under the law, it says the fund manager should be independent, but I think it meant that it should be separate from the REIT… So it can have an ownership stake, the REIT or the sponsor in the property),” Mr. Amatong explained.

However, the rules that are being readied by July will still include the 40-67% MPO for REIT vehicles, against the 33% requirement that property players have said is the ideal public ownership level.

Mr. Amatong said the SEC decided to iron out the rule on REIT fund managers first since it was a concern for all industry players, whereas some companies are already comfortable with the existing MPO requirement.

“Ang lumalabas, may mga willing to comply with the MPO. Pero the issue of the property manager, issue siya for all. So inuna namin kasi applicable to all, lahat gusto may stake sila in the property manager or the fund manager (It turns out, there are some who are willing to comply with the MPO. But the issue on the property manager, it’s an issue for all. So we prioritized that, everyone wants to have a stake in the property manager or fund manager),” he said.

With the amendment for the rule on REIT fund managers, Mr. Amatong is optimistic that the country will see the first REIT issuance this year.

Ayala Land, Inc. (ALI) said last April that it is preparing a REIT offering where it could raise about P25-26 billion within the year. This comes a decade after the REIT law was enacted in 2009.

Mr. Amatong also said that “about one or two” companies have already expressed interest that in conducting a REIT offering with the current MPO requirement.

Aside from issues on the REIT fund manager and high MPO requirement, property players were previously concerned with the 12% tax on the transfer of real properties once they place their assets in a REIT. This rule however has been removed following the passage of the Tax Reform for Acceleration and Inclusion Act last year.

https://www.bworldonline.com/reit-rules-to-be-released-by-july/

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Is there a Delay?

SEC eyes release of new REIT rules by September ...
Aug 12, 2019 - Mr. Amatong said reduction of the MPO comes with the condition that all proceeds from the REIT vehicle will be plowed back to the Philippines.

SEC Commissioner Ephyro Luis B. Amatong said they are now working on the draft framework for REITs which will be out for public comment this month.

“We hope to have the rules out for public comment within the month… most likely there’s a 15-day comment period. If it’s not too complicated, we can expedite it,” Mr. Amatong told reporters on the sidelines of Ayala Corp.’s Integrated Summit on Corporate Governance, Risk Management and Sustainability in Makati last Friday.

Salient provisions in the draft guidelines include the reduction of the minimum public ownership (MPO) to 33%, from the current requirement of 40% on the first year of listing raised to 67% on the second year.

This places the Philippines at par with the 20-33% MPO requirement seen for REITs in other Asian markets.

Mr. Amatong said reduction of the MPO comes with the condition that all proceeds from the REIT vehicle will be plowed back to the Philippines. “The amount equivalent to the REIT proceeds must be reinvested by the REIT sponsor, which is the developer… [They] should be reinvested in the Philippines within one year in either real estate or infrastructure,” he said.

> https://www.bworldonline.com/sec-eyes-release-of-new-reit-rules-by-september/

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Global Equities Relief-Rally Led To Asia Pacific REITs’ Underperformance In September

REITs could see support in October on expectations for cuts in interest rate.

Global capital markets cheered after the U.S. Fed cut its benchmark rate by 25 basis points (bps) and trade talks between China and the U.S. showed signs of progress. The MSCI World rose 2% for the month on the back of improved market sentiment.

For the Asia Pacific region, the GPR/APREA Investable REIT Index reported a 0.6% increase in September versus MSCI AC Asia Pacific’s 2.7% gain over the same period. The marginal rise in the REIT Index reflected the risk-on sentiment in the Asia Pacific markets. 

Australian REITs led the underperformance of regional REITs with a 2% drop during the month.  The MSCI Australia index was up 2%. This decline in the REIT index is a result of market concerns about Australia’s economic outlook and its impact on the local property market. 

REITs in Japan registered the best performance with a 2.9% increase. J-REITs, however, still underperformed the MSCI Japan, which rose 4.2% during the same period.

Despite the September rebound, concerns about the global economic outlook have re-surfaced after worse-than-expected U.S. PMI (Purchasing Manager’s Index) data released on October 1. The market largely expected governments to keep interest rates low. The Reserve Bank of Australia recently cut its interest rate by 25 bps cut to a record low of 0.75%. 

Thus, we expect Asia Pacific REITs’ outperformance to return in October on the back of concerns over the global economic outlook and lower interest rate expectations.

Based on market close at September 30, 2019 / All performance numbers are based on total gross returns in USD

Sources: GPR and Bloomberg

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REIT REALITY in other countries... has been bright

Retire Rich With REITs: May The Force Be With You

Nov. 5, 2019 7:00 AM ET

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124 comments

 

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Includes: ABR, AMT, AVB, CCI, CONE, COR, CTRE, CTT, ELS, EPR, EQIX, ESS, FR, IRM, MPW, PLD, SUI, TRNO, VNQ

Brad Thomas

 

Dividend growth investing, REITs, newsletter provider, value

Marketplace

iREIT on Alpha

 

(75,705 followers)

Summary

As a developer, I’d always had partners. So I’d always had to use K1s from the various partnerships I operated within to file my tax returns.

REITs are much simpler in that they generate 1099s, a much more efficient way to own high-quality real estate.

It’s interesting to see that unlisted real estate produced average net returns of 8.1% over the period, about 280 basis points less than REITs – or 2.8% per year.

This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

Over the years, I’ve witnessed firsthand the vast wealth that can be created by owning real estate.

My mother recently retired, although she does maintain a part-time job as a real estate agent. That’s not to say she’s ultra wealthy, only that she created the ability to have an above-average lifestyle – especially for a single mom – while she was raising two kids.

As soon as I graduated from college (Go, Blue Hose!), I decided to immediately begin working in real estate.

Incidentally, that happened to be the same year Donald Trump wrote The Art of the Deal. Like him or hate him, let me tell you: That's one truly inspirational book for anyone who wants to make something of themselves by owning real estate. It definitely had a positive affect on me.

For over two decades, I forged a career developing free-standing and multi-tenant properties. By learning value creation from the ground up, I was able to turn a student loan (around $25,000 in 1988) into a net worth of around $30 million.

I was doing good and flying high.

Photo Source

A Change of Plans

During this high-flying time, I bought and sold properties to real estate investment trusts, or REITs. So I knew what they were. But I’ve got to admit: I was never interested in actually owning the shares.

I knew they had exceptional cost-of-capital advantages and, for the most part, good management. However, I was much more interested in getting rich by developing private real estate at the time.

 

Fast forward to 2008, when the word “developer” became virtually extinct. I had lived through previous recessions, of course. Yet the “great” one turned out to be the catalyst for my new career as a real estate analyst.

If someone had asked me at the time – if they had given me the choice to proceed the way I had to after that – I would have turned them down flat.

Yet, looking back at those painful times, I can honestly say that I learned a lot from them, to the point where I can’t help but consider them all exceptionally worthwhile. As Benjamin Graham recounts:

“Adversity is bitter, but its uses may be sweet. Our loss was great, but in the end we could count great compensations.”

Becoming an Intelligent REIT Investor

As I began learning more about the REIT structure, I have to say - I became fascinated by the tax-efficient mechanism in which REITs must – by law – pay out at least 90% of their taxable income in the form of dividends.

As a developer, I’d always had partners. So I’d always had to use K1s from the various partnerships I operated within to file my tax returns. That can be a royal pain in the neck, let me tell you.

However, REITs are much simpler in that they generate 1099s, a much more efficient way to own high-quality real estate. That got my attention.

I also was attracted to the highly predictable dividend income they generate. As Ralph Block pointed out in his book Investing in REITs:

“What makes REIT shares so attractive compared with other high-yield investments like bonds and utilities is their significant capital appreciation potential and steadily increasing dividends.”

As I began to dig deeper into the REIT platform, I was amazed to see how many investors weren’t familiar with what they were and how they operated...

> https://seekingalpha.com/article/4302344-retire-rich-reits-may-force

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Ayala Land may delay REIT offering to 2020 - BusinessWorld

https://www.bworldonline.com › ayala-land-may-delay-reit-offering-to-2020

Oct 7, 2019 -

AYALA LAND, Inc. (ALI) may postpone its real estate investment trust (REIT) offering to next year, as it waits for the final guidelines to be released by the Securities and Exchange Commission (SEC).

“If we can get it this year, or early next year, we’ll just adhere to the SEC timeline, which is really now about the release of the new guidelines,” ALI Chief Finance Officer Augusto Cesar D. Bengzon told reporters last week.

The listed property developer in April said it will place its prime office assets in the Makati Central Business District under a REIT valued at $500 million. The company then said it can conduct the REIT offering under existing SEC rules, in a bid to have the first such listing in the country a decade after Republic Act No. 9856 or the REIT Act of 2009 was implemented.

Mr. Bengzon however noted that the commission would prefer that all companies follow the latest guidelines for such a listing.

“We’ve done quite a bit of work already. It will just need some tweaking when the new rules come out, tweak the prospectus and the registration statement,” Mr. Bengzon said.

Sought for comment on when they can release the final rules, SEC Commissioner Ephyro Luis B. Amatong said they hope to finish it within the year.

older:

Ayala Land prepares $300M REIT offer | Inquirer Business

https://business.inquirer.net › Latest Business Stories

Aug 6, 2019 - MANILA, Philippines — Property giant Ayala Land Inc. (ALI) is preparing to raise as much as $300 million from its maiden offering of real estate ...

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ALI targets REIT offering this year. ...

The listed property developer said in April that it will be placing its prime Makati Business District office assets under a REIT valued at $500 million. It is targeting to raise about $300 million from its REIT offering.

AYALA LAND, Inc. (ALI) said that it is still pushing through with its real estate investment trust (REIT) offering this year.

“Our REIT plans remain as previously communicated,” ALI Chief Finance Officer Augusto Cesar D. Bengzon said in an e-mail to BusinessWorld.

He also said that the company will do the REIT filing and seek all necessary approvals “once the SEC [Securities and Exchange Commission] and BIR [Bureau of Internal Revenue] IRRs [implementing rules and regulations] are finalized.”

The listed property developer said in April that it will be placing its prime Makati Business District office assets under a REIT valued at $500 million. It is targeting to raise about $300 million from its REIT offering.

“Amounts [are] still being finalized but roughly in the range,” Mr. Bengzon said.

If the listing will be materialized, this will be considered as the first REIT vehicle in the country 10 years after the enactment of Republic Act (RA) No. 9856, or the Real Estate Investment Trust Act of 2009.

The SEC is targeting to release the final guidelines for REITs in early 2020.

In 2010, the SEC approved the implementing rules and regulations of the said law, which states that a REIT must have 40% minimum public ownership on its initial year of listing, which should increase to 67% the following year.

However, stakeholders have raised concern over the high level of public ownership as required by REITs, as well as issues on taxation.

The company regulator then pushed for a lower public ownership at 33%, which is also contained in its draft rules released in October. Tax on transfer of real properties at 12% was also removed through RA 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN), which was implemented January 2018.

Under the draft rules, all proceeds of a REIT are required to be reinvested into the Philippines to enhance the capital market and to boost participation of Filipinos in real estate.

> https://www.bworldonline.com/ali-targets-reit-offering-this-year/

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REITs to lure more foreign investments, boost infrastructure development — property advisory firm

MANILA, Philippines — The release of the new implementing rules and regulations (IRR) for the Real Estate Investment Trust (REIT) Law will attract more foreign investments and boost infrastructure development, a property services firm said.

“In our opinion, the successful launch of REITs in the Philippines bodes well for the property market and the Philippine economy in general as it is likely to attract more foreign investments into the country. REITs should also stoke the construction and infrastructure sectors which have significant multiplier effects to the economy,” Colliers International Philippines said.

Last Monday, the government issued the new IRR for the REIT Law, a move which allows the REIT industry to finally takeoff.

The REIT Act, which allows the creation of a publicly listed stock corporation that owns income-generating real estate assets such as malls, offices and hotels, was enacted in 2009.

The launch of REITs has been stalled however by a number of regulatory roadblocks including taxation issues and a high public ownership requirement.

. . . To take advantage of opportunities in REITs, Colliers recommends that developers consider divesting their properties into REITs to access a cheaper source of capital; use REIT proceeds to renovate and reposition assets such as offices, malls, and warehouses; use REIT funds to develop integrated communities in key cities outside Manila; set aside a portion of REIT proceeds to acquire reclaimed properties in Manila; use REITs as a benchmark for valuing assets; and acquire co-living and co-working facilities that could eventually be diversified into a REIT.

Among the property developers that have expressed interest in REITs are Ayala Land Inc. DoubleDragon Properties Corp., Megaworld Corp., Robinsons Land Corp. and Century Properties Group Inc.

> https://www.philstar.com/business/2020/01/22/1986667/reits-lure-more-foreign-investments-boost-infrastructure-development-property-advisory-firm

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REIT fires up stock mart | Business | Daily Tribune

12 hours ago -

The release of the new set of amended rules and regulations for the Real Estate Investment Trust (REIT) law will revitalize activities in the stock market as property firms, long waiting in the wings to participate in the new scheme, are expected to seize the opportunity to raise capital in the stock market.

PSE president and CEO Ramon Monzon said in the regular online program “Straight Talk with the Daily Tribune” while the REIT Law was passed in 2009, no property firm has listed to date.

The announcement of the implementing rules and regulations (IRR) provides the opportunity to get the product off the ground, according to Monzon.

The new asset class was met with tepid response from the investor community because of several contentious provisions.

“REIT under the Tax Reform for Acceleration and Inclusion (TRAIN) law are VAT free and under the IRR, the 33 percent minimum public offer (MPO) will be required on participating firms which is lower than the original requirement of 40 percent in year one and 67 percent in year three,” Monzon acknowledged.

Monzon said that the entry of REIT in the stock market will allow the democratization of real estate ownership by allowing the public to be part of the spectacular growth in the property sector through the bourse.

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REITs Explained

" long term yields with some inflation-protected upside..."

Real Estate Investment Trust (1) - by Bing Matoto, Daily Tribune columnist

The income the investor will receive is NOT fixed but will be primarily dependent on the dividends declared, which under the law has to be at least 90 percent of the REIT’s income.

What is this REIT all about anyway and why the arduous delay in its promised take-off?

As the name implies, a REIT is a corporate structure created for the sole purpose of investing in a pool of real estate assets that are generating a steady stream of investment rental or lease income. These income-producing real estate assets could range from dormitories, condominium apartments, residential housing projects to shopping malls, industrial zones and office buildings, or literally any property you can imagine that has the capacity to generate regular income.

With the IRR still fresh from the oven, so to speak, it is way too early what kind of investment opportunities REITs may offer in the future to investors like you and me. But surely any creative investment banker can create a whole suite of REITs structured along the lines of certain types of properties depending on what could be of interest to investors in so far as yield, liquidity or risk preference is concerned.

For example, you can create a REIT composed of all rental housing properties located either in a specific subdivision or locality or across a wide range of locations. Just to highlight how important structuring the REIT is, imagine being invested in a REIT composed of high-end rental Tagaytay properties versus a pool of modest-sized lease-to-own condo units scattered all over Metro Manila, where would you rather be invested in today?

To illustrate further what a REIT is, what is the difference between investing in a corporate bond issued, for example, by Ayala Land (ALI) and a REIT which has ALI as its majority shareholder? Well, an ALI bond is a corporate debt of ALI issued to the public that is 100 percent backed up by the total corporate resources of ALI which pays a fixed interest rate for the duration of the bond.

On the other hand, a REIT which is majority owned and managed by ALI is NOT a debt obligation of ALI, but rather it is an EQUITY participation in a pool of assets owned by the REIT.

The income the investor will receive is NOT fixed but will be primarily dependent on the dividends declared, which under the law has to be at least 90 percent of the REIT’s income. It is important to note that the ability of the REIT to declare dividends will be solely based on the income, IF ANY, from the operations of the asset pool, essentially rental income. In other words, if the operating expenses of the pool of properties exceed the rental income, losses will arise and in such a situation, no income will accrue to the REIT investor, therefore no dividends will be declared...

. . . Rather than the mom-and-pop types or the usual IPO stock flippers, I would venture to guess that the primary investors of this new instrument will be long term oriented institutions such as insurance companies or trust portfolios managing retirement funds who are seeking very long term yields with some inflation-protected upside on their principal....

> MORE: https://tribune.net.ph/index.php/2020/01/29/real-estate-investment-trust-1/

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AREIT announced!  Have you seen it?  Expected Yield is near 7%

Excerpt:

“AREIT will offer 478.6 million shares; about 47% of the company at a maximum offer price of P30.05/sh. Value of P14.4 billion."

Thoughts about ALI’s AREIT

As widely expected by market pundits, shortly after the announcement by the regulators of the revised implementing rules of the REIT (Real Estate Investment Trust) Law, the premier property group in the country, Ayala Land Inc. (ALI), announced its plans to offer the very first REIT in the market. With my recent articles about REIT, it seems only logical that I take a closer look at ALI’s proposed offering, a company called AREIT Inc. and share with you folks my two centavos’ worth of thinking based on my cursory review of AREIT’s preliminary prospectus, which was recently presented to the investment community.

Like any preliminary public offering documentation, as a disclaimer, it should be noted that AREIT’s plan as described in the prospectus has not been approved by the Securities and Exchange Commission...

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. I believe Solaris is practically fully occupied, while ANEx is not yet fully leased. It is not clear from the prospectus what is its current occupancy level. ANEx is however expected to be a major income contributor for AREIT once fully occupied. The third property is not owned by AREIT.

What has been infused in AREIT is a 34-year leasehold right over McKinley Exchange Corporate Center, a five-story PEZA mixed-use office and retail building also located in Makati that is 100 percent leased. In addition, there will be an acquisition, using the IPO proceeds, of a mixed-use development, Teleperformance Cebu, a major international BPO company as its main tenant.

The implication is that the earnings growth will be primarily limited to the future rental stream of the currently unoccupied spaces in ANEx, lease rental adjustments in the property pool and the additional rental income from the Cebu property to be acquired.

. . .

Annualizing the rental income as of September 2019, which still does not reflect the revenues that will be generated by ANEx and Teleperformance in 2020, the annual rental revenues, after allowing for operating expenses of about 30 percent, is about P1.67 billion before tax, or roughly about a 5.5 percent return on the estimated market valuation of the pool, about P30 billion, based on the maximum market price of P30.05 per share and total issued shares of 1.025 billion.

What this number implies is that if you were to subscribe to the ARIET IPO at P30 per share, 5.5 percent is the probable dividend rate an investor will receive before the withholding tax of 10 percent for individuals, but the full 5.5 percent for corporate investors since there is no applicable withholding tax. The yield will go up commensurately as the additional income from Teleperformance and ANEx kick in. I have no clear reading of what the bump could be like except for Teleperformance, which I roughly estimate to be an additional 10 percent in the bottom line, bringing the potential dividend yield to about 6 percent.

I am intrigued however by the statement in the prospectus that the ANEx will eventually represent about 67 percent of gross leasable space of AREIT. This means that the potential bottom line for AREIT could double in the near future, conceivably doubling also the dividend yield.

For conservatism, however, note that even a 5.5 percent return, if compared to a bond for a triple A name is about at market. But the big difference is that there is a 20 percent withholding tax that is deductible in a bond issue. To make the yields comparable on a before tax basis, the tax-free REIT dividend translates to about 6.875 percent for corporate investors and 6.1 percent for individuals, a hefty yield for an Ayala issue.

The prospectus has also disclosed that as of September 2019, the properties have an appraised market value of P26.565 billion, or a modest stock market valuation premium over the appraised value of only about 13 percent.

Interestingly however, the prospectus further discloses that based on a market price of P30 per share, the actual premium over the net tangible value of P10.79 per share that will be paid by the investing public is P18.44 per share, almost a multiple of 3x the book value of the company.

Clearly, ALI believes the properties are worth a lot more than the current appraisal estimates and is now expecting the market to value it accordingly.

Of course, P30 is the maximum price in the prospectus. It could still very well be that after the book building exercise of the underwriters, the process by which the underwriters pre-sell the issue, depending on the demand, the IPO price could be pegged lower than P30, boosting further the dividend yield.

My own bet is that, given the Ayala name and the novelty of being the maiden REIT offering, the demand will be good, driven particularly by institutional investors.
Until next week… One big fight!

For comments, please email bing_matoto@yahoo.com

> https://tribune.net.ph/index.php/2020/02/26/thoughts-about-alis-areit/

[drbubb]

Ayala's AREIT is about to List... within a few days

Price: Php 27, with an expected yield of maybe 5.8-5.9%*

TWO OWNED, one leasehold...  Or are they all Leasehold??

/ ANE and Solaris will be owned by AREIT, and Mckinley Exchange CC only is a 34-year leasehold.  McK is a 5 story PEZA bldg, that is 100% leased./

- says one source, but is this accurate??

per the following article > https://tribune.net.ph/index.php/2020/02/26/thoughts-about-alis-areit/

AREIT IPO: Good to Buy or Goodbye Ayala REIT? - Pinoymoneytalk.
1 day ago - Is it good to buy AREIT stocks (Ayala REIT Inc.) even during this time of COVID-19 pandemic? ... for capital gains but, unlike common shares, it has a defined return or yield. ... What's the projected yield on this investment.... / 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./ 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:
“We think that as long as uncertainty clouds the market, ALI will have a hard time pushing through this plan. Although we believe the REIT plan is a good asset due to the prime office buildings attached in the portfolio, attracting investors will be a roadblock in this kind of market.”

> https://www.pinoymoneytalk.com/areit-inc-ayala-land-investment/

Price x Yield = Dividend, as Estimated
29.50 x 5.40% = 1.593
27.00 x 5.85% = 1.580 Est
25.00 x 6.30% = 1.575
====

[drbubb]

blob:https://imgur.com/c6037b9b-f410-1a40-bf8c-e67b6fce3954

What are the properties "owned" by AREIT?

AREIT Inc. currently owns (or leaseholds*) 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 Property	Location	Description	Gross Leasable Area	Occupancy Rate
1. Ayala North Exchange	Legaspi Village, Makati	PEZA accredited office building, with Seda Residences	95,554 sqm	100%
2. Solaris One	Legaspi Village, Makati	PEZA accredited office building, with commercial establishments	46,768 sqm	100%
3. Mckinley Exchange	EDSA cor. McKinley Road, Makati	PEZA accredited office building, with commercial establishments	10,689 sqm	98.4%
4. Teleperformance Cebu *	Apas, Cebu	PEZA accredited office building, with commercial establishments	17,948 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.

> x

*Further research suggested that AREIT owns a longterm leasehold

[drbubb]

AREIT ALLOCATIONS GRANTED - Trading to start Thursday, Aug, 13th

( SHOULD BE STRONG DEMAND, because people's requests were not filled.)

We email you regarding your AREIT IPO subscription. We are pleased to let you know that your request for subscription has been processed with the following details:

Requested Shares : 10,000

Allocated Shares : 3,700 - (that is the maximum, I had heard)

Amount Debited : Php 99,900.00

If your requested allocation was not fully granted, this is due to the overwhelming demand and limited volume of shares allocated for Trading Participants such as BPI Trade.

[drbubb]

Fell in to under P25 in early days of trading....

AREIT ₱24.10 GOOD DEAL OR GREAT DEAL? -

Rex Mendoza, Rampver Financials

Rex makes his conflict clear upfront.  It is a combination of Tag & English, so a bit hard to follow

[drbubb]

AREIT to offer P15-B debt notes

August 18, 2020 | 12:07 am [ bworldonline.com ]

AYALA-LED AREIT, Inc. is preparing to put up as much as P15 billion in debt securities.

The country’s first real estate investment trust (REIT) told the stock exchange on Monday that its board approved an upcoming filing of the debt notes with a three-year shelf registration to the Securities and Exchange Commission.

“This will provide AREIT the ability to leverage for future acquisitions while preserving cash for dividend distributions,” it said.

The company is set to release P0.59-per-share dividends from the first two quarters of the year on Sept. 15.

“AREIT provides investors regular dividend income derived from prime commercial properties, higher than most fixed-income instruments,” AREIT President Carol T. Mills said.

The REIT firm has a portfolio of three Grade-A properties in Makati City: Ayala North Exchange, Solaris One, and McKinley Exchange, which cover a total gross leasable area of about 153,000 square meters (sq.m.) with a 99.9% total occupancy rate.

It has also decided to pay out dividends on a quarterly basis. The planned distribution dates will be on or before March 31, June 30, Sept. 30 and Dec. 31 of the calendar year.

The REIT Act of 2009 provides for a distribution of at least 90% income of a REIT company to investors each year. AREIT’s dividend ratio, the company said, is higher than the prescribed minimum.

Meanwhile, AREIT said it is on track to buy Teleperformance Cebu, a business process outsourcing (BPO) office property in Cebu IT Park, from Ayala Land, Inc.’s ALO Prime Realty. Upon acquisition, AREIT’s portfolio will rise to over 170,000 sq.m. by yearend.

Shares in AREIT soared by 7.68% to close at P25.95 on its third regular trading day. — Adam J. Ang

[drbubb]

The Dangers of REIT Investing: 3 MUST KNOWS Before Investing in Real Estate Investment Trusts!

 

Pam Libey 4 months ago (edited)

Love REITs for passive income! But definitely not capital gains

[drbubb]

AREIT APPRAISALS: "My Quesstimates Follow"

Sept. 2019 Appraisal : P 25.565 Bn*
Sept. 2020 Mkt.Cap. : P 26.4 B at P25.65 x 1,030M
====
Tang,.BV. : P10.79 x 550 M (53%):   5.93 B
IPO price. :   27.00 x 480 M (47%): 12.96 B
======================= :  
Resale, ALI :(16.21 x 432 M )          (7.00 B )
=============== : 1,030 M ===: 11.89 B = P 11.54 /sh.

> source: https://tribune.net.ph/index.php/2020/02/26/thoughts-about-alis-areit/

“AREIT provides investors regular dividend income derived from prime commercial properties, higher than most fixed-income instruments,” Carol Mills, company president, said. 

AREIT’s portfolio currently consists of three office buildings in Makati City namely the 24-storey commercial building Solaris One, two-tower mixed-use development Ayala North Exchange and five-storey commercial office McKinley Exchange.  The company, the first of its kind since the REIT law was enacted in 2009, is also moving to acquire the office hosting Teleperformance Cebu, a business process firm, to bring AREIT’s real estate portfolio to over 170,000 square meters by yearend.

Dr.Bubb's Quess-estimates

Building name: Stories : # Steps : Floorplate: Floors:  Prod. GrLA: Grade: Built: Bubb.Val./sqM / ALI.Val./ sq.M /
Solaris One.   : 24-storey: 127x69= 2,800 sqm: (24+1) = 70k : 46.6k: Cl. A : 2008: P9,320M 200k/ 15,800M/ 339k/
ANE-1, HQ.     : 12-storey: ======  1,500 sqm :  x 12  =   18k : 20.0k: Cl. A : 2019: P5,200M/ 260k /
ANE-2, BPO   : 21-storey: ======= 1,801 sqm :  x 21  =   38k : 36.0k: Cl. A : 2019: P9,360M/ 260k /
===================: =======================   56k : 56.0k: Cl. A : 2019:  14,560M/ 260k / P9,100M/ 163k/
McKinley Exch.: 5-storey: ======= 2,800 sqm :  x  5  =   14k  : 14.0k: Cl. A : 2014: P2,380M/ 170k / P1.700M/ 121k/
==================: ============================ : 116.6k: Cl. A : ====  26,260M/ 225k / 26,600M/
==================: ============================ : 116.6k: Cl. A : ==== 1030M= P25.50
(Adding using the cash raised):
Teleperf. Cebu:  ?-storey: =========================== :  53.4k??
==================: ========================: 171,000 sq m 

A brief history of AREIT.

AREIT was formerly One Dela Rosa Property Development, Inc., which was a company vehicle that developed Solaris One. This building is one of the pioneer BPO facilities in the country, when the BPO industry was just beginning in the Philippines. It is located along Dela Rosa Street in Makati and was completed in 2008. 10 years later, on October 2018, AREIT purchased Ayala North Exchange from Ayala Land. This is the first [stack] commercial used development by Ayala Land, which consists of a 3-level retail podium, 2 office towers and a service department on top of the office buildings.

NE is located along Ayala Avenue corner Salcedo and Amorsolo Streets. With these 2 buildings, ODR, or One Dela Rosa, amended its Articles of Incorporation and By-Laws, consistent with the REIT regulations. Subsequently, it's name was changed to AREIT. Early this year, AREIT leased McKinley Exchange Corporate Center from Ayala Land, and also signed a Memorandum of Agreement with ALI to acquire a fourth asset, Teleperformance Cebu. This brings the AREIT portfolio to 3 buildings in Makati and 1 in Cebu within the year.

Today, AREIT is a company that provides stable yield and opportunities for growth. Its assets are all prime Grade A commercial properties with strong tenant demand. Backed by Ayala Land, it is governed by an experienced management team with a long track record in real estate. Now it has a total of 153,000 square meters of GLA across 3 properties in Makati. This will grow further to 171,000 square meters with the acquisition of Teleperformance Cebu.

Average occupancy is 98% with a diversified tenant base, totaling 67 locators across different segments: BPOs, traditional headquarters, service apartments and retail. Its revenues are locked-in through long-term leases ranging from 5 to 10 years. And as of September 2019, revenues reached PHP 1.1 billion and an EBITDA of over PHP 1 billion, a significant growth from 2018 with the addition of assets. Please note that this is reflective of only 9 months income, without the contribution of the third and the fourth assets.

AREIT's portfolio consists of Grade A PEZA-accredited properties in Makati. First is Solaris One, a 24-storey building completed in 2008, with 46,700 square meters of GLA. It is 96% leased and has Shell Shared Services and ANZ Global Services as its anchor office tenants.

Second is Ayala North Exchange, completed in 2019, with a total GLA of 95,500 square meters. It is 99% leased, housing key tenants such as Concentrix, Oracle NetSuite, BPI and Seda Service Residences.

And third is McKinley Exchange, located at the corner of EDSA and McKinley Road, a very prime spot adjacent to the Ayala MRT station. Completed in 2014, this property has 10,687 square meters, fully leased out the Telus International and some amenity retail formats at the ground floor.

Outlined are the gross revenues of the 3 properties as of 2018 and September 2019, and their respective land lease periods ranging from 33 to 44 years. Solaris One is valued at PHP 15.8 billion, Ayala North Exchange at PHP 9.1 billion and McKinley Exchange at PHP 1.7 billion based on the third-party appraisal report dated January 24, 2020.

And to expand AREIT's building portfolio, it will acquire from Ayala Land, the fourth property, Teleperformance Cebu. The addition of Teleperformance Cebu to the portfolio will increase AREIT's gross leasable area by 11.7% or 171,000 square meters in total. And we believe this transaction shows Ayala Land's commitment to support AREIT over the long term.

All the properties provide stable recurring income and steady inflation hedge dividends. This is evidenced by its dividend distributions and net income in the past 4 years, including its stable occupancy rates. Added to this, the lease terms support stability of cash flows and rent revenues. The typical lease period of the office properties range from 5 to 10 years, as I mentioned earlier, with rental rates reviewed periodically based on the current market, and is escalated annually at an average rate of 3% to 5%.

[drbubb]

AREIT is Established, but with room for growth...

And as of year-to-date September, EBITDA already reached PHP 1 billion. ANE's contribution-to-date accounts for 53% of total revenues and 47% of net operating income. And ANE's contribution is expected to increase further, following its completion in the third quarter of 2019. So clearly, AREIT has produced solid financials in the past years, as evidenced by its healthy financial ratios. EBITDA margin has improved from 85% in 2016 to 89% in 2018. Net income margins are also stable and are consistently above 60% since 2016. Liquidity ratios are also favorable, with a minimum current ratio of 3.5x from December 2016 to September 2019. AREIT has not incurred debt, resulting to an asset-to-equity ratio of 1:1 as of end September 2019.

Bobby, my next questions are with regard AREIT. And I'd just like to know the rationale of the group by not including the land on the asset? And how did you determine the lease for AREIT to Ayala Land? The lease terms?

Well, the land, particularly Makati land, we're not including because the valuation is going to completely change if land were included. So that's why for the Makati assets, we intentionally excluded the land to make sure that the yields continue to be attractive. But for some of the other infusion, like Teleperformance in Cebu, when we do that, that's going to include the land parcel.

The land lease to the -- those 3 assets.

--------------------------------------------------------------------------------

Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [21]

--------------------------------------------------------------------------------

Basically, that's going to be the building life. If you look at it, Solaris, I think it has been there for more than 5 years. I think about 7, 8 years already. So that's basically the building life. If we look at the ANE, I think there's about 44 years because it to us about 5 years to construct that project.

. . .

The REIT is a unique asset class and that it's really meant to provide cash flows through the dividends. The appreciation primarily comes from the growth in the dividends that it will be declaring, so that comes from escalations or future acquisitions of additional assets. The land component isn't that important. If you look at the REITs established around the region, most of them are on a leasehold basis. It's the stabilized asset, the income-generating asset that is important to the REIT.

So it is the building itself, not so much the land. As a matter fact, REITs are not really encouraged to develop and take risks. I think there's a limit as to how much development business a REIT can undertake. I think only 10% of its total asset value can be dedicated towards development. So the REIT specializes in stabilized income-generating assets.

===

Sir, I just read the prospectus, and I noted the lease rate for Ayala North Gate is a bit lower compared to the existing ones in Solaris, like it's PHP 700 per square meter for ANE and PHP 1,300 per square for the BPOs. Sir, am I getting it right that the lease rates at ANE is a lot cheaper than...

--------------------------------------------------------------------------------

Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [41]

--------------------------------------------------------------------------------

Well, Ayala North Exchange is also a newer facility, so you can expect escalations to kick in. It's at PHP 900.

[drbubb]

Feb 24, 2020 - Solaris One is valued at PHP 15.8 billion, Ayala North Exchange at PHP ... based on the third-party appraisal report dated January 24, 2020.

AREIT's portfolio consists of Grade A PEZA-accredited properties in Makati. First is Solaris One, a 24-storey building completed in 2008, with 46,700 square meters of GLA. It is 96% leased and has Shell Shared Services and ANZ Global Services as its anchor office tenants.

Second is Ayala North Exchange, completed in 2019, with a total GLA of 95,500 square meters. It is 99% leased, housing key tenants such as Concentrix, Oracle NetSuite, BPI and Seda Service Residences.

And third is McKinley Exchange, located at the corner of EDSA and McKinley Road, a very prime spot adjacent to the Ayala MRT station. Completed in 2014, this property has 10,687 square meters, fully leased out the Telus International and some amenity retail formats at the ground floor.

Outlined are the gross revenues of the 3 properties as of 2018 and September 2019, and their respective land lease periods ranging from 33 to 44 years.

Solaris One is valued at PHP 15.8 billion, Ayala North Exchange at PHP 9.1 billion and McKinley Exchange at PHP 1.7 billion based on the third-party appraisal report dated January 24, 2020.

And to expand AREIT's building portfolio, it will acquire from Ayala Land, the fourth property, Teleperformance Cebu. The addition of Teleperformance Cebu to the portfolio will increase AREIT's gross leasable area by 11.7% or 171,000 square meters in total. And we believe this transaction shows Ayala Land's commitment to support AREIT over the long term.

[drbubb]

"ARBING" AREIT - Or Just Pairs Trading

What Is Arbitrage?*

AREIT -vs: etc ... from 7.15.2020 : w-AC / Areit: 25.95, Shng: 2.65, ALI: 30.00, Land: 0.68... AC: 693.

*What Is Arbitrage?

Arbitrage is the purchase and sale of an asset in order to profit from a difference in the asset's price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient.

PAIRS trading might be a better description of what I am looking at.  These securities are not identical, or even highly similar...

Generally these stocks trade in a pack. Until some big fundamental news hits one stock.  AREIT should be more stable than ALI obviously.  especially since AREIT (5- 6%) and SHNG (5.77%) have a higher yield than ALI (1.72%) and AC (1.07%)